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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, 2000
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
Two Pitcairn Place, Suite 200 Identification No.)
165 Township Line Road
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 8,
2000 was 12,679,918.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Page
Item 1. Financial Statements
Statements of Consolidated Operations -
Three Months Ended March 31, 2000 and 1999
(Unaudited)
3
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999
(Unaudited)
4-5
Condensed Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2000 and 1999
(Unaudited)
6
Consolidated Statements of Comprehensive Income -
Three Months Ended March 31, 2000 and 1999
(Unaudited)
7
Notes to Condensed Consolidated
Financial Statements
8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars except share data)
Three Months Ended
March 31,
2000 1999
Net sales
$ 216,730 $ 202,475
Cost of goods sold 174,106
157,621
Gross profit
42,624 44,854
Selling, general and
administrative expense 23,553
21,185
Operating earnings 19,071
23,669
Other income (expense):
Interest income
442 196
Interest expense (4,543)
(3,334)
Equity in loss
of affiliates
- (262)
Other, net
140 (99)
(3,961) (3,499)
Earnings before income taxes 15,110 20,170
Provision for income taxes 4,700
6,850
Net earnings $ 10,41
0 $ 13,320
Earnings per common share:
Basic
$0.82 $1.05
Diluted
$0.81 $1.02
See accompanying notes to condensed consolidated financial statements.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
Unaudited
March 31, December 31,
2000 1999
Assets
Current assets
Cash and cash equivalents $ 15,634 $ 50,47
9
Accounts and notes receivable,
less allowance for doubtful
receivables of $4,137 (1999-$3,363) 143,403 118,287
Inventories 153,092
138,121
Deferred income taxes 19,231
19,291
Prepaid expenses and other 8,099
6,971
Total current assets 339,459 $333,149
Property, plant and equipment, net of
accumulated depreciation of $150,177
(1999-$152,865) 230,665
221,147
Other assets, principally goodwill 236,577 146,668
Total assets $806,701
$700,964
See accompanying notes to condensed consolidated financial statements.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
Unaudited
March 31, December 31,
2000 1999
Liabilities and shareholders' equity
Current liabilities
Notes payable and current portion of
long-term debt $ 18,706
$ 15,553
Accounts payable 71,378
63,698
Accrued expenses 60,179
56,354
Income taxes payable 10,527
7,165
Total current liabilities 160,790 142,770
Deferred income taxes 26,179
26,098
Long-term debt 277,824
201,895
Retirement obligations
and other long-term liabilities 25,521 25,162
Shareholders' equity
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 14,009,333 shares (13,986,882
shares in 1999) 7,005
6,993
Additional paid-in capital 112,596 110,261
Common stock in treasury, at cost,
1,302,857 shares (1,366,407 shares
in 1999)
(21,956) (22,285)
Retained earnings 239,591
229,181
Accumulated other comprehensive income
Minimum pension liability (732)
(732)
Cumulative translation adjustments (20,117) (18,379)
Total shareholders' equity 316,387 305,039
Total liabilities and
shareholders' equity $806,701
$700,964
See accompanying notes to condensed consolidated financial statements.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Three Months Ended
March 31,
2000 1999
Net cash provided by operating
activities (including depreciation
and amortization of $9,911 in
2000 and $8,773 in 1999) $ 8,297 $
20,089
Cash flows from investing activities
Additions to property, plant and equipment (7,272) (7,168)
Proceeds from sale of property, plant
and equipment 2,476
729
Acquisitions of businesses, net of
cash acquired (115,572)
-
Proceeds from sale of other assets - 2,501
Net cash used in investing activities (120,368) (3,938)
Cash flows from financing activities
Proceeds from borrowings 88,071 10,128
Reduction of borrowings (9,319) (7,899)
Purchases of treasury stock (1,535) (1,682)
Proceeds from exercise of stock options 166 53
Net cash provided by financing activities 77,383 600
Effect of exchange rate changes on cash (157) (386)
Net increase (decrease) in cash and cash
equivalents (34,845)
16,365
Cash and cash equivalents at
beginning of period 50,479
; 8,414
Cash and cash equivalents at
end of period $ 15,634
$ 24,779
Significant noncash investing and
financing activities
Issuance of treasury shares for
businesses acquired $ 3,600 $
-
Debt assumed with businesses acquired $ 501 $ -
Acquisition of treasury shares for
stock options exercised $ -
$ 570
See accompanying notes to condensed consolidated financial statements.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - Thousands of dollars)
Three Months Ended
March 31,
2000 1999
Net earnings $10,410
$13,320
Other comprehensive
income(expense):
Foreign currency
translation adjustments (1,738) (8,296)
Total comprehensive income $ 8,672 $ 5,024
See accompanying notes to condensed consolidated financial statements.
