<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, 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 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 $0.50 on Which Registered
Per Share New York Stock Exchange
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
---- ----
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/
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 10, 1998, was approximately $562,400,000.
The number of shares of registrant's common stock outstanding on March 10,
1998 was 12,371,357.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 13, which contains portions of the 1997 Annual Report to
Shareholders of the registrant is 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, 1997, 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
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, ceramic cores and
magnetic materials (materials).
On July 29, 1997, the Company's Board of Directors approved a two-for-one
split of its common stock. Additional information regarding the 1997 common
stock split is provided in Note 2 to the financial statements included in Item
8, "Financial Statements and Supplementary Data." Capital expenditures in 1997
($37.5 million) and 1996 ($28.2 million) were spent primarily to increase
aerospace, superalloy and bonded magnet product capacity and to replace old
equipment in the automotive and Unbrako manufacturing operations. In 1997, the
Company spent $47.2 million on business acquisitions as it continued its
strategy of acquiring relatively small companies that have operating synergies
with the Company's existing businesses. Additional information regarding 1997
operations is provided in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The Company is multinational in operation. In addition to 14 manufacturing
plants in the United States, it operates 12 manufacturing facilities in five
different countries: England, Ireland, Canada, Brazil and Australia. The Company
also has a 55% interest in a manufacturing operation in China and a minority
interest in a manufacturing operation in India. Marketing and warehousing
operations are carried on by subsidiaries in five 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 1997.
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; ceramic
cores, 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 technological developments.
No material part of the Company's business is dependent upon a single
customer. In 1997, the five largest customers accounted for 17% of the Company's
reported consolidated net sales.
The backlog of orders at December 31 which represent firm order delivery
within twelve months was as follows (in thousands of dollars):
1997 1996
----------- -----------
Fastener segment ........... $196,569 $144,703
Materials segment .......... 54,568 36,247
-------- --------
Total ................... $251,137 $180,950
======== ========
No material portion of the Company's business in either segment is
seasonal.
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.
2
<PAGE>
The Company owns certain trademarks and patents that it considers to be of
importance to its two industry segments. The principal trademarks of the Company
include SPS(R), ARNOLD(R), FLEXLOC(R), MULTIPHASE(R), MP35N(R), MP159(R),
UNBRAKO(R), U130(R), CMSX(R) and HI-LIFE(R). The trademarks have been registered
in the United States and certain foreign countries. The Company also owns or is
licensed under numerous patents which have been secured over a period of years.
Patents covering the CMSX-4, CMSX-10 and CM247LC superalloys are of particular
importance in protecting the proprietary superalloy technology of the Company's
subsidiary, Cannon-Muskegon Corporation. However, the Company does not believe
that its business as a whole is materially dependent on any one or more patents
or trademarks or on patent or trademark protection generally.
Total expenditures during 1997, 1996 and 1995 for Company-sponsored
research and development were $5.3 million, $5.6 million and $5.2 million,
respectively. In 1997, approximately 59% of the expenditures were for the
Company's fastener segment.
Capital expenditures for property, plant and equipment are planned at $30
million in 1998, exclusive of any business acquisition.
There were approximately 3,696 and 1,270 persons employed by the Company at
December 31, 1997 in the fastener and materials segments, respectively.
Financial information concerning industry segments and the foreign and
domestic operations is included in Note 19 to the Company's Consolidated
Financial Statements on pages 31 and 32 in the 1997 Annual Report to
Shareholders. Exhibit 13.1 contains the information and 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 ........................... 664,000 (a)
Cleveland, Ohio .................................... 365,000 (a)
Santa Ana, California .............................. 305,000 (a)(n)
Salt Lake City, Utah ............................... 86,000 (a)
Marengo, Illinois .................................. 356,000 (b)
Muskegon, Michigan ................................. 130,000 (b)
Norfolk, Nebraska .................................. 112,000 (b)
Marietta, Ohio ..................................... 77,000 (b)
Sevierville, Tennessee ............................. 65,000 (b)
Ogallala, Nebraska ................................. 22,000 (b)
Sorocaba, Brazil ................................... 339,000 (a)
Coventry, England .................................. 224,000 (a)
Smethwick, England ................................. 137,000 (a)
Leicester, England ................................. 123,000 (a)
Melbourne, Australia ............................... 44,000 (a)
Nuneaton, England .................................. 12,000 (a)
Derbyshire, England ................................ 44,000 (b)
Leased Lease Expires Square Feet
- ---------------------------------------------- --------------- ------------
Pointe Claire, Quebec, Canada ......... (c) 35,000 (a)
Leicester, England .................... (d) 38,000 (a)
Shannon, Ireland ...................... (e) (f) (g) (h) 280,000 (a)
Nashville, Tennessee .................. (i) 99,000 (a)
Wickliffe, Ohio ....................... (j) (k) 76,000 (b)
Rochester, New York ................... (l) 70,000 (b)
Adelanto, California .................. (m) 45,000 (b)
Rochester, England .................... (o) 8,350 (b)
- ------------
(a) Fastener segment.
(b) Materials segment.
3
<PAGE>
(c) Lease for 35,000 square feet expires October 31, 2002.
(d) Lease for 38,000 square feet expires January 12, 2002.
(e) Lease for 75,000 square feet expires November 15, 2010.
(f) Lease for 100,000 square feet expires November 13, 2010.
(g) Lease for 57,000 square feet expires April 1, 2004.
(h) Lease for 48,000 square feet expires January 1, 2112.
(i) Lease for 99,000 square feet expires August 14, 2002.
(j) Lease for 38,050 square feet expires May 1, 2009.
(k) Lease for 38,050 square feet expires July 1, 2010.
(l) Lease for 70,000 square feet expires October 31, 2006
(m) Lease for 45,000 square feet expires January 1, 2005.
(n) Approximately 70,000 square feet used for manufacturing purposes, with
remaining 235,000 square feet leased.
(o) Lease for 8,350 square feet expires December 31, 1999.
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
A discussion of legal proceedings is included in Note 11 to the Company's
Consolidated Financial Statements on page 25 in the 1997 Annual Report to
Shareholders. Exhibit 13.1 contains the information and 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 1997, 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, Chief Executive Officer and President since March 1997. 58
Previously, Chairman and Chief Executive Officer since December 1993.
Previously, President and Chief Operating Officer, Watts Industries, Inc.
since 1986.
James D. Dee Vice President, General Counsel and Secretary since May 1997. Previously, 40
Vice President, Environmental and Legal Affairs since February 1996.
Previously, Assistant Counsel and Patent Counsel since 1988.
John M. Morrash Vice President, Treasurer and Assistant Secretary since July 1995. 43
Previously, Treasurer since February 1988.
William M. Shockley Vice President, Chief Financial Officer and Controller since July 1995. 36
Previously, Corporate Controller since September 1992. Previously,
Assistant Controller since November 1991.
</TABLE>
4
<PAGE>
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 3, 1998 is included under
the caption entitled "Common Stock Information" on page 34 in the 1997 Annual
Report to Shareholders. Exhibit 13.4 contains this information 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 39 in the 1997 Annual Report to Shareholders. Exhibit 13.3
contains this information 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 35 through 39 in the 1997 Annual Report to
Shareholders. Exhibit 13.5 contains this information and is incorporated herein
by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements for SPS Technologies and the required
supplementary data "Summary of Quarterly Results" are included on pages 16
through 32 and page 34, respectively, in the 1997 Annual Report to Shareholders.
Exhibits 13.1 and 13.2 contain this information and 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,
1997. 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, 1997. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
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, 1997. 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.
5
<PAGE>
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 are set forth on pages 16 through 32 of the 1997 Annual
Report to Shareholders. Exhibit 13.1 contains this information and is
incorporated by reference. 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.
3. Exhibits:
3a Articles of Incorporation as amended.
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 November 16, 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, 1995, 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.
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.
6
<PAGE>
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. Exhibit 10r to the Annual Report on Form 10-K for the year
ended December 31, 1995, is hereby incorporated by reference.
13.1 1997 Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Report of Independent Accountants.
13.2 Summary of Quarterly Results for 1997 and 1996.
13.3 Selected Financial Data for 1993 through 1997.
13.4 Common Stock Information for 1997 and 1996.
13.5 1997 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during the last quarter of 1997:
Form 8-K dated October 14, 1997 reporting a sale of equity securities pursuant
to Regulation S under Item 9.
Form 8-K dated December 2, 1997 reported information under Item 5, "Other
Events."
7
<PAGE>
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 23, 1998
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 March 23, 1998
- ---------------------------- Officer, President and Director
Charles W. Grigg (Principal Executive Officer)
/s/ WILLIAM M. SHOCKLEY Vice President, Chief March 23, 1998
- ---------------------------- Financial Officer and Controller
William M. Shockley (Principal Financial Officer)
/s/ HOWARD T. HALLOWELL, III Director March 23, 1998
- ----------------------------
Howard T. Hallowell, III
/s/ JAMES F. O'CONNOR Director March 23, 1998
- ----------------------------
James F. O'Connor
/s/ ERIC M. RUTTENBERG Director March 23, 1998
- ----------------------------
Eric M. Ruttenberg
/s/ HARRY J. WILKINSON Director March 23, 1998
- ----------------------------
Harry J. Wilkinson
</TABLE>
8
<PAGE>
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, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, which financial statements are
included on pages 16 through 32 of the 1997 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, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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, present fairly, in all material respects, the
information required to be included therein.
/s/COOPERS & LYBRAND L.L.P.
- ---------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 2, 1998
9
<PAGE>
SCHEDULE II
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
(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, 1997:
$ (28)(b)
Allowance for doubtful accounts ......... $ 1,668 $ 407 263 (c) $ (283) $ 2,027
======== ========= ========= ====== =======
Deferred income tax valuation
allowance ............................. $ 8,857 $ 150 $(1,716)(d) $ $ 7,291
======== ========= ========= ====== ========
Year ended December 31, 1996:
$ 26(b)
Allowance for doubtful accounts ......... $ 1,292 $ 189 186(c) $ (25) $ 1,668
======== ========= ========= ====== ========
Deferred income tax valuation
allowance ............................. $ 10,349 $ (2,417) $ 925(c) $ $ 8,857
======== ========= ========= ====== ========
Year ended December 31, 1995:
Allowance for doubtful accounts ......... $ 1,299 $ 124 $ (12)(b) $ (119) $ 1,292
======== ========= ========= ====== ========
Deferred income tax valuation
allowance ............................. $ 11,462 $ (1,824) $ 711(c) $ $10,349
======== ========= ========= ======= ========
</TABLE>
- ------------
(a) Write off of uncollectible receivables, net of recoveries.
