<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 1-4416
==============================================================================
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer Identification No.)
101 Greenwood Avenue, Suite 470 19046
Jenkintown, Pennsylvania (Zip Code)
(Address of principal executive offices)
(215) 517-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange
Common Stock, Par Value $1.00 on Which Registered
Per Share New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
---- ----
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 5, 1996 was approximately $312,416,197.
The number of shares of Registrant's Common Stock outstanding on March 5,
1996 was 5,999,037.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders of the Registrant are
incorporated by reference in Parts, I, II and IV of this Report. Portions of
the Definitive Proxy Statement of Registrant, if filed with the Securities
and Exchange Commission within 120 days after December 31, 1995, are
incorporated by reference in Part III of this report. To the extent not so
filed, such information will be provided on a Form 10-K/A filed with the
Securities and Exchange Commission.
<PAGE>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS (Thousands of dollars)
SPS Technologies, Inc. and subsidiaries (the Company) was incorporated in
Pennsylvania in 1903. The Company is engaged in the design, manufacture and
marketing of high-strength precision mechanical fasteners and precision
components (fasteners); and superalloys in ingot form and magnetic materials
(materials).
The Company's operating plan for 1995 was to build infrastructure required
to increase capacity and efficiency and earn a satisfactory return on
shareholders' investment. Capital expenditures were $21.5 million in 1995 and
are budgeted for $26 million in 1996. The Company also increased its
aerospace fastener infrastructure with the acquisition of certain assets of
Harvard Industries, Inc.'s Elastic Stop Nut Division. In 1995, the Company
strengthened its position as a global supplier of fasteners by increasing its
investments in subsidiaries in Japan and Brazil and entering into an
agreement to form a joint venture in China commencing in 1996. Additional
information regarding the 1995 acquisitions is provided in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in Note 2 to the Company's Consolidated Financial Statements
on page 17 in the 1995 Annual Report to Shareholders and is incorporated
herein by reference.
The Company is multinational in operation. In addition to nine
manufacturing plants in the United States, it operates seven manufacturing
facilities in four different countries: England, Ireland, Brazil and
Australia. The Company also has a 50 percent interest in a manufacturing
operation in Adelanto, California, and has a minority interest in a
manufacturing operation in India. Marketing operations are carried on by
subsidiaries and an affiliate in four other countries.
The Company sells directly to original equipment manufacturers and
industrial, commercial and governmental users, and also sells through
independent stocking distributors and dealers. There were no changes in these
methods of distribution during 1995.
Principal fastener markets include aerospace, machine tool and industrial
machinery, automotive, and off-highway equipment. Principal markets for
materials include the precision investment casting, powdered metal,
aerospace, medical equipment, automotive, computer and communications
industries.
Principal fastener products are SPS(R) aerospace fasteners, MULTIPHASE(R)
alloy fasteners, and other aerospace fasteners; UNBRAKO(R) brand socket
screws, hex keys, dowel pins, shaft collars, spring pins and pressure plugs;
engineered fasteners for gasoline and diesel engines, other critical
automotive applications, and off-highway equipment and HI-LIFE(R) thread roll
dies and other metal-working tools.
Principal materials products are air and vacuum-melted iron, cobalt, and
nickel-based superalloys, including CMSX(R) single-crystal alloys; and
metallic and ceramic permanent magnets, wound and pressed powder magnetic
components, and magnetic ultra-thin foil and strip products.
The Company's business is highly competitive. Competition is based
primarily on technology, price, service, product quality and performance. The
Company believes that its favorable competitive position is based upon its
high-quality product performance and service to its customers, supported by
its commitment to research and development which has yielded proprietary
products to the extent indicated below.
No material part of the Company's business is dependent upon a single
customer. In 1995, the five largest customers accounted for 16% of the
Company's reported consolidated sales.
The backlog of orders at December 31 was as follows:
1995 1994
---------- ----------
Fastener segment ............. $111,289 $72,983
Materials segment.............. 25,172 25,467
---------- ----------
Total ..................... $136,461 $98,450
========== ==========
No material portion of the Company's business in either segment is
seasonal.
2
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The principal sources of raw materials for the fastener and materials
segments include major and specialty steel producers, and non-ferrous metal
producers, converters and distributors. The Company anticipates it will have
no significant problem with respect to sources or availability of the raw
materials essential to the conduct of its business.
The Company considers its proprietary position important to the two
segments of its business. During 1995, approximately 32% of Company sales
were related to patents, trademarks, licenses held and manufacturing
know-how. Generally, the patents and licenses of the Company expire at
various times over the next 17 years.
Total expenditures during 1995, 1994 and 1993 for Company-sponsored
research and development were $5,247, $4,727 and $5,050, respectively. In
1995, approximately 68% of the expenditures were for the Company's fastener
segment.
Capital expenditures for property, plant and equipment are planned at $26
million in 1996, exclusive of any business acquisition.
There were approximately 3,464 and 671 persons employed by the Company at
December 31, 1995 in the fastener and materials segments, respectively.
For financial information concerning industry segments and the foreign and
domestic operations, see Note 19 to the Company's Consolidated Financial
Statements on pages 26 and 27 in the 1995 Annual Report to Shareholders,
which is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company owns or leases the manufacturing properties described below.
All properties are in good condition.
LOCATION
Owned Square Feet
---------- ------------
Jenkintown, Pennsylvania.............................. 683,000(a)
Cleveland, Ohio ..................................... 365,000(a)
Santa Ana, California ............................... 305,000(a)(i)
Salt Lake City, Utah ................................ 86,000(a)
Marengo, Illinois ................................... 356,000(b)
Muskegon, Michigan .................................. 110,000(b)
Norfolk, Nebraska .................................... 82,000(b)
Sevierville, Tennessee ............................... 65,000(b)
Ogallala, Nebraska .................................. 22,000(b)
Anasco, Puerto Rico ................................. 129,000(a)(j)
Coventry, England ................................... 224,000(a)
Smethwick, England .................................. 137,000(a)
Leicester, England .................................. 88,000(a)
Melbourne, Australia ................................ 44,000(a)
Sao Paulo, Brazil ................................... 339,000(a)
Leased Lease Expires Square Feet
-------------------- --------------- -------------
Leicester, England (c) 38,000(a)
Shannon, Ireland (d)(e)(f) 233,000(a)
Melbourne, Australia (g)(h) 32,000(a)
- ------
(a) Fastener segment
(b) Materials segment
(c) Lease for 38,000 square feet expires January 12, 1997.
(d) Lease for 54,000 square feet expires April 1, 1996.
(e) Lease for 75,000 square feet expires November 15, 2010.
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(f) Lease for 104,000 square feet expires November 13, 2010.
(g) Lease for 27,000 square feet expires December 31, 1997.
(h) Lease for 5,000 square feet expires March 31, 1997.
(i) Approximately 70,000 square feet used for manufacturing purposes, with
the remaining 235,000 square feet leased.
(j) Closed and held for sale.
Industrial Development Revenue Bonds were issued to finance the
acquisition and improvement of the Salt Lake City, Utah manufacturing
facility. These bonds are collateralized by a first mortgage on the facility
and a bank letter of credit.
ITEM 3. LEGAL PROCEEDINGS
For discussion of legal proceedings, see Note 11 to the Company's
Consolidated Financial Statements on pages 20 and 21 in the 1995 Annual
Report to Shareholders which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1995, through the solicitations of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers of the Company are named below and are appointed by
the Board of Directors. The date that each officer was first appointed to his
present position is indicated. No officer listed was appointed as a result of
any arrangement between him and any other person as that phrase is understood
under the Securities Exchange Act regulations. No family relationship exists
among the executive officers of the Company.
<TABLE>
<CAPTION>
Name Experience and Position Held Age
---- ----------------------------- -----
<S> <C> <C>
Charles W. Grigg Chairman and Chief Executive Officer since December 1993. Previously, President 56
and Chief Operating Officer, Watts Industries, Inc. since 1986.
Harry J. Wilkinson President and Chief Operating Officer since April 1986. Previously, Group 58
Vice President, Aerospace, Automated Systems and Industrial Products since
March 1985.
James D. Dee Vice President, Environmental and Legal Affairs since February 1996. Previously, 38
Assistant Counsel and Patent Counsel since 1988.
John P. McGrath Vice President, Corporate Services since August 1988. Previously, President, 56
Latin America/Pacific Operations since 1982.
Aaron Nerenberg Vice President, Corporate Counsel and Secretary since August 1988. Previously, 55
Corporate Counsel and Secretary since July 1986.
John M. Morrash Vice President, Treasurer and Assistant Secretary since July 1995. Previously, 41
Treasurer since February 1988.
William M. Shockley Vice President, Chief Financial Officer and Controller since July 1995. 34
Previously, Corporate Controller since September 1992. Previously, Assistant
Controller since November 1991. Previously, Manager, Coopers & Lybrand since
1988.
</TABLE>
4
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Information regarding the principal markets on which SPS Technologies
common stock is traded, the high and low sales price for the stock on the New
York Stock Exchange for each quarterly period during the past 2 years, and
the approximate number of holders of common stock at March 5, 1996 is
included under the caption entitled "Common Stock Information" on page 31 in
the 1995 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data for SPS Technologies for the years
and year ends specified is included under the caption entitled "Selected
Financial Data" on page 30 in the 1995 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information regarding SPS Technologies financial condition, changes in
financial condition and results of operations is included under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 31 through 35 in the 1995 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for SPS Technologies included on pages
12 through 27 in the 1995 Annual Report to Shareholders, together with
required supplementary data "Summary of Quarterly Results" on page 29 in the
1995 Annual Report to Shareholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of directors:
Information regarding directors is incorporated by reference to the
Definitive Proxy Statement, Election of Directors, if filed with the
Securities and Exchange Commission (SEC) within 120 days after December
31, 1995. To the extent not so filed, such information will be provided on
a Form 10-K/A filed with the SEC.
(b) Identification of executive officers:
Information regarding executive officers is contained in Part I of this
report (page 4).
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the Definitive Proxy Statement, Executive Compensation and Board Meetings,
Committees and Compensation of Directors, if filed with the SEC within 120
days after December 31, 1995. To the extent not so filed, such information
will be provided on a Form 10-K/A filed with the SEC.
5
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the Definitive Proxy Statement,
Ownership of Voting Securities, if filed with the SEC within 120 days after
December 31, 1995. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The Consolidated Financial Statements and related notes to consolidated
financial statements set forth on pages 12 through 27 of the 1995 Annual
Report to Shareholders are incorporated by reference (See Exhibit 13). The
Report of Independent Accountants, which covers both the Consolidated
Financial Statements and the financial statement schedule, appears on page
9 of this report.
2. Financial Statement Schedules:
The following supplemental schedule is located in this Report on the page
indicated.
Page
----
II Valuation and Qualifying Accounts 10
Schedules other than those listed above are omitted for the reason that
they are either not applicable or not required or because the information
required is contained in the financial statements or notes thereto.
<TABLE>
<CAPTION>
3. Exhibits:
<S> <C>
3a Amended and Restated Articles of Incorporation. Exhibit 3a to the Annual Report
on Form 10-K for the year ended December 31, 1990, is hereby incorporated by
reference.
3b By-Laws as amended, effective April 29, 1993. Exhibit 3 to the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1993, is hereby incorporated by
reference.
4a Rights Agreement dated November 11, 1988, is incorporated by reference to Form
8-K filed November 17, 1988. Amendment No. 1 to Rights Agreement dated January
22, 1991, is incorporated by reference to Form 8-K filed January 25, 1991.
Form of Amendment No. 2 to Rights Agreement dated November 16, 1994, is incorporated
by reference to Exhibit 4.8 of Form S-3 filed August 26, 1994.
4b Form of Registration Rights Agreement between the Company, the Purchasers and
the Investors dated December 23, 1994. Exhibit 4.5 to the Form S-3 filed August
26, 1994, is hereby incorporated by reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended, effective February 2, 1989.
Exhibit 10a to the Annual Report on Form 10-K for the year ended December 31,
1988, is hereby incorporated by reference.
10b SPS Exempt Employees Savings and Investment Plan as Amended and Restated, effective
November, 1991. Exhibit 10b to the Annual Report on Form 10-K for the year
ended December 31, 1991, is hereby incorporated by reference.
10c SPS Technologies, Inc. Non-Exempt Employees Savings and Investment Plan as
Amended and Restated, effective November, 1991. Exhibit 10c to the Annual Report
on Form 10-K for the year ended December 31, 1991, is hereby incorporated by
reference.
10d SPS Technologies, Inc. Management Incentive Plan as Amended and Restated,
effective April 26, 1994. Exhibit 10d to the Annual Report on Form 10-K
for the year ended December 31, 1994, is hereby incorporated by reference.
10e Form of standby Purchase Agreement dated November 16, 1994. Exhibit 10.1 to
the Form S-3/A filed November 17, 1994, is hereby incorporated by reference.
6
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10f Retirement Benefit Agreement, dated February 28, 1979. Exhibit 10f to the Annual
Report on Form 10-K for the year ended December 31, 1991, is hereby incorporated
by reference.
10g Fee Arrangement with Former Directors, effective November 29, 1984. Exhibit
10g to the Annual Report on Form 10-K for the year ended December 31, 1990,
is hereby incorporated by reference.
10h Form of Employment Agreements between SPS Technologies, Inc. and certain
employees, as amended and restated effective December 14, 1992. Exhibit 10h
to the Annual Report on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation Plan, as amended and
restated, effective December 14, 1992. Exhibit 10i to the Annual Report on
Form 10-K for the year ended December 31, 1992, is hereby incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred Compensation Plan II, as amended
and restated effective December 1, 1993. Exhibit 10j to the Annual Report on
Form 10-K for the year ended December 31, 1993, is hereby incorporated by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement Plan, as amended and
restated effective December 14, 1992. Exhibit 10k to the Annual Report on Form
10-K for the year ended December 31, 1992, is hereby incorporated by reference.
10l Employment Agreement between SPS Technologies, Inc. and Charles W. Grigg, Chairman
and Chief Executive Officer, effective December 1, 1993. Exhibit 10l to the
Annual Report on Form 10-K for the period ended December 31, 1993, is hereby
incorporated by reference.
10m Form of Indemnification Agreements between SPS Technologies, Inc. and officers
and directors dated February 2, 1987. Exhibit 10m to the Annual Report on Form
10-K for the period ended December 31, 1992, is hereby incorporated by reference.
10n Split Dollar Insurance Agreements regarding certain officers and directors
effective April 2, 1990, and November 27, 1991. Exhibit 10n to the Annual Report
on Form 10-K for the year ended December 31, 1991, is hereby incorporated by
reference.
10o SPS Technologies, Inc. Senior Executive Severance Plan, effective December
14, 1992. Exhibit 10o to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10p Agreement with Retiring Executive, approved December 14, 1992. Exhibit 10p
to the Annual Report on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization Plan, as amended and restated
effective December 14, 1992. Exhibit 10 to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993, is hereby incorporated by reference.
10r SPS Technologies, Inc. Long Range Incentive Plan, effective January 1, 1995.
11 Computation of dilution (anti-dilution) of earnings per share resulting from
common stock equivalents.
13 1995 Annual Report to Shareholders (With the exception of the information expressly
incorporated by reference in items 1, 3, 5, 6, 7, 8 and 14 of Form 10-K, the
1995 Annual Report to Shareholders is not deemed "filed" with the SEC or otherwise
subject to the liabilities of Section 18 of the Securities and Exchange Act
of 1934).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
Form 8-K was filed on October 12, 1995 stating that the Company announced
that it has made an offer to purchase Hi-Shear Corporation.
Form 8-K/A-1 was filed on October 20, 1995 as an amendment to Form 8-K
filed on August 28, 1995. Form 8-K/A-1 provided financial statements and
pro forma information for Metalac S.A. Industria e Comercio, which the
Company acquired on August 16, 1995.
7
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SPS TECHNOLOGIES, INC.
-------------------------------
(Registrant)
/s/ William M. Shockley
-------------------------------
William M. Shockley
Vice President, Chief Financial
Officer and Controller
Date: March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------------- ------------------------------------------- ------------------
<S> <C> <C>
/s/ CHARLES W. GRIGG
------------------------------ Chairman, Chief Executive Officer and Director March 25, 1996
Charles W. Grigg (Principal Executive Officer)
/s/ HARRY J. WILKINSON
------------------------------ President, Chief Operating Officer and Director March 25, 1996
Harry J. Wilkinson
/s/ WILLIAM M. SHOCKLEY Vice President, Chief Financial Officer and March 25, 1996
------------------------------ Controller (Principal Financial Officer)
William M. Shockley
/s/ ERIC M. RUTTENBERG
------------------------------ Director March 25, 1996
Eric M. Ruttenberg
/s/ HOWARD T. HALLOWELL III
------------------------------ Director March 25, 1996
Howard T. Hallowell III
/s/ JOHN F. LUBIN
------------------------------ Director March 25, 1996
John F. Lubin
</TABLE>
8
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REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
SPS Technologies, Inc.:
We have audited the consolidated financial statements of SPS Technologies,
Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995, which financial statements
are included on pages 12 through 27 of the 1995 Annual Report to Shareholders
of SPS Technologies, Inc. and subsidiaries and incorporated by reference
herein. We have also audited the financial statement schedule as listed in
Item 14(a)2 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SPS
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 1, 1996
9
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SCHEDULE II
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1995, 1994 and 1993
(Thousands of dollars)
<TABLE>
<CAPTION>
Additions Additions
charged charged
(deductions (deductions
Balance at credited) credited) Balance
beginning of to costs and to other Deductions at end of
Description year expenses accounts (a) year
- ----------------................ -------------- -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful
accounts .................. $ 1,299 $ 124 $ (12)(b) $(119) $ 1,292
======= ======= ======== ======= =======
Deferred income tax valuation
allowance ................. $15,462 $(1,824) $ 711(c) $ $14,349
======= ======= ======== ======= =======
Year ended December 31, 1994:
Allowance for doubtful
accounts .................. $ 1,185 $ 348 $ 18(b) $(252) $ 1,299
======= ======= ======== ======= =======
Deferred income tax valuation
allowance ................. $17,717 $(2,255) $ $ $15,462
======= ======= ======== ======= =======
Year ended December 31, 1993:
Allowance for doubtful
accounts .................. $ 1,329 $ 668 $ (32)(b) $(780) $ 1,185
======= ======= ======== ======= =======
Deferred income tax valuation
allowance ................. $ 4,751 $12,966 $ $ $17,717
======= ======= ======== ======= =======
</TABLE>
- ------
(a) Write off of uncollectible receivables, net of recoveries.
(b) Translation adjustments.
(c) Balance acquired in connection with 1995 acquisitions.
10
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EXHIBIT INDEX
3a Amended and Restated Articles of
Incorporation. Exhibit 3a to the Annual Report
on Form 10-K for the year ended December 31,
1990, is hereby incorporated by reference.
