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 September 30, 1997
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 November 4, 1997 was 12,215,962.
<PAGE>1
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
PART 1
------
FINANCIAL INFORMATION
---------------------
Item 1. Index to Financial Statements
- -------------------------------------
Condensed Statements of Consolidated Operations -
Three and Nine Months Ended September 30, 1997
and 1996 (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 1997 and 1996
(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 Nine Months Ended
September 30, September 30,
------------------------ ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
Net sales $ 142,280 $ 125,435 $ 433,363 $ 360,712
Cost of goods sold 110,913 99,734 339,249 287,236
---------- ---------- ---------- ---------
Gross profit 31,367 25,701 94,114 73,476
Selling, general and
administrative expense 17,289 16,463 51,550 45,018
---------- ---------- ---------- ---------
Operating earnings 14,078 9,238 42,564 28,458
---------- ---------- ---------- ---------
Other income (expense):
Interest income 282 180 720 285
Interest expense (2,030) (2,290) (6,656) (5,530)
Equity in earnings
of affiliates 265 410 410 764
Minority interest 28 (182) (58) (290)
Other, net (23) 144 (820) (377)
---------- ---------- ---------- ---------
(1,478) (1,738) (6,404) (5,148)
---------- ---------- ---------- ---------
Earnings before income taxes 12,600 7,500 36,160 23,310
Provision for income taxes 4,150 1,460 12,200 6,210
---------- ---------- ---------- ---------
Net earnings $ 8,450 $ 6,040 $ 23,960 $ 17,100
========== ========== ========== =========
Earnings per common share
and common share equivalent $ .66 $ .48 $ 1.88 $ 1.36
========== ========== ========== =========
Weighted average number of
common shares used to compute
earnings per share 12,888,325 12,633,740 12,772,703 12,576,310
See accompanying notes to condensed consolidated financial statements.
<PAGE>3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
September 30, December 31,
1997 1996
------------- ------------
Assets
Current assets
Cash and cash equivalents $ 10,885 $ 33,310
Accounts and notes receivable,
less allowance for doubtful
receivables of $2,040 (1996-$1,668) 88,959 73,542
Inventories 97,445 99,778
Deferred income taxes 17,146 20,567
Prepaid expenses 3,048 2,979
Net assets held for sale 500 1,600
--------- ---------
Total current assets 217,983 231,776
--------- ---------
Investments in affiliates 7,441 4,760
Property, plant and equipment, net of
accumulated depreciation of $132,092
(1996-$127,446) 164,833 148,616
Other assets 58,541 42,848
--------- ---------
Total assets $ 448,798 $ 428,000
========= =========
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)
September 30, December 31,
1997 1996
------------ ------------
Liabilities and shareholders' equity
Current liabilities
Notes payable and current portion of
long-term debt $ 13,265 $ 16,454
Accounts payable 37,136 34,952
Accrued expenses 53,206 50,132
Income taxes payable 6,856 3,919
--------- ----------
Total current liabilities 110,463 105,457
--------- ----------
Deferred income taxes 16,107 14,505
Long-term debt 96,069 98,838
Retirement obligations 26,110 25,607
Minority interest 1,795 5,997
Shareholders' equity
Preferred stock, par value $1 per share,
authorized 400,000 shares, issued none
Common stock, par value $.50 per share,
authorized 60,000,000 shares,
issued 13,504,125 shares (13,292,500
shares in 1996) 6,752 6,646
Additional paid-in capital 86,090 82,561
Retained earnings 124,851 100,891
Minimum pension liability (2,257) (2,257)
Common stock in treasury, at cost,
1,336,486 shares (1,290,762 shares in 1996) (9,757) (7,920)
Cumulative translation adjustments (7,425) (2,325)
--------- ----------
Total shareholders' equity 198,254 177,596
--------- ----------
Total liabilities and
shareholders' equity $ 448,798 $ 428,000
========= ==========
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)
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
Net cash provided by operating activities $ 42,862 $ 28,853
-------- --------
Cash flows provided by (used in) investing
activities
Additions to property, plant and equipment (26,854) (18,233)
Proceeds from sale of property, plant
and equipment 1,350 527
Payments for businesses acquired, net of
cash acquired (36,784) (29,191)
-------- --------
Net cash used in investing activities (62,288) (46,897)
-------- --------
Cash flows provided by (used in) financing
activities
Proceeds from borrowings 23,787 140,622
Reduction of borrowings (26,982) (104,532)
Proceeds from exercise of stock options 1,682 2,079
Treasury stock purchases (1,063)
-------- --------
Net cash provided by financing activities (2,576) 38,169
-------- --------
Effect of exchange rate changes on cash (423) 39
-------- --------
Net increase (decrease) in cash and cash
equivalents (22,425) 20,164
Cash and cash equivalents at
beginning of period 33,310 8,093
-------- --------
Cash and cash equivalents at
end of period $ 10,885 $ 28,257
======== ========
Significant noncash investing and
financing activities
Debt assumed for businesses acquired $ 1,944 $ 8,121
Acquisition of treasury shares for
stock options exercised $ 774 $ 3,133
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 September 30, 1997, the results of
operations for the three and nine-month periods ended September
30, 1997 and 1996, and cash flows for the nine-month periods
ended September 30, 1997 and 1996. The December 31, 1996
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 1996 Annual Report filed on Form 10-K applied
on a consistent basis.
