UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
Commission file number 1-4416
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer
101 Greenwood Avenue, Suite 470 Identification No.)
Jenkintown, Pennsylvania 19046
(Address of principal executive offices) (Zip Code)
(215) 517-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
The number of shares of Registrant's Common Stock outstanding
on May 3, 1999 was 12,683,968.
<PAGE>1
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
INDEX
-----
Part I. Financial Information
- -----------------------------
Item 1. Financial Statements
Statements of Consolidated Operations -
Three Months Ended March 31, 1999 and 1998
(Unaudited)
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1999 and 1998
(Unaudited)
Consolidated Statements of Comprehensive Income -
Three Months Ended March 31, 1999 and 1998
(Unaudited)
Notes to Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Part II. Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K
<PAGE>2
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars except share data)
Three Months Ended
March 31,
------------------------
1999 1998
---------- ----------
Net sales $ 202,475 $ 179,865
Cost of goods sold 157,621 139,678
---------- ----------
Gross profit 44,854 40,187
Selling, general and
administrative expense 21,185 20,455
---------- ----------
Operating earnings 23,669 19,732
---------- ----------
Other income (expense):
Interest income 196 207
Interest expense (3,334) (2,580)
Equity in earnings (loss)
of affiliates (262) (280)
Minority interest (26) (212)
Other, net (73) (127)
---------- ----------
(3,499) (2,992)
---------- ----------
Earnings before income taxes 20,170 16,740
Provision for income taxes 6,850 5,820
---------- ----------
Net earnings $ 13,320 $ 10,920
========== ==========
Earnings per common share:
Basic $ 1.05 $ 0.88
========== ==========
Diluted $ 1.02 $ 0.85
========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
March 31, December 31,
1999 1998
---------- -----------
Assets
Current assets
Cash and cash equivalents $ 24,779 $ 8,414
Accounts and notes receivable,
less allowance for doubtful
receivables of $2,813 (1998-$2,960) 117,246 109,300
Inventories 126,237 127,366
Deferred income taxes 20,018 20,494
Prepaid expenses and other 6,880 6,366
---------- ----------
Total current assets 295,160 271,940
---------- ----------
Investments in affiliates 1,771 2,033
Property, plant and equipment, net of
accumulated depreciation of $145,328
(1998-$150,657) 201,388 207,800
Other assets 120,113 125,462
---------- ----------
Total assets $618,432 $607,235
========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars, except share data)
March 31, December 31,
1999 1998
---------- -----------
Liabilities and shareholders' equity
Current liabilities
Notes payable and current portion of
long-term debt $ 17,125 $ 18,185
Accounts payable 59,648 51,777
Accrued expenses 56,508 62,062
Income taxes payable 8,855 5,889
--------- ---------
Total current liabilities 142,136 137,913
--------- ---------
Deferred income taxes 21,670 21,176
Long-term debt 155,897 154,010
Retirement obligations 25,998 25,605
Minority interest 1,532 1,731
Share Preferred stock, par value $1 per share,
authorized 400,000 shares, issued none
Common stock, par value $0.50 per share,
authorized 60,000,000 shares,
issued 13,868,020 shares (13,812,138
shares in 1998) 6,934 6,906
Additional paid-in capital 107,692 106,093
Common stock in treasury, at cost,
1,176,518 shares (1,119,008 shares
in 1998) (15,195) (12,943)
Retained earnings 191,281 177,961
Accumulated other comprehensive income
Minimum pension liability (2,025) (2,025)
Cumulative translation adjustments (17,488) (9,192)
--------- ---------
Total shareholders' equity 271,199 266,800
--------- ---------
Total liabilities and
shareholders' equity $618,432 $607,235
========= =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>5
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Three Months Ended
March 31,
------------------------
1999 1998
--------- ---------
Net cash provided by operating
activities (including depreciation
and amortization of $8,773 in
1999 and $6,934 in 1998) $ 20,089 $ 8,090
Cash flows from investing activities
Additions to property, plant and equipment (7,168) ( 7,740)
Proceeds from sale of property, plant
and equipment 729 105
Acquisitions of businesses, net of
cash acquired (10,174)
Proceeds from sale of other assets 2,501
--------- ---------
Net cash used in investing activities (3,938) (17,809)
--------- ---------
Cash flows from financing activities
Proceeds from borrowings 10,128 18,674
Reduction of borrowings (7,899) (11,709)
Purchases of treasury stock (1,682) (971)
Proceeds from exercise of stock options 53 471
--------- ---------
Net cash provided by financing activities 600 6,465
--------- ---------
Effect of exchange rate changes on cash (386) 99
--------- ---------
Net increase (decrease) in cash and cash
equivalents 16,365 (3,155)
Cash and cash equivalents at
beginning of period 8,414 18,659
--------- ---------
Cash and cash equivalents at
end of period $ 24,779 $ 15,504
========= =========
Significant noncash investing and
financing activities
Debt assumed with businesses acquired $ 5,000
Acquisition of treasury shares for
stock options exercised $ 570
See accompanying notes to condensed consolidated financial statements.