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, 2000 and the results
of operations and cash flows for the three month periods ended March 31, 2000
and 1999. The December 31, 1999 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 1999 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 March 14, 2000 the Company acquired all of the outstanding shares
of Avibank Mfg., Inc. (Avibank) based in Burbank, California for approximately
$115,500. Consideration consisted of approximately $111,900 in cash and
110,652 shares of the Company's common stock in treasury valued at $3,600.
Avibank is a manufacturer of latches, hold open rods, quick release pins,
structural panel fasteners, self retaining bolts and expandable fasteners
for aerospace markets. Avibank, through its AVK Industrial Products Division,
also manufactures threaded inserts for the automotive and industrial markets.
The excess of the purchase price over the fair values of the net assets acquired
was approximately $88,000 and has been recorded as goodwill, patents,
trademarks and other intangibles which are being amortized on a straight-line basis over 15 to 40 years.
On June 30, 1999 the Company acquired all of the outstanding shares
of National Set Screw Corporation, doing business as NSS Technologies, Inc.
(NSS), based in Plymouth, Michigan for approximately $43,700.
NSS manufactures highly specialized, cold-formed steel components for
the automotive, heavy truck, mining/road construction and waterworks
industries. The excess of the purchase price over the fair values of the
net assets acquired was approximately $25,000 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 Avibank and NSS acquisitions had been made at the
beginning of the periods presented.
Three
Months Ended
March 31,
2000
1999
Net sales $234,551
$237,975
Net earnings 11,001
14,020
Basic earnings
per common share 0.86
1.10
Diluted earnings
per common share 0.85
1.06
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.
3. Inventories
March 31,
December 31,
2000
1999
Finished goods $ 65,938 $ 57,292
Work-in-process 47,924 41,853
Raw materials
and supplies 33,551 33,454
Tools 5,679
5,522
$153,092
$138,121
4. Long-term Debt
On March 10, 2000, the Company entered into a Bank Credit Agreement
to borrow up to $75,000 in either United States Dollars or certain European
currencies. 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) a rate equal to the effective interbank rate
plus a margin ranging from .75 to 1.30 percentage points based on the
consolidated Leverage Ratio, as defined, or c) at a rate and term negotiated
between the agent bank and the Company, as applicable. Borrowings outstanding
under the 2000 Bank Credit Agreement at March 31, 2000 were $923 with an
interest rate of 7.69 percent. This agreement expires March 9, 2005.
The Company is required to pay a fee on unborrowed amounts of the facility
ranging from .175 to .30 percentage points based on the consolidated
Leverage Ratio.
On February 25, 2000, the Company entered into a long-
term Note Purchase Agreement with one insurance company for $15,000
at a fixed interest rate of 8.37 percent due in annual installments
from February 28, 2004 to February 28, 2010.
On February 24, 2000, the Company received the proceeds of the
Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue
Bonds, Series 2000. The proceeds of the Series 2000 Bonds of $6,000 were
issued to finance the acquisition and installation of machinery and equipment
at a precision fastener and components segment manufacturing facility in
Canton, Michigan and are to be repaid on February 1, 2010. The Bonds are
secured by a bank letter of credit. At March 31, 2000, the interest rate on
the Series 2000 bonds was 4.05 percent.
The Company is subject to a number of restrictive covenants under
its various debt agreements. Covenants associated with the Note Purchase
Agreements are generally more restrictive than those of the Bank Credit
Agreements. The following significant covenants are currently in place
under the Note Purchase Agreements: maintenance of a consolidated debt-to-total capitalization (shareholders' equity plus total debt) ratio of not more
;
than 55 percent and maintenance of a consolidated net worth of at least
$200,000 plus 50 percent of adjustable consolidated net income for quarters
ended after December 31, 1998. Under these covenants, restricted payments,
which include all dividends and purchases or retirements of capital stock,
paid by the Company may not exceed $40,000 plus 50 percent of consolidated
net income (or minus 100 percent of the consolidated net loss) from January 1,
1999 to the date of the restricted payment. Certain of the Company's debt
agreements contain cross default and cross acceleration provisions. At March 31,
2000, the Company was in compliance with all covenants of these existing credit
agreements. As of March 31, 2000, under the terms of these existing credit
agreements, the Company is permitted to incur an additional $90,300 in debt.