3b By-Laws as amended, effective April 29, 1993.
Exhibit 3 to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993, is
hereby incorporated by reference.
4a Rights Agreement dated November 11, 1988, is
incorporated by reference to Form 8-K filed
November 17, 1988. Amendment No. 1 to Rights
Agreement dated January 22, 1991, is
incorporated by reference to Form 8-K filed
January 25, 1991. Form of Amendment
No. 2 to Rights Agreement dated November 16,
1994, is incorporated by reference to Exhibit
4.8 of Form S-3 filed August 26, 1994.
4b Form of Registration Rights Agreement between
the Company, the Purchasers and the Investors
dated December 23, 1994. Exhibit 4.5 to the
Form S-3 filed August 26, 1994, is hereby
incorporated by reference.
10a SPS 1988 Long Term Incentive Stock Plan as
amended, effective February 2, 1989. Exhibit
10a to the Annual Report on Form 10-K for the
year ended December 31, 1988, is hereby
incorporated by reference.
10b SPS Exempt Employees Savings and Investment
Plan as Amended and Restated, effective
November, 1991. Exhibit 10b to the Annual
Report on Form 10-K for the year ended
December 31, 1991, is hereby incorporated by
reference.
10c SPS Technologies, Inc. Non-Exempt Employees
Savings and Investment Plan as Amended and
Restated, effective November, 1991. Exhibit
10c to the Annual Report on Form 10-K for the
year ended December 31, 1991, is hereby
incorporated by reference.
10d SPS Technologies, Inc. Management Incentive
Plan as Amended and Restated, effective April
26, 1994. Exhibit 10d to the Annual Report on
Form 10-K for the year ended December 31, 1994,
is hereby incorporated by reference.
10e Form of standby Purchase Agreement dated
November 16, 1994. Exhibit 10.1 to the Form
S-3/A file November 17, 1994, is hereby
incorporated by reference.
<PAGE>
10f Retirement Benefit Agreement, dated February
28, 1979. Exhibit 10f to the Annual Report on
Form 10-K for the year ended December 31,
1991, is hereby incorporated by reference.
10g Fee Arrangement with Former Directors,
effective November 29, 1984. Exhibit 10g to
the Annual Report on Form 10-K for the year
ended December 31, 1990, is hereby
incorporated by reference.
10h Form of Employment Agreements between SPS Technologies, Inc.
and certain employees, as amended and restated
effective December 14, 1992. Exhibit 10h to
the Annual Report on Form 10-K for the year
ended December 31, 1992, is hereby
incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred
Compensation Plan, as amended and restated
effective December 14, 1992. Exhibit 10i to
the Annual Report on Form 10-K for the year
ended December 31, 1992, is hereby
incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred
Compensation Plan II, as amended and restated
effective December 1, 1993. Exhibit 10j to the
Annual Report on Form 10-K for the year ended
December 31, 1993, is hereby incorporated by
reference.
10k SPS Technologies, Inc. Supplemental Executive
Retirement Plan, as amended and restated effective
December 14, 1992. Exhibit 10k to the Annual Report
on Form 10-K for the year ended December
31, 1992, is hereby incorporated by reference.
10l Employment Agreement between SPS Technologies,
Inc. and Charles W. Grigg, Chairman and Chief
Executive Officer, effective December 1, 1993.
Exhibit 10l to the Annual Report on Form 10-K
for the period ended December 31, 1993, is
hereby incorporated by reference.
10m Form of Indemnification Agreement between SPS
Technologies, Inc. and officers and directors
dated February 2, 1987. Exhibit 10m to the
Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by
reference.
<PAGE>
10n Split Dollar Insurance Agreements regarding
certain officers and directors effective April
2, 1990, and November 27, 1991. Exhibit 10n to
the Annual Report on Form 10-K for the year
ended December 31, 1991, is hereby
incorporated by reference.
10o SPS Technologies, Inc. Senior Executive
Severance Plan, effective December 14, 1992.
Exhibit 10o to the Annual Report on Form 10-K
for the year ended December 31, 1992, is
hereby incorporated by reference.
10p Agreement with Retiring Executive, approved
December 14, 1992. Exhibit 10p to the Annual Report
on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization
Plan, as amended and restated effective
December 14, 1992. Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1993, is hereby incorporated by
reference.
10r SPS Technologies, Inc. Long Range Incentive
Plan, effective January 1, 1995.
11 Computation of dilution (anti-dilution) of
earnings per share resulting from common stock
equivalents.
13 1995 Annual Report to Shareholders (With the
exception of the information expressly
incorporated by reference in items 1, 3, 5, 6,
7, 8 and 14 of Form 10-K, the 1995 Annual
Report to Shareholders is not deemed "filed"
with the SEC or otherwise subject to the
liabilities of Section 18 of the Securities
and Exchange Act of 1934).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
<PAGE>
SPS TECHNOLOGIES, INC.
LONG RANGE INCENTIVE PLAN
January 1, 1995
<PAGE>
SPS TECHNOLOGIES, INC.
LONG RANGE INCENTIVE PLAN
TABLE OF CONTENTS
PAGE
----
ARTICLE I Definitions 1
ARTICLE II Participation 4
ARTICLE III Determination of Amount of Incentive Payments 5
ARTICLE IV Miscellaneous Provisions 8
ARTICLE V Amendment and Termination 11
SCHEDULE - Long Range Incentive Plan
Participants and Long Range
Incentive Plan Objectives
i
<PAGE>
SPS TECHNOLOGIES, INC.
LONG RANGE INCENTIVE PLAN
Purpose of Plan
The purpose of the SPS Technologies, Inc. Long Range Incentive
Plan is to advance the interests of SPS Technologies, Inc., a Pennsylvania
corporation ("SPS"), its subsidiaries and its stockholders by providing long
range incentives to certain key executives of SPS and its subsidiaries who
contribute significantly to their long range performance and growth. Benefits
paid under or in connection with the Plan shall not be considered wages,
salaries or base compensation for purposes of calculating benefits or
determining rights under any other compensation plan, benefit or program of
SPS or its subsidiaries, except as may be provided under an executive
severance agreement or SPS's Senior Executive Severance Plan. The Plan shall
be effective as of January 1, 1995.
ARTICLE I
Definitions
As used herein, unless otherwise required by the context, the
following terms shall have the following meanings:
1.1 "Board" or "Board of Directors" shall mean the board of
directors of SPS Technologies, Inc. as the same may be constituted from time
to time.
1.2 "Cause" shall have the same meaning ascribed to such term in
the SPS 1988 Long Term Incentive Stock Plan.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
<PAGE>
1.4 "Committee" shall mean the Executive Compensation and Stock
Option Committee of the Board.
1.5 "Common Stock" shall mean the common stock of SPS
Technologies, Inc.
1.6 "Company" shall mean SPS Technologies, Inc., a Pennsylvania
corporation, and its subsidiaries.
1.7 "Compensation" shall mean a Participant's actual annual base
salary for the applicable Fiscal Year excluding any incentive pay, bonuses,
overtime premium payments, and any other special payments or indemnities.
1.8 "Corporate" shall mean SPS Technologies, Inc.
1.9 "Corporate Objectives" shall mean the specific earnings per
share (EPS) and return on capital employed (ROCE) as listed in the attached
Schedule.
1.10 "Disability" shall mean a disability which qualifies a
Participant for benefits under the SPS Technologies, Inc. Long Term Disability
Plan or any other disability of a nature which, in the judgment of the
Committee relying upon such professional advice as the Committee deems
appropriate, under the circumstances, prevents a Participant from performing
his or her employment obligation to the Company. In the absence of fraud, the
Committee's determination shall be conclusive.
1.11 "Early Retirement" shall have the same meaning ascribed to
such term in the SPS Technologies, Inc. Retirement Income Plan.
1.12 "Effective Date" shall mean January 1, 1995.
1.13 "Employee" shall mean any employee of the Company.
-2-
<PAGE>
1.14 "Fair Market Value of Common Stock" shall be determined by
reference to the average stock price as reported on the New York Stock
Exchange Consolidated Transaction Reporting System on the date an award under
the SPS 1988 Long Term Incentive Stock Plan is made.
1.15 "Fiscal Year" shall mean the calendar year.
1.16 "Long Range Incentive Payment" shall mean the benefit paid to
a Participant as determined in accordance with Article III.
1.17 "Long Range Incentive Percentage" shall mean the percentage
of a Participant's Operating Division or Corporate Objectives attained during
the previous Fiscal Year, subject to the limitations of Section 3.2.
1.18 "Normal Retirement" shall have the same meaning ascribed to
such term in the SPS Technologies, Inc. Retirement Income Plan.
1.19 "Operating Division" shall mean any entity designated as an
Operating Division by the Board of Directors from time to time and listed in
the attached Schedule.
1.20 "Operating Division Objectives" shall mean the specific
operating profit (OP) and return on capital employed (ROCE) of a division as
listed in the attached Schedule.
1.21 "Participant" shall mean any Employee designated by the Board
of Directors in accordance with Article II.
1.22 "Person" shall have the same meaning ascribed to such term in
the SPS 1988 Long Term Incentive Stock Plan.
-3-
<PAGE>
1.23 "Plan Term" shall mean three consecutive Fiscal Years as
designated by the Board of Directors from time to time and set forth in the
attached Schedule.
1.24 "Plan" shall mean SPS Technologies, Inc. Long Range Incentive
Plan set forth herein, as it may be amended from time to time.
1.25 "Restricted SPS Common Stock" shall mean restricted common
stock of SPS Technologies, Inc. awarded under the SPS 1988 Long Term Incentive
Stock Plan, which shall be deemed, for the purposes of this Plan, to have a
value equal to the Fair Market Value of Common Stock.
1.26 "SPS 1988 Long Term Incentive Stock Plan" shall mean the SPS
1988 Long Term Incentive Stock Plan, as amended effective May 2, 1995 and as
hereafter amended.
ARTICLE II
Participation
2.1 Eligibility. An Employee who is a member of a select group of
management or highly compensated employees of the Company is eligible to
participate in the Plan if and to the extent designated by the Board of
Directors and set forth in the attached Schedule.
2.2 Date of Participation. An Employee who is designated as a
Participant in accordance with Section 2.1 shall commence participation in the
Plan on the date designated by the Board of Directors for the period
designated by the Board of Directors as set forth in the attached Schedule.
-4-
<PAGE>
2.3 Termination of Participation. A Participant shall cease
further participation in the Plan, except to the extent that an incentive
payment has been earned and is payable pursuant to Article III, upon the
earlier of: (a) his death or Disability, (b) the termination of his employment
with the Company for any reason whatsoever, or (c) at the end of the Plan
Term(s) for which he is designated as a Participant by the Board of Directors.
ARTICLE III
Determination of Amount of Incentive Payments
3.1 Calculation of Benefit.
(a) Subject to the provisions of subsections (b) and (c), the
Long Range Incentive Payment to be paid to a Participant for an
applicable Fiscal Year shall be calculated by multiplying the
Participant's Long Range Incentive Percentage times the Participant's
Compensation for the Fiscal Year.
(b) Except as hereafter provided, no payment shall be made for a
Fiscal Year unless the Participant has been an Employee for the entire
Fiscal Year. A Participant who is not employed for the entire Fiscal
Year shall nevertheless receive a pro-rated payment for the portion of
the Fiscal Year for which he was employed by the Company if his failure
to continue his employment to the end of the Fiscal Year was the result
of one of the following: Disability, involuntary termination of
employment without Cause, Normal Retirement, or Early Retirement with
approval of the Board of Directors.
-5-
<PAGE>
(c) (1) The amount payable for a Participant for a Fiscal Year
under subsections (a) and (b) shall be reduced in the event that the
Committee awards to such Participant, on or about the same date that
the calculation of incentive payments under the Plan for the most
recently completed Fiscal Year are approved by the Board, Restricted
SPS Common Stock under the SPS 1988 Long Term Incentive Stock Plan. The
amount of such reduction with respect to any Fiscal Year shall be equal
to the value of the number of shares of Restricted SPS Common Stock so
awarded. In no event shall such reduction exceed the limits set forth
in subsection (c)(2) hereof.
(2) The amount of the reduction under this subsection (c) for a
Fiscal Year shall in any event be limited to the product of (A) and (B)
where (A) is the maximum offset percentage for that Participant as set
forth in the attached Schedule and (B) is the amount calculated
pursuant to subsections (a) and (b).
3.2 Calculation of Long Range Incentive Percentage.
(a) Except as provided in subsections (b) and (c), a Participant
shall be allocated a Long Range Incentive Percentage which equals the
percentage of Corporate and/or Operating Division Objectives applicable
to the Participant which were attained during the Fiscal Year.
Corporate and Operating Division Objectives for the Plan Term shall be
designated by the Board of Directors and attached to the Plan in the
attached Schedule. The Board is not required to extend the Plan to any
Fiscal Year not set forth in the attached Schedule. To the extent the
Board of Directors decides to make the Plan effective for an additional
Fiscal Year, the Board may, in its sole discretion, designate new
and/or different Corporate and Operating Division Objectives or other
criteria to be used to calculate a Participant's Long Range Incentive
Percentage for any such additional years.
-6-
<PAGE>
(b) A Participant will be deemed to have a Long Range Incentive
Percentage of zero percent (0%) if his applicable Corporate and/or
Operating Division percentages for the Fiscal Year do not achieve an
objective within the acceptable range set forth in the attached
Schedule.
(c) In no circumstance may a Participant's Long Range Incentive
Percentage exceed the applicable Long Range Incentive Percentage
maximum set forth in the attached Schedule.
(d) Long Range Incentive Percentages shall be calculated based
on the percentage realization of one or more Operating Division
Objectives and Corporate Objectives. Participants shall receive a
weighted Long Range Incentive Percentage reflecting their applicable
Corporate and Operating Division percentages for the Fiscal Year.
Participants who are subject to weighted treatment are noted in the
attached Schedule along with the weight to be given to the applicable
Operating Division and Corporate percentage for the Fiscal Year.
Participants who receive a weighted Long Range Incentive Percentage
shall remain subject to the limitations of Section 3.2.
3.3 Form of Incentive Payments. Long Range Incentive Payments
shall be made in cash except to the extent that Restricted SPS Common Stock
shall have been awarded under the SPS 1988 Long Term Incentive Stock Plan as
described in Section 3.1(c).
-7-
<PAGE>
3.4 Payment of Benefits. Long Range Incentive Payments shall be
made no later than the last day of the third calendar month after the close of
the Fiscal Year.
ARTICLE IV
Miscellaneous Provisions
4.1 Administration.
(a) Designation of Committee. The Plan shall be administered by
the Committee. Members of the Committee may not be Participants under
the Plan.
(b) Duties of Committee. The Committee shall be responsible for
interpretation of Plan provisions and approval of benefit payments to
the extent such responsibility has not been allocated under the Plan to
another Person, and subject to and in accordance with the provisions
hereof shall determine all questions arising under the Plan. The
Committee may also make such rules and regulations and prescribe such
forms and procedures for the conduct of its meetings and administrative
duties as it deems appropriate. The Committee shall endeavor to act
uniformly in accordance with the provisions of the Plan.
(c) Agents. The Committee shall appoint an individual to be the
Committee's agent with respect to the day-to-day administration of the
Plan. In addition, the Committee may, from time to time, employ other
agents and delegate to them such administrative duties as it sees fit,
and may from time to time consult with counsel who may be counsel to
the Company.
(d) Binding Effect of Decisions. The decision or action of the
Committee in respect of any question arising out of or in connection
with the administration, interpretation and application of the Plan and
the rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all Persons having any interest in the
Plan, except to the extent that a panel of arbitrators shall decide to
the contrary.
-8-
<PAGE>
(e) Indemnity of Committee. The Company shall indemnify and hold
harmless the members of the Committee against any and all claims, loss,
damage, expense or liability arising from any action or failure to act
with respect to the Plan, except in the case of willful misconduct.
4.2 No Right of Employment. Neither the Plan nor any action taken
hereunder shall be construed as giving any employee any right to be retained
in the employ of the Company.
4.3 Nonassignability. Except as herein expressly provided, the
respective rights and obligations of the Participants under the Plan shall not
be assignable. The rights and obligations of the Company hereunder shall inure
to the benefit of and be binding upon its successors and assigns, including
any other corporation or entity with which the Company may be merged or
otherwise combined or which may acquire the Company or its assets in whole or
substantial part. A successor to the Company shall be liable for the payment
of a Long Range Incentive Payment under the Plan for the Fiscal Years of the
Plan Term set forth in the attached Schedule for which a Long Range Incentive
Payment has not yet been paid. Calculations required to make such payments
shall be made, to the extent practicable on a proforma basis or otherwise,
consistent with the methodology specified in Article III of the Plan. To the
extent such calculations are not practicable, a Participant shall receive, for
each of such remaining Fiscal Years, a Long Range Incentive Payment which is
-9-
<PAGE>
calculated on the basis of objective criteria date of mailing thereof. No other
notice, whether actual or constructive, shall have any effect under the Plan.
regarding performance that is as comparable as possible with the performance
measures set forth in the attached Schedule for such remaining Fiscal Years.
Nothing herein expressed or implied is intended to confer upon any Person,
other than the Participants and the Company, any rights, remedies, obligations
or liabilities under or by reason of the Plan.
4.4 Unfunded Arrangement. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure any payment under the Plan, and such
payments shall be pari passu with the claims of the Company's general
creditors.
4.5 Governing Law. The Plan shall be governed by and interpreted
under the laws of the Commonwealth of Pennsylvania without giving effect to
any conflict of laws provisions.
4.6 Acceptance. By claiming or accepting any benefit under the
Plan, each Participant and each Person claiming by, under or through him or
her shall be conclusively deemed to have indicated his/her acceptance and
ratification of, and consent to, the terms and provisions of the Plan.
4.7 Notices. All notices and requests pursuant to the Plan shall
be in writing and shall be mailed by certified or registered mail, return
receipt requested, if to the Company, to Secretary, SPS Technologies, Inc.,
101 Greenwood Avenue, Suite 470, Jenkintown, PA 19046, and if to a
Participant, at the address set forth in the attached Schedule. Such addresses
may be changed by written notice mailed in accordance with this Section 5.8.
Such notice shall, for all purposes of the Plan, be deemed to have been
delivered and received by the addressee on the date of mailing thereof. No
other notice, whether actual or constructive, shall have any effect under the
Plan.
-10-
<PAGE>
4.8 Entire Plan. The Plan and the Schedules hereto contain all the
provisions of the Plan with respect to the matters contemplated herein and
supersede all prior plans or understandings among the Company and the
Participants relating to such matters, except as may be provided in an
executive severance agreement with the Company and a Participant and in the
Company's Senior Executive Severance Plan.
4.9 Tax Withholding. All payments hereunder shall be subject to
all withholding requirements under applicable tax law.