<PAGE>6
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - Thousands of dollars)
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
Net earnings $13,320 $10,920
Other comprehensive
income(expense):
Foreign currency
translation adjustments (8,296) (1,683)
-------- --------
Total comprehensive income $ 5,024 $ 9,237
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>7
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited-Thousands of dollars, except share data)
1. Financial Statements
In the opinion of the Company's management, the accompanying
unaudited, condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position as of
March 31, 1999, the results of operations for the three month periods
ended March 31, 1999 and 1998, and cash flows for the three month
periods ended March 31, 1999 and 1998. The December 31, 1998 balance
sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. The accompanying financial statements contain only normal
recurring adjustments. All financial information has been prepared in
conformity with the accounting principles reflected in the financial
statements included in the 1998 Annual Report filed on Form 10-K
applied on a consistent basis.
2. Business Acquisitions
All acquisitions have been accounted for under the purchase
method. The results of operations of the acquired businesses are
included in the consolidated financial statements from the dates of
acquisition.
On October 28, 1998 the Company acquired all of the outstanding
shares of Chevron Aerospace Group Limited (Chevron) based in Wilford,
Nottingham, England for approximately $54,900. Chevron is a
manufacturer of aircraft structural assemblies, precision machined
components, avionic panels, wiring harnesses and turbine lockplates.
The excess of the purchase price over the fair values of the net assets
acquired was approximately $34,700 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 40 years.
On July 31, 1998, the Company acquired all of the outstanding
shares of Nevada Bolt & Mfg. Co. doing business as Non-Ferrous Bolt &
Mfg. Co. (Non-Ferrous), a manufacturer of non-standard, hot-forged
bolts and nuts from stainless steel and specialty alloy materials,
located in Las Vegas, Nevada for $11,900. Approximately $8,800 was
paid with 203,935 shares of common stock from treasury and the
remainder in debt assumed by the Company. The excess of the purchase
price over the fair values of the net assets acquired was approximately
$5,800 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
<PAGE>8
On June 30, 1998, the Company acquired the operating assets of
Howell Penncraft, Inc. (Penncraft), a manufacturer of high-speed tool
steel and carbide products used in metal forming, located in Howell,
Michigan, for $3,500. The purchase price approximated the fair value
of the net assets acquired.
On June 30, 1998, the Company acquired all of the outstanding
shares of Terry Machine Company (Terry), a manufacturer of specialty
cold headed fasteners for the automotive industry, located in
Waterford, Michigan, for $22,100. The excess of the purchase price
over the fair values of the net assets acquired was approximately
$8,500 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
On March 23, 1998, the Company acquired all of the outstanding
shares of Greenville Metals, Inc. (Greenville), a manufacturer of
specialty metals and alloys, located in Transfer, Pennsylvania, for
$15,900. The excess of the purchase price over the fair values of the
net assets acquired was approximately $7,800 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 Chevron, Non-Ferrous, Penncraft,
Terry and Greenville acquisitions had been made at the beginning of the
periods presented.