5. Environmental Contingency
The Company has been identified as a potentially responsible party by
various federal and state authorities for clean up or removal of waste from
various disposal sites. At March 31, 2000, 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.
6. 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:
Three Months Ended
March 31,
2000 1999
Net earnings $ 10,410
$ 13,320
Average shares of common stock
outstanding used to compute basic
earnings per common share 12,670,658 12,692,143
Additional common shares to be
issued assuming exercise of stock
options, net of shares assumed
reacquired 222,247
376,219
Shares used to compute dilutive
effect of stock options 12,892,905 13,068,362
Basic earnings per common share $0.82 $1.05
Diluted earnings per common share $0.81 $1.02
7. Segment Information
The Company has three reportable segments: Precision Fasteners and
Components, Specialty Materials and Alloys and Magnetic Products. The
Precision Fasteners and Components segment consists of business units
which produce precision fasteners, components and consumable tools 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,
medical and other general industrial applications. The Magnetic Products
segment produces magnetic materials and products used in automotive,
telecommunications, aerospace, reprographic, computer and advertising
specialty applications.
Three Months Ended
March 31,
2000 1999
Net Sales:
Precision Fasteners and Components $148,162 $137,894
Specialty Materials and Alloys 32,582 29,439
Magnetic Products 35,986
35,142
Total Net Sales $216,730
$202,475
Operating Earnings:
Precision Fasteners and Components $ 14,144 $ 18,127
Specialty Materials and Alloys 4,351 4,292
Magnetic Products 3,376
4,000
Unallocated Corporate Costs (2,800) (2,750)
Total Operating Earnings $ 19,071 $ 23,669
8. 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, 2000.
The Company will adopt SFAS No. 133 in the first quarter of 2001. 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.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Net earnings and net cash provided by operating activities decreased in
the first quarter of 2000 compared to the same quarter in 1999. The decrease
in operating results is primarily attributable to lower earnings from the
Company's North American aerospace operations that could not be offset by
strong demand for the Company's products sold to the automotive and industrial
gas turbine markets. The Company completed two acquisitions in 2000 which
expand the range of products offered to the aerospace, automotive and
industrial markets.
Net Sales
Net sales increased $14.3 million, or 7.0 percent, compared to the
first quarter of 1999 and increased $21.8 million, or 11.2 percent, compared
to the fourth quarter of 1999. Sales from businesses acquired in 1999 and
2000 increased the Company's first quarter 2000 sales by $22.8 million
compared to the first quarter of 1999 and $7.5 million compared to the
fourth quarter of 1999.
Sales of products by companies acquired in 1999 and 2000 (primarily NSS
Technologies and Avibank) increased Precision Fasteners and Components segment
sales by $22.8 million compared to the first quarter of 1999. Excluding the
sales from these recently acquired businesses, this segment's sales decreased
$12.6 million, or 9.1 percent compared to the first quarter of 1999. Sales of
aerospace fasteners and components of $63.9 million in the first quarter of 2000
represents a $15.6 million, or 19.6 percent, decrease from the first quarter of
1999 and a $2.9 million, or 4.4 percent, decrease from the fourth quarter of
1999. These decreases reflect the depressed demand from North American commercial
aerospace markets and inventory reduction activities by a major aerospace engine
manufacturer in Europe. While the Company is encouraged by a $13.9 million,
or 26.5 percent, increase in incoming orders for aerospace fasteners and
components in the first quarter of 2000, compared to the fourth quarter of
1999, it does expect lower sales for the full year 2000 compared to 1999.
Excluding recently acquired businesses, the Company's automotive and
industrial fastener sales increased $3.4 million, or 6.8 percent, compared to
the first quarter of 1999 and $6.9 million, or 14.9 percent, compared to the
fourth quarter of 1999. These increases are the result of a strong automotive
market in the United States and a moderate recovery of the automotive demand in
Brazil. The Company continues to benefit from orders for new business requiring
performance and safety-critical automotive fasteners and components.