ARTICLE V
Amendment and Termination
5.1 Amendment and Termination. The Board of Directors reserves the
right by written resolution to amend the Plan at any time and from time to
time in any fashion (including an amendment to change the attached Schedule),
and to terminate it at will. A decision by the Board of Directors to amend or
terminate the Plan will be binding on each subsidiary of SPS which adopts the
Plan. No amendment or termination of the Plan (including the attached
Schedule) shall decrease or restrict any entitlement to benefits for any
benefits earned or to be earned for the periods of participation applicable to
a Participant as set forth in the attached Schedule under the Plan prior to
its amendment or termination.
-11-
<PAGE>
5.2 No Right to Continued Benefit. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right,
implied or otherwise, to receive a benefit for any Fiscal Year not set forth
in the attached Schedule.
-12-
<PAGE>
SCHEDULE
Long Range Incentive Plan Participants
- -------------------------------------------------------------------------------
Period of
NAME Address Participation
- -------------------------------------------------------------------------------
87 Spruce Hill Road
C. Grigg Weston, MA 02193 1995-1996-1997
- -------------------------------------------------------------------------------
782 Spring Valley Road
H. Wilkinson Doylestown, PA 18901 1995-1996-1997
- -------------------------------------------------------------------------------
183 Gleniffer Hill Road
W. Shockley Richboro, PA 18954 1995-1996-1997
- -------------------------------------------------------------------------------
3901 Sherwood Lane
J. Morrash Doylestown, PA 18901 1995-1996-1997
- -------------------------------------------------------------------------------
3801 Dogwood Lane
J. McGrath Doylestown, PA 18901 1995-1996-1997
- -------------------------------------------------------------------------------
810 Pinewood Road
A. Nerenberg Elkins Park, PA 19027 1995-1996-1997
- -------------------------------------------------------------------------------
18 Hunters Lane
J. Dee Southampton, NJ 08088 1995-1996-1997
- -------------------------------------------------------------------------------
11N230 Williamburg Drive
W. Benecki Elgin, IL 60123 1995-1996-1997
- -------------------------------------------------------------------------------
16189 Baird Court
J. Snowden Spring Lake, MI 49456 1995-1996-1997
- -------------------------------------------------------------------------------
206 Old Church Road
B. Cranston North Wales, PA 19454 1995-1996-1997
- -------------------------------------------------------------------------------
609 Fernwood Circle
J. Costello Strafford, PA 19087 1995-1996-1997
- -------------------------------------------------------------------------------
46 Shirley Road
M. Kirk Leicester, UK 1995-1996-1997
- -------------------------------------------------------------------------------
6408 Paderborne Drive
S. Engelman Hudson, Ohio 44236 1995-1996-1997
- -------------------------------------------------------------------------------
7846 Glengate Drive
M. Sharp Broadview Hgts, OH 44177 1995-1996-1997
- -------------------------------------------------------------------------------
44 Alandale Road
Blackburn, Melbourne
B. Aston Victoria, Australia 1995-1996-1997
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE
Long Range Incentive Plan Objectives
I. WEIGHTING OF CORPORATE AND DIVISION OBJECTIVES
Corporate participants will have all their incentive payment based on
achieving Corporate Objectives. Fastener Group participants will have their
incentive payment weighted 60% for achieving their individual Operating Division
Objectives, 20% for achieving the Fastener Group objectives, and 20% for
achieving the Corporate Objectives. Both Arnold Engineering and Cannon-Muskegon
will have their incentive payment weighted 75% for achieving their individual
Operating Division Objectives and 25% for achieving the Corporate Objectives.
II. CORPORATE OBJECTIVES
SPS Corporate Objectives are earnings per share (EPS) and return on
capital employed (ROCE). EPS will have a weighing of 65% of the total and ROCE
will have a weighing of 35%. Both EPS and ROCE will have a range established
with the maximum payment on achieving 110% of objective in 1995 and 105% of
objective in 1996 and 1997. SPS Corporate Objectives and the range for each
objective are as follows:
- ------------------------------------------------------------------------------
EPS ROCE
- ------------------------------------------------------------------------------
Fiscal Yr. Objective Range Objective Range
- ------------------------------------------------------------------------------
1995 $2.25 80-110% 8.8% 80-110%
- ------------------------------------------------------------------------------
1996 $3.25 80-105% 11.2% 80-105%
- ------------------------------------------------------------------------------
1997 $4.25 80-105% 13.0% 85-105%
- ------------------------------------------------------------------------------
III. OPERATING DIVISION OBJECTIVES
Operating Division Objectives are operating profit (OP) and ROCE. OP will
have a weighing of 65% of the total and ROCE will have a weighing of 35%. Both
OP and ROCE will have a range established with the maximum payment on achieving
110% of objective in 1995 and 105% of objective in 1996 and 1997. Operating
Division Objectives and the range for each objective as follow:
<PAGE>
- -------------------------------------------------------------------------------
OP ROCE
- -------------------------------------------------------------------------------
Objective
Fiscal Yr. ($000) Range Objective Range
- -------------------------------------------------------------------------------
Fastener Group*
- -------------------------------------------------------------------------------
1995 $22,314 80-110% 16.8% 80-110%
1996 28,900 80-105% 20.3% 85-105%
1997 35,500 80-105% 23.5% 90-105%
- -------------------------------------------------------------------------------
Domestic APD
- -------------------------------------------------------------------------------
1995 $ 7,152 80-110% 13.4% 80-110%
1996 10,000 80-105% 18.9% 80-105%
1997 13,000 80-105% 23.7% 80-105%
- -------------------------------------------------------------------------------
T.J. Brooks
- -------------------------------------------------------------------------------
1995 $ 2,850 95-110% 28.6% 95-110%
1996 3,400 80-105% 32.6% 85-105%
1997 3,800 90-105% 34.8% 95-105%
- -------------------------------------------------------------------------------
Cleveland IPD
- -------------------------------------------------------------------------------
1995 $ 2,700 80-110% 18.4% 80-110%
1996 3,200 80-105% 19.0% 95-105%
1997 3,600 85-105% 20.7% 90-105%
- -------------------------------------------------------------------------------
IPD Europe
- -------------------------------------------------------------------------------
1995 $ 1,750 80-110% 18.5% 80-110%
1996 2,000 85-105% 16.6% 100-105%
1997 2,300 85-105% 16.9% 100-105%
- -------------------------------------------------------------------------------
UNBRAKO N.A.
- -------------------------------------------------------------------------------
1995 $ 2,700 80-110% 12.6% 80-110%
1996 3,500 80-105% 16.4% 80-105%
1997 4,500 80-105% 21.1% 80-105%
- -------------------------------------------------------------------------------
UNBRAKO Europe
- -------------------------------------------------------------------------------
1995 $ 3,200 80-110% 27.4% 90-110%
1996 3,800 80-105% 28.1% 95-105%
1997 4,500 80-105% 29.4% 95-105%
- -------------------------------------------------------------------------------
* Fastener Group consists of all operating divisions except The Arnold
Engineering Company and Cannon-Muskegon Corporation.
<PAGE>
- -------------------------------------------------------------------------------
OP ROCE
- -------------------------------------------------------------------------------
Objective
Fiscal Yr. ($000) Range Objective Range
- -------------------------------------------------------------------------------
Australia
- -------------------------------------------------------------------------------
1995 $ 2,250 80-110% 32.1% 100-110%
1996 2,500 90-105% 30.0% 100-105%
1997 2,800 90-105% 28.4% 100-105%
- -------------------------------------------------------------------------------
Hi-Life
- -------------------------------------------------------------------------------
1995 ($228) 80-110% (5.6%) 80-110%
1996 500 80-105% 7.6% 80-105%
1997 1,000 80-105% 13.2% 80-105%
- -------------------------------------------------------------------------------
Cannon-Muskegon
- -------------------------------------------------------------------------------
1995 $ 7,600 85-110% 52.5% 100-110%
1996 8,400 90-105% 50.3% 100-105%
1997 9,200 90-105% 48.1% 100-105%
- -------------------------------------------------------------------------------
Arnold Engineering
- -------------------------------------------------------------------------------
1995 $ 8,000 85-110% 21.2% 100-110%
1996 8,700 90-105% 22.3% 95-105%
1997 10,100 85-105% 25.6% 85-105%
- -------------------------------------------------------------------------------
IV. PLAN TERM
The Plan Term is the 1995, 1996, and 1997 Fiscal Years.
<PAGE>
PARTICIPANT DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Maximum Long Range
Offset Incentive
POSITION Name Percentage Percentage Maximum
- ------------------------------------------------------------------------------------------------------------------------
1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------
Corporate Participants:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chairman C. Grigg 50% 25% 40% 50%
- ------------------------------------------------------------------------------------------------------------------------
President H. Wilkinson* 50% 20% 30% 40%
- ------------------------------------------------------------------------------------------------------------------------
CFO/Controller W. Shockley 40% 15% 25% 35%
- ------------------------------------------------------------------------------------------------------------------------
VP/Treasurer J. Morrash 35% 10% 20% 25%
- ------------------------------------------------------------------------------------------------------------------------
VP, Corp. Svs. J. McGrath 35% 10% 20% 25%
- ------------------------------------------------------------------------------------------------------------------------
VP, Legal Counsel A. Nerenberg 35% 10% 20% 25%
- ------------------------------------------------------------------------------------------------------------------------
Assoc. Counsel J. Dee 35% 10% 20% 25%
- ------------------------------------------------------------------------------------------------------------------------
Operating Division Participants:
- ------------------------------------------------------------------------------------------------------------------------
Pres., Arnold Eng. W. Benecki 40% 15% 25% 35%
- ------------------------------------------------------------------------------------------------------------------------
President, Cannon-Muskegon J. Snowden 40% 15% 25% 35%
- ------------------------------------------------------------------------------------------------------------------------
Oper. Mgr. Dom., APD B. Cranston 35% 10% 20% 30%
- ------------------------------------------------------------------------------------------------------------------------
VP, Mktg., Dom., APD J. Costello 35% 10% 20% 25%
- ------------------------------------------------------------------------------------------------------------------------
Mgr. Dir. TJ Brooks M. Kirk* 40% 15% 25% 35%
- ------------------------------------------------------------------------------------------------------------------------
President, IPD S. Engelman 35% 10% 20% 30%
- ------------------------------------------------------------------------------------------------------------------------
Mgr. Dir. IPD-UK M. Kirk* 40% 15% 25% 35%
- ------------------------------------------------------------------------------------------------------------------------
Pres., Unbrako N.A. M. Sharp 35% 10% 20% 30%
- ------------------------------------------------------------------------------------------------------------------------
Mgr. Dir., Unbrako Australia B. Aston 35% 10% 20% 30%
- ------------------------------------------------------------------------------------------------------------------------
*Weighting: H. Wilkinson - 50% Corporate; 50% Fastener Group
M. Kirk Operating Division Split: 65% T.J. Brooks; 35% IPD Europe
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 11
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Dilution (Anti-dilution) of Earnings Per Share
Resulting from Common Stock Equivalents
Years ended December 31, 1995, 1994,
1993, 1992 and 1991 (Thousands
of dollars, except share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net earnings (loss)(a) $ 14,875 $ 3,200 $ (30,995) $ (20,409) $ 6,602
=========== =========== =========== =========== ===========
Weighted average number of common shares
outstanding during year 5,720,666 5,131,900 5,105,706 5,097,994 5,073,798
Weighted average number of maximum shares
subject to exercise under outstanding
stock options at December 31 675,349 399,955 271,679 190,533 265,823
------------ ----------- ----------- ----------- -----------
6,396,015 5,531,855 5,377,385 5,288,527 5,339,621
Less treasury shares assumed purchased
with proceeds from assumed exercise of
outstanding options(b) 437,575 360,811 239,832 169,065 208,413
------------ ----------- ----------- ----------- -----------
Weighted average number of common shares
and equivalent common shares outstanding
after assumed exercise of options 5,958,440 5,171,044 5,137,553 5,119,462 5,131,208
=========== =========== =========== =========== ===========
Earnings (loss) per share based on above
assumptions $ 2.50 $ .62 $ (6.03) $ (3.99) $ 1.29
=========== =========== =========== =========== ===========
Earnings (loss) per share as reported $ 2.50(c) $ .62 $ (6.07) $ (4.00) $ 1.30
=========== =========== =========== =========== ===========
</TABLE>
(a) Earnings have been charged with maximum compensation expense relating
to outstanding nonqualified stock options.
(b) All options are exercisable under a nonqualified plan. The proceeds
from assumed exercise of options, aggregate $16,967 in 1995, $8,896 in
1994, $6,199 in 1993, $4,467 in 1992 and $6,870 in 1991; the proceeds
and number of treasury shares assumed purchased were determined on the
most likely exercise assumptions.
(c) Earnings per share assuming full dilution are presented in the 1995
statement of consolidated operations as the above calculation results
in dilution in excess of 3 percent.
<PAGE>
__________________________
SPS TECHNOLOGIES
- ---
(COVER PICTURE HERE)
1995 Annual Report
<PAGE>
(MAP OUTLINE GOES HERE)
Fastener Group
- --------
AEROSPACE PRODUCTS DIVISION
High strength fasteners and precision components for commercial and military
aircraft and jet engines.
INDUSTRIAL PRODUCTS DIVISION
High strength fasteners and precision components for engines, automobiles,
trucks and farm and construction equipment.
UNBRAKO PRODUCTS DIVISION
UnbrakoRegistration Mark brand socket screws and other fasteners for
industrial machinery and equipment.
HI-LIFE TOOLS
Thread rolling dies, forming and trimming dies and other precision
metalworking tools for aerospace and industrial fastener and precision
component manufacturers.
Materials Group
- ---------
THE ARNOLD ENGINEERING CO.
Magnetic materials and precision foil and strip products for automobiles,
aircraft, power supplies, electrical equipment and electronic security
systems.
CANNON - MUSKEGON CORPORATION
Superalloys for aerospace and land-based gas turbine engine components,
medical applications and other parts produced by investment casting.
Front Cover: The Rolls Royce Commercial aerospace engine series including the
Trent (Registration Mark) 800, which is used to power the Boeing 777. The
Aerospace Products Division and Cannon-Muskegon are major suppliers of
critical fasteners, precision components and patented CMSX4 (Registration
Mark) and CMSX-10 (Registration Mark) superalloys for these engines.
<PAGE>
(MAP OUTLINE GOES HERE)
- --------------------------
Financial
Highlights
- ----------
<TABLE>
<CAPTION>
(Millions of dollars, except per share data) 92 93 94 95
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $359.4 $319.1 $348.9 $409.8
Earnings (loss) before unusual (1.7) (0.8) 6.7 14.9
items and accounting changes
Net earnings (loss) (20.4) (31.0) 3.2 14.9
Earnings (loss) per share (4.00) (6.07) 0.62 2.50
Cash 2.9 6.9 9.5 8.1
Total debt 70.4 89.2 64.7 64.7
Shareholders' equity 142.6 102.8 124.1 145.6
Incoming orders 345.1 333.7 365.4 446.6
Backlog 84.5 89.0 98.5 136.5
</TABLE>
<PAGE>
_______________________
To Our Shareholders
- ------
1995 was the year we began to build SPS. Whereas 1994 was the year we executed
an operating plan for restructure and reorganization in order to turn SPS
around, the operating plan for 1995 was to build infrastructure required in
order to grow SPS and earn a satisfactory return on shareholders' investment.
(PICTURE HERE)
(CAPTION): LEFT TO RIGHT: B.L. CRANSTON, VP OPERATIONS (APD), C.W. GRIGG,
CHAIRMAN AND CEO, AND H. J. WILKINSON, PRESIDENT AND COO EXAMINING AN AEROSPACE
NUT MANUFACTURED ON NEW HIGH SPEED, COMPUTER-CONTROLLED MAZAK CNC LATHE.
We are pleased to report that 1995 net earnings were $14.9 million or
$2.50 per share compared to $3.2 million or $.62 per share in 1994. Last
year's net earnings included a net unusual charge of $3.5 million or $.69 per
share. Our sales grew 17% to $409.8 million, and our orders grew 22% to $446.6
million. Backlog at year end was $136.5 million, an increase of 39% compared
to 1994 year end. While we are pleased with the growth and improved
performance of SPS, our return on average shareholders' equity for 1995 was
only 11%. This is a big improvement compared to 3% in 1994, but still well
under what our shareholders deserve.
An important part of our plan to increase earnings and return on
shareholders' equity is to improve the profit margin of our Fastener Group.
The Materials Group achieved an operating profit margin in 1995 of 13%
compared to our Fastener Group operating profit margin of 6%. This is a
significant improvement from last year's figure of 1%, but still a long way
from our objective. We are investing heavily in Fastener Group machinery and
equipment, management and systems in order to improve this performance.
Our Aerospace Products Division (APD) achieved significant increases in
sales and operating profit in 1995. After a four year downturn, the recent
surge in new commercial aircraft orders, the growth and improved profit
performance of the airlines, the need to replace old aircraft, and the growth
of air travel, particularly in Asia, all indicate an upturn in aerospace
business. APD sales, orders and backlog benefited from this upturn. Aerospace
fastener sales increased by 14%, orders by 41%, and backlog at year end by
58%. Part of the increase in orders and backlog was due to the acquisition of
the Elastic Stop Nut Division (ESNA) of Harvard Industries, Inc. Also
contributing were increased sales of maintenance and retrofit fasteners, which
represented 54% of our aerospace fastener sales in 1995.
With the recent surge in orders, both SPS and the aerospace fastener
industry are rebuilding capacity. The manufacturing of aerospace fasteners
requires skilled machine tool labor, which is not readily available. There is
no quick solution to this problem. We are hiring new employees and training
them as quickly as possible. We acquired 37 computer controlled machines for
APD last year. These machines require less skill to operate and offer other
advantages such as reduced set-up time, multiple operation capability and
greater precision.
The acquisition of ESNA on March 3, 1995 was an important strategic
accomplishment. Historically, ESNA had been a leading aerospace nut
manufacturer. The ESNA operations were moved to our Jenkintown, Pennsylvania
and Santa Ana, California plants and combined with our own aerospace nut
operations. This acquisition will enable us to increase market share in an
important segment of our business and will substantially increase our capacity
once these operations are fully assimilated.
Our Industrial Products Division (IPD) had a mixed year. Heavy
investment in infrastructure for the past two years at our Cleveland, Ohio
plant resulted in operating profit more than doubling compared to our poor
performance in 1994. Our Smethwick, United Kingdom push rod plant benefited
from a favorable European automotive market and significantly increased sales
and operating profit. Our Coventry, United Kingdom plant lost money in 1995
due to the failure of old, worn-out equipment and weak management
infrastructure. We have restructured Coventry's management organization and
have begun a several year investment program to modernize this plant and make
it a formidable competitor in the European critical engine fastener market.
