UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
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
101 Greenwood Avenue, Suite 470 Identification No.)
Jenkintown, Pennsylvania 19046
(Address of principal executive offices) (Zip Code)
(215) 517-2000
(Registrant's telephone number, including area code)
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 number of shares of Registrant's Common Stock
outstanding on April 30, 1996 was 5,950,550.
<PAGE>1
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART 1
FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Condensed Statements of Consolidated Operations -
Three Months Ended March 31, 1996 and 1995
(Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1996 and 1995
(Unaudited)
Notes to Condensed Consolidated Financial Statements
<PAGE>2
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars except share data)
Three Months Ended
March 31,
-----------------------
1996 1995
--------- ---------
Net sales $ 113,975 $ 102,432
Cost of goods sold 91,150 85,137
------- -------
Gross profit 22,825 17,295
Selling, general and
administrative expense 14,065 11,650
------- -------
Operating earnings 8,760 5,645
Other income (expense):
Interest income 60 100
Interest expense (1,590) (1,620)
Equity in earnings
of affiliates 102 400
Other, net (132) (25)
------- -------
(1,560) (1,145)
------- -------
Earnings before income taxes 7,200 4,500
Provision for income taxes 2,160 1,450
------- -------
Net earnings $ 5,040 $ 3,050
======= =======
Earnings per common share
and common share equivalent $ .81 $ .54
======= =======
Weighted average number of
common shares used to compute
earnings per share 6,221,943 5,645,971
See accompanying notes to condensed consolidated financial statements.
<PAGE>3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
March 31, December 31,
1996 1995
--------- ----------
Assets
Current assets
Cash and cash equivalents $ 9,929 $ 8,093
Accounts and notes receivable,
less allowance for doubtful
receivables of $1,503 (1995-$1,292) 72,022 61,294
Inventories 98,184 88,090
Deferred income taxes 16,201 16,396
Prepaid expenses 3,645 3,103
Net assets held for sale 2,362 2,362
------- -------
Total current assets 202,343 179,338
------- -------
Investments in affiliates 4,317 4,516
Property, plant and equipment, net of
accumulated depreciation of $118,054
(1995-$118,120) 116,342 112,738
Other assets 23,739 25,495
------- -------
Total assets $346,741 $322,087
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars, except share data)
March 31, December 31,
1996 1995
--------- ----------
Liabilities and shareholders' equity
Current liabilities
Notes payable and current portion of
long-term debt $ 10,163 $ 6,578
Accounts payable 31,782 28,041
Accrued expenses 41,717 39,545
Income taxes payable 2,445 3,267
------- -------
Total current liabilities 86,107 77,431
------- -------
Deferred income taxes 13,321 13,061
Long-term debt 62,201 58,119
Retirement obligations 28,161 27,827
Minority interest 4,150
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 6,604,303 shares (6,450,909
shares in 1995) 6,604 6,451
Additional paid-in capital 80,234 74,685
Retained earnings 83,631 78,591
Minimum pension liability (2,626) (2,626)
Common stock in treasury, at cost,
657,173 shares (599,258 shares in 1995) (7,912) (4,846)
Cumulative translation adjustments (7,130) (6,606)
------- -------
Total shareholders' equity 152,801 145,649
------- -------
Total liabilities and
shareholders' equity $346,741 $322,087
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>5
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Three Months Ended
March 31,
--------------------
1996 1995
------- -------
Net cash used by operating activities $ (58) $ (1,737)
------- -------
Cash flows provided (used) by investing
activities
Additions to property, plant and equipment (5,224) (2,162)
Proceeds from sale of property, plant
and equipment 350 76
Acquisitions of businesses, net of cash
acquired 690 (1,094)
------- -------
Net cash used by investing activities (4,184) (3,180)
------- -------
Cash flows provided (used) by financing
activities
Proceeds from borrowings 14,605 9,100
Reduction of borrowings (9,849) (3,923)
Proceeds from exercise of stock options 1,354 487
------- -------
Net cash provided by financing activities 6,110 5,664
------- -------
Effect of exchange rate changes on cash (32) 130
------- -------
Net increase in cash and cash equivalents 1,836 877
Cash and cash equivalents at
beginning of period 8,093 9,472
------- -------
Cash and cash equivalents at
end of period $ 9,929 $ 10,349
======= =======
Significant noncash financing activity
Purchase of treasury shares in connection
with the exercise of stock options $ 3,066
See accompanying notes to condensed consolidated financial statements.
<PAGE>6
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited-Thousands of dollars except share data)
1. Financial Statements
In the opinion of the Company's management, the
accompanying unaudited, condensed consolidated financial
statements contain all adjustments necessary to present
fairly the financial position as of March 31, 1996, the
results of operations for the three-month periods ended
March 31, 1996 and 1995, and cash flows for the three-month
periods ended March 31, 1996 and 1995. The December 31,
1995 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by generally accepted accounting principles. The
accompanying financial statements contain only normal
recurring adjustments. All financial information has been
prepared in conformity with the accounting principles
reflected in the financial statements included in the 1995
Annual Report filed on Form 10-K applied on a consistent
basis.