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.
In January 1997, the Company acquired all of the
outstanding shares of Postkey, Ltd. (Postkey), a manufacturer
of cylindrical thread roll dies, located in Nuneaton, England,
for $1,200. The excess of purchase price over the fair values
of the net assets acquired was approximately $860 and has been
recorded as goodwill, which is being amortized on a straight-
line basis over 20 years.
On February 24, 1997, the Company acquired all of the
outstanding shares of Greer Stop Nut, Inc. (Greer), a
manufacturer of nylon insert nuts, located in Nashville,
Tennessee for $10,000. The excess of the purchase price over
the fair values of the net assets acquired was approximately
$5,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 40 years.
On March 7, 1997, the Company acquired the assets of RJF
International Corporation's (RJF) Bonded Magnet Business, a
manufacturer of flexible ferrite bonded magnets, located in
Cincinnati and Marietta, Ohio for $9,200. The excess of the
purchase price over the fair values of the net assets acquired
was approximately $4,800 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 30
years.
<PAGE>7
On April 1, 1997, the Company paid $1,000 to increase its
ownership in Unbrako Products Pte., Ltd. (UPL) from 50 percent
to 100 percent. UPL, located in Singapore, is a distributor of
the Company's Unbrako products to the Southeast Asian market.
On May 5, 1997, the Company acquired all of the
outstanding shares of Lake Erie Design Co., Inc. (LED), a
manufacturer of high precision ceramic cores for the investment
casting industry, located in Cleveland, Ohio for $8,100. The
excess of the purchase price over the fair values of the net
assets acquired was approximately $6,500 and has been recorded
as goodwill, which is being amortized on a straight-line basis
over 30 years.
On September 23, 1997, the Company acquired all of the
outstanding shares of Mohawk Europa Limited (Mohawk), a
specialty cutting tool manufacturer, located in Shannon,
Ireland for $9,100. Purchase price approximated the fair value
of the net assets acquired.
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 and equipment of $3,288 and manufacturing technology.
In 1996, the Company completed two acquisitions of magnet
materials manufacturers. On September 14, 1996, the Company
acquired all of the outstanding shares of Flexmag Industries,
Inc. (Flexmag) located in Marietta, Ohio, and the assets of a
related magnets business located in Seneca, South Carolina, for
$21,274. On July 3, 1996, the Company acquired all of the
outstanding shares of Swift Levick Magnets Ltd. (Swift Levick),
located in Derbyshire, England for $18,491. The excess of the
purchase price over the fair value of the net assets acquired
for both acquisitions was approximately $12,900 and has been
recorded as goodwill, which is being amortized on a straight-
line basis over 30 years.
On October 8, 1996, the Company acquired 85 percent of the
capital stock of Mecair Aerospace Industries, Inc. (Mecair), a
manufacturer of aerospace fasteners, located in Pointe Claire
(Montreal), Quebec, Canada for $8,300. The excess of the
purchase price over the fair value of the net assets acquired
was approximately $3,500 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 40
years.