<PAGE>
Both our Unbrako Products Division (UPD) and Hi-Life Tools made good
progress in 1995. The UPD performance was highlighted by a big turnaround at
our Cleveland, Ohio plant. A new management team substantially reduced
manufacturing costs, improved customer service and increased operating profit
fivefold over last year's poor results. Hi-Life Tools' strategy of building a
sales and distribution network to serve its trade customers resulted in a 42%
increase in trade sales in 1995.
Arnold Engineering had an exceptionally strong year in 1995. Its sales
increased 18% and operating profit increased 36% compared to 1994. Demand was
very strong for bonded magnets, rare earth magnets and molybdenum permalloy
powder cores sold to the automotive, telecommunications and personal computer
markets. Demand for these products softened at the end of 1995 and continues
to be relatively soft in early 1996, which may make it difficult for Arnold to
continue the outstanding growth rate in 1996 that it has achieved the past two
years. In spite of soft market conditions, we do expect continued growth in
rare earth magnets, which Arnold first introduced to its customers in 1991.
These products represent a significant investment in technology, process
know-how and equipment. Arnold more than doubled its sales and operating
profit for rare earth magnets in 1995.
Cannon-Muskegon achieved a solid 9% increase in operating profit
during a year when metal prices fluctuated wildly and there were shortages of
supply from certain of Cannon's traditional metal suppliers. In the second
half of 1995, aerospace demand began to increase, which helped Cannon earn an
operating profit 37% higher in the second half of 1995 than the first half.
Cannon has continued to invest in and expand its single crystal and
directionally solidified superalloy technology. Since 1992, sales of products
based on this proprietary technology, most of which are protected by patents,
have increased 27% per year. When one considers that the major market for these
superalloys, aerospace jet engines, has declined substantially since 1992, it
gives a better perspective of Cannon's market penetration with these
materials.
We made good progress in 1995 on our global strategy. As our customers
have become more global and the growth in markets for our products has shifted
to countries like China, India and Brazil, we have embarked on a strategy to
expand our presence in these markets. On June 30, 1995, we announced that we
had increased our ownership of Unbrako K.K. located in Tokyo, Japan, from 50%
to 100%. Unbrako K.K., which had annual sales of $4 million, is a distributor
of UNBRAKO (Registration Mark) product and SPS (Registration Mark) aerospace
fasteners to the Japanese and other Asian markets. On August 16, 1995, we
completed the acquisition of 48% of the shares of Metalac S.A. Industria e
Comercio located in Sao Paulo, Brazil. This acquisition increased our
ownership of Metalac to 95%. Metalac is a leading manufacturer of industrial
and automotive fasteners in Brazil and had sales of $31 million in 1995. In
December 1995, we entered into an agreement to acquire a 55% interest in
Shanghai SPS Biao Wu Fasteners Co. Ltd. (SSBW) located in Shanghai, China.
SSBW has over 50% of the Chinese socket screw (Unbrako type) market and
exported 30% of its production, most of it to Europe. Its sales in 1995 were
about $15 million. We plan to transfer our automotive critical engine fastener
technology to SSBW to enable SSBW to pursue the rapidly growing automobile
industry in China. We also plan to export SSBW fasteners through our
world-wide sales and distribution network.
Although we still have much work to do on inventory turns, we were
reasonably pleased with our balance sheet and cash flow performance in 1995.
We funded capital expenditures of $21.5 million, acquisitions of $11.3 million
and working capital to support a 17% increase in sales and still managed to
reduce year end debt by $2.4 million. Our net cash provided from operating
activities was $27 million in 1995 compared to $14.7 million last year.
Capital expenditures will remain high in 1996 and are projected at $26 million
compared to depreciation of $15 million.
We have many talented, highly skilled and motivated employees to thank
for our 1995 performance. Most of our employees participate in incentive plans
and earned bonuses in 1995. I would like to thank Paul F. Miller, Jr., who
retired from our Board of Directors in December, for his ten years of
invaluable service to SPS. His perspective and wisdom will be missed. I would
also like to welcome Richard W. Kelso to our Board of Directors. Dick is the
Chief Executive Officer of PQ Corporation and has many years of experience
managing global manufacturing companies.
We have the building blocks in place to grow SPS. We still have much
work to do to earn a satisfactory return on shareholders' investment, but we
believe we have the programs, people and capital resources to continue in 1996
the building process we began in 1995.
/s/ CHARLES W. GRIGG
- ------------------------------------
Charles W. Grigg
Chairman and Chief Executive Officer
<PAGE>
- -------------------------------------
Fastener
Group
- --------
SALES
millions of dollars
300 ----------------------------------------------
262.5 273.6
| |
250 -----|----------------------------------|------
| 239.6 |
| 226.8 | |
225 -----|------------------------|---------|--------
| | | |
| | | |
200 -----|-----------|------------|---------|-------
92 93 94 95
---------------------------
OPERATING EARNIGS*
millions of dollars
20 -----------------------------------------------
16.7
(1.0) (25.9) 2.4 |
0 -----|-----------|------------|---------|-------
|
|
-20 -----------------|------------------------------
92 93 94 95
*Excludes the allocation of
corporate overhead.
---------------------------
Backlog
millions of dollars
150 ----------------------------------------------
111.3
100 ----------------------------------------|-----
|
66.7 71.9 73.0 |
50 -----|-----------|------------|---------|-----
| | | |
| | | |
0 -----|-----------|------------|---------|-------
92 93 94 95
1995 Fastener Group Sales
$273.6 million
o Aerospace Products Division $128.3
o Industrial Products Division $ 73.9
o Unbarko Products Division $ 64.5
o Hi-Life Tools $ 6.9
SPS Technologies, which originally was known as Standard Pressed Steel Co.,
has been a leading supplier of industrial and aerospace fasteners for more
than 90 years. In 1906, SPS began production of socket set screws for its own
internal use. Five years later, SPS introduced the first socket head cap screw
to the U.S. market. SPS has continued during its long history to introduce new
fastener products that help its customers solve problems.
<PAGE>
Although the operating units within our Fastener Group serve different
markets, they share a common technology of fastener mechanics, metallurgy and
the requirement to achieve optimum joint performance.
- --------------------------------------
AEROSPACE PRODUCTS DIVISION
- -----------
Facilities
Jenkintown, Pennsylvania
Santa Ana, California
Salt Lake City, Utah
Leicester, England
The Aerospace Products
Division (APD) manufactures high strength fasteners and precision components
for commercial and military aircraft. These products are designed for
structural and other critical applications including engines, wings, pylons
and landing gear assemblies. Special metallurgical and mechanical properties
are required in order to withstand the stress, vibration, corrosion and
temperature extremes encountered in flight.
Market Outlook
The commercial aircraft segment of the market accounts for 63% of APD's
aerospace sales while defense represents the remainder. This is a big change
from seven years ago when commercial business was only 42% of APD sales.
Industry forecasts indicate that deliveries of new commercial aircraft will
grow on average 20% per year from 1997 through the end of the century. New
aircraft orders for the major commercial aircraft manufacturers were 562 in
1995 compared to 268 in 1994 and 299 in 1993. This increase in aircraft orders
already has impacted APD fastener orders.
<PAGE>
(PICTURE GOES HERE)
(CAPTION): Dedicated to finishing small aerospace engine bolts,
two Wasino Lathes with robotic loaders.
The defense aircraft market is projected to remain flat. APD has
benefitted from development programs for the V-22 and F-22 aircraft, and the
outlook for the C-17 large lift capacity aircraft is looking more favorable.
However, with the anticipated future growth in the commercial aerospace
market, APD's defense sales as a percentage of total APD sales will continue
to decline.
The maintenance and retrofit market, which is a segment of both the
commercial and defense aircraft markets, represents 54% of APD's aerospace
fastener sales. Profit margins are higher in this market segment, and it grows
as air travel increases. APD is the maintenance and retrofit fastener market
leader and is investing in state-of-the-art equipment and computer systems to
further build on this position.
ESNA Acquisition
On March 3, 1995, SPS purchased certain assets of the Elastic Stop Nut
Division (ESNA) of Harvard Industries, Inc. Historically, ESNA had been a
leading aerospace nut manufacturer. ESNA's products complement and
significantly expand APD's existing line of aerospace nut products and will
enable APD to increase market share once fully assimilated. An indication of
the potential value of ESNA products to APD was the booking in 1995 subsequent
to acquisition of $18.7 million of orders.
The ESNA acquisition added significant manufacturing capacity in both
the Jenkintown and Santa Ana plants. Nearly 300 pieces of equipment were
relocated to SPS plants including some with sophisticated computer controls.
This equipment has been integrated with existing production equipment and
organized into a totally redesigned nut manufacturing cell. APD has adopted
much of ESNA's technology and engineering methods and combined them with its
own technical and engineering strengths. This combination should put APD in a
strong position to fully participate in the expected aerospace upturn.
Capacity Expansion
In order to increase capacity, reduce costs, improve quality and reduce labor
skills required, APD has embarked on an ambitious capital expenditure program.
APD expenditures for equipment in 1995 were $11.4 million. Much of the new
equipment being purchased is automated and does not require manual loading.
Furthermore, this equipment is capable of holding demanding aerospace
tolerances on every piece, which significantly reduces quality costs.
All APD plants are applying cellular manufacturing concepts. The
grouping of equipment to produce fasteners having similar geometry and
manufacturing characteristics reduces set up time and work-in-process
inventory and speeds up the velocity of fasteners through the factory. It is
this speed of manufacturing process that is so critical to meeting the
delivery and service demands of our customers.
(PICTURE GOES HERE)
(CAPTION): CNC Hardinge Lathes, equipped with automatic loading devices, are
capable of producing finished mid-size aerospace nuts.
<PAGE>
(PICTURE GOES HERE)
(CAPTION): HITACHI SEIKI HG 500 HORIZONTAL MACHINING CENTER WITH A 40 AUTOMATIC
TOOL CHANGER FOR PRODUCING AEROSPACE FASTENERS FROM HIGH STRENGTH/HIGH
TEMPERATURE ALLOYS.
The lack of availability of skilled machine tool labor is APD's
biggest constraint to increasing capacity. Besides an accelerated program to
train new machine operators, APD has been purchasing computer controlled
equipment, which requires less skill to operate. During 1995, the Jenkintown
plant acquired 29 computer controlled machines compared to 22 computer
controlled machines in operation at the end of 1994.
Research and Development
The APD Research and Develop-ment Laboratory, located at the Jenkintown plant,
is the leading metallurgical laboratory in the aerospace fastener industry. A
joint research project involving APD, Cannon-Muskegon and Latrobe Steel
Company, a subsidiary of the Timkin Company, has produced a patented single
crystal superalloy called AEREX 350Registration Mark. This superalloy has
superior strength and stability characteristics at high temperatures and is
currently being evaluated by General Electric, Pratt & Whitney and Rolls Royce
as a replacement for other materials used in jet engine components.
- ----------------------------------------
Industrial
Products
Division
- -----------
FACILITIES
Cleveland, Ohio
Coventry, England
Smethwick, England
Sao Paulo, Brazil
Melbourne, Australia
Bombay, India
Shanghai, China
The Industrial Products
Division (IPD) manufactures high strength fasteners and precision components
for engines, automobiles, trucks and farm and construction equipment. These
fasteners are designed primarily for critical engine applications including
engine bolts and studs, push rods and turbo charger shafts.
Global Market
The automobile industry is now global and customers expect their vendors to be
global. IPD has a global network of automotive fastener manufacturing
facilities unequaled by any competitor. It is well positioned to provide
just-in-time delivery and local technical support for high quality, critical
engine fasteners to global automobile companies regardless of whether they are
located in China, India, South America, Australia, Europe or North America.
IPD is particularly well positioned in the fast growing, emerging markets of
South America, Asia and India.
(PICTURE GOES HERE)
(CAPTION): NEW MESH BELT HEAT TREAT FURNACE FOR IPD CLEVELAND, EQUIPPED WITH
COMPUTER CONTROLS AND AUTOMATIC LOADING AND UNLOADING DEVICES, HANDLES UP TO
4,000 POUNDS OF FASTENERS PER HOUR WITH ONE OPERATOR.
<PAGE>
(PICTURE GOES HERE)
(CAPTION): AN OPERATOR CHECKS A SETTING PIECE FROM IPD COVENTRY'S NEW
NEDSCHROEF BV5E COLD HEADER.
Focused Factories
Over the past several years, IPD has been working to develop focused factories
within its existing facilities. The focused factory concept has been completed
at the Cleveland and Sao Paulo plants and is under development at Coventry and
Bombay. These focused factories, which emphasize speed of manufacture and
highly automated operations, utilize modern organizational management concepts
of self-directed, empowered employees working in teams to continuously improve
performance.
Capital Investment
During the past two years, over $16.6 million of capital has been invested in
IPD plant and equipment in order to modernize these facilities and make them
"world class" operations. In the automotive component business, a plant has to
be "world class" to be competitive. Included in the new equipment purchased
was a computerized heat treat furnace for Cleveland, new cold heading machines
for Cleveland, Sao Paulo, Coventry, Melbourne and Bombay, and new thread-
rolling machines for Cleveland and Sao Paulo.
(PICTURE GOES HERE)
(CAPTION): AN OPERATOR PRE-SETS TOOLS ON A HIGH SPEED NATIONAL FORMAX BOLTMAKER
FOR UNBRAKO (Registration Mark) METRIC SOCKET HEAD CAP SCREWS MANUFACTURED IN
SHANNON, IRELAND.
- -------------------------
Unbrako
Products
Division
- --------
Facilities
Cleveland, Ohio
Shannon, Ireland
West Bromwich, England
Sao Paulo, Brazil
Melbourne, Australia
Bombay, India
Shanghai, China
Tokyo, Japan
Toronto, Canada
Mexico City, Mexico
Singapore
The Unbrako Products
Division (UPD) manufactures Unbrako (Registration Mark) brand socket screws and
other fasteners for industrial machinery and equipment. The UNBRAKO brand is
recognized around the world for high tensile strength, superior precision and
high quality and is specified by machine builders, tool and die makers and
other industrial customers. UNBRAKO brand products are sold through a global
network of independent distributors and Unbrako sales offices. This network is
far more extensive than that of any of its competitors.
<PAGE>
(PICTURE GOES HERE)
(CAPTION): UNBRAKO, CLEVELAND OPERATOR SETTING UP NEW SASPI HIGH SPEED, LARGE
DIAMETER THREAD ROLLER FOR PRODUCTION OF SOCKET HEAD CAP SCREWS.
Global Business
Unbrako is a global business. It has manufacturing plants in the United
States, Ireland, Brazil, Australia, India and China. These plants coordinate
their manufacturing so that certain plants can specialize on segments of the
socket screw market in order to achieve economies of scale and reduce costs.
Combined, these plants manufacture the broadest line of socket screw products
in the world.
The worldwide strength of UPD and the Unbrako brand name can be seen
in the high market share enjoyed by UPD in different countries and, in
particular, the emerging, fast growing markets of Brazil, India and China.
Approximate market shares are 60% in India and 50% in Brazil, Australia, China
and the United Kingdom. In the high tensile, high quality segment of the
market, UPD has 35% of the continental European market and 25% of the United
States market.
Acquisitions
UPD strengthened its global presence significantly in 1995. On June 30, 1995,
the ownership of Unbrako K.K. located in Tokyo, Japan was increased from 50%
to 100%. On August 16, 1995, the ownership of Metalac S.A. Industria e
Comercio located in Sao Paulo, Brazil was increased from 47% to 95%. In
December 1995, an agreement was reached to acquire a 55% interest in Shanghai
SPS Biao Wu Fasteners Co. Ltd. (SSBW) located in Shanghai, China. China and
India provide UPD with two excellent low cost sources of product. UPD plans to
utilize this capability and will sell their fasteners through its world-wide
sales and distribution network.
(PICTURE GOES HERE)
(CAPTION):ELB MICROCUT CNC CREEP FEED GRINDING MACHINE WITH 6-AXIS CONTROL IS
USED AT SHANNON, IRELAND HI-LIFE TOOLS FACILITY FOR PRODUCTION OF HIGH
PRECISION FLAT THREAD ROLLING DIES.
- ------------------------------
Hi-Life
Tools
- --------
Facility
Shannon, Ireland
Hi-Life Tools manufactures thread rolling dies, forming and trimming
dies and other precision metalworking tools for aerospace and industrial
fastener and precision component manufacturers. Originally established to
provide SPS with a reliable, high performance source of thread roll dies,
Hi-Life has now grown to be a significant competitor in the world-wide
precision tooling market.
Two years ago, a strategic decision was made to focus on trade
customers rather than sales to other SPS divisions, which had represented more
than half of Hi-Life's business. During the past two years, Hi-Life invested
heavily in equipment and systems in order to support a rapid expansion of tool
sales to trade customers. This strategy has resulted in sales to trade
customers growing 14% in 1994 and 42% in 1995. Hi-Life plans to capitalize on
SPS' global distribution network to further expand its trade sales.
<PAGE>
- -----------------------------------------------
Materials
Group
- -----
SALES
millions of dollars
150 ----------------------------------------------
136.3
|
130 ---------------------------------------|------
|
109.3 |
110 -----------------------------|---------|------
| |
96.9 92.3 | |
90 -----|----------|------------|---------|------
92 93 94 95
---------------------------
OPERATING EARNIGS*
millions of dollars
20 -----------------------------------------------
17.1
15 ---------------------------------------|--------
|
13.4 |
10 -----------------------------|---------|-------
9.5 8.4 | |
| | | |
0 -----|----------|------------|---------|-------
92 93 94 95
*Excludes the allocation of
corporate overhead.
---------------------------
BACKLOG
millions of dollars
30 ------------------------------------------------
25.5 25.2
| |
20 ------------------------------|---------|-------
17.8 17.1 | |
| | | |
10 -----|-----------|------------|---------|-------
| | | |
| | | |
0 -----------------|------------------------------
92 93 94 95
1995 Materials Group Sales
$136.3 million
The Arnold Engineering Co. $73.8
Cannon-Muskegon Corporation $62.5
SPS Technologies acquired Cannon-Muskegon Corporation and The Arnold
Engineering Co. in 1986 as part of a strategic investment in the metal
materials business.
- ----------------------
Arnold
Engineering
- -----------
Facilities
Marengo, Illinois
Norfolk, Nebraska
Ogallala, Nebraska
Sevierville, Tennessee
Adelanto, California
Arnold Engineering
manufactures magnetic materials and precision foil and strip products for
automobiles, aircraft, power supplies, electrical equipment and electronic
security systems. Arnold was founded in 1935 by Robert M. Arnold and produced
Alnico permanent magnets used in radios and loudspeakers. During World War II,
Arnold produced proximity fuse magnet assemblies for mortar and antiaircraft
shells.
(PICTURE GOES HERE)
(CAPTION): MPP CORES USED IN COMPUTER POWER SUPPLIES ARE AUTOMATICALLY TESTED
AT ARNOLD ENGINEERING'S FACILITY IN MARENGO, ILLINOIS.