Three Months Ended
March 31,
---------------------
1999 1998
-------- --------
Net sales $202,475 $212,726
Net earnings 13,320 10,045
Basic earnings
per common share 1.05 .80
Diluted earnings
per common share 1.02 .77
The pro forma consolidated results of operations include
adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt, shares of common stock issued and the
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>9
3. Inventories
March 31, December 31,
1999 1998
--------- -----------
Finished goods $ 51,276 $ 53,748
Work-in-process 40,666 39,192
Raw materials
and supplies 28,393 28,412
Tools 5,902 6,014
--------- ---------
$126,237 $127,366
========= =========
4. Environmental Contingency
The Company has been identified as a potentially responsible party
by various federal and state authorities for clean up or removal of
waste from various disposal sites. At March 31, 1999, the accrued
liability for environmental remediation 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 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.
5. Per Share Data
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. Earnings per common shares are computed as follows:
<PAGE>10
Three Months Ended
March 31,
---------------------------
1999 1998
----------- -----------
Net earnings $ 13,320 $ 10,920
=========== ===========
Average shares of common stock
outstanding used to compute basic
earnings per common share 12,692,143 12,369,949
Additional common shares to be
issued assuming exercise of stock
options, net of shares assumed
reacquired 376,219 483,232
----------- -----------
Shares used to compute dilutive
effect of stock options 13,068,362 12,853,181
=========== ===========
Basic earnings per common share $1.05 $0.88
===== =====
Diluted earnings per common share $1.02 $0.85
===== =====
6. Segment Information
The Company has five reportable segments: Fasteners, Specialty
Materials and Alloys, Magnetic Materials, Aerospace Structures and
Precision Tools. The Fasteners segment consists of three business
groups which produce fasteners for the aerospace, automotive and
industrial machinery markets. The Specialty Materials and Alloys
segment produces specialty metals, superalloys and ceramic cores for
aerospace, industrial gas turbine and medical applications. The
Magnetic Materials segment produces magnetic materials and products
used in automotive, aerospace, reprographic, computer and advertising
specialty markets. The Aerospace Structures segment produces
structural assemblies for the aerospace market and the Precision Tool
segment produces precision consumable tools used for metal forming and
cutting.
<PAGE>11
Three Months Ended
March 31,
-----------------------
1999 1998
-------- --------
Net Sales:
Fasteners $116,905 $107,194
Specialty Materials and Alloys 29,439 26,540
Magnetic Materials 35,142 40,283
Aerospace Structures 12,721
Precision Tools 10,431 7,950
Intersegment (2,163) (2,102)
-------- --------
Total Net Sales $202,475 $179,865
======== ========
Operating Earnings:
Fasteners $ 16,272 $ 12,868
Specialty Materials and Alloys 4,292 3,845
Magnetic Materials 4,000 4,923
Aerospace Structures 997
Precision Tools 858 746
Unallocated Corporate Costs (2,750) (2,650)
-------- --------
Total Operating Earnings $ 23,669 $ 19,732
======== ========
7. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive
income, depending on the use of the derivative and whether it qualifies
for hedge accounting. This Statement is effective for all interim
period financial statements for fiscal years beginning after June 15,
1999. The Company will adopt SFAS No. 133 in the first quarter of
2000. The Company anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a
material effect on the Company's results of operations or its financial
position.
<PAGE>12
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Introduction
- ------------
Net sales, net earnings and net cash provided by operating activities
improved in the first quarter of 1999 compared to the same quarter in 1998.
With the inclusion of business acquired in 1998, all business groups within
the Company's five segments contributed to the improvement in operating
results except for the Industrial Fasteners Group (IFG) and Magnetic
Materials Group (MMG). IFG and MMG had lower earnings due to the soft
demand for their products in the North American and European industrial
manufacturing markets.
Net Sales
- ---------
Net sales increased $22.6 million, or 12.6 percent, compared to the
first quarter of 1998 and increased $25.3 million, or 14.3 percent,
compared to the fourth quarter of 1998. Sales from businesses acquired in
1998 increased total Company first quarter 1999 sales by $32.4 million
compared to the first quarter of 1998 and $3.7 million compared to the
fourth quarter of 1998.