The following unaudited pro forma consolidated results of
operations are presented as if the Greer, RJF, Flexmag, Swift
Levick, Mecair, LED and Mohawk acquisitions had been made at
the beginning of the periods presented. The effects of the
other acquisitions (Postkey, SSBW and UPL) are not material
and, accordingly, have been excluded from the pro forma
presentation.
<PAGE>8
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
Net sales $446,903 $414,258
Net earnings 24,640 18,191
Earnings per common share
and common share equivalent 1.93 1.45
The pro forma consolidated results of operations include
adjustments to give effect to amortization of goodwill,
interest expense on acquisition debt and certain other
adjustments, together with related income tax effects. 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 these periods or the
future results of the combined operations.
3. Inventories
September 30, December 31,
1997 1996
------------ -----------
Finished goods $43,188 $50,726
Work-in-process 28,876 25,363
Raw materials
and supplies 19,046 17,010
Tools 6,335 6,679
----------- ----------
$97,445 $99,778
=========== ==========
The September 30, 1997 inventory balances include $6,100
of inventory from businesses acquired in 1997.
4. 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
September 30, 1997, 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. Management does not anticipate
that its consolidated financial condition will be materially
affected by environmental remediation costs in excess of
amounts accrued.
<PAGE>9
5. Income Taxes
For the nine months ended September 30, 1996, the
effective tax rate is lower than the statutory tax rate because
the Company revised its estimates related to the future
realization of tax benefits related to its deferred tax assets.
As a result, the provision for income taxes was reduced by
$1,700 in the third quarter of 1996.
6. Common Stock Split
On July 29, 1997, the Company's Board of Directors
approved a two-for-one split of its common stock, effective
August 20, 1997, to be distributed to shareholders on August
29, 1997. In conjunction with the stock split, the Board of
Directors also approved a reduction in the par value of the
common shares from $1.00 to $0.50, and increased the number of
authorized common shares from 30,000,000 to 60,000,000. All
share and per share data for prior periods presented have been
restated to reflect the stock split.
7. 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.
8. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share". This Statement establishes new
standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or
potential common stock. This Statement is effective for
financial statements issued for periods ending after December
15, 1997 (earlier application is not permitted). This
Statement requires restatement of all prior-period EPS data
presented. The Company has evaluated the provisions of SFAS
No. 128 and does not anticipate adoption to have a material
effect on its computation of EPS.
9. Subsequent Events
On August 7, 1997, the Company entered into a merger
agreement with Magnetic Technologies Corporation (MTC) to
acquire the outstanding stock of MTC for an aggregate
consideration of approximately $14,400 consisting of
approximately $8,400 in cash and $6,000 in common stock of the
Company. Completion of the transaction is subject to a number
of conditions, including approval of a majority of MTC's
<PAGE>10
stockholders at a meeting scheduled for December 2, 1997. In
connection with the transaction, five stockholders of MTC,
representing approximately 26% of the outstanding shares of
MTC, have entered into agreements with the Company to vote
their shares in favor of the merger. MTC, located in
Rochester, New York and Rochester, England, designs and
manufactures magnetic, electronic and mechanical subassemblies
of copiers and printers for the electronic office equipment
industry. As of November 11, 1997, the merger transaction had
not been completed. If the merger transaction is completed,
the acquisition will be accounted for under the purchase
method. The results of operations of MTC will be included in
the consolidated financial statements of the Company from the
date the acquisition is completed.
<PAGE>11
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 periods in the prior year. The improvement in
operating results was due primarily to increased sales of aerospace
fasteners and the inclusion of businesses acquired in the last
fifteen months. In the first nine months of 1997, the Company
completed six acquisitions which strengthened its existing
businesses.