<PAGE>
(PICTURE GOES HERE)
(CAPTION:) Magnetic foils used in anti-theft tags are slit to precise
dimensions at the Arnold Engineering Rolled Products facility in Marengo,
Illinois.
Market Position
Today, Arnold is the largest domestic manufacturer of magnetic materials and
manufactures the broadest line of magnetic materials in the world. Arnold's
products are sold globally through a direct sales force in the United States
and by a network of manufacturer's representatives in Europe and the Far East.
Its export sales have grown 55% over the last three years and now comprise 21%
of total sales. The breadth of Arnold's product line ensures that customers
have available the right type of magnet for each application. The strength of
Arnold's product line is evident by the fact that 85% of Arnold's sales are in
segments of the magnetic materials market where Arnold is either the number
one or number two market leader.
Plants and Products
The Marengo facility consists of three focused factories manufacturing alnico
magnets, soft magnetic powder cores and magnetic strip and specialty foil.
Alnico magnets are used in cellular telephones and radar focusing devices
while precision strip and foil are found in magnetic shielding, security tags
and medical applications. Arnold recently completed a $5 million project to
upgrade and expand its soft magnetic powder core factory. These products are
used in personal computers and other telecommunication and electronic
equipment and experienced a sales growth of 39% in 1995.
Hard ferrite ceramic magnets are produced in the Sevierville plant,
which had its capacity expanded by 30% in 1995 with the purchase of a new $2
million roller hearth kiln. Hard ferrite magnets are used in DC motors,
magnetic separators and magnetic imaging devices found in automotive, medical
and industrial applications. Today's automobiles each contain an average of
more than 70 magnets.
Bonded magnets using ferrite or rare earth powders are manufactured at
the Norfolk plant. Bonded magnets can be processed to allow precision
injection molding to the precise shape specified by the customer. They are
used in motors, sensors and actuators found in automotive and industrial
applications.
The Ogallala plant fabricates various types of magnetic materials to
customer specifications. The Adelanto plant manufactures tape wound cores
which are found in a wide variety of transformers and power supplies.
Rare Earth Magnets
Arnold has made a significant investment to produce both fully-dense and
bonded rare earth magnets. Its major competitors in this segment of the market
are Japanese manufacturers whose costs have increased with the appreciation of
the Yen. Arnold's rare earth technology has been developed to the point where
it is comparable to the Japanese competitors, allowing Arnold to gain market
share. Its rare earth magnet sales have grown by over 500% since 1993.
Arnold's capital program in 1996 includes an investment of $1 million for
increased capacity and capability of both fully-dense and bonded rare earth
magnets.
<PAGE>
- ----------------------------------------------------------------------------
Cannon-
Muskegon
Corporation
- ----------
Facility
Muskegon, Michigan
Cannon-Muskegon (C-M)
manufactures superalloys for aerospace and land-based gas turbine engine
components, medical applications and other parts produced by investment
casting. C-M was founded in 1952 by George Cannon, Jr. to produce advanced
alloy materials with precise chemistry control for the investment casting
industry. It has grown to the point where today it is the largest air melt
manufacturer in the industry and has developed a fast growing family of
proprietary superalloy products.
(PICTURE GOES HERE)
(CAPTION): CANNON-MUSKEGON'S NEW INDUCTOTHERM "POWER WINDOW" ALLOY MELTING AND
REFINING FURNACES PROVIDE EXCITING NEW CAPABILITIES FOR AIR MELT ALLOY QUALITY
AND MANUFACTURING FLEXIBILITY.
Superalloy Development
C-M's research and development team has developed a family of patented,
proprietary single crystal (SX) and directionally solidified (DS) superalloys
whose sales have grown 27% per year since 1992. This has been accomplished
during a period when the major market for these products, aerospace jet
engines, has declined substantially. The Rolls-Royce TrentRegistration Mark
700 series engine, which powers the Airbus A-330, uses C-M's
CMSX-4Registration Mark superalloy for the first and second stage turbine
blades. The Trent 800 series engine, which powers the Boeing 777, uses CMSX-4
superalloy for the first stage turbine blade and CMSX-10Registration Mark
superalloy for the second stage. ABB in Switzerland, which manufactures
land-based industrial gas turbines, uses CMSX-4 superalloy for the first and
second stage turbine blades and uses DSCM247LCRegistration Mark superalloy for
the third stage blade.
Research and Development
C-M is continuing to invest in superalloy research and development. Two new
superalloys, CMSX-11Registration Mark, a high chromium corrosion resistant
single crystal superalloy, and CM-186LCRegistration Mark, a directionally
solidified rhenium alloy, are currently under evaluation at several turbine
companies.
Market Outlook
With the end of the aerospace recession and the anticipation of significant
aerospace growth through the end of the century, non-proprietary and
proprietary superalloy vacuum melt business is expected to grow substantially.
Sales of all vacuum superalloys were up 15% in 1995. C-M will invest over $1
million in 1996 to expand capacity and automate its vacuum processing line.
C-M is the domestic market leader in air melt alloys for the
investment casting industry. It has over 60% of this market and has over 70%
of the world market for cobalt-based alloys for medical applications. During
the last three years, C-M has invested $3.4 million in upgrading and expanding
the capacity of its air melt line. This includes upgrading and automating the
air melt processing line (decreasing throughput time from four days to four
hours), purchasing a new state-of-the-art induction air melt furnace, and a
complete overhaul and new electronic controls for the continuous caster, which
casts 95% of C-M's air melt product.
<PAGE>
- ------------------------------------------------------------------------------
Statements of
Consolidated Operations SPS Technologies, Inc. and Subsidiaries
- ------------
<TABLE>
<CAPTION>
(Thousands of dollars, except share data)
Years ended December 31
1995 1994 1993
----------------------------------------------------------
<S> <C> <C> <C>
Net sales $409,814 $348,905 $319,094
Cost of goods sold 334,160 292,580 269,207
-----------------------------------------------------------
GROSS PROFIT 75,654 56,325 49,887
Selling, general and administrative expense 49,644 44,847 46,574
Restructuring charge, net 3,500 32,400
----------------------------------------------------------
OPERATING EARNINGS (LOSS) 26,010 7,978 (29,087)
Other income (expense):
Interest income 520 440 472
Interest expense (6,483) (6,924) (5,906)
Equity in earnings of affiliates 1,701 1,726 563
Other, net (473) 2,900 363
-----------------------------------------------------------
(4,735) (1,858) (4,508)
-----------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 21,275 6,120 (33,595)
Provision (benefit) for income taxes 6,400 2,920 (2,600)
-----------------------------------------------------------
NET EARNINGS (LOSS) $14,875 $ 3,200 $ (30,995)
============================================================
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 2.50 $ .62 $ (6.07)
============================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
- ------------------------------------------------------------------------------
Consolidated
Balance Sheets SPS Technologies, Inc. and Subsidiaries
- ------------
<TABLE>
<CAPTION>
December 31
(Thousands of dollars, except share data) 1995 1994
----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,093 $ 9,472
Accounts and notes receivable, net 61,294 54,434
Inventories 88,090 76,299
Deferred income taxes 16,396 14,400
Prepaid expenses 3,103 2,379
Net assets held for sale 2,362 2,367
--------- ---------
Total current assets 179,338 159,351
--------- ---------
Investments in affiliates 4,516 14,841
Property, plant and equipment, net 112,738 88,764
Other assets 25,495 26,290
--------- ---------
Total assets $322,087 $289,246
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 6,578 $ 8,248
Accounts payable 28,041 27,163
Accrued expenses 39,545 35,190
Income taxes payable 3,267 1,259
--------- ---------
Total current liabilities 77,431 71,860
--------- ---------
Deferred income taxes 13,061 10,955
Long-term debt 58,119 56,426
Retirement obligations 27,827 25,901
SHAREHOLDERS' EQUITY
Preferred stock, par value $1 per share,
authorized 400,000 shares,
issued none
Common stock, par value $1 per share,
authorized 30,000,000 shares,
issued 6,450,909 shares (6,377,256 shares in 1994) 6,451 6,378
Additional paid-in capital 74,685 68,124
Retained earnings 78,591 63,716
Minimum pension liability (2,626) (1,235)
Common stock in treasury, at cost,
599,258 shares (740,897 shares in 1994) (4,846) (5,990)
Cumulative translation adjustments (6,606) (6,889)
--------- --------
Total shareholders' equity 145,649 124,104
--------- --------
Total liabilities and shareholders' equity $322,087 $289,246
========= ========
</TABLE>
PRIOR YEAR AMOUNTS HAVE BEEN RECLASSIFIED FOR COMPARATIVE PURPOSES.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
- ------------------------------------------------------------------------------
Statements of
Consolidated Cash Flows SPS Technologies, Inc. and Subsidiaries
- ------------
<TABLE>
<CAPTION>
Years ended December 31
(Thousands of dollars) 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 14,875 $ 3,200 $(30,995)
Reconciliation of net earnings (loss) to net cash provided by operating
activities:
Depreciation and amortization 14,730 13,063 14,484
Equity in undistributed earnings of affiliates (1,701) (1,726) (563)
Net (gain) loss on sale of property, plant and equipment 541 (3,374) 40
Deferred income taxes 3,319 420 (1,812)
Restructuring charge, net 3,500 32,400
Cash used for restructuring activities (550) (6,700) (14,892)
Other operating items 564 199 43
Changes in assets and liabilities, net of acquisitions of businesses:
Receivables (1,738) (6,311) 2,204
Inventories (4,952) 1,984 558
Prepaid expenses 109 (179) 871
Accounts payable (811) 8,123 (851)
Accrued expenses (31) 2,782 (2,618)
Income taxes payable 528 523 (282)
Other assets and liabilities, net 2,125 (825) 2,344
-----------------------------------------------
Net cash provided by operating activities 27,008 14,679 931
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (21,480) (17,615) (12,248)
Proceeds from sale of property, plant and equipment 4,240 13,333 302
Acquisitions of businesses (11,293)
Proceeds from divestitures of businesses 705 2,128 2,500
Other, net 708
--------------------------------------------------
Net cash used by investing activities (27,828) (1,446) (9,446)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 22,955 14,560 38,200
Reduction of borrowings (25,359) (38,291) (18,988)
Proceeds from rights offering 12,185
Payments of cash dividends (6,535)
Proceeds from exercise of stock options 1,843 405 29
--------------------------------------------------
Net cash provided (used) by financing activities (561) (11,141) 12,706
Effect of exchange rate changes on cash 2 528 (218)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,379) 2,620 3,973
Cash and cash equivalents at beginning of year 9,472 6,852 2,879
--------------------------------------------------
Cash and cash equivalents at end of year $ 8,093 $ 9,472 $ 6,852
==================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 6,134 $ 6,911 $ 5,918
Income taxes paid (refunded), net 2,449 1,700 (326)
SIGNIFICANT NONCASH INVESTING ACTIVITY
Issuance of treasury shares for business acquired 5,667
</TABLE>
PRIOR YEAR AMOUNTS HAVE BEEN RECLASSIFIED FOR COMPARATIVE PURPOSES.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
- ------------------------------------------------------------------------------
Statements of
Consolidated Shareholders' Equity SPS Technologies, Inc. and Subsidiaries
- ------------
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Additional Minimum Cumulative Total
Common Paid-In Retained Pension Treasury Translation Shareholders'
Stock Capital Earnings Liability Stock Adjustments Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $6,362 $59,685 $96,412 $ (723) $(10,154) $(8,964) $142,618
Issuance of treasury shares
under stock option plans 19 10 29
Net loss (30,995) (30,995)
Cash dividends-$.96 per share (4,901) (4,901)
Minimum pension liability
changes (1,057) (1,057)
Foreign currency translation
adjustment including $532
write-off related to the sale
of subsidiary (2,867) (2,867)
-----------------------------------------------------------------------------------------
Balance, December 31, 1993 6,362 59,704 60,516 (1,780) (10,144) (11,831) 102,827
Issuance of common shares
under stock option plans 16 355 371
Issuance of treasury shares
under stock option plans 22 12 34
Issuance of treasury shares
under rights offering 8,043 4,142 12,185
Net earnings 3,200 3,200
Minimum pension liability
changes 545 545
Foreign currency translation
adjustment including $677
write-off related to the sale of
subsidiary 4,942 4,942
----------------------------------------------------------------------------------------
Balance, December 31, 1994 6,378 68,124 63,716 (1,235) (5,990) (6,889) 124,104
Issuance of common shares
under stock option plans 69 2,039 2,108
Issuance of treasury shares
for business acquired 4,522 1,145 5,667
Net earnings 14,875 14,875
Minimum pension liability
changes (1,391) (1,391)
Foreign currency translation
adjustment 283 283
Other 4 (1) 3
----------------------------------------------------------------------------------------
Balance, December 31, 1995 $6,451 $74,685 $78,591 $(2,626) $ (4,846) $(6,606) $145,649
========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
- ------------------------------------------------------------------------------
Notes to Consolidated
Financial Statements SPS Technologies, Inc. and Subsidiaries
- ------------
(Thousands of dollars, except share data)
1. Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
all subsidiaries. Investments in affiliates, owned more than 20 percent but
not in excess of 50 percent, are recorded on the equity method.
Cash Equivalents
The Company considers cash equivalents to be all highly liquid investments
purchased with original maturities of three months or less. The carrying
amount approximates fair value because of the short maturity of these items.
Inventories
Inventories are valued at lower of cost or market. Inventories are stated at
standard cost, which approximates average cost, and includes material, labor
and manufacturing overhead costs. The Company provides reserves against its
slow moving, obsolete and excess inventories based upon factors which include
current customer requirements, quantity on hand, age of inventory and months
supply of inventory. The provisions for such reserves are recorded as a
component of cost of goods sold.
Property and Depreciation
Property, plant and equipment are stated at cost. Depreciation is provided
substantially on a straight-line basis over the estimated useful lives of the
respective assets generally as follows: buildings, 5 to 50 years, and
machinery and equipment, 3 to 20 years. Asset and accumulated depreciation
accounts are reduced for the sale or other disposition of property and the
resulting gain or loss is included in results of operations. Fully depreciated
items, other than buildings, generally are removed from the accounts.
Intangible Assets
Intangible assets, included in other assets, were approximately $6,500 and
$6,400 at December 31, 1995 and 1994, respectively. Intangible assets consist
primarily of goodwill which arose from the excess of the cost of purchased
businesses over the value of the underlying net assets and is being amortized
by the straight-line method over periods not exceeding 40 years. Intangible
assets are reviewed when facts and circumstances suggest that they may be
impaired. If this review indicates that the intangible asset will not be
recoverable based on the expected future undiscounted net cash flows of the
related asset, the Company's carrying value will be reduced.
<PAGE>
Retirement Plans
Substantially all employees are covered by pension plans. Plans in the United
States are noncontributory and non-United States plans are primarily
contributory. Generally, unrecognized gains and losses are systematically
amortized over the average remaining service period of the plans' active
participants. For United States plans, the Company funds the minimum amount
permitted by the Employee Retirement Income Security Act (ERISA) and for
non-United States plans, the Company generally funds current costs.
Foreign Currency Translation
With the exception of operations in countries with highly inflationary
economies, the financial statements of the Company's non-United States
subsidiaries are translated into United States dollars using current rates of
exchange, with gains or losses included in the cumulative translation
adjustment account in the shareholders' equity section of the consolidated
balance sheets. For operations in countries with highly inflationary
economies, financial statements are translated at either current or historical
exchange rates, as appropriate. These adjustments, along with gains and
losses on currency transactions (denominated in currencies other than local
currency), are reflected in the statements of consolidated operations.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk principally consist of cash, cash equivalents and trade
receivables. The Company sells its principal products to a large number of
customers in different industries and geographies. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers' financial
conditions but does not generally require collateral. The Company invests
available cash in money market securities of various banks with high credit
ratings.
<PAGE>
Statements of Financial Accounting Standards
Not Yet Adopted
In March 1995, the Financial accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," for fiscal years beginning after December 15, 1995. This statement
requires that certain assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable through future cash flows. Any loss will be recognized in
the income statement and certain disclosures regarding the impairment are to
be made in the financial statements. The Company is evaluating the provisions
of SFAS No. 121 and does not anticipate adoption to have a material effect on
its financial position.
In October 1995, the FASB issued SFAS no. 123, "Accounting for
Stock-Based Compensation," for transactions entered into in fiscal years
beginning after December 15, 1995. SFAS No. 123 allows companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based upon fair value or permits them to continue to
apply the existing accounting rules contained in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25).
Companies choosing to continue on APB No. 25 are required to disclose pro
forma net income and earnings per share based on fair value. The Company
anticipates continuing to account for stock-based compensation in accordance
with APB No. 25 and therefore the adoption of SFAS No. 123 will not have an
impact on the Company's financial position or results of operations.
2. Business Acquisitions
All acquisitions have been accounted for under the purchase method. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of acquisition.
On August 16, 1995, the Company acquired approximately 48 percent of
the outstanding stock of Metalac S.A. Industria e Comercio (Metalac) located
in Sao Paulo, Brazil. With this acquisition, the Company increased its
ownership to approximately 95 percent. Metalac is a leading manufacturer and
distributor of industrial and automotive fasteners in Brazil. The Company paid
$4,000 in cash and issued 141,666 shares of the Company's common stock
(approximate market value on August 16, 1995 of $5,667). The Stock Purchase
Agreement also contains additional payments contingent on the future earnings
performance of Metalac. Any additional payments made, when the contingency is
resolved, will be accounted for as additional costs of the acquired assets and
amortized over the remaining life of the assets. Prior to this acquisition,
the Company accounted for its investment in Metalac using the equity method.
<PAGE>
The following unaudited pro forma consolidated results of operations
for the years ended December 31, 1995 and 1994 are presented as if the Metalac
acquisition had been made at the beginning of each period presented. The
unaudited pro forma information is not necessarily indicative of either the
results of operations that would have occurred had the purchase been made
during the periods presented or the future results of the combined operations.
Years ended December 31
1995 1994
-------------------------
Net sales $432,364 $374,435
Net earnings 16,168 4,939
Earnings per common
share and common
share equivalent 2.68 .94
In 1995, the Company paid approximately $6,200 to acquire, relocate
and prepare certain assets of Harvard Industries, Inc.'s Elastic Stop Nut
Division (ESNA) for their intended use. ESNA manufactured aerospace locknuts
in Union, New Jersey. On June 30, 1995, the Company also paid approximately
$1,000 to increase its ownership in Unbrako K.K. from 50 percent to 100
percent. Unbrako K.K. is a distributor of the Company's Unbrako and aerospace
products in the Japanese market. Pro forma consolidated results of operations
have not been presented because the effect of these acquisitions were not
significant.