Specialty Materials and Alloy segment sales increased $3.1 million, or
10.7 percent, compared to the first quarter of 1999 and $7.9 million, or 32.0
percent, compared to the fourth quarter of 1999. These higher sales are the
result of strong demand from the industrial gas turbine and medical markets
combined with higher material prices (primarily, cobalt and nickel) which are
reflected in higher selling prices to customers.
Magnetic Product segment sales increased $.8 million, or 2.4 percent,
compared to the first quarter of 1999 and $2.2 million, or 6.5 percent,
compared to the fourth quarter of 1999. These increases are attributed to
strong demand from the United States automotive, telecommunications, computers
and advertising markets. Sales of magnetic products for reprographic
applications decreased by approximately $1.0 million, or 16 percent, compared
to the first quarter of 1999 and partially offset the increase in sales to
other markets served by the Material Products segment.
Operating Earnings
Operating earnings of the Company decreased $4.6 million, or 19.4 percent,
compared to the first quarter of 1999 and $1.7 million, or 8.2 percent, compared
to the fourth quarter of 1999. Operating earnings for the first quarter of 2000
include a non-recurring gain related to the sale of an automotive fastener
manufacturing facility. On March 31, 2000, the Company sold its Coventry,
England facility for $2.5 million, resulting in a gain of $.9 million. The
Company's automotive fastener operation located in the building will continue
to occupy a portion of the facility under a lease arrangement.
Excluding the gain of $.9 million described above, the operating earnings
of the Precision Fasteners and Components segment decreased sharply from $18.1
million, or 13.1 percent of sales, for the three months ended March 31, 1999 to
$13.2 million, or 8.9 percent of sales, for the three months ended March 31,
2000. The decrease in earnings is due primarily to the decrease in sales of
aerospace fasteners and components discussed above. The decrease in operating
profit margin (13.1 percent to 8.9 percent) reflects a shift in the mix of sales
from higher margin aerospace products to lower margin automotive products.
In the first quarter of 2000, this segment incurred costs of $1.4 million
associated with workforce reductions and consolidation of operations.
The Company has reduced the workforce in its aerospace fastener manufacturing
plants by approximately 178 people. In addition, the Company is reorganizing
its precision tool manufacturing facilities to allow each tool plant to focus
on specific products and technologies in order to offer competitive products
through an integrated sales organization.
While the operating earnings of the Specialty Materials and Alloy segment
were essentially unchanged compared to the first quarter of 1999 at $4.3
million, the operating profit margin decreased from 14.6 percent in the first
quarter of 1999 to 13.4 percent in the first quarter of 2000. The decrease in
margin is attributed to higher material prices for cobalt and nickel. Because
material prices are merely passed onto the customer, higher material prices
result in a higher value of sales but decreased margins as sales and costs
are increasing in the same amount.
Operating earnings of the Magnetic Products segment decreased $.6 million,
or 15.6 percent, from the first quarter of 1999 and $1.2 million, or 25.9 percent
from the fourth quarter of 1999. The decrease in earnings is attributed to
decreased sales of reprographic magnetic products and the operating loss of
approximately $1.0 million incurred by the Company's majority owned joint
venture manufacturing facility in Adelanto, California. The Company has assumed
an increase in management control and is evaluating actions necessary to return
this facility to profitability.
Other Income and Expense
Due to higher levels of debt, interest expense increased from $3.3 million
in the first quarter of 1999 to $4.5 million in the first quarter of 2000. In
the first quarter of 1999, the Company recorded a $262 thousand loss in equity
in earnings of affiliates due to the losses associated with the Company's
affiliates in China and India. The investment balances in these affiliates,
accounted for on the equity method, were written down in the second quarter of
1999 to zero.
Orders and Backlog
Incoming orders for the first quarter of 2000 increased 24.7 percent to
$223.2 million compared to the fourth quarter of 1999. Excluding the impacts
of businesses acquired in the first quarter of 2000, Precision Fasteners and
Components orders increased 23%, while orders for both the Specialty Materials
and Alloys and Magnetic Products segments increased 20% respectively.