(b) Translation adjustments.
(c) Balance acquired in connection with acquisitions.
(d) Release of valuation allowances related to prior year business acquisitions
and credited to goodwill, net of balances acquired with 1997 business
acquisitions.
10
<PAGE>
EXHIBIT INDEX
Page
3a Articles of Incorporation as amended.
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 November 16, 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,
1995, 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.
<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 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.
<PAGE>
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. Exhibit 10r to the Annual Report on Form 10-K
for the year ended December 31, 1995, is hereby incorporated
by reference.
13.1 1997 Consolidated Financial Statements,
Notes to Consolidated Financial
Statements and Report of Independent Accountants.
13.2 Summary of Quarterly Results for 1997 and 1996.
13.3 Selected Financial Data for 1993 through 1997.
13.4 Common Stock Information for 1997 and 1996.
13.5 1997 Management's Discussion and Analysis of
Financial Condition and Results of Operations.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedules.
<PAGE>
ARTICLES OF INCORPORATION
OF
SPS TECHNOLOGIES, INC.
ARTICLE I: Name. The name of the corporation is SPS Technologies, Inc.
ARTICLE II: Registered Office. The location and post office address of
the registered office of the corporation is Jenkintown Plaza, 101 Greenwood
Avenue, Suite 470, c/o Office of General Counsel, Jenkintown, Montgomery County,
Pennsylvania 19046.
ARTICLE III: Corporate Purpose. The corporation shall have unlimited
power to engage in and do any lawful act concerning any or all lawful business
for which corporations may now or hereafter be incorporated under the
Pennsylvania Business Corporation Law, as amended.
ARTICLE IV: Term of Existence. The term for which the corporation is to
exist is perpetual.
ARTICLE V: Capital Stock.
Section 1. Authorized Shares. The aggregate number of shares
which the Corporation shall have authority to issue is 60,400,000 shares,
consisting of 60,000,000 shares of Common Stock having a par value of $.50 per
share and 400,000 shares of Preferred Stock having a par value of $1.00 per
share. At 5:00 p.m. Eastern Daylight Savings Time on August 20, 1997
<PAGE>
(the "Effective Time"), each share of Common Stock, par value $1.00, then
outstanding, and each share of Common Stock previously acquired by the
Corporation which has not then been restored to the status of authorized and
unissued shares, without further action by the Board of Directors, shall be
converted into two shares of Common Stock, par value $.50.
Section 2. Authority of Board of Directors to Fix Terms of
Preferred Stock. The Board of Directors of the corporation is authorized to
issue shares of Preferred Stock by resolution or resolutions, in one or more
series, and with respect to each such series, to fix, by such resolution or
resolutions, the number of shares of which it shall consist and its
designations, preferences, conversion rights and relative, participating,
optional or other special rights and any qualifications, limitations or
restrictions thereof.
Section 3. Voting Rights. The voting power of the stock shall be
vested in the holders of Common Stock, and in the holders of Preferred Stock to
the extent provided by the resolution of the Board of Directors in issuing
Preferred Stock.
Section 4. Preemptive Rights. No holder of any stock of the
corporation of any class, now or hereafter authorized, shall have any preemptive
right to subscribe to additional shares of stock of the corporation of any
class.
ARTICLE VI: Duties and Liabilities of Directors and Officers.
Section 1. Directors and Officers as Fiduciaries.
<PAGE>
A director or officer of the corporation shall stand in a fiduciary relation to
the corporation and shall perform his or her duties as a director or officer,
including his or her duties as a member of any committee of the Board of
Directors upon which he or she may serve, in good faith, in a manner he or she
reasonably believes to be in the best interests of the corporation, and with
such care, including reasonable inquiry, skill and diligence, as a person of
ordinary prudence would use under similar circumstances. In performing his or
her duties, a director or officer shall be entitled to rely in good faith on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by one or more officers
or employees of the corporation whom the director or officer reasonably believes
to be reliable and competent with respect to the matters presented, counsel,
public accountants or other persons as to matters that the director or officer
reasonably believes to be within the professional or expert competence of such
person, or a committee of the Board of Directors upon which the director or
officer does not serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director or officer
reasonably believes to merit confidence. A director or officer shall not be
considered to be acting in good faith if he or she has knowledge concerning the
matter in question that would cause his or her reliance to be unwarranted.
Absent breach of fiduciary duty, lack of good faith or self-dealing, actions
taken as a director or officer of the corporation or any failure to
<PAGE>
take any action shall be presumed to be in the best interests of
the corporation.
Section 2. Personal Liability of Directors. A director of the
corporation shall not be personally liable, as such, for monetary damages
(including, without limitation, any judgment, amount paid in settlement,
penalty, punitive damages or expense of any nature (including, without
limitation, attorneys' fees and disbursements)) for any action taken, or any
failure to take any action, unless the director has breached or failed to
perform the duties of his or her office under these Articles of Incorporation,
the By-laws or applicable provisions of law and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
Section 3. Personal Liability of Officers. An officer of the
corporation shall not be personally liable, as such, to the corporation or its
shareholders for monetary damages (including, without limitation, any judgment,
amount paid in settlement, penalty, punitive damages or expense of any nature
(including, without limitation, attorneys' fees and disbursements)) for any
action taken, or any failure to take any action, unless the officer has breached
or failed to perform the duties of his or her office under these Articles of
Incorporation, the By-laws or applicable provisions of law and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
Section 4. Interpretation of Articles. The provisions of Sections
2 and 3 of this Article VI shall not apply
<PAGE>
to the responsibility or liability of a director or officer, as such, pursuant
to any criminal statute or for the payment of taxes pursuant to local, state or
Federal law. The provisions of this Article VI have been adopted pursuant to the
authority of sections 204A(10) and 801B of the Pennsylvania Business Corporation
Laws, shall be deemed to be a contract with each director or officer of the
corporation who serves as such at any time while this article is in effect, and
such provisions are cumulative of and shall be in addition to and independent of
any and all other limitations on the liabilities of directors or officers of the
corporation, as such, or rights of indemnification by the corporation to which a
director or officer of the corporation may be entitled, whether such limitations
or rights arise under or are created by any statute, rule of law, By-law,
agreement, vote of shareholders or disinterested directors or otherwise. Each
person who serves as a director or officer of the corporation while this Article
VI is in effect shall be deemed to be doing so in reliance on the provisions of
this Article. No amendment to or repeal of this Article VI, nor the adoption of
any provision of these Articles of Incorporation inconsistent with this Article,
shall apply to or have any effect on the liability of alleged liability of any
director or officer of the corporation for or with respect to any acts or
omissions of such director or officers occurring prior to such amendment, repeal
or adoption of an inconsistent provision. In any action, suit or proceeding
involving the application of the provisions of this Article VI, the party or
parties challenging the right of a
<PAGE>
director or officer to the benefits of this Article shall have
the burden of proof.