3. Restructure of Operations
The 1994 statement of consolidated operations includes a restructuring charge
of $3,500 for the loss on disposal of the Company's Spanish subsidiary net of
a credit for a change in estimate on the remaining components of the
restructuring plan initiated in 1993. In 1994, the Company sold its investment
in its subsidiary, Ferre Plana, S.A., located in Barcelona, Spain. The loss on
disposal of $6,600 included the write-off of the related intangible assets and
cumulative translation adjustment account. The 1993 restructuring charge
included a provision for the liquidation of the Assembly Systems Division
(ASD), a fastener segment product line. In 1994, the Company sold this product
line. As a result of this modification of the restructuring plan and the
related change in estimate, and because actual restructuring costs were lower
than estimated costs, the Company recorded a $1,500 credit for the reversal of
excess reserves associated with the 1993 restructuring charge and a $1,600
gain on the sale of ASD's net assets.
<PAGE>
During 1993, the Company initiated certain restructuring actions which
were completed in 1994 and included the following: a 10 percent decrease in
its non-direct workforce, including significant reductions in corporate and
executive staff; sale of the Company's aircraft; relocation of the corporate
headquarters; the exit of certain historically unprofitable and non-strategic
product lines; and the write-off of costs previously deferred in contemplation
of gains on the sale of the related operating assets held for sale, required
as a result of the protracted period of disposal. The 1993 statement of
consolidated operations includes a restructuring charge of $32,400 to reflect
the costs of these actions and higher than expected costs of completing the
plant consolidations initiated in prior years. This restructuring charge
consisted of the cost of employee separations of $10,000, plant consolidation
costs of $7,500, operating losses of businesses or plants that were held for
sale, sold or closed of $7,600, product line disposal costs of $3,800 and
other non-recurring restructuring costs of $3,500.
Net assets held for sale included in the December 31, 1995 and 1994
consolidated balance sheet includes the land and building located in Puerto
Rico, related to the former site of an Unbrako manufacturing operation closed
in 1992, and a small parcel of land located in Newtown, Pennsylvania.
4. Accounts and Notes Receivable
1995 1994
-----------------------
Trade $59,836 $52,791
Notes and other 2,750 2,942
----------------------
62,586 55,733
Less allowance for
doubtful receivables 1,292 1,299
----------------------
$61,294 $54,434
======================
<PAGE>
5. Inventories
1995 1994
------------------------
Finished goods $45,933 $35,712
Work-in-process 20,095 17,335
Raw materials and supplies 14,330 13,952
Tools 7,732 9,300
----------------------
$88,090 $76,299
======================
6. Investments in Affiliates
At December 31, 1995, the Company's investments in affiliates consist of a
22.05 percent interest in Precision Fasteners Limited, Bombay, India, a 50
percent interest in Unbrako Products Pte. Ltd., Singapore, and a 50 percent
interest in National-Arnold Magnetics Company, Adelanto, California, United
States. In 1995, the company acquired controlling interests in Metalac and
Unbrako K.K. (See Note 2). Prior to the 1995 acquisition dates, the Company
had a 50 percent or less interest in these companies and, accordingly,
classified these investments as affiliates and accounted for them using the
equity method of accounting.
Dividends received from affiliates were $387, $196 and $42 in 1995,
1994 and 1993, respectively. Retained earnings in 1995, 1994 and 1993 included
undistributed earnings of affiliates, net of deferred taxes, of $3,369, $7,493
and $6,253 respectively. At December 31, 1995, the Company has guaranteed the
payment of $1,311 of the affiliates' indebtedness.
In 1994 Precision Fasteners Limited executed a public issue of its
stock whereby it issued 4.8 million shares at $1.59 per share and generated
proceeds of approximately $6,900, net of related expenses. The Company elected
not to subscribe to the affiliate's public issue which reduced its percentage
ownership from 36.75 percent in 1993 to 22.05 percent in 1994. The gain on
this transaction was offset by a write down of the Company's proportionate
share of the affiliate's cumulative translation adjustment account. At
December 31, 1995, the market value of the affiliate's stock of $6,600
exceeded the carrying value of the Company's investment by approximately
$2,300.
The table below contains the summarized financial information of
unconsolidated affiliates. The operations of Metalac and Unbrako K.K. are
included in the table up to the date the Company acquired a controlling
interest.
<PAGE>
Condensed Statements of Earnings
1995 1994 1993
----------------------------------------
Net sales $48,256 $59,314 $53,185
Gross profit 16,035 21,651 18,649
Operating
earnings 6,955 7,863 2,607
Net earnings 5,428 4,658 1,027
Condensed Balance Sheets
Current assets $21,414 $33,744 $25,653
Noncurrent
assets 15,139 23,931 23,888
-------------------------------------
$36,553 $57,675 $49,541
=====================================
Current
liabilities $16,498 $17,660 $18,527
Noncurrent
liabilities 3,034 3,661 4,530
Shareholders'
equity 17,021 36,354 26,484
-------------------------------------
$36,553 $57,675 $49,541
=====================================
7. Property, Plant and Equipment
1995 1994
-----------------------
Land $ 5,001 $ 4,885
Buildings 48,181 42,582
Machinery and equipment 164,708 129,015
Construction in progress 12,968 12,018
-----------------------
230,858 188,500
Less accumulated
depreciation 118,120 99,736
-----------------------
$112,738 $88,764
=======================
Depreciation expense was $14,256, $12,632 and $13,644 in 1995, 1994
and 1993, respectively.
8. Notes Payable
1995 1994
-----------------------
Short-term bank borrowings
and notes payable $ 1,080 $
Current portion of
long-term debt 5,498 8,248
---------------------
$ 6,578 $ 8,248
=====================
All short-term bank borrowings at December 31, 1995 were denominated
in Brazilian Reis and had a weighted average interest rate of 48 percent.
Short-term lines of credit are made available to the Company by commercial
banks under customary arrangements which require the maintenance of a
satisfactory financial condition by the Company. These lines may be withdrawn
at the discretion of the bank. Unused short-term lines of credit were $8,379
as of December 31, 1995.
<PAGE>
9. Accrued Expenses
1995 1994
----------------------
Employee compensation
and related benefits $23,861 $20,230
Other 15,684 14,960
----------------------
$39,545 $35,190
======================
10. Long-Term Debt
1995 1994
-----------------------
Notes Payable to Insurance
Companies, 9.45%, due in
equal installments
through 2002 $35,000 $40,000
Bank Credit Agreement,
variable interest rate,
1995 average interest rate
7.4% (6.1% in 1994) 21,700 19,000
Industrial Development
Revenue Bond Series 1987,
variable rate demand,
1995 average
interest rate 4.1%
(3.1% in 1994), due 2012 5,300 5,300
Other 1,617 374
---------------------
63,617 64,674
Less current installments
(included in notes payable) 5,498 8,248
---------------------
$58,119 $56,426
=====================
Installments due during the next five years are as follows: $5,498,
$5,264, $5,279, $5,000, $5,718 in 1996 through 2000, respectively.
In connection with the Company's restructuring plan, certain debt
agreements were amended on March 21, 1994, which modified certain financial
covenants and increased the interest rates payable under the agreements.
Effective January 1, 1994 the Company's borrowing rate was increased on the
Notes Payable to Insurance Companies from 8.7 percent to 9.45 percent. The
modifications made to the Bank Credit Agreement at that time were renegotiated
effective June 28, 1995, as described below.
<PAGE>
Under the Second Amended and Restated Bank Credit Agreement, the
Company may borrow up to $55,000 in either United States dollars or certain
Eurocurrencies. The agreement also provides for a $10,000 sublimit, within the
total $55,000 limit, which is available for letters of credit. Borrowings bear
interest at either a) an overnight base rate equal to the higher of the prime
rate of the agent bank or the federal funds rate plus .5 percentage points, b)
an eurocurrency rate equal to the effective interbank rate, as defined, plus a
premium which ranges from .5 to 1.5 percentage points based on the
consolidated fixed charge coverage ratio, as defined, or c) at a rate and term
negotiated between each bank and the Company, as applicable. The composite
interest rate on borrowings outstanding at December 31, 1995 and 1994 was 6.74
percent and 7.58 percent, respectively. The Company is required to pay a
commitment fee of .3 percentage points on unborrowed amounts. The Bank Credit
Agreement is a four year agreement, extendable for one year on each of the
first and second anniversary dates.
The Series 1987 Bonds were issued to finance the acquisition and
improvement of a fastener manufacturing facility in Utah and are
collateralized by a first mortgage on the facility and a bank letter of
credit. The interest rate was 5.5 percent and 5.65 percent at December 31,
1995 and 1994, respectively.
The Company is subject to a number of restrictive covenants under the
various debt agreements. These covenants, among other things, set forth
limitations on indebtedness, restrict the payment of cash dividends and
require the Company to maintain a minimum consolidated tangible net worth, a
minimum consolidated fixed charge coverage ratio and a minimum consolidated
current ratio. Certain of the Company's debt agreements contain cross default
and cross acceleration provisions. In 1995, under these covenants, the Company
was permitted to declare dividends not exceeding 10 percent of consolidated
net income. This percentage increases to 20 percent in 1996 and 30 percent in
1997 and each year thereafter. All dividend restrictions terminate upon the
Company achieving certain credit rating requirements and financial ratios as
defined in the debt agreements.
11. Commitments and Contingencies
Leases
Certain of the Company's operations are conducted from leased facilities, all
of which are under operating leases which expire over the next 15 years. The
Company also has operating leases covering certain machinery and equipment.
Substantially all leases provide for the Company to pay operating expenses.
Rental expense incurred was $2,507, $2,158 and $2,094 in 1995, 1994 and 1993,
respectively.
<PAGE>
At December 31, 1995, the future minimum annual rentals on
non-cancelable leases which have initial or remaining terms of more than one
year aggregated $18,751. The minimum payments over the next five years are as
follows: $2,358, $1,954, $1,819, $1,881 and $1,787 in 1996 through 2000,
respectively.
Environmental
The Company has been identified as a potentially responsible party by various
federal and state authorities for clean up or removal of waste from various
disposal sites. At December 31, 1995, the Company had an accrued liability of
$2,400 for environmental remediation which represents management's best
estimate of the costs related to environmental remediation which are
considered probable and can be reasonably estimated. The Company has not
included any insurance recovery in the accrued environmental liability. The
measurement of the liability is evaluated quarterly based on currently
available information. As the scope of the Company's environmental liability
becomes more clearly defined, it is possible that additional reserves may be
necessary. Accordingly, it is possible that the Company's results of
operations in future quarterly or annual periods could be materially affected.
However, management believes that the overall costs of environmental
remediation will be incurred over an extended period of time and, as a result,
are not expected to have a material impact on the consolidated financial
position of the Company.
The Company has established procedures for identifying environmental
issues at its manufacturing facilities. Environmental and safety coordinators,
a designated position at most of the operating facilities, are familiar with
environmental laws and regulations and serve as resources for the
identification and resolution of environmental issues. The Company also has an
environmental audit program, which is used to identify and resolve potential
environmental issues at the operating facilities. Through these programs, the
Company monitors applicable regulatory developments and manages environmental
issues.
Litigation
The Company is involved in various legal matters
incidental to its business. Although the final outcome
of these matters cannot be determined, it is management's opinion that the
final resolution of these matters will not have a materially adverse effect on
the Company's consolidated financial position or results of operation.
<PAGE>
12. Income Taxes
The components of the provision (benefit) for income taxes from operations
were as follows:
1995 1994 1993
----------------------------------
Currently payable:
United States
Federal $ 400 $ 200 $ 100
State and local 346 350 300
Non-United States 2,335 1,950 (604)
----------------------------------
3,081 2,500 (204)
----------------------------------
Deferred:
United States
Federal 810 2,017 (1,897)
State and local (280) (861) (897)
Non-United States 2,789 (736) 398
----------------------------------
3,319 420 (2,396)
----------------------------------
$6,400 $2,920 $(2,600)
==================================
The income tax benefit of the employee stock option compensation
expense for tax purposes in excess of amounts recognized for financial
reporting purposes credited to additional paid-in capital was $265 in 1995,
$23 in 1994 and $4 in 1993.
The components of earnings (loss) from operations before income taxes
were as follows:
1995 1994 1993
----------------------------------
United States $10,948 $ 2,231 $(33,484)
Non-United States 10,327 3,889 (111)
----------------------------------
$21,275 $ 6,120 $(33,595)
==================================
<PAGE>
Temporary differences comprising the net deferred income tax asset
(liability) on the consolidated balance sheet were as follows:
1995 1994
----------------------
Inventory reserves $ 7,905 $ 5,291
Postretirement benefits
other than pensions 4,752 4,952
Other employee benefits
and compensation 90 1,370
Alternative minimum
tax credits 1,327 903
Advance corporate tax 1,041 1,316
Accrued expenses 2,065 2,117
Net operating loss
carryforward 10,909 13,550
Valuation allowances (14,349) (15,462)
---------------------
Deferred income tax asset 13,740 14,037
---------------------
Depreciation (8,648) (8,569)
Other, net (1,757) (2,023)
---------------------
Deferred income
tax liability (10,405) (10,592)
---------------------
Net deferred income
tax asset $ 3,335 $ 3,445
=====================
The following sets forth the differences between the provision
(benefit) for income taxes from continuing operations computed at the United
States federal statutory income tax rate of 34 percent and that reported for
financial statement purposes:
1995 1994 1993
-----------------------------------
Provision (benefit)
computed at the
United States federal
statutory income tax
rate $ 7,234 $ 2,081 $(11,422)
Earnings of certain
subsidiaries taxed
at different rates (664) (1,923) (2,278)
Permanent items 1,346 2,168 (1,612)
State income tax, net
of federal benefit 256 177 132
Unused net operating
loss of subsidiary
sold 2,176
Valuation allowances (1,824) (2,255) 12,966
Other, net 52 496 (386)
-----------------------------------
Provision (benefit) for
income taxes $ 6,400 $ 2,920 $ (2,600)
===================================
<PAGE>
In 1994, the Company sold its Spanish subsidiary that had net
operating loss carryforwards (NOLs). The tax benefit of these NOLs of $2,176
was fully offset by a valuation allowance at December 31, 1993. In 1994, the
Company wrote-off the deferred tax benefit of these NOLs and made a
corresponding reduction to its valuation allowance. At December 31, 1995, the
Company had United States NOLs of $27,400 which begin to expire in 2008 and
Brazilian NOLs of $5,200 (including $3,100 of preacquisition NOLs) with no
expiration dates.
The Company has recorded a net deferred tax asset of $3,335 at
December 31, 1995, which includes a partial benefit related to the NOLs.
Realization of the net deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of the NOLs. Although
realization is not assured, management believes it is more likely than not
that the recorded net deferred tax asset will be realized. The net change in
the valuation allowance for 1995 results primarily from the release of
valuation allowances in the United States based on the reevaluation of the
realizability of future benefits net of valuation allowances acquired with the
1995 business acquisitions.
United States income taxes have not been provided on the unremitted
earnings of certain subsidiaries located outside the continental United States
of approximately $46,500 because, in management's opinion, such earnings are
required in these operations, will be remitted in a tax-free liquidation, or
will be remitted as dividends with taxes substantially offset by foreign tax
credits. It is not practicable to determine the amount of unrecognized
deferred tax liabilities associated with such earnings.
13. Retirement Plans and Other Benefits
The Company sponsors two defined contribution plans. Participation in one of
these plans is available to substantially all domestic salaried and hourly
employees. Participants may make voluntary pre-tax or after-tax contributions
to the plans up to 16 percent of their compensation (as defined). The Company
contributes a percentage of employee contributions based upon the number of
years of employee service to the salaried plan. The Company's contribution
expense for the salaried plan was $208 in 1995, $199 in 1994 and $228 in 1993.
<PAGE>
The Company sponsors a number of defined benefit pension plans
covering substantially all employees and a defined benefit plan covering
non-employee directors. The benefits of such plans are based primarily on
years of service and compensation. Plan assets consist principally of common
stocks, pooled equity funds, corporate bonds and United States Government
obligations. At December 31, 1995 and 1994, the plan's assets included Company
stock with fair values of $10,970 and $5,217, respectively. There were
no dividends received from Company stock for the years ended December 31,
1995 and 1994.
Effective December 31, 1994, the Company adopted certain amendments to
its principal United States pension plan to enhance the value and improve the
portability of participants' benefits while allowing the Company to better
manage its pension expense. These amendments converted this United States
defined benefit plan from an average pay plan to a cash balance plan. These
amendments decreased the projected benefit obligation by eliminating this
plan's provision for future salary increases and resulted in an unrecognized
prior service gain of approximately $14 million at December 31, 1994.
The following table sets forth the funded status of these plans at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------------------------
Plans whose assets Plans whose Plans whose assets Plans whose
exceed accumulated accumulated benefits exceed accumulated accumulated benefits
benefits exceed assets benefits exceed assets
<S> <C> <C> <C> <C>
Plan assets at fair value $ 116,266 $ 9,215 $ 95,484 $ 7,351
Actuarial present value of benefit
obligations:
Vested benefits (94,061) (17,167) (75,056) (12,721)
Nonvested benefits (411) (873) (1,800) (1,446)
---------------------------------------------------------------------------------
Accumulated benefit obligation (94,472) (18,040) (76,856) (14,167)
Projected future salary increases (14,723) (272) (12,333) (387)
---------------------------------------------------------------------------------
Projected benefit obligation (109,195) (18,312) (89,189) (14,554)
---------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 7,071 (9,097) 6,295 (7,203)
Unrecognized net (asset) obligation
at date of initial application (5,165) 208 (6,028) 384
Unrecognized prior service (gain) cost (11,761) 1,213 (12,552) 1,001
Unrecognized net loss 21,932 4,021 24,148 2,092
Recognized minimum liability (5,276) (3,113)
---------------------------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31 $ 12,077 $ (8,931) $ 11,863 $ (6,839)
=================================================================================
</TABLE>
Under the requirements of Statement of Financial Accounting Standards
(SFAS) No. 87, "Employers' Accounting for Pensions," an additional minimum
pension liability for certain plans, representing the excess of accumulated
benefits over plan assets and accrued pension costs, was recognized at
December 31, 1995 and 1994. A corresponding amount was recognized as an
intangible asset, to the extent of unrecognized prior service cost and
unrecognized transition obligation, with the balance recorded as a separate
reduction of shareholders' equity.
The assumptions used as of December 31, 1995, 1994 and 1993 in
determining the domestic net pension cost and net pension liability were as
follows:
1995 1994 1993
----------------------------------------
Discount rate 7.25% 9.00% 7.25%
Rate of return on
plan assets 10.00% 10.00% 10.00%
Rate of future
compensation
increase 5.00% 5.00% 5.00%
<PAGE>
The assumptions used in determining the net pension cost and pension
liability for non-United States pension plans were based on the economic
environment of each applicable country. The range of assumptions used as of
December 31, 1995 was as follows: discount rate, 7 to 8 percent; rate of
return on plan assets, 9.5 to 10.0 percent; rate of future compensation
increase, 4.5 to 5.5 percent.