2. Inventories
March 31, December 31,
1996 1995
----------- -----------
Finished goods $48,253 $45,933
Work-in-process 23,480 20,095
Raw materials
and supplies 19,444 14,330
Tools 7,007 7,732
------- -------
$98,184 $88,090
======= =======
3. 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.
In the first quarter of 1996, the Company formed a
joint venture in China by acquiring a 55 percent interest in
Shanghai SPS Biao Wu Fasteners Co. Ltd. (SSBW). The Company
contributed cash of $800 and manufacturing technology with
an assigned value of $300 during the first quarter of 1996
for SSBW. The Company will additionally contribute
approximately $4,400 in cash, equipment and certain
<PAGE>7
manufacturing technology. Pro forma consolidated results of
operations have not been presented because the effect of
this acquisition is not material.
In March 1995, the Company acquired certain assets of
Harvard Industries, Inc.'s Elastic Stop Nut Division (ESNA).
The Company paid $1,094 in the first quarter of 1995 and an
additional $5,100 in the remaining quarters of 1995 to
acquire, relocate and prepare these assets for their
intended use. The ESNA assets were used by Harvard to
manufacture 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 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
material.
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.
The following unaudited pro forma consolidated results
of operations are presented as if the Metalac acquisition
had been made at the beginning of the period presented. The
unaudited pro forma information is not necessarily
indicative of the results of operations that would have
occurred had the purchase been made at the beginning of this
period or the future results of the combined operations.
Three Months Ended
March 31, 1995
------------------
Net sales $111,376
Net earnings 3,915
Earnings per common share
and common share equivalent .68
<PAGE>8
4. Earnings Per Share
Earnings per share is computed by dividing net earnings
by the weighted average number of common shares outstanding.
When dilutive, stock options are included as common share
equivalents using the treasury stock method.
5. Environmental Contingency
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 March 31, 1996, the accrued liability for
environmental remediation 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.
<PAGE>9
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
The Company's operating results are a major improvement over
the corresponding period in the prior year. The improvement in
operating results was due primarily to a significant increase in
the operating performance of the Aerospace Products Division.
The Company's sales, orders and backlog were higher in the first
quarter of 1996.
Sales and Operating Earnings by Segment
(Unaudited-Thousands of dollars)
Three Months Ended
March 31,
------------------
1996 1995
-------- -------
Net sales:
Fasteners $ 78,755 $ 67,608
Materials 35,220 34,824
------- -------
$113,975 $102,432
======= =======
Operating earnings:
Fasteners $ 6,016 $ 3,154
Materials 4,614 4,416
Unallocated corporate costs (1,870) (1,925)
------- -------
$ 8,760 $ 5,645
======= =======
Net Sales
Net sales increased $11.6 million, or 11.3 percent, compared
to the first quarter of 1995 and increased $7.7 million, or 7.2
percent, compared to the fourth quarter of 1995.
Fastener segment sales increased $11.1 million, or 16.5
percent, compared to the first quarter of 1995. Aerospace
fastener sales of $38.4 million in the first quarter of 1996 are
a $7.2 million, or 23.2 percent, increase from the first quarter
of 1995 and $3.9 million, or 11.3 percent, increase from the
fourth quarter of 1995. Due to the recent increase in new
commercial aircraft orders and the improved profit performance of
the airlines, the Company expects this trend of increasing
aerospace fastener sales to continue throughout 1996.
<PAGE>10
Excluding $7.1 million of sales in the first quarter of 1996
by Metalac and Unbrako K.K., two businesses acquired by the
Company after March 31, 1995, the Company's industrial and
Unbrako fastener sales decreased $3.2 million, or 8.8 percent.
This decrease is due primarily to decreased sales of Unbrako
fasteners in the North American market. Sales of automotive
fasteners in the North American market and sales of automotive
and Unbrako products in the European market remained level with
the same period in 1995.
In the materials segment, sales of superalloys increased by
$1.0 million, or 6.4 percent, while sales of magnetic materials
decreased by $600 thousand, or 3.5 percent, compared to the first
quarter of 1995. Increased sales of superalloys is due primarily
to higher sales of vacuum melt alloy products manufactured for
aerospace applications. Sales of stainless steel and cobalt-
based alloys also increased from prior year levels. Sales of
magnetic materials to the automotive, telecommunications and
personal computer markets were strong but slightly below prior
year levels. If demand from these markets continues to soften,
sales of magnetic materials will continue to fall below 1995
levels.
Operating Earnings
The operating earnings of the fastener segment improved
significantly from $3.2 million, or 4.7 percent of sales, in the
first quarter of 1995 to $6.0 million, or 7.6 percent of sales,
in the first quarter of 1996. The improvement in earnings is
attributed to increased sales of aerospace fasteners and cost
reductions attributed to the Company's investment in new state-
of-the-art computer controlled machine tools. The operating
earnings from Metalac and Unbrako K.K., two companies acquired
after the first quarter of 1995, also contributed to this
increase.