ARTICLE VII: Reservation of Right to Amend. The corporation reserves
the right to amend, alter, change or repeal any provision contained in these
Articles of Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon shareholders are granted subject to this
reservation, but the effect on the directors or officers of this corporation of
any such amendment, alteration, change or repeal of the provisions of Article VI
shall be governed by the provisions of that Article.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Net sales ........................................... $588,616 $485,903 $409,814
Cost of goods sold .................................. 460,159 386,403 334,160
---------------------------------------
GROSS PROFIT .................................. 128,457 99,500 75,654
Selling, general and administrative expense ......... 70,379 61,322 49,644
---------------------------------------
OPERATING EARNINGS ............................ 58,078 38,178 26,010
Other income (expense):
Interest income .................................. 1,002 621 520
Interest expense ................................. (8,998) (7,989) (6,483)
Equity in earnings of affiliates ................. 230 853 1,701
Minority interest ................................ (224) (100)
Other, net ....................................... (788) (513) (473)
---------------------------------------
(8,778) (7,128) (4,735)
---------------------------------------
EARNINGS BEFORE INCOME TAXES .................. 49,300 31,050 21,275
Provision for income taxes .......................... 16,800 8,750 6,400
---------------------------------------
NET EARNINGS .................................. $32,500 $ 22,300 $ 14,875
=======================================
EARNINGS PER COMMON SHARE:
BASIC ....................................... $ 2.68 $ 1.87 $ 1.30
=======================================
DILUTED ..................................... $ 2.54 $ 1.77 $ 1.25
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
December 31
1997 1996
-------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................... $ 18,659 $ 33,310
Accounts and notes receivable, net ........................... 84,419 73,542
Inventories .................................................. 102,466 99,778
Deferred income taxes ........................................ 17,076 20,567
Prepaid expenses and other ................................... 4,268 4,579
-------------------------
TOTAL CURRENT ASSETS .................................... 226,888 231,776
-------------------------
Investments in affiliates ..................................... 5,988 4,760
Property, plant and equipment, net ............................ 172,599 148,616
Other assets .................................................. 66,573 42,848
-------------------------
TOTAL ASSETS .......................................... $472,048 $428,000
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt .......... $ 15,211 $ 16,454
Accounts payable ............................................. 45,006 34,952
Accrued expenses ............................................. 54,723 50,132
Income taxes payable ......................................... 5,563 3,919
-------------------------
TOTAL CURRENT LIABILITIES ............................... 120,503 105,457
-------------------------
Deferred income taxes ......................................... 14,799 14,505
Long-term debt ................................................ 95,507 98,838
Retirement obligations ........................................ 24,623 25,607
Minority interest ............................................. 1,826 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 13,576,846 shares
(13,292,500 shares in 1996) ................................ 6,788 6,646
Additional paid-in capital ................................... 92,597 82,561
Retained earnings ............................................ 133,391 100,891
Minimum pension liability .................................... (2,292) (2,257)
Common stock in treasury, at cost, 1,204,766 shares (1,290,762
shares in 1996) ............................................ (8,856) (7,920)
Cumulative translation adjustments ........................... (6,838) (2,325)
-------------------------
TOTAL SHAREHOLDERS' EQUITY .............................. 214,790 177,596
-------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ................................ $472,048 $428,000
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Thousands of dollars)
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .......................................................... $ 32,500 $ 22,300 $ 14,875
Reconciliation of net earnings to net cash provided by operating
activities:
Depreciation and amortization ...................................... 23,083 18,902 14,730
Equity in undistributed earnings of affiliates ..................... (230) (853) (1,701)
Net loss on sale of property, plant and equipment .................. 453 1,320 541
Deferred income taxes .............................................. 7,197 5,235 3,319
Cash used for restructuring activities ............................. (550)
Other operating items .............................................. (552) (283) 564
Changes in assets and liabilities, net of
acquisitions of businesses:
Receivables ...................................................... (6,533) (421) (1,738)
Inventories ...................................................... 1,796 1,031 (4,952)
Prepaid expenses and other ....................................... (281) 790 109
Accounts payable ................................................. 6,314 186 (811)
Accrued expenses ................................................. 3,045 4,006 (31)
Income taxes payable ............................................. 3,861 984 528
Other assets and liabilities, net ................................ (450) (2,890) 2,125
-------------------------------------------
Net cash provided by operating activities .......................... 70,203 50,307 27,008
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment ............................ (37,510) (28,220) (21,480)
Proceeds from sale of property, plant and equipment ................... 1,520 1,160 4,240
Acquisitions of businesses ............................................ (47,191) (35,580) (11,293)
Proceeds from divestitures of businesses .............................. 705
-------------------------------------------
Net cash used in investing activities .............................. (83,181) (62,640) (27,828)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings .............................................. 30,182 162,739 22,955
Reduction of borrowings ............................................... (32,862) (127,776) (25,359)
Proceeds from exercise of stock options ............................... 2,666 2,300 1,843
Purchases of treasury stock ........................................... (1,136)
-------------------------------------------
Net cash provided by (used in) financing activities ................ (1,150) 37,263 (561)
Effect of exchange rate changes on cash ............................... (523) 287 2
-------------------------------------------
Net increase (decrease) in cash and cash equivalents ............... (14,651) 25,217 (1,379)
Cash and cash equivalents at beginning of year ..................... 33,310 8,093 9,472
-------------------------------------------
Cash and cash equivalents at end of year ........................... $ 18,659 $ 33,310 $ 8,093
===========================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ...................................................... $ 10,627 $ 4,260 $ 6,134
Income taxes paid .................................................. 6,059 3,280 2,449
SIGNIFICANT NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of treasury shares for businesses acquired ................ 4,915 5,666
Debt assumed with businesses acquired .............................. 3,179 14,976
Acquisition of treasury shares for stock options exercised ......... 774 3,253
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(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, 1994 .... $6,378 $68,124 $ 63,716 $ (1,235) $ (5,990) $ (6,889) $124,104
Issuance of 147,306 shares
of common stock under
stock option plans ........... 73 2,039 2,112
Issuance of 283,278 shares
of treasury stock for
business acquired ............ 4,522 1,144 5,666
Net earnings .................. 14,875 14,875
Minimum pension liability
changes ...................... (1,391) (1,391)
Foreign currency translation
adjustment ................... 283 283
----------------------------------------------------------------------------------------------
Balance, December 31, 1995 .... 6,451 74,685 78,591 (2,626) (4,846) (6,606) 145,649
Issuance of 390,682 shares
of common stock under
stock option plans ........... 195 7,060 7,255
Acquisition of 121,846
shares of treasury stock
under stock option plans ..... (3,253) (3,253)
Net earnings .................. 22,300 22,300
Minimum pension liability
changes ...................... 369 369
Foreign currency translation
adjustment ................... 4,281 4,281
Issuance of 29,600 shares of
treasury stock for
contribution to pension
plan ......................... 816 179 995
----------------------------------------------------------------------------------------------
Balance, December 31, 1996 .... 6,646 82,561 100,891 (2,257) (7,920) (2,325) 177,596
Issuance of 284,346 shares
of common stock under
stock option plans ........... 142 6,095 6,237
Acquisitions of 47,424
shares of treasury stock ..... (1,910) (1,910)
Issuance of 133,420 shares
of treasury stock for
businesses acquired .......... 3,941 974 4,915
Net earnings .................. 32,500 32,500
Minimum pension liability
changes ...................... (35) (35)
Foreign currency translation
adjustment ................... (4,513) (4,513)
----------------------------------------------------------------------------------------------
Balance, December 31, 1997 .... $6,788 $92,597 $133,391 $ (2,292) $ (8,856) $ (6,838) $214,790
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and all its subsidiaries. Investments in affiliates, owned 20 percent or more
but not in excess of 50 percent, are recorded on the equity method. Certain
prior year amounts have been reclassified for comparative purposes.
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 average cost and include 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, 8 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.
Long-Lived Assets
Long-lived assets, including intangible assets, are reviewed when facts
and circumstances suggest that they may be impaired. If this review indicates
that the asset will not be recoverable based on the expected future
undiscounted net cash flows of the related asset, the asset's carrying value is
reduced. Intangible assets, included in other assets, were approximately
<PAGE>
$49,000 and $23,600 at December 31, 1997 and 1996, 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.
Accumulated amortization at December 31, 1997 and 1996, was $3,900 and $2,100,
respectively. Amortization of intangible assets was $2,273, $896 and $474 in
1997, 1996 and 1995, respectively.
Retirement Plans
Substantially all employees are covered by pension plans. Defined benefit
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 an operation in Brazil, 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 the operation in Brazil, 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.
Effective January 1998, Brazil will no longer be considered a highly
inflationary economy, because the three-year cumulative rate of inflation is
below 100%. The Company will measure the financial statements of its Brazilian
entity using the Brazilian real as its functional currency.
Forward Exchange Contracts
The Company enters into forward exchange contracts primarily as hedges
relating to identifiable currency positions. These financial instruments are
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
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 are classified in the same category
as the transaction hedged in the statements of consolidated cash flows.
Per Share Data
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per
Share." This Statement establishes standards for computing and presenting
earnings per share. Basic earnings per common share is calculated using the
average shares of common stock outstanding, while diluted earnings per common
share reflects the potential dilution that could occur if stock options were
exercised. The Company adopted SFAS No. 128 in the fourth quarter of 1997.
Prior periods have been restated in accordance with SFAS No. 128. This
restatement resulted in no material change from amounts previously reported.
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.
Concentration 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
<PAGE>
conditions but does not generally require collateral. The Company invests
available cash in money market securities of various banks with high credit
ratings.
Recently Issued Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income."
This Statement establishes standards for reporting and disclosing comprehensive
income and its components. Comprehensive income includes all changes in equity
except those resulting from investments by owners and distribution to owners.
This Statement is effective for fiscal years beginning after December 15, 1997.
The Company will adopt SFAS No. 130 and begin reporting comprehensive income in
the first quarter of 1998.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
reporting segment results based on the way management organizes segments within
the enterprise for making operating decisions and assessing performance. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. This Statement need not be applied to interim financial
statements in the initial year of its application. The Company will adopt SFAS
No. 131 in the fourth quarter of 1998, and is still evaluating its impact on
the Company's segment disclosures.
2. 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, 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.
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 January 1997, the Company acquired all of the outstanding shares of
Postkey, Ltd. (Postkey), a manufacturer of cylindrical thread roll dies,
located in
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
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 $5,200 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 30 years.
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 Wickliffe, 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. The purchase price approximated the fair
value of the net assets acquired.
On December 2, 1997, the Company acquired all of the outstanding shares of
Magnetic Technologies Corporation (MTC), a designer and manufacturer of
magnetic, electronic, and mechanical subassemblies of copiers and printers for
the electronic office equipment industry, located in Rochester, New York and
Rochester, England for $14,400. Approximately $9,600 was paid in cash and the
remainder in common stock of the Company. The excess of the purchase price over
the fair values of the net assets acquired was approximately $8,700 and has
been recorded as goodwill, which is being amortized on a straight-line basis
over 40 years.
<PAGE>
In 1996, the Company completed two acquisitions of magnetic material
manufacturers. On June 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 magnet 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 $13,300 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, LED, Mohawk, MTC, Flexmag, Swift Levick and
Mecair acquisitions had been made at the beginning of the periods presented.
The effects of the Postkey acquisition is not material and, accordingly, has
been excluded from the pro forma presentation.
Years Ended
December 31
1997 1996
--------------------------
Net sales .......................... $620,734 $570,978
Net earnings ....................... 33,291 23,585
Basic earnings per
common share .................... 2.74 1.98
Diluted earnings per
common share .................... 2.60 1.88
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 the periods presented or the future results of the combined operations.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
4. ACCOUNTS AND NOTES RECEIVABLE
1997 1996
----------------------
Trade ............................ $84,454 $ 72,273
Notes and other .................. 1,992 2,937
----------------------
86,446 75,210
Less allowance for
doubtful receivables .......... 2,027 1,668
----------------------
$84,419 $ 73,542
======================
5. INVENTORIES
1997 1996
----------------------
Finished goods ........... $ 38,222 $45,726
Work-in-process .......... 36,871 30,363
Raw materials and
supplies .............. 20,843 17,010
Tools .................... 6,530 6,679
----------------------
$102,466 $99,778
======================
6. INVESTMENTS IN AFFILIATES
At December 31, 1997, the Company's investments in affiliates consist of
22.05 percent interest in Precision Fasteners Limited (PFL), Bombay, India, and
a 55 percent interest in Shanghai SPS Biao Wu Fasteners Co. Ltd. (SSBW),
Shanghai, China. SSBW is accounted for as an affiliate under the equity method
because the Company is not able to exercise effective control over the
operations. In 1997, the Company acquired controlling interest in Unbrako
Products Pte. Ltd. (UPL), Singapore, and National-Arnold Magnetics Company
(NAM), Adelanto, California, United States. In 1995, the Company acquired
controlling interests in Metalac S.A. Industria e Comercio (Metalac), Sorocaba,
Brazil, and SPS/Unbrako K.K., Tokyo, Japan. Prior to the 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 $99, $339 and $387 in 1997, 1996
and 1995, respectively. Retained earnings in 1997, 1996 and 1995 included
undistributed earnings of affiliates, net of deferred taxes, of $3,161, $3,945
and $3,369 respectively. At December 31, 1997, the market value of PFL's common
stock was approximately $3,000.