The net periodic pension cost incurred for 1995, 1994 and 1993,
respectively for these plans, included the following components:
1995 1994 1993
---------------------------------------
Service cost $4,665 $ 3,881 $ 3,322
Interest cost 9,226 9,148 9,764
Actual return on
plan assets (21,378) (4,267) (9,891)
Net amortization
and deferral 11,337 (5,961) (1,760)
----------------------------------------
Net periodic
pension cost $3,850 $ 2,801 $ 1,435
========================================
<PAGE>
In addition to the 1993 pension cost noted above, the early retirement
program offered to eligible employees at the Company's Jenkintown
manufacturing facility resulted in a one-time charge of $1,748 for enhanced
benefits and lump sum distributions. This charge is reflected in the statement
of consolidated operations as a component of the restructuring charge.
Other Postretirement Benefits
In addition to providing pension benefits, the Company and certain of its
subsidiaries provide postretirement health care and life insurance benefits.
All full-time nonbargaining employees hired prior to January 1, 1990 are
eligible for medical benefits under a defined dollar benefit plan if they
retire with at least 10 years of service and meet certain age requirements.
Generally, Company-provided medical benefits terminate when covered
individuals become eligible for Medicare benefits. The medical plan is
contributory, with retiree contributions adjusted annually. The life insurance
plan covers substantially all employees who retire from full-time employment
after age 55 with at least 10 years of service. The life insurance plan is
non-contributory. Both of the Company's postretirement plans are unfunded.
Effective in 1994, the Company implemented certain programs, such as
required participation in managed care programs when available, intended to
stem rising costs. These amendments resulted in an unrecognized prior service
gain of $6,376, which is being amortized as a reduction in postretirement
benefit cost beginning in 1994. An assumed discount rate of 7.25 percent and
8.5 percent was used to determine the accumulated postretirement benefit
obligation at December 31, 1995 and 1994, respectively.
The funded status of the plans and amounts recognized in the Company's
consolidated financial statements as of December 31 were as follows:
1995 1994 1993
------------------------------------
Accumulated
postretirement
benefit obligation:
Current retirees $ 6,039 $ 6,891 $ 9,739
Fully eligible
actives 662 1,634 3,117
Other actives 3,529 2,136 4,075
--------------------------------------
Total accumulated
postretirement
benefit obligation 10,230 10,661 16,931
Unrecognized prior
service gain 5,314 5,845
Unrecognized net
loss (1,567) (2,004) (1,579)
---------------------------------------
Postretirement
benefit obligation $13,977 $14,502 $15,352
=======================================
Net periodic postretirement benefit cost included the following
components:
1995 1994 1993
---------------------------------------
Service cost $ 159 $ 205 $ 288
Interest cost 846 836 1,324
Unrecognized prior
service gain (531) (531)
Net amortization and
deferral 77 150
---------------------------------------
Net periodic
postretirement
benefit cost $ 551 $ 660 $1,612
=======================================
A 5 percent annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1995. Increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by $60
and increase the aggregate of the service and interest components of net
periodic postretirement benefit cost for 1995 by $8.
<PAGE>
As a result of the Company's decision to significantly downsize its
Santa Ana, California manufacturing operation and close its Puerto Rico
manufacturing facility, an $800 gain related to the curtailment of its
postretirement benefit plans was recognized in 1993. This curtailment gain is
reflected in the statement of consolidated operations as a component of the
restructuring charge.
Postemployment Benefits
As of January 1, 1994, the provisions of Statement of Financial Accounting
Standards SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
were adopted. Since the Company previously accounted for most of these
benefits on an accrual basis, the incremental after-tax impact of accruing the
cost of these benefits for 1994 was not material.
14. Stock Options
The Company has a nonqualified stock option plan which continues to the year
2000. Under the plan, the Company may grant up to an aggregate of 1,650,000
shares in either stock options (fixed price or variable price) or restricted
shares to officers and key employees. Additionally, non-employee directors may
elect to receive discounted price options in lieu of all or a portion of their
annual retainer fee. The number of such options, if elected, is based upon
market value at date of grant. The exercise price of outstanding options is
determined as follows: fixed price options are granted at market value on date
of grant; and discounted price options are granted at par value of the common
stock on date of grant.
At December 31, 1995, 41 individuals held options to purchase an
aggregate of 730,950 shares (fixed 715,990, discounted 14,960). The fixed
price options outstanding under the plan have exercise prices ranging from
$20.50 to $45.38 per share and expiration dates ranging from December 2, 1997
to July 24, 2005. The discounted price options outstanding have an exercise
price of $1.00 and expiration dates ranging from May 31, 1999 to May 31, 2005.
At December 31, 1995, 4,395 restricted shares were outstanding under the stock
option plan. The shares become free of any restrictions on dates ranging from
May 2, 1996 to October 24, 2000. No variable price options were outstanding at
December 31, 1995.
Changes in shares under option were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Shares under option at beginning of year 699,102 661,097 509,435
Additions (deductions):
Options granted 114,201 92,009 152,862
Options exercised (69,258) (17,169) (1,200)
Options expired or terminated (8,700) (36,835)
-------------------------------------------------
Shares under option at end of year 735,345 699,102 661,097
=================================================
Option price per share of options
exercised during the year $1.00-$45.38 $19.94-$25.00 $ 21.44
Options exercisable at end of year 462,592 450,806 497,917
Exercise price of options outstanding:
Total $19,358 $18,159 $17,694
Per share (fixed) $20.50-$45.38 $20.50-$45.38 $19.94-$45.38
Per share (discounted) $1.00 $1.00 $1.00
Shares available for future option grants 311,119 116,620 171,794
</TABLE>
<PAGE>
15. Per Share Data
Earnings or loss per share is computed by dividing net earnings or loss by the
weighted average number of common shares outstanding. When dilutive, stock
options are included as common share equivalents using the treasury stock
method. The number of shares used in computing the earnings or loss per share
was 5,958,440 in 1995, 5,131,900 in 1994 and 5,105,706 in 1993. Primary and
fully diluted earnings or loss per share are the same for each of these years.
16. Preferred Stock Purchase Rights
The Board of Directors declared a dividend distribution of one Right for each
outstanding share of common stock, as provided in the Rights Agreement dated
November 11, 1988. The Rights Agreement was amended on January 22, 1991 and on
November 16, 1994. Under the Rights Agreement as amended, each Right may be
exercised, under certain conditions, to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock, par value $1 per share, for
$125. The Rights are not exercisable or transferable apart from the common
stock until 10 business days after a public announcement that a person or
group has acquired or intends to commence a tender offer for 10 percent or
more of the outstanding common stock. The Board of Directors may, at its
option and under certain conditions, exchange all of the Rights not owned by
the 10 percent holder for an equal number of shares of common stock. The
Rights, which expire on November 21, 1998, do not have voting or dividend
rights and may be redeemed by the Company at a price of $.01 per Right at any
time until 10 business days following the acquisition of 10 percent or more of
the Company's common stock.
In the event that the Company is acquired in a merger or other
business combination transaction, or 50 percent or more of its assets or
earning power is sold, each Right will entitle the holder to receive from the
surviving or acquiring corporation, for the exercise price, common stock
having a market value equal to two times the exercise price of the Right.
Alternatively, if a 10 percent holder were to acquire the Company in a
business combination transaction in which the Company and its stock survive,
or were to engage in certain "self-dealing" transactions, each Right not owned
by the 10 percent holder would have the right to receive common shares having
a market value of two times the exercise price of the Right.
<PAGE>
17. Financial Instruments
Fair Value of Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for similar issues or by discounting expected cash flows
at the rates currently available to the Company for debt of the same remaining
maturities. The fair value of the Company's variable rate debt approximates
its carrying value. The carrying amount and the estimated fair value of the
Company's long-term debt, including the current portion, are as follows:
1995 1994
---------------------
Carrying amount $ 63,617 $ 64,674
Estimated fair value 66,930 65,875
Forward Exchange Contracts
The Company enters into forward exchange contracts primarily as hedges
relating to identifiable currency positions. These financial instruments are
designed to minimize exposure and reduce risk from exchange rate fluctuations
in the regular course of business. Gains and losses on forward exchange
contracts which hedge exposures on firm foreign currency commitments are
deferred and recognized as adjustments to the bases of those assets. Gains and
losses on forward exchange contracts which hedge foreign currency assets or
liabilities are recognized in income as incurred. Such amounts effectively
offset gains and losses on the foreign currency assets or liabilities that are
hedged. The cash flow from such contracts is classified in the same category
as the transaction hedged in the statements of consolidated cash flows.
At December 31, 1995, the Company has outstanding contracts maturing
in 1996 that have, in the aggregate, a United States dollar contract value
equivalent of $10,189, which approximates fair value based on rates available
to the Company at December 31, 1995.
18. Research and Development
Research and development costs incurred were $5,247, $4,727 and $5,050 for
1995, 1994 and 1993, respectively.
19. Industry Segment and Geographic Area Information
The Company operates in two industry segments: Fasteners (high-strength
precision mechanical fasteners and precision components); and Materials
(superalloys in ingot form and magnetic materials). The Company operates in
the following geographic areas: United States, Europe (principally England and
Ireland) and other (principally Australia, Brazil, Canada, Japan and Mexico).
Inter-area sales consist of products similar to those offered to unaffiliated
customers and are accounted for on the basis of third party sales price.
Principal markets include aerospace, transportation, industrial machinery and
equipment, and medical equipment. Interest income and expense, equity in
earnings of affiliates and other income and expenses are excluded from the
determination of segment operating earnings.
<PAGE>
Industry Segments
1995 1994 1993
------------------------------------------
Net sales:
Fasteners $273,556 $239,561 $226,791
Materials 136,258 109,344 92,303
------------------------------------------
Net sales $409,814 $348,905 $319,094
==========================================
Operating
earnings (loss):
Fasteners $ 16,657 $ 2,376 $(25,865)
Materials 17,103 13,409 8,429
Unallocated
corporate
costs (7,750) (7,807) (11,651)
------------------------------------------
Operating
earnings
(loss) $ 26,010 $ 7,978 $(29,087)
==========================================
Identifiable
assets:
Fasteners $242,440 $211,309 $211,097
Materials 77,285 75,570 66,263
Net assets
held for sale 2,362 2,367 8,619
------------------------------------------
Total
assets $322,087 $289,246 $285,979
==========================================
Depreciation and Amortization
1995 1994 1993
--------------------------------------
Fasteners $10,875 $ 9,936 $11,569
Materials 3,855 3,127 2,915
--------------------------------------
Total $14,730 $13,063 $14,484
======================================
Capital Additions 1995 1994 1993
--------------------------------------
Fasteners $16,258 $11,110 $ 6,540
Materials 5,222 6,505 5,708
--------------------------------------
Total $21,480 $17,615 $12,248
======================================
Geographic Areas
1995 1994 1993
--------------------------------------
Net sales:
United States $ 313,810 $275,069 $247,380
Europe 89,106 79,253 83,437
Other 26,158 14,980 13,309
Inter-area (19,260) (20,397) (25,032)
--------------------------------------
Net sales $ 409,814 $348,905 $319,094
======================================
Operating
earnings (loss):
United States $ 18,037 $3,746 $(29,986)
Europe 5,207 2,108 (168)
Other 1,704 1,597 1,531
Eliminations 1,062 527 (464)
---------------------------------------
Operating
earnings
(loss) $ 26,010 $ 7,978 $(29,087)
=======================================
Identifiable assets:
United States $ 205,616 $197,252 $193,189
Europe 68,196 66,336 66,677
Other 46,332 24,675 21,492
Net assets held
for sale 2,362 2,367 8,619
Eliminations (419) (1,384) (3,998)
---------------------------------------
Total assets $ 322,087 $289,246 $285,979
=======================================
<PAGE>
- ------------------------------------------------------------------------------
Report of
Independent Accountants
- ---------
The Shareholders and Board of Directors
SPS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of SPS
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related statements of consolidated operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SPS
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 1, 1996
<PAGE>
- -------------------------------------------------------------------------------
Summary of
Quarterly Results (unaudited)
- ----------
<TABLE>
<CAPTION>
(Thousands of dollars, except share data) Quarter Ended
March June September December
31 30 30 31
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales $102,432 $100,581 $100,500 $106,301
Gross profit 17,295 18,723 20,200 19,436
Net earnings 3,050 3,925 4,185 3,715
Net earnings per share .54 .67 .70 .60
1994
Net sales $ 81,581 $ 87,865 $ 88,472 $ 90,987
Gross profit 13,028 14,813 14,812 13,672
Net earnings (loss) (4,140) 3,700 1,990 1,650
Net earnings (loss) per share (.81) .72 .39 .32
</TABLE>
1995 Fourth quarter results include a change in the estimate of
obsolescence reserves on the Unbrako product line inventory. The effect
of this change was to reduce fourth quarter pre-tax operating earnings by
$1,100.
1994 First quarter results include a restructuring charge of $6,600 due
to the disposal of a subsidiary and a $1,500 restructuring credit for the
reversal of excess reserves (see Note 3).
1994 Second quarter results include a restructuring credit of $1,600 for
the gain on the sale of the Assembly Systems Division.
1994 Fourth quarter results include a gain on the sale of real estate of
$2,900 and increases in provisions for slow moving inventory and
environmental remediation of approximately $2,400.
<PAGE>
- -----------------------------------------------------------------------------
Selected
Financial Data
- --------
(Thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $409,814 $348,905 $319,094 $359,431 $408,499
Operating earnings (loss) 26,010 7,978 (29,087) (3,106) 20,089
Earnings (loss) from continuing operations 14,875 3,200 (30,995) (7,009) 5,612
Discontinued operations-
Estimated gain on disposal 990
Cumulative effect of changes in
accounting policies (13,400)
Net earnings (loss) 14,875 3,200 (30,995) (20,409) 6,602
Working capital 101,907 87,491 94,483 102,968 105,409
Total assets 322,087 289,246 285,979 295,608 318,323
Long-term debt 58,119 56,426 81,828 63,321 61,110
Property, plant and equipment additions 21,480 17,615 12,248 11,555 11,118
Per Share Data:
Earnings (loss) from continuing operations 2.50 .62 (6.07) (1.37) 1.10
Discontinued operations -
Estimated gain on disposal .20
Cumulative effect of changes in
accounting policies (2.63)
Net earnings (loss) 2.50 .62 (6.07) (4.00) 1.30
Cash dividends .96 1.28 1.28
Shareholders' equity 24.44 24.18 20.14 27.98 35.34
</TABLE>
Results for 1994, 1993 and 1992 include net restructuring charges of $3,500,
$32,400 and $6,800, respectively. See Note 3 to consolidated financial
statements.
On December 14, 1993, the Board of Directors elected to suspend payment of the
Company's quarterly dividend.
The Company changed its accounting policies, effective January 1, 1992, to
accrue for postretirement benefits other than pensions and account for income
taxes under the asset and liability method.
<PAGE>
- -------------------------------------------------------------------------------
Common Stock
Information
- --------
The price range at which the Company's common stock traded in its
principal market, the New York Stock Exchange, during the last eight quarters
were as follows:
Quarter Ended High Low
-------------------------------------------------------------
December 31, 1995 $53.75 $38.63
September 30, 1995 41.00 36.00
June 30, 1995 37.88 29.50
March 31, 1995 31.13 25.38
December 31, 1994 $26.38 $22.00
September 30, 1994 27.38 25.25
June 30, 1994 27.28 21.50
March 31, 1994 24.50 18.75
As of March 5, 1996, the approximate number of registered shareholders
was 1,181.
- -------------------------------------------------------------------------------
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- ------------------------------------------------
Introduction
The Company's operating results have improved significantly over the past two
years. Significant capital expenditures, which reduced manufacturing costs and
improved customer service levels, coupled with continued benefits of the 1994
cost reduction programs and improving economic conditions in certain markets
contributed to the increase in sales and operating earnings. Among the
Company's product lines, the sales of aerospace fasteners and magnetic
materials resulted in the strongest improvement in contributions to operating
results. In 1995, the Company increased its commitment to be a global supplier
of fasteners by increasing its investments in subsidiaries in Japan and Brazil
and entering into an agreement to form a joint venture in China commencing in
1996.
1995 Compared to 1994
Net Sales
Fastener segment sales increased by $34 million, or 14.2 percent, as sales
increased in all served markets. The Company's aerospace fastener sales were
up $15.9 million, or 14.2 percent, to $128.3 million in 1995 due to volume
increases of maintenance and retrofit fasteners. After a four year downturn in
commercial aircraft production, the Company is expecting an upturn in the
aerospace business due to the recent increase in new commercial aircraft
orders and the improved profit performance of the airlines.
The Company's industrial and Unbrako fastener sales increased $18.1
million, or 14.2 percent in 1995. Included in this increase is $9.8 million of
sales by Metalac and Unbrako K.K. which are included in the 1995 results of
operations from their dates of acquisition. The remaining increase is due
primarily to increased sales of automotive and Unbrako fasteners in the
European market. Sales of automotive and Unbrako products in the North
American market remained level with 1994.
Material segment sales increased by $26.9 million, or 24.6 percent, as
sales of magnetic materials and superalloys increased from the prior year.
Demand was very strong for magnetic materials such as bonded magnets, rare
earth magnets and molybdenum permalloy powder cores sold to the automotive,
telecommunications and personal computer markets. Demand for these products
softened at the end of 1995 which may indicate a decrease in the growth rate
of magnetic material sales. Stainless steel alloy sales to the air melt
investment casting market increased significantly from 1994. Sales of vacuum
melt alloy products manufactured for aerospace applications improved in the
second half of 1995 and continued improvement is expected based on the
Company's expectations for the aerospace industry. All sales of the materials
segment are sourced from the United States and are classified as such in the
geographic area information presented in Note 19 to the financial statements.
<PAGE>
Operating Earnings
The operating earnings of the fastener segment improved significantly from
$2.4 million, or 1 percent of sales, in 1994 to $16.7 million, or 6 percent of
sales in 1995. Excluding the net unusual charge in the prior year period,
operating earnings increased by $10.8 million or 183 percent. The improvement
in earnings is attributed to increased sales of fastener products and cost
reductions attributed to the company's investment in new state-of-the-art
computer controlled machine tools. New manufacturing equipment and expanded
employee training programs at the Company's Cleveland, Ohio plant resulted in
a significant improvement in its operating earnings compared to its poor
performance in 1994. Despite an increase in European automotive fastener
sales, the Company's facility in Coventry, England, incurred an operating loss
in 1995 due to the failure of old, worn-out equipment. The Company
restructured the management organization at the Coventry facility and started
a multi-year equipment modernization program to position the facility to take
advantage of the improved European automotive market.