Sales and Operating Earnings by Segment
- ---------------------------------------
(Unaudited-Thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
-------- -------- --------- --------
Net sales:
Fasteners $ 96,095 $ 84,549 $292,076 $248,704
Materials 46,185 40,886 141,287 112,008
-------- -------- -------- --------
$142,280 $125,435 $433,363 $360,712
======== ======== ======== ========
Operating earnings:
Fasteners $ 10,282 $ 6,344 $ 30,475 $ 19,880
Materials 6,066 4,747 19,219 14,413
Unallocated corporate (2,270) (1,853) (7,130) (5,835)
costs -------- -------- -------- --------
$ 14,078 $ 9,238 $ 42,564 $ 28,458
======== ======== ======== ========
Net Sales
- ---------
Net sales increased $16.8 million, or 13.4 percent, in the
third quarter of 1997 and $72.7 million, or 20.1 percent, for the
nine month period ended September 30, 1997 compared to the same
periods in 1996.
Fastener segment sales increased $11.5 million, or 13.7
percent, in the third quarter of 1997 and $43.4 million, or 17.4
percent, for the nine month period. The Company's aerospace
fastener sales were up 30.6 percent to $52.6 million in the third
quarter and 31.0 percent to $156.1 million for the nine month
period. Based on commercial aircraft production projections by the
major aircraft manufacturers, the Company expects this trend of
improving demand for aerospace fasteners to continue throughout 1997
and into 1998. The Company has invested and plans to continue to
invest in infrastructure to increase capacity and support this
projected expansion.
<PAGE>12
The Company's industrial and Unbrako fastener sales increased
$4.4 million, or 11.8 percent, in the third quarter and $9.6
million, or 8.3 percent, for the nine month period. These increases
are due primarily to increased sales of Unbrako fasteners in North
America and sales by Greer Stop Nut, Inc., a business acquired on
February 24, 1997. Partially offsetting these increases was a
decline in sales of Unbrako fasteners in Europe ($3.6 million for
the nine month period) and automotive fasteners in North America
($1.6 million for the nine month period). Sales of automotive
fasteners in Europe remained level with the corresponding periods in
the prior year.
Material businesses acquired in the last fifteen months
(Flexmag Industries, Inc., Swift Levick Magnets Ltd., RJF
International Corporation's Bonded Magnet Business and Lake Erie
Design Co., Inc.) increased material segment sales by $3.4 million
in the third quarter of 1997 and $25.1 million for the nine month
period. Sales of superalloys increased $900 thousand, or 5.4
percent, in the third quarter and $4.9 million, or 9.6 percent, for
the nine month period. This increase is driven by increased demand
from the aerospace, land-based turbine and medical markets. A new
vacuum melt furnace began production in the third quarter and will
add meaningful melt capacity in the fourth quarter. Excluding
magnetic material sales from acquired businesses, sales of magnetic
materials increased $1.0 million in the third quarter and decreased
$700 thousand for the nine month period. Magnetic sales to the
personal computer and telecommunications markets remained strong but
sales to other served markets trailed last year's levels.
Operating Earnings
- ------------------
Operating earnings of the fasteners segment improved signif-
icantly from $19.9 million, or 8.0 percent of sales, for the nine
months ended September 30, 1996, to $30.5 million, or 10.4 percent
of sales, for the nine months ended September 30, 1997. The
improvement in earnings is attributed to increased sales of
aerospace fasteners and cost reductions attributed to the Company's
investment in new equipment and employee training programs. The
operating earnings from Mecair Aerospace Industries, Inc. and Greer
Stop Nut, Inc., two companies recently acquired, also contributed to
this increase. Partially reducing these increases was the operating
loss incurred by the Company's manufacturing facility in Coventry,
England. In the first nine months of 1997, the Coventry facility
lost $2.4 million which included operating losses of $1.6 million
and cost of employee separations of $800 thousand. These headcount
reductions are expected to generate annual savings of $850 thousand
when fully implemented. The Company will continue to rationalize
product lines and infrastructure at this facility until this
facility is returned to profitability.
In the third quarter of 1996, the Company restructured its
manufacturing operations in Shannon, Ireland; Coventry, England and
Sorocaba, Brazil. As a result, the 1996 condensed statement of
<PAGE>13
consolidated operations included a $2.1 million charge to selling,
general and administrative expense for the cost of employee
separations.
In the materials segment, operating earnings increased by $1.3
million in the third quarter and $4.8 million for the nine month
period. The improvement in operating earnings is attributed to a
higher volume and better product mix of superalloy sales, a decrease
in the cost of certain raw materials and operating earnings from the
recently acquired material businesses noted above.