Fastener segment sales increased $9.7 million, or 9.1 percent, compared
to the first quarter of 1998. Aerospace fastener sales of $66.8 million in
the first quarter of 1999 represents a $4.4 million, or 7.1 percent,
increase from the first quarter of 1998 and a $12.3 million, or 22.6
percent, increase from the fourth quarter of 1998. This increase is
primarily attributable to increasing demand for aerospace products in
Europe associated with new aircraft builds. Aerospace sales in North
America for aircraft and engine maintenance programs remained strong in the
first quarter of 1999, when compared with both the first and fourth
quarters of 1998.
Sales of automotive and industrial fasteners by Terry Machine Company
and Non-Ferrous Bolt & Mfg. Co. (two companies acquired after the first
quarter of 1998) increased Fasteners segment sales by $13.8 million
compared to the first quarter of 1998. Excluding the sales from these
acquired businesses, the Compand industrial fastener sales
decreased $8.5 million, or 19.0 percent. The devaluation of the Brazilian
Real, overall weakness of the Brazilian economy, downsizing of the
Company's automotive manufacturing operation in Coventry, England and
decreased demand for Unbrako fasteners manufactured in North America and
Europe contributed to this decrease.
<PAGE>13
Specialty Materials and Alloy segment sales of $29.4 million for the
first quarter of 1999 was an increase of $2.9 million, or 10.9 percent from
the first quarter of 1998. This segment continues to benefit from strong
demand from the aerospace and industrial gas turbine markets, however, net
sales values for the first quarter were negatively impacted by soft raw
material prices and weak demand for stainless steel products. Greenville
Metals, Inc. (a business acquired on March 23, 1998) increased sales in
this segment by $3.8 million.
The Magnetic Materials segment sales decreased $5.1 million, or 12.8
percent compared with the first quarter of 1998. The sales decline is
attributed to sluggish conditions in the United States and European
industrial manufacturing markets, soft automotive manufacturing demand in
England and decreases in certain base metal prices. Partially offsetting
these declines were strong demand from the personal computer,
telecommunications and United States automotive markets.
Sales increases in the Aerospace Structures and Precision Tools
segments are the result of 1998 acquisitions. The acquisition of the
Chevron Aerospace Group (Chevron) on October 28, 1998 marked the Company's
expansion into the production of aerospace structural components. Howell
Penncraft, Inc. (Penncraft) acquired on June 30, 1998 added $2.1 million of
sales to the Precision Tools segment in the first quarter of 1999.
Operating Earnings
- ------------------
Operating earnings of the fasteners segment improved significantly from
$12.9 million, or 12.0 percent of sales, for the three months ended March
31, 1998, to $16.3 million, or 13.9 percent of sales, for the three months
ended March 31, 1999. The improvement in earnings is due to increased
sales of aerospace fasteners, the earnings contribution from Terry Machine
Co. (acquired on June 30, 1998) and improved operating efficiencies in
certain fastener businesses as a result of capital investment and the
continual advancement of lean manufacturing techniques. The Company's
focus on reducing machine set-up times, streamlining product flow,
improving preventive maintenance and reducing paperwork have resulted in
lower manufacturing and administrative cost. Further implementation of
lean manufacturing techniques are planned for 1999.
Operating earnings of the Magnetic Materials segment declined from $4.9
million, or 12.2 percent of sales, in the first quarter of 1998 to $4.0
million, or 11.4 percent of sales, in the first quarter of 1999. The
decline in earnings performance is attributed primarily to the lower sales
volume discussed above. Certain facilities in this segment have instituted
shorter weekly work hours and other cost reduction programs in response to
the lower volume of sales.
The 1999 operating earnings from Greenville Metals, Inc. (Specialty
Materials and Alloy segment), Chevron (Aerospace Structures segment) and
Penncraft (Precision Tools segment), three businesses acquired after March
<PAGE>14
22, 1998, are the primary reason for the increased operating earnings in
their respective segments. These businesses are expected to continue to
make positive contributions to operating results in 1999. The Company also
expects to realize additional benefits from operational synergies between
these acquired businesses and the more established Company operations.