In the materials segment, operating earnings increased from $13.4
million or 12.3 percent of sales in 1994, to $17.1 million or 12.6 percent of
sales in 1995. The increase in earnings is attributed to higher sales volume
and improved manufacturing efficiencies. Advances made in magnetic and
superalloy technology and investments in new state-of-the-art equipment has
led to reduced manufacturing cost and improved delivery time in the materials
segment.
Excluding the $3.1 million restructuring credit in 1994, United States
operating earnings improved from $646 thousand in 1994 to $18 million in 1995.
The increase in earnings is attributed to higher sales volume of domestic
aerospace fasteners, significant improvement in the operating performance of
the Cleveland, Ohio plant and improved results of the materials segment.
Excluding the $6.6 million loss on disposal of the Spanish subsidiary in 1994,
European operating earnings decreased from $8.7 million in 1994 to $5.2
million in 1995. The decrease in earnings is attributed to the 1995 operating
loss of the Coventry facility and lower margins on incremental sales into
certain markets intended to improve market share.
Other Expense
Interest expense decreased from $6.9 million in 1994 to $6.5 million in 1995.
Lower levels of debt decreased interest expense by approximately $1.2 million,
but higher interest rates caused interest expense to increase by $800
thousand. The unfavorable change in other income of $3.4 million is attributed
primarily to the loss on the disposal of fixed assets of $541 thousand in
1995, compared to the gain of $3.4 million in 1994. Certain machinery and
equipment that was replaced with more modern equipment was sold or written off
in 1995. In 1994, the Company sold its former corporate headquarters located
in Newtown, Pennsylvania and the Company's aircraft. The sale of these assets
resulted in gains totaling $3.3 million.
Net Earnings
The Company recorded net earnings for 1995 of $14.9 million, or $2.50 per
share, compared to $3.2 million, or $.62 per share, in 1994. Excluding the
1994 net restructuring charge, net earnings for 1994 were $6.7 million, or
$1.31 per share.
<PAGE>
Orders and Backlog
Incoming orders in 1995 were $446.6 million, compared to $365.4 million in
1994. The increase in orders was due primarily to increased orders received
for aerospace fasteners and superalloy materials. The backlog in orders at
December 31, 1995 was $136.5 million, compared to $98.5 million at the end of
1994 and $89 million at December 31, 1993. Part of the increase in orders and
backlog is due to the 1995 acquisition of the Elastic Stop Nut Division of
Harvard Industries, Inc.
Environmental
The Company has been identified as a potentially responsible party by various
federal and state authorities for clean up or removal of waste from various
disposal sites. The cost of remediation will depend upon numerous factors,
including the number of parties found liable at each environmental site and
their ability to pay, the outcome of negotiations with regulatory authorities,
and the years of remedial activity required.
At December 31, 1995, the accrued liability for environmental
remediation represents management's best estimate of the probable and
reasonably estimable costs related to environmental remediation. The
measurement of the liability is evaluated quarterly based on currently
available information.
Acquisitions
On March 3, 1995, the Company executed an Asset Purchase Agreement with
Harvard Industries, Inc. to acquire certain assets of Harvard's Elastic Stop
Nut Division (ESNA) which designs, manufactures and sells aerospace locknuts
and is located in Union, New Jersey. The acquired assets have been
consolidated into existing aerospace fastener operations in Jenkintown,
Pennsylvania and Santa Ana, California. After relocation of the machinery and
equipment into existing facilities, the Company commenced manufacturing
certain products previously manufactured by ESNA. The purchase price of
approximately $4.5 million included value for machinery and equipment, an
agreement not to compete and other intangible assets. In addition to the
purchase price, the Company incurred approximately $1.7 million of direct
costs related to the acquisition, relocation and preparation of these assets
for their intended use.
On June 30, 1995, the Company paid approximately $1 million to
increase its ownership interest in Unbrako K.K. to 100 percent. Unbrako K.K.,
located in Tokyo, Japan, was previously owned by Pacific Products Limited, a
joint venture in which the Company had a 50 percent interest. Unbrako K.K. is
a distributor of the Company's Unbrako and aerospace fastener products in the
Japanese market.
As discussed in Note 2 to the financial statements, the Company
acquired approximately 48 percent of the outstanding stock of Metalac from two
Metalac directors for $4 million in cash and 141,666 shares of the Company's
common stock (approximate market value of $5.7 million on the acquisition
date) on August 16, 1995. With this acquisition, the Company has increased its
ownership to approximately 95 percent and intends to make a public tender
offer for the remaining 5 percent of the outstanding shares. The Company also
entered into a non-competition agreement with the two Metalac directors.
In December 1995, the Company entered into an agreement with a Chinese
fastener manufacturer, Shanghai Standard Parts Corporation (SSPC), to form a
joint venture company in China called Shanghai SPS Biao Wu Fasteners Company
Limited. SSPC will contribute an operating company, Shanghai Biao Wu High
Tensile Fasteners Company Limited (SBW) and SPS Technologies, Inc. will
contribute $5.5 million in cash, equipment (new and used) and certain
manufacturing technology. SPS Technologies, Inc. will be the controlling
partner with a 55 percent equity interest and a majority of the members of the
Board of Directors. SBW currently manufactures socket head cap screws and had
1995 sales of approximately $15 million.
<PAGE>
1994 Compared to 1993
Net Sales
Sales in 1994 of $348.9 million increased by $29.8 million, or 9.3 percent,
from 1993. Excluding 1993 sales of the fastener operation in Spain and the
Assembly Systems Division (both businesses have been sold by the Company),
sales increased by $45.1 million, or 14.8 percent, in 1994.
Excluding 1993 sales of businesses sold, fastener segment sales
increased $28.1 million, or 13.3 percent, as sales increased in all served
markets of the fastener segment. Despite continued weakness in new aircraft
orders, the Company achieved an $11.8 million increase in aerospace fastener
sales by concentrating on the repair, replacement and retrofit markets of this
business. Sales in the transportation and industrial fastener markets increase
by $16.3 million, or 14.6 percent, due to the strengthening automotive
business in the United States and western Europe, primarily the United
Kingdom.
Materials segment sales increased by $17 million, or 18.5 percent, as
sales of magnetic materials and superalloys increased from the prior year. The
increase in sales is attributed to the strong demand for magnetic materials
from the domestic automobile and anti-theft security markets and the
increasing demand for cobalt-based medical and stainless steel alloys and
proprietary superalloys from the investment casting market. Installation of
new air melt processing equipment was completed in April 1994 and has
increased capacity and improved delivery time to customers.
Operating Earnings
Excluding all restructuring charges, operating earnings for the fastener
segment were approximately $6 million for 1994 and 1993. The 1994 operating
earnings benefitted from avoiding losses generated in 1993 from the
manufacturing operations in Spain and the Assembly Systems Division (these
businesses were sold). In addition, the 1993 manufacturing inefficiencies that
resulted from the 1993 start-up of fastener operations transferred among
facilities significantly decreased in 1994. The 1994 operating earnings were
adversely affected by the Company's North American industrial and Unbrako
fastener manufacturing operations. In 1994, the Company's Cleveland, Ohio
plant incurred excess manufacturing costs caused by certain material and
equipment problems.
In the materials segment, operating earnings increased from $8.4
million, or 9.1 percent of sales in 1993, to $13.4 million, or 12.3 percent of
sales in 1994. The increase in earnings is attributed to higher sales of
magnetic materials, better product mix of alloy sales and savings from an
overhead reduction program.
The decrease in unallocated corporate costs from $11.7 million in 1993
to $7.8 million in 1994 is due to restructuring actions completed in 1994 to
reduce the Company's cost structure. A reduced corporate staff and the sale of
the Company's aircraft and Newtown, Pennsylvania corporate headquarter's
facility resulted in significant cost savings starting in 1994.
United States operating earnings improved from a $30 million loss in
1993 to a $3.7 million profit in 1994. In 1993, the Company incurred a $26.1
million United States restructuring charge compared to a $3.1 million
restructuring credit in 1994. A $5 million increase in the operating earnings
of the material segment also contributed to the increase in the United States
operating earnings. The 1994 and 1993 European operating results were
adversely affected by the Company's Spanish subsidiary. The sale of the
Spanish subsidiary resulted in a $6.6 million loss on disposal in 1994 and in
1993 it had a $1.8 million operating loss.
Other Income and Expense
Interest expense increased by $1.0 million in 1994 due to an increase in
interest rates and higher levels of corporate debt. As a result of improved
operating performance by the magnetic materials joint venture in Adelanto,
California and the Company's Brazilian affiliate, the Company's equity in
earnings of affiliates improved by $1.2 million in 1994. In 1994, the Company
sold real estate located in Newtown, Pennsylvania and the Company's aircraft.
The sale of these assets contributed to the $2.5 million net increase in other
income.
<PAGE>
Income Taxes
For 1994, the effective tax rate is higher than the United States federal
statutory tax rate primarily due to the inability to recognize a full tax
benefit on the loss on disposal of the Company's subsidiary in Spain. The
income tax benefit of the Company's 1993 loss from continuing operations was
lower than the benefit computed at the United States federal statutory tax
rate primarily due to operating losses in the United States and Spain for
which a benefit was not currently recognizable.
Net Earnings
The Company recorded net earnings for 1994 of $3.2 million, or $.62 per share,
compared to a net loss of $31 million, or $6.07 per share, in 1993. Excluding
all restructuring charges, net earnings for 1994 were $6.7 million, or $1.31
per share, compared to a net loss for 1993 of $795 thousand, or $.15 per
share.
Summary of Restructuring Actions
As discussed in Note 3 to the financial statements, the Company incurred
restructuring charges in 1993 and 1994. In 1993, the Company initiated certain
restructuring actions that reduced the Company's cost structure and improved
its operating performance. The majority of these actions were completed in
1994. In 1994, the Company also sold two historically unprofitable
manufacturing operations. The exit of these operations allowed management to
focus on and make needed investments in the Company's more profitable
businesses. In 1995, the Company paid the remaining $550 thousand of severance
cost related to the restructuring actions. At December 31, 1995, the following
items remain to be accomplished to complete the Company's restructure plan:
sell the Unbrako manufacturing facility in Puerto Rico that was closed in 1992
and sell the remaining parcel of land located in Newtown, Pennsylvania, the
former site of the Company's corporate headquarters (the building and most of
the land was sold in 1994).
<PAGE>
Liquidity and Capital Resources
Management considers liquidity to be the ability to generate adequate amounts
of cash to meet its needs and capital resources to be the resources from which
such cash can be obtained, principally from operating and external sources.
The Company believes that capital resources available to it will be sufficient
to meet the needs of its business, both on a short-term and long-term basis.
Cash flow provided or used by operating activities, investing
activities and financing activities is summarized in the statements of
consolidated cash flows. The increase of $12.3 million in net cash provided by
operating activities is attributed to the $11.7 million increase in net
earnings, the $4.8 million received from the surrender of corporate-owned life
insurance policies and the decrease in cash used for restructuring activities
($550 thousand in 1995 versus $6.7 million in 1994). Partially offsetting
these increases were the negative impact of higher accounts receivable and
inventory balances at December 31, 1995. The increase in the Company's working
capital is consistent with the increase in sales activity.
The increase in cash used by investing activities is attributed to
1995 payments for ESNA asset acquisition ($6.2 million) and the Company's
increase in ownership interest in Unbrako K.K. ($1 million) and Metalac ($4
million) compared to the 1994 proceeds from the sale of the Newtown facility
($10 million), sale of the Company's aircraft ($1.1 million) and the sale of
the Assembly Systems Division ($2.1 million). The 1993 investing activities
include proceeds from the sale and liquidation of two distribution businesses
in Europe ($2.5 million). Capital expenditures were $21.5 million in 1995 and
$17.6 million in 1994, significant increases over prior year levels, and are
budgeted for $26 million in 1996. The Company intends to maintain these
capital expenditure levels for several years in order to achieve the
manufacturing excellence required to service its customers.
In December 1994, the Company sold 512,561 shares of common stock
previously held in the Company's treasury at a price of $24.50 per share
through a rights offering to its existing shareholders. Proceeds, net of
related expenses, from this rights offering of $12.2 million were used to
reduce debt under the Bank Credit Agreement and for other general corporate
purposes.
The Company's total debt to equity ratio was 44 percent at December
31, 1995, 52 percent at December 31, 1994 and 87 percent at December 31, 1993.
Total debt was $64.7 million at the end of 1995 and 1994 compared to $89.2
million at December 31, 1993. As of December 31, 1995, under the terms of the
existing credit agreements, the Company is permitted to incur an additional
$42 million in debt. Additional details of the credit agreements with
commercial banks, the industrial bonds and the notes payable to insurance
companies are provided in Note 10 to the financial statements.
As discussed in Note 19 to the financial statements, the Company is a
multinational corporation with operations in many countries. The largest
portion of the Company's foreign operations are in countries with stable
currencies namely, England and Ireland. However, the Company acquired a
controlling interest in a Brazilian subsidiary in 1995 and will commence a
Chinese joint venture in 1996. As the Company expands into Brazil, China and
other foreign countries, it is increasing its exposure to foreign currency
fluctuations. Fluctuations in foreign currency exchange rates affect the
Company's financial position and results of operations. As discussed in Note
17 to the financial statements, the Company uses forward exchange contracts to
minimize exposure and reduce risk from exchange rate fluctuations effecting
the results of operations. There are presently no significant restrictions on
the remittance of funds generated by the Company's non-United States
operations.
<PAGE>
SPS TECHNOLOGIES
BOARD OF DIRECTORS
CHARLES W. GRIGG
Chairman and Chief
Executive Officer
SPS Technologies, Inc.
HOWARD T. HALLOWELL III
Former Economist
Eastman Kodak Company
RICHARD W. KELSO
President and Chief Executive Officer
PQ Corporation,
a manufacturer of industrial
products
JOHN FRANCIS LUBIN
Professor Emeritus of Management
The Wharton School
University of Pennsylvania
ERIC M. RUTTENBERG
General Partner
Tinicum Investors,
an investment
management company
RAYMOND P. SHARPE
Executive Vice President
Cookson America, Inc.,
a manufacturer of
industrial materials
HARRY J. WILKINSON
President and Chief
Operating Officer
SPS technologies, Inc.
<PAGE>
OFFICERS
CHARLES W. GRIGG
Chairman and Chief
Executive Officer
HARRY J. WILKINSON
President and Chief
Operating Officer
JAMES D. DEE
Vice President,
Environmental and Legal Affairs
JOHN P. MCGRATH
Vice President,
Corporate Services
JOHN M. MORRASH
Vice President, Treasurer
and Assistant Secretary
AARON NERENBERG
Vice President,
General Counsel
and Secretary
WILLIAM M. SHOCKLEY
Vice President, Chief
Financial Officer and
Controller
<PAGE>
AUDITORS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
19103
TRANSFER AGENT
REGISTRAR DIVIDEND
DISBURSING AGENT
Mellon Bank, N.A.
c/o Chemical Mellon
Shareholder Services
85 Challenger Road
Overpeck Centre
Ridgefield Park,
New Jersey 07660
NEW YORK STOCK
EXCHANGE TICKER
SYMBOL: ST
Shareholders with inquiries about their share ownership should contact
Chemical Mellon Shareholder Services at 1-800-756-3353
The Annual Meeting of shareholders will be held on TUESDAY, APRIL 30, 1996 AT
10 A.M. at 17 Mellon Bank Center, Forum Room (8th floor), 1735 Market Street,
Philadelphia, PA.
<PAGE>
SPS TECHNOLOGIES
CORPORATE OFFICES
101 Greenwood Avenue, Suite 470
Jenkintown, Pennsylvania 19046
(215) 517-2000
SUBSIDIARIES AND *AFFILIATES
The Arnold Engineering Co.
Marengo, Illinois
Norfolk, Nebraska
Ogallala, Nebraska
Sevierville, Tennessee
Cannon-Muskegon Corporation
Muskegon, Michigan
Metalac S.A. Industria e Comercio
Sao Paulo, Brazil
*National-Arnold Magnetics Company
Adelanto, California
*Precision Fasteners Limited
Bombay, India
*Shanghai SPS Biao Wu Fasteners Company Limited
Shanghai, China
S.P.S. International Limited
Shannon, Ireland
SPS Technologies Limited
Coventry, England
Leicester, England
Smethwick, England
West Bromwich, England
Standco Canada, Ltd.
Toronto, Canada
Unbrako K.K.
Tokyo, Japan
Unbrako Mexicana, S.A. de C.V.
Mexico City, Mexico
*Unbrako Products Pte. Ltd.
Singapore
Unbrako Pty. Limited
Melbourne, Australia
U.S. MANUFACTURING PLANTS
Jenkintown, Pennsylvania
Salt Lake City, Utah
Santa Ana, California
Cleveland, Ohio
Muskegon, Michigan
Marengo, Illinois
Norfolk, Nebraska
Sevierville, Tennessee
Ogallala, Nebraska
Adelanto, California
<PAGE>
SPS TECHNOLOGIES
<PAGE>
EXHIBIT 21
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1995, the Company or one of its wholly-owned subsidiaries had,
among others, the following subsidiaries:
The Arnold Engineering Co.
(an Illinois corporation)..............................100% stock interest
Cannon-Muskegon Corporation
(a Michigan corporation)...............................100% stock interest
Metalac S.A. Industria e Comercio
(a Brazilian corporation)...............................95% stock interest
(99.6% voting, 91.4% non-voting)
National-Arnold Magnetics Company
(a California partnership)........................50% partnership interest
Unbrako K.K.
(a Japanese corporation)...............................100% stock interest
Precision Fasteners Limited
(an Indian corporation)..............................22.05% stock interest
SPS International Investment Company
(a Delaware corporation)...............................100% stock interest
S.P.S. International Limited
(an Irish corporation).................................100% stock interest
SPS Technologies Limited
(a United Kingdom corporation).........................100% stock interest
Standco Canada, Ltd.
(a Canadian corporation)...............................100% stock interest
Unbrako Mexicana, S.A. de C.V.
(a Mexican corporation)................................100% stock interest
Unbrako Pty. Limited
(an Australian corporation)............................100% stock interest
Unbrako Schrauben, GmbH
(a German corporation).................................100% stock interest
The Company files consolidated financial statements which include the above
subsidiaries, except for Precision Fasteners Limited and National-Arnold
Magnetics Company, as well as subsidiaries which have been omitted from the
above list; all such omitted subsidiaries considered in the aggregate as a
single subsidiary do not constitute a "significant subsidiary" as defined in
Rule 1-02(v) of Regulation S-X under the Securities Exchange Act, as amended.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
SPS Technologies, Inc. and Subsidiaries on Form S-8 (Registration No. 33-23778)
and Post Effective Amendments to the Registration on Form S-8 (Registration Nos.
2-64082, 2-90908) of our report dated February 1, 1996, on our audits of the
consolidated financial statements and financial statement schedule of SPS
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and for
the years ended December 31, 1995, 1994 and 1993, which report is included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
March 27, 1996
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