Other Income and Expense
- ------------------------
Due to higher levels of interest bearing cash, interest income
increased from $285 thousand in the first nine months of 1996 to
$720 thousand in the first nine months of 1997. Due to higher
average levels of debt, interest expense increased from $5.5 million
in the first nine months of 1996 to $6.7 million in the first nine
months of 1997. The "other, net" expense item of $820 thousand
includes $400 thousand of losses related to the disposal and write
down of machinery and equipment at the Company's Coventry facility.
Orders and Backlog
- ------------------
Incoming orders for the third quarter of 1997 were $155.4
million compared to $129.0 million in 1996, a 20.0 percent increase.
Incoming orders for the nine months ended September 30, 1997 were
$479.9 million compared to $382.9 million for the same period in
1996, a 25.2 percent increase. The increase in orders is attributed
to an increase in orders received by the Aerospace Products Division
($19.4 million for the quarter and $51.2 million for the nine month
period) and orders received by the recently acquired materials
businesses ($4.9 million for the third quarter and $25.9 million for
the nine month period). Partially offsetting these increases were a
decrease in orders received for automotive fasteners sold in North
America ($2.0 million for the quarter and $4.2 million for the nine
month period). Backlog at September 30, 1997 was $231.2 million,
compared to $169.1 million on the same date a year ago and $181.0
million at December 31, 1996.
Acquisitions
- ------------
As discussed in Note 2 to the financial statements, the Company
acquired six businesses in the first nine months of 1997. In
January 1997, the Company acquired all of the outstanding shares of
Postkey Ltd. (Postkey) located in Nuneaton, England for $1.2
million. Postkey is a supplier of tooling and tool services to the
United Kingdom fastener market with 1996 sales of approximately $900
thousand. This acquisition increases the Company's market
penetration into the United Kingdom tool market and expands the
Company's cylindrical thread roll die technical know-how. On
February 24, 1997, the Company acquired all of the outstanding
shares of Greer Stop Nut, Inc. (Greer), a manufacturer of nylon
insert prevailing torque (locking) nuts, located in Nashville,
<PAGE>14
Tennessee for $10 million. In 1996, Greer had sales of
approximately $13.1 million. The acquisition of Greer adds a
complementary branded product line to the Company's Unbrako
business. On March 7, 1997, the Company acquired the assets of RJF
International Corporation's (RJF) Bonded Magnet Business, a
manufacturer of flexible ferrite bonded magnets, located in
Cincinnati and Marietta, Ohio for $9.2 million. In 1996, RJF's
Bonded Magnet Business had sales of approximately $9.2 million.
These assets are being relocated to the Company's current magnetic
manufacturing facility in Marietta, Ohio. On April 1, 1997, the
Company paid $1.0 million to increase its ownership interest in
Unbrako Products Pte., Ltd. (UPL) from 50 percent to 100 percent.
UPL, located in Singapore, is a distributor of the Company's Unbrako
products to the southeast Asian market with 1996 sales of
approximately $3.2 million. On May 5, 1997, the Company acquired
all of the outstanding shares of Lake Erie Design Co., Inc. (LED)
located in Cleveland, Ohio for $8.1 million. LED is a manufacturer
of high precision ceramic cores for the investment casting industry
with 1996 sales of approximately $5.6 million. LED's ceramic cores
are used in the manufacturing of parts for aerospace and industrial
gas turbines, medical prosthesis and other precision cast
applications. Over 60 percent of their sales are for aerospace
applications. The acquisition of LED expands the scope of products
offered by SPS' subsidiary, Cannon-Muskegon Corporation, to the
investment casting industry. On September 23, 1997, the Company
acquired all of the outstanding shares of Mohawk Europa Limited
(Mohawk) located in Shannon, Ireland for $9.1 million. Mohawk is a
manufacturer of specialty cutting tools for the automotive,
aerospace and metalworking industries with sales for the first nine
months of 1997 of approximately $7.7 million. The Company has
acquired two tool companies (Postkey and Mohawk) in 1997 and plans
to acquire additional tool companies to expand product range and
geographic sales and distribution coverage.