Other Income and Expense
- ------------------------
Due to higher levels of debt, interest expense increased from $2.6
million in the first quarter of 1998 to $3.3 million in the first quarter
of 1999. The $262 thousand loss in equity in earnings of affiliates is the
result of losses associated with the Company's affiliates in China and
India.
Orders and Backlog
- ------------------
Incoming orders for the first quarter of 1999 increased 14.8 percent to
$204.8 million compared to the fourth quarter of 1998. A 32 percent
increase in orders for aerospace fasteners and strong orders for aerospace
structural components produced by Chevron Aerospace contributed to this
improvement in incoming orders.
Excluding the $36.8 million of incoming orders for businesses acquired
after March 22, 1998, the Company's incoming orders for the first quarter
of 1999 decreased $15.7 million, or 8.5 percent, compared to the first
quarter of 1998. Fasteners segment incoming orders account for the
majority of this decline, with Aerospace ($3.5 million), Automotive ($8.1
million) and Industrial ($4.8 million) orders all lower than the same
period a year ago. The backlog of orders, which represent firm orders with
delivery scheduled within 12 months, at March 31, 1999 was $289.9 million,
compared to $258.2 million on the same date a year ago and $296.1 million
at December 31, 1998.
Liquidity and Capital Resources
- -------------------------------
Management considers liquidity to be the ability to generate adequate
amounts of cash to meet its needs and capital resources to be the resources
from which such cash can be obtained, principally from operating and
external sources. The Company believes that capital resources available to
it will be sufficient to meet the needs of its business, both on a short-
term and long-term basis.
Cash flow provided or used by operating activities, investing
activities and financing activities is summarized in the condensed
statements of consolidated cash flows. Net cash provided by operating
activities increased by $12.0 million compared to the first three months of
1998 due primarily to the improvement in net earnings ($2.4 million),
higher non-cash charges of depreciation and amortization ($1.8 million) and
a decrease in cash used to fund working capital ($6.5 million).
<PAGE>15
The decrease in cash used in investing activities is attributed to the
1998 payment for the acquisition of Greenville Metals, Inc. ($9.7 million).
The Company spent $7.2 million for capital expenditures in the first three
months of 1999 and has budgeted $38.0 million for the full year of 1999, as
reported on Form 10-K for the year ended December 31, 1998.
The Company's total debt to equity ratio was 64 percent at March 31,
1999, compared to 65 percent at December 31, 1998. Total debt was $173.0
million at March 31, 1999 and $172.2 million at December 31, 1998. As of
March 31, 1999, under the terms of the existing credit agreements, the
Company is permitted to incur an additional $99.2 million in debt.
Year 2000 Readiness Disclosures
- -------------------------------
The following statements include "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure
Act of 1998. The Company is identifying, evaluating and implementing
changes to computer systems and applications necessary to achieve a year
2000 (Y2K) date conversion with no material effect on customers or
disruption to business operations. These actions are necessary to ensure
that information technology (IT) and non-IT 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.
All mainframe based IT systems have been assessed, plans have been put into
place and required Y2K conversion of these computer programs was
substantially completed in April 1999. The process of assessing the
various PC and LAN based IT systems and non-IT systems is substantially
complete. The Company has converted and tested many of these systems and
expects that the balance of testing and any necessary remediation will be
completed by September 30, 1999. The Company is communicating with
suppliers, customers, financial institutions and others it does business
with to coordinate Y2K conversion. The Company has not completed its
assessment and evaluation of the state of readiness of its customers and
vendors, although major customers have requested from the Company
information regarding its Y2K readiness and certain key suppliers have
confirmed their own internal Y2K readiness.
The cost specifically associated with addressing Y2K issues incurred in
the first quarter of 1999 were capitalizable costs of $600 thousand and
costs expensed as incurred of $200 thousand. The Company's cost to
complete its Y2K readiness actions is estimated to be additional
capitalizable cost of $1.1 million and cost expensed as incurred of $400
thousand. Costs expensed as incurred include the cost of resources within
the Company and external resources which have been directed toward Y2K
activities. Total Y2K readiness costs are estimated to be $3.9 million.