The table below contains the summarized financial information of
affiliates. The operations of UPL, NAM,
<PAGE>
Metalac and SPS/Unbrako K.K. are included in the table up to the date the
Company acquired a controlling interest.
1997 1996 1995
---------------------------------
Condensed Statements
of Earnings
Net sales .................. $51,725 $33,300 $48,256
Gross profit ............... 11,489 9,600 16,035
Operating earnings ......... 4,441 5,431 6,955
Net earnings ............... 1,915 3,244 5,428
Condensed Balance
Sheets
Current assets ............. $36,955 $28,233 $21,414
Noncurrent assets .......... 31,778 22,210 15,139
---------------------------------
$68,733 $50,443 $36,553
=================================
Current liabilities ........ $29,068 $22,583 $16,498
Noncurrent liabilities ..... 18,087 8,529 3,034
Shareholders' equity ....... 21,578 19,331 17,021
---------------------------------
$68,733 $50,443 $36,553
=================================
7. PROPERTY, PLANT AND EQUIPMENT
1997 1996
----------------------
Land .............................. $ 6,851 $ 6,565
Buildings ......................... 63,074 57,891
Machinery and
equipment ...................... 214,629 194,459
Construction in progress .......... 19,672 17,147
----------------------
304,226 276,062
Less accumulated
depreciation ................... 131,627 127,446
----------------------
$172,599 $148,616
======================
Depreciation expense was $20,810, $18,006 and $14,256 in 1997, 1996 and
1995, respectively.
8. NOTES PAYABLE
1997 1996
-------------------
Short-term bank
borrowings and notes
payable ........................ $ 9,178 $11,708
Current portion of
long-term debt ................. 6,033 4,746
-------------------
$15,211 $16,454
===================
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
The Company's weighted-average interest rate for short-term bank
borrowings and notes payable was 5.6% and 6.8% as of December 31, 1997 and
1996, respectively. 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 banks. Unused short-term lines of
credit were $15,010 as of December 31, 1997. The Company also has unused long
term credit facilities as discussed in Note 10.
9. ACCRUED EXPENSES
1997 1996
---------------------
Employee compensation
and related benefits ......... $27,114 $24,625
Other ........................... 27,609 25,507
---------------------
$54,723 $50,132
=====================
10. LONG-TERM DEBT
1997 1996
--------------------
Note Purchase Agreement,
fixed interest rates of
7.7% to 7.88% ........... $85,000 $85,000
Loan Agreement, variable
interest rate, 7.813% and
6.625% at December 31,
1997 and 1996 ........... 5,962 8,872
Industrial Development
Revenue Bond Series
1987, variable interest
rate, 4.4% and 4.25% at
December 31, 1997 and
1996, due 2012 .......... 5,300 5,300
Other ...................... 5,278 4,412
--------------------
101,540 103,584
Less current installments
(included in notes
payable) ................ 6,033 4,746
--------------------
$95,507 $98,838
====================
Installments due during the next five years are as follows: $6,033,
$2,688, $438, $5,493, $5,490 in 1998 through 2002, respectively.
The Company has a long-term Note Purchase Agreement with three insurance
companies for
<PAGE>
$85,000 at fixed interest rates of 7.70 percent to 7.88 percent due in annual
installments from July 1, 2001 to July 1, 2011.
Under the Bank Credit Agreement dated June 28, 1995, 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. During 1997 and 1996, the
average interest rate on borrowings outstanding was 8.25 percent and 6.3
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, extendible for one year on each of the first and second
anniversary dates. At December 31, 1997 and 1996, no amounts were outstanding
under this credit facility. Except as disclosed below, all of the Company's
loan agreements are unsecured.
As part of the 1996 acquisition of Swift Levick Magnets Ltd. (as described
in Note 3), the Company entered into a loan agreement with the seller ($5,962
at December 31, 1997). The loan is collateralized by a bank letter of credit,
bears interest at LIBOR plus .75 percent and is due in annual installments from
June 30, 1998 to June 30, 1999. In 1997 and 1996, the average interest rate was
7.6 percent and 6.7 percent, respectively.
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. In 1997 and
1996, the average interest rate was 3.9 percent and 3.7 percent, respectively.
The Company is subject to a number of restrictive covenants under these
various debt agreements. Covenants associated with the Note Purchase Agreement
are generally more restrictive than those of the Bank Credit Agreement. The
Note Purchase Agreement contains the following significant financial covenants:
maintenance of a consolidated debt-to-total capitalization (tangible net worth
plus total debt) ratio of not
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
more than 50%; maintenance of a minimum consolidated tangible net worth of at
least $137,700 as of December 31, 1997; and maintenance of a fixed charge
coverage ratio of at least 1.75 to 1. Under these covenants, dividends paid by
the Company may not exceed $24,200 as of December 31, 1997 plus 50 percent of
consolidated net income (or minus 100 percent of consolidated net loss) from
January 1, 1998 to the date of the dividend. Certain of the Company's debt
agreements contain cross default and cross acceleration provisions. The Company
is currrently in compliance with all financial covenants. At year end 1997 the
Company (as restricted by loan covenants) would have been allowed to borrow an
additional $55,600.
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 13 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 $4,504, $3,872 and $2,507 in 1997, 1996 and 1995,
respectively.
At December 31, 1997, the future minimum annual rentals on non-cancelable
leases which have initial or remaining terms of more than one year aggregated
$32,595. The minimum payments over the next five years are as follows: $4,654,
$4,705, $3,819, $3,656 and $3,357 in 1998 through 2002, 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, 1997, the Company had an accrued
liability of $4,500 for environmental remediation which represents management's
best estimate of the undiscounted costs related to environmental remediation
which are considered probable and can be reasonably estimated. Management
believes the overall costs of environmental remediation will be incurred over an
extended period of time. 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
<PAGE>
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.
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 operations.
12. INCOME TAXES
The components of the provision for income taxes were as follows:
1997 1996 1995
-------------------------------
Currently payable:
United States
Federal ............. $ 7,592 $1,205 $ 400
State and local ..... 940 500 346
Non-United States 1,071 1,810 2,335
-------------------------------
9,603 3,515 3,081
-------------------------------
Deferred:
United States
Federal ............. 4,774 3,557 810
State and local ..... 196 150 (280)
Non-United States....... 2,227 1,528 2,789
-------------------------------
7,197 5,235 3,319
-------------------------------
$16,800 $8,750 $6,400
===============================
The tax expense that results from allocating certain tax benefits to
reduce goodwill of an acquired entity was $407 in 1997. The income tax benefits
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
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 $2,356 in 1997, $1,534 in 1996 and $265 in 1995.
The components of earnings from operations before income taxes were as
follows:
1997 1996 1995
---------------------------------
United States .............. $41,783 $25,114 $10,948
Non-United States .......... 7,517 5,936 10,327
---------------------------------
$49,300 $31,050 $21,275
=================================
Temporary differences comprising the net deferred income tax asset
(liability) on the consolidated balance sheets were as follows:
1997 1996
-------------------------
Inventory ....................... $ 7,313 $ 7,720
Post-retirement benefits
other than pensions .......... 4,493 4,721
Other employee benefits
and compensation ............. 6,330 5,786
Alternative minimum tax
credits ...................... 1,072 1,758
Advance corporate tax ........... 148 508
Accrued expenses ................ 3,768 4,175
Net operating loss carry for-
wards ........................ 4,256 6,926
Valuation allowances ............ (7,291) (8,857)
----------------------
Deferred income tax
asset ..................... 20,089 22,737
---------------------
Depreciation .................... (11,882) (10,500)
Pension benefits ................ (4,161) (4,441)
Other, net ...................... (1,769) (1,734)
---------------------
Deferred income tax
liability ................. (17,812) (16,675)
----------------------
Net deferred income tax
asset ..................... $ 2,277 $ 6,062
=====================
The Company has recorded a net deferred tax asset of $2,277 million at
December 31, 1997. Realization of the net deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of any net operating
loss carry forwards (NOLs). Although realization is not assured, management
believes it is more likely than not that the recorded net deferred tax asset
will be realized. At December 31, 1997, the Company had United States NOLs of
$2,300 which begin to expire in 2009, Brazilian NOLs of $7,300 with no
expiration dates and other non-United States NOLs of $2,000 which begin to
expire in 2003. The United States NOLs relate to the pre-owned operating losses
<PAGE>
of a 1997 business acquisition. These losses must be used to offset future
taxable income of the acquired business and are not available to offset the
consolidated taxable income of all United States owned subsidiaries. The
valuation allowance at December 31, 1997 relates to certain state and
non-United States tax jurisdictions. The net change in the valuation allowance
for 1997 results primarily from the release of valuation allowances related to
1996 business acquisitions based on the reevaluation of the realization of
future benefits, net of increases for additional Brazilian NOLs and valuation
allowances acquired with the 1997 business acquisitions. Included in the
December 31, 1997 and 1996 valuation allowance is $255 and $847, respectively,
for deferred tax assets for which subsequently recognized tax benefits, if any,
will be allocated to reduce goodwill of an acquired entity.