In the materials segment, operating earnings increased from
$4.4 million, 12.7 percent of sales, in the first quarter of 1995
to $4.6 million, or 13.1 percent of sales, in the first quarter
of 1996. The improvement in operating earnings is attributed to
a higher volume of superalloy sales and reduced cost in the
magnetic materials operation.
Other Expense
Income from the equity in earnings of affiliates decreased
from $400 thousand in 1995 to $102 thousand in 1996. As
discussed in Note 3 to the financial statements, the Company
increased its ownership interest in Metalac and Unbrako K.K. in
August and June of 1995, respectively. Prior to these
acquisition dates, the Company accounted for its investment in
<PAGE>11
these companies using the equity method.
Earnings
The Company recorded first quarter 1996 net earnings of $5.0
million or $.81 per share, compared to net earnings of $3.1
million or $.54 per share for the first quarter of 1995.
Orders and Backlog
Incoming orders for the first quarter of 1996 were $127.9
million compared to $122.1 million in 1995, a 4.5 percent
increase. The increase in orders is attributed to the $9.1
million increase in orders received by the Aerospace Products
Division and orders received by Metalac and Unbrako K.K. of $7.6
million. Partially offsetting these increases were the $8.8
million decrease in orders received for Unbrako Products sold in
North America and Europe and the $5.5 million decrease in orders
received for magnetic materials. Backlog at March 31, 1996 was
$149.4 million, compared to $117.2 million on the same date a
year ago and $136.5 million at December 31, 1995.
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 condensed statements of consolidated cash flows. Net cash
used by operating activities decreased by $1.7 million compared
to the first quarter of 1995 primarily due to the $2.0 million
improvement in net earnings. Consistent with the increase in
sales and orders received in the first quarter of 1996, the
Company reported higher levels of accounts receivable and
inventory compared to the December 31, 1995 condensed
consolidated balance sheet. The acquisition of the joint venture
in China also contributed to higher levels of working capital on
the March 31, 1996 condensed consolidated balance sheet.
However, this had no effect on cash flow from operations in the
first quarter of 1996.
The change in cash used by investing activities is
attributed to the 1996 net increase in cash from the acquisition
of the joint venture in China ($690 thousand) compared to the
1995 payments related to the ESNA asset acquisition ($1.1
<PAGE>12
million). Additionally, the Company spent $5.2 million for
capital expenditures in the first quarter of 1996 and has
budgeted $26 million for the full year of 1996, as reported on
Form 10-K for the year ended December 31, 1995.
The Company's total debt to equity ratio was 47 percent at
March 31, 1996, compared to 44 percent at December 31, 1995.
Total debt was $72.4 million at March 31, 1996 and $64.7 million
at December 31, 1995. As of March 31, 1996, under the terms of
the existing credit agreements, the Company is permitted to incur
an additional $37 million in debt.
<PAGE>13
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
11 Computation of Earnings Per Share Statement.
(b)No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
<PAGE>14
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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)
Date: May 2, 1996 /s/William M.Shockley
---------------------
William M. Shockley
Vice President, Chief
Financial Officer and
Controller
Mr. Shockley is signing on behalf of the registrant and as the
chief financial officer of the registrant.
<PAGE>15
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of Earnings Per Share
Statement
<PAGE>16
Exhibit 11
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE STATEMENT
(Thousands of dollars, except share data)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Net earnings $ 5,040 $ 3,050
========= =========
Weighted average
number of common
shares outstanding
during the period 5,915,412 5,645,971
Weighted average
number of maximum
shares subject to
exercise under
outstanding stock
options at end of
period 672,760 669,975
--------- ---------
6,588,172 6,315,946
Less treasury shares
assumed purchased
with proceeds from
assumed exercise of
outstanding options (a) 366,229 557,785
--------- ---------
Weighted average
number of common and
common equivalent
shares outstanding
after assumed
exercise of options 6,221,943 5,758,161
========= =========
Earnings per share
based on above
assumptions (b) $ .81 $ .53
========= =========
Earnings per share
as reported $ .81 $ .54
========= =========
<PAGE>18
(a) All options are exercisable under a nonqualified plan. The
proceeds from assumed exercise of options aggregated
$20,373,318 and $16,270,602 in the three month periods ended
March 31, 1996 and 1995. The proceeds and number of
treasury shares assumed purchased were determined on the
most likely exercise assumption.
(b) Primary and fully diluted earnings per share are the same
for each period presented.
<PAGE>19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,929
<SECURITIES> 0
<RECEIVABLES> 73,525
<ALLOWANCES> 1,503
<INVENTORY> 98,184
<CURRENT-ASSETS> 202,343
<PP&E> 234,396
<DEPRECIATION> 118,054
<TOTAL-ASSETS> 346,741
<CURRENT-LIABILITIES> 86,107
<BONDS> 62,201
0
0
<COMMON> 6,604
<OTHER-SE> 146,197
<TOTAL-LIABILITY-AND-EQUITY> 346,741
<SALES> 113,975
<TOTAL-REVENUES> 113,975
<CGS> 91,150
<TOTAL-COSTS> 91,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,590
<INCOME-PRETAX> 7,200
<INCOME-TAX> 2,160
<INCOME-CONTINUING> 5,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,040
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