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 provided by
operating activities increased by $14.0 million compared to the
first nine months of 1996 primarily due to the $6.9 million
improvement in net earnings and $3.1 million increase in
"depreciation and amortization" (a non cash expenditure added back
to net income to determine net cash provided by operating
activities).
<PAGE>15
The increase in cash used in investing activities is attributed
to the 1997 payments for the acquisitions of Greer ($10 million),
RJF's bonded magnet business ($9.2 million), LED ($7.8 million) and
Mohawk ($8.4 million) compared to the 1996 payment for Flexmag
Industries, Inc. ($20 million) and Swift Levick Magnets Ltd. ($10.4
million). Additionally, the Company spent $26.9 million for capital
expenditures in the first nine months of 1997 and has estimated $37
million for the full year of 1997, a $2 million increase from the
amount reported on Form 10-K for the year ended December 31, 1996.
Net assets held for sale included in the December 31, 1996
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. In January 1997, the Company sold the land
and building in Puerto Rico for $1.1 million and these proceeds are
included in the consolidated cash flow from investing activities.
The Company's total debt to equity ratio was 55 percent at
September 30, 1997, compared to 65 percent at December 31, 1996.
Total debt was $109.3 million at September 30, 1997 and $115.3
million at December 31, 1996. As of September 30, 1997, under the
terms of the existing credit agreements, the Company is permitted to
incur an additional $48 million in debt.
Forward-Looking Statements
- --------------------------
Certain statements in management's discussion and analysis of
financial condition and results of operations contain "forward-
looking" information that involve risk and uncertainty. Actual
future results may differ materially depending on a variety of
factors, such as: the effects of competition on products and
pricing, customer satisfaction and qualification issues, labor
disputes, worldwide political stability and economic growth and
changes in fiscal policies, laws and regulations on a national and
international basis.
<PAGE>16
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
September 30, 1997.
<PAGE>17
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: November 6, 1997 /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>18
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of Earnings Per Share
Statement
<PAGE>19
Exhibit 11
----------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share Statement
(Thousands of dollars, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net earnings $ 8,450 $ 6,040 $ 23,960 $ 17,100
Weighted average
number of common
shares outstanding
during the period 12,138,097 11,955,272 12,083,666 11,895,338
Weighted average
number of maximum
shares subject to
exercise under
outstanding stock
options at end of
period 1,223,445 1,297,924 1,249,118 1,322,656
----------- ---------- ---------- ----------
13,361,542 13,253,196 13,332,784 13,217,994
Less treasury shares
assumed purchased
with proceeds from
assumed exercise of
outstanding options (a) 473,217 619,456 560,081 641,684
----------- ---------- ---------- ----------
Weighted average
number of common and
common equivalent
shares outstanding
after assumed
exercise of options 12,888,325 12,633,740 12,772,703 12,576,310
========== ========== ========== ==========
Earnings per share
based on above
assumptions (b) $ .66 $ .48 $ 1.88 $ 1.36
========== ========== ========== ==========
Earnings per share
as reported $ .66 $ .48 $ 1.88 $ 1.36
========== ========== ========== ==========
<PAGE>21
(a) All options are exercisable under a nonqualified plan. The proceeds from
assumed exercise of options aggregated $22,241,176 and $21,347,886 in the
three and nine month periods ended September 30, 1997 respectively; the
proceeds from assumed exercises aggregated $19,711,106 and $20,095,845 in
the three and nine month periods ended September 30, 1996, respectively.
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>22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,885
<SECURITIES> 0
<RECEIVABLES> 90,999
<ALLOWANCES> 2,040
<INVENTORY> 97,445
<CURRENT-ASSETS> 217,983
<PP&E> 296,925
<DEPRECIATION> 132,092
<TOTAL-ASSETS> 448,798
<CURRENT-LIABILITIES> 110,463
<BONDS> 96,069
0
0
<COMMON> 6,752
<OTHER-SE> 191,502
<TOTAL-LIABILITY-AND-EQUITY> 448,798
<SALES> 433,363
<TOTAL-REVENUES> 433,363
<CGS> 339,249
<TOTAL-COSTS> 339,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,656
<INCOME-PRETAX> 36,160
<INCOME-TAX> 12,200
<INCOME-CONTINUING> 23,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,960
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