The following sets forth the differences between the provision for income
taxes computed at the United States federal statutory income tax rate of 35
percent for 1997 and 1996, and 34 percent for 1995 and that reported for
financial statement purposes:
1997 1996 1995
----------------------------------
Provision computed at
the United States
federal statutory
income tax rate ........ $17,255 $10,868 $7,234
Earnings of certain
subsidiaries taxed at
different rates ........ (1,504) (934) (664)
Permanent items ........... 345 973 1,346
State income tax, net
of federal benefit ..... 583 246 256
Valuation allowances ...... 150 (2,417) (1,824)
Other, net ................ (29) 14 52
--------------------------------
Provision for income
taxes .................. $16,800 $8,750 $6,400
================================
United States income taxes have not been provided on unremitted earnings
of certain subsidiaries located outside the continental United States of
approximately $49,400 because, in management's opinion, such earnings have been
indefinitely reinvested 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 practical to determine the amount of
unrecognized deferred tax liabilities for temporary differences related to
investments in these non-United States subsidiaries.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
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. The Company's contribution expense for the plans was
$629 in 1997, $245 in 1996 and $208 in 1995.
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, 1997 and 1996, the plans' assets included 440,664 shares of the
Company's common stock with fair values of $19,224 and $14,156, respectively.
There were no dividends received from Company stock for the years ended
December 31, 1997 and 1996.
--------------------------------
The following table sets forth the funded status of these plans at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------
Plans whose Plans whose Plans whose Plans whose
assets exceed accumulated assets exceed accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair value ...................... $145,851 $13,435 $134,120 $11,283
Actuarial present value of benefit obligations:
Vested benefits ............................... (126,521) (19,480) (113,990) (17,123)
Nonvested benefits ............................ (926) (799) (588) (1,381)
------------------------------------------------------------------
Accumulated benefit obligation ................ (127,447) (20,279) (114,578) (18,504)
Projected future salary increases .............. (9,591) (105) (8,634) (60)
------------------------------------------------------------------
Projected benefit obligation ................... (137,038) (20,384) (123,212) (18,564)
------------------------------------------------------------------
Plan assets in excess of (less than) projected
benefit obligation ............................ 8,813 (6,949) 10,908 (7,281)
Unrecognized net (asset) obligation at date of
initial application ........................... (3,716) 119 (4,670) 163
Unrecognized prior service (gain) cost ......... (9,482) 901 (10,535) 1,067
Unrecognized net loss .......................... 17,066 3,313 19,150 3,242
Recognized minimum liability ................... (4,285) (4,517)
------------------------------------------------------------------
Prepaid (accrued) pension cost at December 31 . $ 12,681 $(6,901) $ 14,853 $(7,326)
==================================================================
</TABLE>
--------------------------------
<PAGE>
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, 1997 and 1996. 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, 1997, 1996 and 1995 in determining
the domestic net pension cost and net pension liability were as follows:
1997 1996 1995
--------------------------------
Discount rate ............... 7.00% 7.65% 7.25%
Rate of return on plan
assets ................... 9.00% 10.00% 10.00%
Rate of future compen-
sation increase .......... 5.00% 5.00% 5.00%
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, 1997 was as follows: discount rate, 6 to 7 percent; rate of return
on plan assets, 9 to 9.5 percent; rate of future compensation increase, 4 to
4.5 percent.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
The net periodic pension cost incurred for 1997, 1996 and 1995,
respectively, for these plans, included the following components:
1997 1996 1995
--------------------------------------
Service cost ........... $ 6,077 $ 5,559 $ 4,665
Interest cost .......... 10,460 9,424 9,226
Actual return on plan
assets .............. (17,681) (13,901) (21,378)
Net amortization and
deferral ............ 3,776 1,205 11,337
-------------------------------------
Net periodic pension
cost ................ $ 2,632 $ 2,287 $ 3,850
=====================================
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.
An assumed discount rate of 7 percent and 7.65 percent was used to
determine the accumulated postretirement benefit obligation at December 31,
1997 and 1996, respectively.
The funded status of the plans and amounts recognized in the Company's
consolidated financial statements as of December 31 were as follows:
1997 1996
----------------------
Accumulated postre-
tirement benefit
obligation:
Current retirees ......... $ 4,372 $ 4,566
Fully eligible actives 1,745 1,430
Other actives ............ 2,823 3,378
---------------------
Total accumulated
postretirement ben-
efit obligation .......... 8,940 9,374
Unrecognized prior
service gain ............. 4,251 4,783
Unrecognized net loss . (414) (728)
---------------------
Postretirement benefit
obligation ............... $12,777 $13,429
=====================
<PAGE>
Net periodic postretirement benefit cost included the following
components:
1997 1996 1995
---------------------------------
Service cost .................. $159 $178 $159
Interest cost ................. 629 686 846
Unrecognized prior
service gain ............... (531) (531) (531)
Net amortization and
deferral ................... (3) 26 77
-----------------------------
Net periodic postretire-
ment benefit cost .......... $254 $359 $551
=============================
A 7 percent annual rate of increase in the per capita
costs of covered health care benefits was assumed for 1997. 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,
1997 by $71 and increase the aggregate of the service and interest components
of net periodic postretirement benefit cost for 1997 by $9.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
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
3,300,000 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. The options maximum term is 10 years and
fixed options granted vest over a five year period and discounted options
granted vest after one year.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company will continue to apply the provisions of Accounting
Principles Board Opinion 25 in accounting for its stock option plans. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed by SFAS No. 123, net income and
earnings per share would have been reduced to the pro forma amounts as follows:
Years Ended December 31
1997 1996 1995
--------------------------------------
Net earnings ............ $ 31,775 $ 21,871 $ 14,729
Basic earnings per
common share ......... 2.62 1.84 1.29
Diluted earnings per
common share ......... 2.48 1.74 1.24
The weighted-average fair value of options granted per share were $14.51,
$10.25 and $6.31 in 1997, 1996 and 1995, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model and the weighted-average assumptions used for grants were
as follows: expected volatility of 29 percent in 1997 and 32 percent in 1996
and 1995, expected option life of six years in 1997 and five years in 1996 and
1995, and no expected dividend payments over the life of the option. The
expected weighted-average risk-free interest rates of 6.2 percent, 5.3 percent
and 7.1 percent were used for 1997, 1996 and 1995, respectively.
At December 31, 1997, 62 individuals held options to purchase an aggregate
of 1,157,124 shares (fixed 1,134,252 discounted 22,872). There are 701,252
fixed price options outstanding with exercise prices ranging from $10.25 to
$14.22 per share (a weighted-average exercise price per share of $12.31) and
expiration dates ranging from November 28, 2000 to February 6, 2005 (a
weighted-average remaining contractual life of six years). Of these 701,252
fixed price options outstanding, 538,852 shares are currently exercisable with
a weighted-average exercise price of $12.00 per share. In addition, there are
260,000 fixed price options outstanding with exercise prices ranging from
$19.75 to $27.00 per share (a weighted-average exercise price per share of
$24.11) and expiration dates ranging from November 30, 1998 to January 31, 2006
(a weighted-average remaining contractual life of six years). Of these 260,000
fixed price options outstanding, 100,800 shares are currently exercisable with
a weighted-average exercise price of $23.57 per share. Also, there are 173,000
fixed price options outstanding with exercise prices ranging from $33.91 to
$45.59 per share (a weighted-average exercise price per share of $34.58) and
expiration dates ranging from February 9, 2007 to December 16, 2007 (a
weighted-average remaining contractual life of nine years). Of these 173,000
fixed price options outstanding, no shares are currently exercisable. The
discounted price options outstanding have an exercise price of $ .50 and
expiration dates ranging from May 31, 1999 to June 1, 2007 with a weighted-
average remaining contractual life of six years. Of the 22,872 discounted price
options outstanding, 21,016 shares are currently exercisable. No variable price
options were outstanding at December 31, 1997.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
Changes in shares under option were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- ------------------------
Shares Weighted- Shares Weighted- Shares Weighted-
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year ................ 1,261,308 $ 14.92 1,461,900 $ 13.24 1,398,204 $ 12.99
Additions (deductions):
Options granted .................. 180,856 34.59 198,264 27.01 219,612 15.22
Options exercised ................ (271,240) 12.24 (385,656) 14.40 (138,516) 13.15
Options expired or terminated (13,800) 27.00 (13,200) 20.85 (17,400) 15.10
--------- --------- ---------
Options outstanding at end of
year ............................. 1,157,124 18.31 1,261,308 14.92 1,461,900 13.24
========= ========= =========
Options exercisable at end of
year ............................. 660,668 13.40 699,354 12.82 925,184 13.60
Shares available for future
option grants .................... 251,986 432,148 622,238
Total exercise of options
outstanding at end of year ....... $ 21,193 $ 18,818 $ 19,358
</TABLE>
Under the nonqualified stock option plan, the Company has issued 26,922
restricted shares. Each year 20 percent of the restricted shares granted become
free of any restrictions. As of December 31, 1997, 22,401 shares issued are
restricted under the nonqualified stock option plan.
---------------
15. PER SHARE DATA
Earnings per share amounts have been restated in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This
restatement resulted in no material change from amounts previously reported.
Earnings per share are computed as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Net earnings .................................. $ 32,500 $ 22,300 $ 14,875
================================================
Average shares of common stock outstanding
used to compute basic earnings per common
share ........................................ 12,128,173 11,918,938 11,441,332
Additional common shares to be issued assuming
exercise of stock options, net of shares
assumed reacquired ........................... 668,085 647,926 420,684
------------------------------------------------
Shares used to compute dilutive effect of stock
options ...................................... 12,796,258 12,566,864 11,862,016
================================================
Basic earnings per common share ............... $ 2.68 $ 1.87 $ 1.30
================================================
Diluted earnings per common share ............. $ 2.54 $ 1.77 $ 1.25
================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
Options to purchase 92,200 shares of common stock at $22.69 per share were
outstanding during 1995 but were not included in the computation of diluted EPS
in 1995 because the options' exercise price was greater than the average market
price of the common shares. These options expire on December 7, 1999.
16. PREFERRED STOCK PURCHASE RIGHTS
As provided in the Rights Agreement dated November 11, 1988, the Board of
Directors declared a dividend distribution of one Right for each outstanding
share of common stock. 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.