The most reasonably likely worst case Y2K scenario would be the failure
of either the Company or a third party to correct a material Y2K problem
that would cause an interruption in, or failure of, normal business
<PAGE>16
activities or operations. In the event that the worst case scenario
occurs, the impact of the Company's financial position or results of
operations cannot be estimated. While the Company believes that all
internal IT and non-IT systems will be converted prior to January 1, 2000,
the Company is in the process of generating contingency plans and
identifying additional actions which would be implemented in the event of
Y2K failure, including but not limited to: utilization of outside (third-
party) mainframe processing resources, identifying backup capacity within
the operating groups, development of manual procedures to process critical
transactions and other appropriate measures. To the extent that the
Company experiences a Y2K failure related to a third party's lack of
readiness, alternate sources of supply are being identified, however,
certain resources are not easily replaceable and there are limited
contingency planning options for such resources. At this time, the Company
has not identified a Y2K problem that it believes cannot be remediated
prior to it having a material impact on operations. The Company will
continue to assess the readiness of its own systems and, if a problem is
identified that cannot be remediated in the appropriate time period, a
specific plan to address that issue will be developed.
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 positive
contributions to operating results in 1999 by businesses acquired in 1998,
future benefits from operational synergies with newly acquired companies
and completing the Y2K date conversion with no material adverse effect on
operations and at no material cost to the Company's results of operations
are "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 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>17
SPS TECHNOLOGIES, INC AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
The Company's primary market risk exposures are foreign currency exchange
rate and interest rate risk. Fluctuations in foreign currency exchange rates
affect the Company's results of operations and financial position. As
discussed in Note 1 to the financial statements on Form 10-K for the year
ended December 31, 1998, the Company uses forward exchange contracts and one
currency swap agreement to minimize exposure and reduce risk from exchange
rate fluctuations affecting the results of operation. Because the largest
portion of the Company's foreign operations are located in countries with
relatively stable currencies, namely, England, Ireland and Canada, the foreign
currency exchange rate risk to the Company's financial position is not
material. However, the Company has expanded into Brazil, China and other
foreign countries which has increased its exposure to foreign currency
fluctuations. Fluctuations in interest rates primarily affect the Company's
results of operations. Because a majority of the Company's debt is in fixed
rate obligations (as disclosed in Note 9 to the financial statements on Form
10-K for the year ended December 31, 1998), the Company has effectively
limited its interest expense exposure to fluctuation in interest rates.
A description of the Company's financial instruments is provided in Notes
1 and 16 to the financial statements on Form 10-K for the year ended December
31, 1998. Assuming an instantaneous 10 percent strengthening of the United
States dollar versus foreign currencies for which forward exchange contracts
and currency rate swap agreements existed and a 10 percent change in interest
rate on the Company's debt had all occurred on March 31, 1999, the Company's
results of operations, cash flow and financial position would not have been
materially affected.
<PAGE>18
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
<PAGE>19
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPS TECHNOLOGIES, INC.
----------------------
(Registrant)
Date: May 4, 1999 William M. Shockley
-------------------
William M. Shockley
Vice President,
Chief Financial Officer
Mr. Shockley is signing on behalf of the registrant and as the Chief
Financial Officer of the registrant.
<PAGE>20
EXHIBIT INDEX
27 Financial Data Schedule.
<PAGE>21
21
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 24,779
<SECURITIES> 0
<RECEIVABLES> 120,059
<ALLOWANCES> 2,813
<INVENTORY> 126,237
<CURRENT-ASSETS> 295,160
<PP&E> 346,716
<DEPRECIATION> 145,328
<TOTAL-ASSETS> 618,432
<CURRENT-LIABILITIES> 142,136
<BONDS> 155,897
0
0
<COMMON> 6,934
<OTHER-SE> 264,265
<TOTAL-LIABILITY-AND-EQUITY> 618,432
<SALES> 202,475
<TOTAL-REVENUES> 202,475
<CGS> 157,621
<TOTAL-COSTS> 157,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,334
<INCOME-PRETAX> 20,170
<INCOME-TAX> 6,850
<INCOME-CONTINUING> 13,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,320
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.02
</TABLE>