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:
1997 1996
----------------------
Carrying amount ............... $101,540 $103,584
Estimated fair value .......... 109,350 108,114
<PAGE>
Forward Exchange Contracts
At December 31, 1997 and 1996, the Company had $6,314 and $2,326,
respectively, of forward foreign currency exchange contracts outstanding. These
contracts are primarily in British pounds and Irish punts, mature within 60
days and approximate fair values based on rates available to the Company at
December 31, 1997 and December 31, 1996, respectively. The counterparties of
these agreements are major financial institutions; therefore, management
believes the risk of incurring losses related to these contracts is remote.
18. RESEARCH AND DEVELOPMENT
Research and development costs incurred were $5,290, $5,649 and $5,247 for
1997, 1996 and 1995, 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, ceramic cores and magnetic materials). The Company
operates in the following geographic areas: United States, Europe (principally
England and Ireland) and other (principally Australia, Brazil, Canada, China,
Japan, Mexico and Singapore). 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, electrical 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. In
1996, the Company recorded a pre-tax charge for the cost of employee
separations of $3,600 which has been included in selling, general and
administrative expense. For segment reporting purposes, $2,700 reduced the
fastener segment operating earnings and $900 increased unallocated corporate
costs.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share data)
Industry Segments
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Net sales:
Fasteners ........................... $394,868 $334,677 $273,556
Materials ........................... 193,748 151,226 136,258
------------------------------------
Net sales ........................... $588,616 $485,903 $409,814
====================================
Operating earnings:
Fasteners ........................... $ 42,398 $ 26,997 $ 16,657
Materials ........................... 25,380 19,581 17,103
Unallocated corporate costs ......... (9,700) (8,400) (7,750)
------------------------------------
Operating earnings .................. $ 58,078 $ 38,178 $ 26,010
====================================
Identifiable assets:
Fasteners ........................... $301,720 $298,548 $248,802
Materials ........................... 170,328 129,452 77,285
------------------------------------
Total assets ........................ $472,048 $428,000 $326,087
====================================
</TABLE>
Depreciation and Amortization and Capital Additions:
<TABLE>
<CAPTION>
Depreciation and Amortization Capital Additions
------------------------------------ ----------------------------------
1997 1996 1995 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fasteners ......... $15,582 $13,620 $10,875 $25,320 $20,936 $16,258
Materials ......... 7,501 5,282 3,855 12,190 7,284 5,222
------------------------------------------------------------------------
Total .......... $23,083 $18,902 $14,730 $37,510 $28,220 $21,480
========================================================================
</TABLE>
Geographic Areas
1997 1996 1995
----------------------------------------
Net sales:
United States ............... $ 427,034 $ 345,591 $ 313,810
Europe ...................... 121,594 99,430 89,106
Other ....................... 64,531 60,668 26,158
Inter-area .................. (24,543) (19,786) (19,260)
---------------------------------------
Net sales ................... $ 588,616 $ 485,903 $ 409,814
=======================================
Operating earnings:
United States ............... $ 48,273 $ 31,052 $ 18,037
Europe ...................... 8,589 5,872 5,207
Other ....................... 1,290 1,267 1,704
Eliminations ................ (74) (13) 1,062
---------------------------------------
Operating earnings .......... $ 58,078 $ 38,178 $ 26,010
=======================================
Identifiable assets:
United States ............... $ 302,089 $ 253,718 $ 211,978
Europe ...................... 113,600 107,557 68,196
Other ....................... 56,586 67,224 46,332
Eliminations ................ (227) (499) (419)
---------------------------------------
Total assets ................ $ 472,048 $ 428,000 $ 326,087
=======================================
Included in United States sales are export sales of $55,000 in 1997, $39,400 in
1996 and $35,700 in 1995.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
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, 1997 and 1996 and the
related statements of consolidated operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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 2, 1998
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
March June September December
31 30 30 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
- ----
Net sales $137,975 $153,108 $142,280 $155,253
Gross profit 29,330 33,417 31,367 34,343
Net earnings 7,120 8,390 8,450 8,540
Basic earnings per common share .59 .69 .70 .70
Diluted earnings per common share .56 .66 .66 .66
1996
- ----
Net sales $113,975 $121,302 $125,435 $125,191
Gross profit 22,825 24,950 25,701 26,024
Net earnings 5,040 6,020 6,040 5,200
Basic earnings per common share .43 .51 .50 .43
Diluted earnings per common share .41 .47 .48 .41
</TABLE>
1996
----
Third quarter results include a pre-tax charge of $2,100 for the cost of
employee separations. Also in the third quarter, 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.
Fourth quarter results include a pre-tax charge of $1,500 due to certain
costs incurred to consolidate management responsibilities.
<PAGE>
SELECTED FINANCIAL DATA
(Thousands of dollars,
except share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales ............................. $ 588,616 $ 485,903 $ 409,814 $348,905 $ 319,094
Operating earnings (loss) ............. 58,078 38,178 26,010 7,978 (29,087)
Net earnings (loss) ................... 32,500 22,300 14,875 3,200 (30,995)
- ---------------------------------------- --------- --------- --------- -------- ---------
Working capital ....................... 106,385 126,319 103,007 87,491 94,483
Total assets .......................... 472,048 428,000 326,087 289,246 285,979
Long-term debt ........................ 95,507 98,838 58,119 56,426 81,828
Property, plant and equipment
additions ............................ 37,510 28,220 21,480 17,615 12,248
- ---------------------------------------- --------- --------- --------- -------- ---------
Per Share Data:
Basic net earnings (loss) ............ 2.68 1.87 1.30 .31 (3.04)
Diluted net earnings (loss) .......... 2.54 1.77 1.25 .31 (3.04)
Cash dividends ....................... .48
- ---------------------------------------- --------- --------- --------- -------- ---------
</TABLE>
Results for 1994 and 1993 include net restructuring charges of $3,500 and
$32,400, respectively.
On December 14, 1993, the Board of Directors elected to suspend payment of the
Company's quarterly dividend.
All share and per share data for prior periods presented have been restated to
reflect the 1997 stock split.
<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, 1997 ........... $ 50.56 $ 41.38
September 30, 1997 .......... 47.00 35.13
June 30, 1997 ............... 37.88 32.38
March 31, 1997 .............. 34.75 29.19
December 31, 1996 ........... $ 32.69 $ 29.32
September 30, 1996 .......... 35.13 29.88
June 30, 1996 ............... 35.63 27.82
March 31, 1996 .............. 28.32 25.63
The approximate number of holders of record of common stock as of March 3,
1998 was 1,044.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Sales, net earnings and net cash provided by operating activities have
continued to improve significantly over the last three years. The improvement
in operating results is primarily the result of increased sales of aerospace
fasteners and the inclusion of businesses acquired in the past two years. The
aggressive capital expenditure programs over the last three years have
increased capacity and reduced manufacturing costs.
1997 Compared to 1996
Net Sales
Fastener segment sales increased $60.2 million, or 18.0 percent, in 1997.
The increase in fastener sales is due principally to two factors: an increase
in aerospace fastener sales and the acquisition of Greer Stop Nut, Inc. in
February 1997. The segment's aerospace fasteners sales increased $51.0 million,
or 31.8%, to $211.4 million due to the buoyant aerospace market. The Company
believes that demand for aerospace fasteners in 1998 should remain relatively
high given the forecasted build rates for new aircraft and the ongoing need for
maintenance and repair parts for the aging fleet of commercial and military
aircraft. The Company also believes that order rates may level off in late
1998, but production volume should remain at a level that will continue to
generate reasonable profits and significant free cash flow. The Company has
spent approximately $23.9 million on capital equipment over the past three
years to increase aerospace capacity and lower costs to enhance its competitive
position.
Sales of industrial fasteners by Greer Stop Nut, Inc. (acquired in February
1997) increased fastener segment sales by $10.5 million. Excluding the sales
from this business, the Company's industrial (UNBRAKO) fastener sales remained
level with the prior year. Increased sales of UNBRAKO fasteners in the North
American market (approximately $2.0 million) were offset by lower sales of
UNBRAKO fasteners in the European markets. The Company's automotive fastener
sales increased by $2.2 million, or 2.3 percent, due primarily to increased
sales by the Company's Brazilian operation. While the economy in Brazil
currently is soft and could have a negative impact on operations in 1998, the
Company is optimistic about the long-term success of its Brazilian operation due
to the significant investments into the Latin America market announced by
automotive manufacturers.
Material segment sales increased $42.5 million, or 28.1 percent, in 1997.
This increase is due primarily to the five material segment acquisitions made
in the last two years ($31.1 million) and to an increase in superalloy sales by
the Cannon-Muskegon Corporation ($10.5 million). The capital expenditures made
over the past four years have increased superalloy production capacity and
allowed Cannon-Muskegon to further participate in the expanding aerospace and
land-based turbine markets. The Company expects superalloy sales to the
aerospace market to continue to grow in spite of the expected leveling off of
overall aerospace demand because of the market penetration of proprietary
superalloy products. New applications of proprietary superalloy material in
industrial gas turbines for power generation will contribute to the expected
continued growth in sales.
<PAGE>
Sales originating in the United States, as presented in the geographic
area information in Note 19 to the financial statements, increased $81.4
million, or 23.6 percent, in 1997. This increase is primarily due to increased
sales of domestic aerospace sales ($34.5 million) and sales from United States
acquisitions made in the last two years ($31.7 million). Sales originating in
Europe increased $22.2 million, or 22.3 percent, due to higher sales of
European aerospace fasteners ($9.0 million) and increased sales from the
European magnetic materials acquisition made in June 1996 ($9.6 million). Sales
originating in other areas include sales into the troubled Asia market;
however, these sales are not a significant part of our business and our net
exposure in the affected economies is not material to the Company's
consolidated financial position or results of operations.
Operating Earnings
Operating earnings of the fasteners segment improved from $27.0 million,
or 8.1 percent of sales, in 1996, to $42.4 million, or 10.7 percent of sales,
in 1997. The improvement in earnings is primarily the result of increased sales
of aerospace fasteners, aggressive capital expenditure programs and
incorporating design changes on certain programs to manufacture products on a
more cost effective basis. The fastener acquisitions made in the last two years
contributed $3.4 million to the $15.4 million increase in operating earnings
from the fastener segment. Partially reducing this increase was the operating
loss incurred by the Company's manufacturing facility in Coventry, England. In
1997, the Coventry facility lost $3.2 million which included operating losses
of $2.4 million and cost of employee separations of $800 thousand.
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
These headcount reductions are expected to generate annual savings of
approximately $850 thousand when fully implemented. The Company plans to
continue efforts to rationalize product lines and infrastructure at this
facility until this facility returns to profitability.
Operating earnings of the materials segment improved from $19.6 million,
or 12.9% of sales, in 1996 to $25.4 million, or 13.1% of sales, in 1997. The
improvement in earnings is primarily the result of acquisitions made in the
last two years and an increase in superalloy sales by the Cannon-Muskegon
Corporation as described above. The materials segment acquisitions made in the
last two years contributed $4.1 million to the $5.8 million increase in
operating earnings.
The increase in United States and European operating earnings, as
presented in the geographic area information in Note 19 to the financial
statements, is the result of higher sales originating in the areas described
above. The increase in the United States operating earnings as a percentage of
sales (9 percent in 1996 to 11.3 percent in 1997) is the result of higher sales
and the aggressive capital expenditures made in the past three years at the
domestic aerospace manufacturing facilities and the Cannon-Muskegon
Corporation.
Other Income (Expenses)
Interest expense increased from $8.0 million in 1996 to $9.0 million in
1997 due primarily to a higher level of average debt during 1997. Income from
the equity in earnings of affiliates decreased from $853 thousand in 1996 to
$230 thousand in 1997 due primarily to the loss incurred by the Company's joint
venture in China. The loss by the China joint venture is primarily due to a
significant decrease in sales (28 percent or $3.5 million) as a result of
competitive pricing conditions and a decreased demand from European markets. The
Company's share of the joint venture loss in 1997 was approximately $800
thousand.
Orders and Backlog
Incoming orders in 1997 were $648.6 million compared to $508.6 million in
1996, a 27.5 percent increase. The acquisitions made in the last two years
contributed $58.0 million to the $140.0 million increase in orders. Excluding
the acquisitions, orders increased for aerospace fasteners ($54.4 million),
automotive fasteners in Brazil ($4.6 million), UNBRAKO fasteners manufactured in
North America ($7.8 million), superalloys manufactured by the Cannon-Muskegon
Corporation ($9.3 million) and magnetic materials manufactured by the Arnold
Engineering Company ($5.1 million). The backlog in orders, which represent firm
order delivery within 12 months, at December 31, 1997 was $251.1 million,
compared to $181.0 million at the end of 1996 and $136.5 million at December 31,
1995.
<PAGE>
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, 1997, 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
As discussed in Note 3 to the financial statements, the Company acquired
three businesses in 1997 that were included in the fastener segment. 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 1997
sales of approximately $800 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, Tennessee for $10.0 million. In 1997, Greer had sales of
approximately $12.2 million. The acquisition of Greer adds a complementary
branded product line to the Company's Unbrako business. 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 in 1997 of approximately $10.6 million. The Company has
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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. In addition to acquiring these three businesses, the
Company paid $1.0 million 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 Asia market with
1997 sales of approximately $4.0 million.
As discussed in Note 3 to the financial statements, the Company made three
acquisitions for the materials segment in 1997. 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 were relocated
to the Company's current magnetic materials manufacturing facility in Marietta,
Ohio. On May 5, 1997, the Company acquired all of the outstanding shares of
Lake Erie Design Co., Inc. (LED) located in Wickliffe, Ohio for $8.1 million.
LED is a manufacturer of high precision ceramic cores for the investment
casting industry with 1997 sales of approximately $8.3 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. The
acquisition of LED expands the scope of products offered by SPS' subsidiary,
Cannon-Muskegon Corporation, to the investment casting industry. On December 2,
1997, the Company acquired all of the outstanding shares of Magnetic
Technologies Corporation (MTC), located in Rochester, New York and Rochester,
England for $14.4 million. MTC is a designer and manufacturer of magnetic,
electronic and mechanical subassemblies of copiers and printers for the
electronics office equipment industry with 1997 sales of approximately $20
million.
1996 Compared to 1995
Net Sales
Fastener segment sales increased $61.1 million, or 22.3 percent, in 1996.
The segment's aerospace fasteners sales increased $35.6 million, or 27.7
percent, to $160.4 million due to the improving demand for new commercial
aircraft orders. Sales by Metalac S.A. Industria e Comercio (Metalac) in Brazil
(acquired on August 16, 1995) and SPS/Unbrako K.K. in Japan (acquired on June
30, 1995) increased fastener segment sales and sales originating in other
areas, as presented in the geographic area information in Note 19 to the
financial statements, by $20.0 million in 1996. Excluding the sales from these
businesses, the Company's automotive fastener sales increased $1.1 million, or
1.6 percent, while the Unbrako fastener sales decreased $8.6 million, or 14.6
percent. The decline in Unbrako sales is due to a number of factors, including
inventory reduction programs by distributors, competitive pricing conditions,
and weak demand in European markets.
Excluding the $17.9 million of sales from the two magnetic material
businesses acquired in 1996 (Flexmag Industries, Inc. and Swift Levick Magnets
Ltd.), materials segment sales decreased by $3.0 million, or 2.2 percent. Sales
of magnetic materials which decreased by $7.2 million, or 9.8 percent, were
adversely affected by a significant decline in orders from personal computer,
telecommunications and electronics equipment customers. Sales of superalloys
increased $4.2 million, or 6.9 percent, as demand increased from the aerospace,
land-based turbine and medical markets. Excluding the sales of Swift Levick
Magnets Ltd., all 1996 and 1995 materials segment sales are originating in the
United States and are classified as such in the geographic area information
presented in Note 19 to the financial statements.
Operating Earnings
Operating earnings of the fastener segment improved from $16.7 million, or
6.1 percent of sales, in 1995, to $27.0 million, or 8.1 percent of sales in
1996. The improvement in earnings is primarily the result of increased sales of
aerospace fasteners and cost reductions attributed to the Company's investment
in new state-of-the-art computer controlled machine tools. By reducing costs
and better servicing customers, the Company's Cleveland, Ohio plant increased
its operating profit despite a $5.2 million net decrease in sales of its
industrial and UNBRAKO fasteners.
In response to the decline in automotive and Unbrako fastener sales in the
European and Brazilian markets, the Company consolidated its manufacturing
operations in Shannon, Ireland; Coventry, England and Sorocaba, Brazil in 1996.
The Company also consolidated management responsibilities in Jenkintown,
Pennsylvania. As a result, the Company recorded a pre-tax charge for the cost
of employee separations of $3.6 million which has been included in selling,
general and administrative expense. For segment reporting, $2.7 million reduced
the fastener segment operating earnings and $900 thousand increased unallocated
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
corporate costs. These actions, which reduced total employment by 70 employees
are expected to lower future operating and administrative costs by
approximately $3.6 million per year.
Excluding the operating earnings of the two magnetic material businesses
acquired in 1996, the operating earnings of the materials segment increased
from $17.1 million, or 12.6 percent of sales, in 1995 to $17.3 million, or 12.9
percent of sales, in 1996. This increase in earnings is attributed to a higher
volume of superalloy sales, partially offset by the decrease in magnetic
material sales as described above.
United States operating earnings improved from $18.0 million in 1995 to
$31.1 million in 1996. This increase is attributed to higher sales volume of
domestic aerospace fasteners, improved operating performance by the Cleveland,
Ohio plant and the acquisition of Flexmag Industries, Inc. European operating
earnings increased from $5.2 million in 1995 to $5.9 million in 1996. This
increase is attributed to higher sales volume of European aerospace fasteners
and the acquisition of Swift Levick Magnets Ltd. Partially offsetting this
increase was the cost of employee separations at the Shannon, Ireland and
Coventry, England manufacturing plants discussed earlier.
Other Income (Expenses)
Interest expense increased from $6.5 million in 1995 to $8.0 million in
1996. Higher levels of debt increased interest expense by approximately $1.9
million, while lower interest rates reduced interest expense by $400 thousand.
Income from the equity in earnings of affiliates decreased from $1.7 million in
1995 to $853 thousand in 1996. As discussed in Note 6 to the financial
statements, the Company gained a controlling interest in two businesses during
1995 that it previously recorded with the equity method of accounting.
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 by or used in operating activities, investing activities
and financing activities is summarized in the statements of consolidated cash
flows. Net cash provided by operating activities increased by $19.9 million in
1997 compared to 1996 due primarily to the $10.2 million improvement in net
earnings. The $6.1 million increase in the non-cash charges of depreciation,
amortization and deferred income tax expense also had a favorable impact on cash
flow from operating activities.
<PAGE>
The increase in cash used in investing activities is attributed to 1997
payments for Greer ($10 million), RJF's Bonded Magnet Business ($9.2 million),
LED ($7.8 million), Mohawk ($8.9 million) and MTC ($9.6 million) compared to
1996 payments for Flexmag ($21.3 million), Swift Levick ($10.4 million) and
Mecair ($5.6 million) compared to 1995 payments for the Elastic Stop Nut
Division of Harvard Industries, Inc. ($6.2 million) and to increase the
Company's ownership interest in Metalac S.A. Industria Comercio ($4.0 million).
Capital expenditures in 1997 ($37.5 million) and 1996 ($28.2 million) were
spent primarily to increase aerospace, superalloy and bonded magnet product
capacity and to replace old equipment in the automotive and Unbrako
manufacturing operations. Aerospace capital spending will decrease as the
Company gets further into the aerospace cycle and other fastener capital
spending will decrease because most of its programs to modernize fastener
plants have been completed. Capital spending of $30.0 million is budgeted for
1998, excluding capital spending for companies acquired in 1998.
The Company's total debt to equity ratio was 52 percent at December 31,
1997, 65 percent at December 31, 1996 and 44 percent at December 31, 1995.
Total debt was $110.7 million at December 31, 1997 compared to $115.3 million
at December 31, 1996 and $64.7 million at the end of 1995. As of December 31,
1997, under the terms of the existing credit agreements, the Company is
permitted to incur an additional $55.6 million in debt. Additional details of
the long-term Note Purchase Agreement, the credit agreements with commercial
banks and the industrial bonds 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 commenced a Chinese
joint venture in 1996. As the Company expands into
<PAGE>
- --------------------------------------------------------------------------------
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 1 to the financial statements, the Company uses forward exchange
contracts to minimize exposure and reduce risk from exchange rate fluctuations
affecting the results of operations. Except for the Chinese joint venture,
there are presently no significant restrictions on the remittance of funds
generated by the Company's non-United States operations.
Year 2000 Date Conversions
The Company's management information system department is identifying,
evaluating and implementing changes to computer systems and applications
necessary to achieve a year 2000 date conversion with no material effect on
customers or disruption to business operations. These actions are necessary to
ensure that the systems and applications will recognize and process the year
2000 and beyond. Major areas of potential business impact have been identified
and conversion efforts are underway. The Company is communicating with
suppliers, customers, financial institutions and others which it does business
with to coordinate year 2000 conversion. It is expected that the total cost of
compliance over the cost of normal software and hardware upgrades and
replacements will not be material to the Company's results of operations.
Forward-Looking Statements
Certain statements in management's discussion and analysis of financial
condition and results of operations contain "forward-looking" information,
within the meaning of the Private Securities Litigation Reform Act of 1995,
that involve risk and uncertainty. The Company's expectations of continued high
demand for aerospace fasteners and its effect on the Company's aerospace
operations, long-term success of our Brazilian operation, growth in the sales
of superalloys, annual savings from the employee separations, acquiring
additional tool companies and completing the year 2000 date conversion with no
material adverse effect on operations and at no material incremental cost are
all "forward-looking" statements contained in management's discussion and
analysis of financial condition and results of operations. Actual future
results may differ materially depending on a variety of factors, such as: the
effects of market changes and competition on products and pricing, customer
satisfaction and qualification issues, labor disputes, worldwide political and
economic stability and changes in fiscal policies, laws and regulations on a
national and international basis. The Company undertakes no obligation to
publicly release any forward-looking information to reflect anticipated or
unanticipated events or circumstances after the date of this document.
<PAGE>
EXHIBIT 21
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1997, the Company or one of its wholly-owned subsidiaries had,
among others, the following subsidiaries:
<TABLE>
<CAPTION>
<S> <C>
The Arnold Engineering Co
(an Illinois corporation) 100% stock interest
Cannon-Muskegon Corporation
(a Michigan corporation) 100% stock interest
Flexmag Industries, Inc.
(an Ohio corporation) 100% stock interest
Greer Stop Nut, Inc.
(a Tennessee corporation) 100% stock interest
Lake Erie Design, Inc.
(an Ohio corporation) 100% stock interest
Magnetic Technologies Corporation
(a Delaware corporation) 100% stock interest
Mecair Aerospace Industries, Inc.
(a Canadian corporation) 85% stock interest
Metalac S.A. Industria e Comercio 95% stock interest
(a Brazilian corporation) (99.6 % voting, 91.4% non-voting)
Mohawk Europa, Ltd.
(an Irish corporation) 100% stock interest
National-Arnold Magnetics Company
(a California partnership) 60% partnership interest
Postkey Limited
(a United Kingdom corporation) 100% stock interest
Precision Fasteners Limited
(an Indian corporation) 22.05% stock interest
SPS Biao Wu High Tensile Fasteners Company, Ltd.
(a Chinese foreign equity joint venture) 55% 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
SPS/Unbrako K.K.
(a Japanese corporation) 100% stock interest
Standco Canada, Ltd.
(a Canadian corporation) 100% stock interest
Swift Levick Magnets, Ltd.
(a United Kingdom Corporation) 100% stock interest
Unbrako Mexicana, S.A. de C.V.
(a Mexican corporation) 100% stock interest
Unbrako Products Pte. Ltd.
(a Singaporean corporation) 100% stock interest
Unbrako Pty. Limited
(an Australian corporation) 100% stock interest
</TABLE>
The Company files consolidated financial statements which include the above
subsidiaries, except for Precision Fasteners Limited and SPS Biao Wu High
Tensile Fasteners Company, Ltd., 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(w) 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 2, 1998, on our audits of the
consolidated financial statements and financial statement schedule of SPS
Technologies, Inc. and subsidiaries as of December 31, 1997 and 1996 and for the
years ended December 31, 1997, 1996, and 1995, 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 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,659
<SECURITIES> 0
<RECEIVABLES> 86,446
<ALLOWANCES> 2,027
<INVENTORY> 102,466
<CURRENT-ASSETS> 226,888
<PP&E> 304,226
<DEPRECIATION> 131,627
<TOTAL-ASSETS> 472,048
<CURRENT-LIABILITIES> 120,503
<BONDS> 95,507
0
0
<COMMON> 6,788
<OTHER-SE> 208,002
<TOTAL-LIABILITY-AND-EQUITY> 472,048
<SALES> 588,616
<TOTAL-REVENUES> 588,616
<CGS> 460,159
<TOTAL-COSTS> 460,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,998
<INCOME-PRETAX> 49,300
<INCOME-TAX> 16,800
<INCOME-CONTINUING> 32,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,500
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<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> 12,220
<INCOME-CONTINUING> 23,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,960
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.88
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,197
<SECURITIES> 0
<RECEIVABLES> 97,499
<ALLOWANCES> 1,921
<INVENTORY> 101,535
<CURRENT-ASSETS> 231,149
<PP&E> 293,223
<DEPRECIATION> 131,124
<TOTAL-ASSETS> 456,737
<CURRENT-LIABILITIES> 117,444
<BONDS> 99,236
0
0
<COMMON> 6,711
<OTHER-SE> 185,958
<TOTAL-LIABILITY-AND-EQUITY> 456,737
<SALES> 291,083
<TOTAL-REVENUES> 291,083
<CGS> 228,336
<TOTAL-COSTS> 228,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,626
<INCOME-PRETAX> 23,560
<INCOME-TAX> 8,050
<INCOME-CONTINUING> 15,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,510
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,383
<SECURITIES> 0
<RECEIVABLES> 86,843
<ALLOWANCES> 1,812
<INVENTORY> 101,092
<CURRENT-ASSETS> 224,366
<PP&E> 285,025
<DEPRECIATION> 125,932
<TOTAL-ASSETS> 441,528
<CURRENT-LIABILITIES> 113,548
<BONDS> 99,206
0
0
<COMMON> 6,673
<OTHER-SE> 175,174
<TOTAL-LIABILITY-AND-EQUITY> 441,528
<SALES> 137,975
<TOTAL-REVENUES> 137,975
<CGS> 108,645
<TOTAL-COSTS> 108,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,276
<INCOME-PRETAX> 10,720
<INCOME-TAX> 3,600
<INCOME-CONTINUING> 7,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,120
<EPS-PRIMARY> .59
<EPS-DILUTED> .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,310
<SECURITIES> 0
<RECEIVABLES> 75,210
<ALLOWANCES> 1,668
<INVENTORY> 99,778
<CURRENT-ASSETS> 231,776
<PP&E> 276,062
<DEPRECIATION> 127,446
<TOTAL-ASSETS> 428,000
<CURRENT-LIABILITIES> 105,457
<BONDS> 98,838
0
0
<COMMON> 6,646
<OTHER-SE> 170,950
<TOTAL-LIABILITY-AND-EQUITY> 428,000
<SALES> 485,903
<TOTAL-REVENUES> 485,903
<CGS> 386,403
<TOTAL-COSTS> 386,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,989
<INCOME-PRETAX> 31,050
<INCOME-TAX> 8,750
<INCOME-CONTINUING> 22,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,300
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 28,257
<SECURITIES> 0
<RECEIVABLES> 82,555
<ALLOWANCES> 1,566
<INVENTORY> 98,789
<CURRENT-ASSETS> 228,543
<PP&E> 269,077
<DEPRECIATION> 130,910
<TOTAL-ASSETS> 410,608
<CURRENT-LIABILITIES> 92,487
<BONDS> 103,767
0
0
<COMMON> 6,629
<OTHER-SE> 160,789
<TOTAL-LIABILITY-AND-EQUITY> 410,608
<SALES> 360,712
<TOTAL-REVENUES> 360,712
<CGS> 287,236
<TOTAL-COSTS> 287,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,530
<INCOME-PRETAX> 23,310
<INCOME-TAX> 6,210
<INCOME-CONTINUING> 17,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,100
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 24,055
<SECURITIES> 0
<RECEIVABLES> 80,241
<ALLOWANCES> 1,545
<INVENTORY> 97,626
<CURRENT-ASSETS> 221,014
<PP&E> 243,224
<DEPRECIATION> 122,649
<TOTAL-ASSETS> 381,505
<CURRENT-LIABILITIES> 84,159
<BONDS> 91,134
0
0
<COMMON> 6,621
<OTHER-SE> 153,578
<TOTAL-LIABILITY-AND-EQUITY> 381,505
<SALES> 235,277
<TOTAL-REVENUES> 235,277
<CGS> 187,502
<TOTAL-COSTS> 187,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,240
<INCOME-PRETAX> 15,810
<INCOME-TAX> 4,750
<INCOME-CONTINUING> 11,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,060
<EPS-PRIMARY> .94
<EPS-DILUTED> .88
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<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> .43
<EPS-DILUTED> .41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,093
<SECURITIES> 0
<RECEIVABLES> 62,586
<ALLOWANCES> 1,292
<INVENTORY> 88,090
<CURRENT-ASSETS> 179,338
<PP&E> 230,858
<DEPRECIATION> 118,120
<TOTAL-ASSETS> 322,087
<CURRENT-LIABILITIES> 77,431
<BONDS> 58,119
0
0
<COMMON> 6,451
<OTHER-SE> 139,198
<TOTAL-LIABILITY-AND-EQUITY> 322,087
<SALES> 409,814
<TOTAL-REVENUES> 409,814
<CGS> 334,160
<TOTAL-COSTS> 334,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,483
<INCOME-PRETAX> 21,275
<INCOME-TAX> 6,400
<INCOME-CONTINUING> 14,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,875
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.25
</TABLE>