Incoming orders in the first quarter of 2000 were $223.2 million compared
to $204.8 million for the first quarter of 1999 and $179.0 million for the
fourth quarter of 1999. Companies acquired after the first quarter of 1999
(primarily, NSS Technologies and Avibank) increased orders by $23.5 million
compared to the first quarter of 1999 and $12.0 million compared to the fourth
quarter of 1999. The backlog of orders, which represent firm orders with
delivery scheduled within 12 months, at March 31, 2000 was $287.3 million,
compared to $289.9 million on the same date a year ago and $255.9 million at
December 31, 1999.
Acquisitions
As discussed in Note 2 to the financial statements, the Company acquired
all of the outstanding shares of Avibank Mfg., Inc. (Avibank) based in Burbank,
California for approximately $115.5 million on March 14, 2000. The shareholders
of Avibank and SPS will elect to have the transaction treated as an asset purchase
for tax purposes. Avibank is a leading manufacturer of latches, hold open rods,
quick release pins, structural panel fasteners, self-retaining bolts and
expandable fasteners for aerospace markets. Avibank, through its AVK Industrial
Products Division, also manufactures threaded inserts for the automotive and
industrial markets. A large number of Avibank's products are proprietary and
covered by over forty active patents. For the year ended December 31, 1999,
Avibank reported sales of approximately $77.5 million. The acquisition of
Avibank represents another step in the execution of the Company's strategy of
acquiring technically sophisticated, strong niche companies which are extensions
of its existing businesses.
On January 10, 2000, the Company acquired certain operating assets of
ULMA S.p.A. (ULMA) based in Milan, Italy for approximately $2.3 million. ULMA
is a full range manufacturer of flat, planetary and cylindrical thread roll dies
used in metal forming. Sales for the year ended December 31, 1999 were
approximately $5.2 million. The acquisition of ULMA expands the Company's
precision tool product offering and establishes a precision tool manufacturing
presence in Continental Europe.
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 decreased by $11.8 million
compared to the first three months of 1999 due primarily to the decrease in net
earnings ($2.9 million), and an increase in cash used to fund working capital
($7.3 million).
The increase in cash used in investing activities is due to the cash used for
the acquisition of Avibank ($111.9 million). The Company spent $7.3 million for
capital expenditures in the first three months of 2000 and has budgeted $34.5
million for the full year of 2000, as reported on Form 10-K for the year ended
December 31, 1999. This budgeted amount excludes capital spending for any
companies acquired in 2000.
The Company's total debt to equity ratio was 94 percent at March 31,
2000, compared to 71 percent at December 31, 1999. Total debt was $296.5
million at March 31, 2000 and $217.4 million at December 31, 1999. As of March 31,
2000, under the terms of its existing credit agreements, the Company is
permitted to incur an additional $90.3 million in debt. Additional
information related to financing activities is provided in Note 4 to the
financial statements.
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 lower sales
of aerospace fasteners and components, future benefits of order for new
business for automotive fasteners and components, future benefits of the
Company's workforce reductions and consolidation and reorganization of
manufacturing operations, plans to return the Adelanto, California facility
to profitability and future benefits from operational synergies with newly
acquired companies 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, fluctuations in raw material prices, 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.
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,
1999, 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 8 to the financial statements on
Form 10-K for the year ended December 31, 1999), 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,
1999. 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, 2000, the Company's results of
operations, cash flow and financial position would not have been materially affected.
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) The following reports on Form 8-K were filed during the quarter ended
March 31, 2000:
1. A Form 8-K was filed on February 22, 2000, stating that on February
3, 2000, the Company entered into a definitive agreement to
purchase all of the outstanding shares of Avibank Mfg., Inc.,
headquartered in Burbank, California.
2. A Form 8-K was filed on March 28, 2000, stating that on March 14,
2000, the Company completed the acquisition of all the outstanding
shares of Avibank Mfg., Inc. ("Avibank") headquartered in Burbank,
California for approximately $115.0 million from the Berman Family
Trust, the Dennis and Bonita Arnold Trust and John A. Duran.
Consideration consisted of $111.4 million in cash and 110,652
shares of the registrant's common stock valued at $3.6 million.
The cash consideration was funded with cash on hand and borrowings
received in the ordinary course of business from First Union
National Bank; Mellon Bank, N.A.; PNC Bank, National Association;
First National Bank of Maryland, predecessor by merger to AllFirst
Bank; Connecticut General Life Insurance Company and Life Insurance
Company of North America. The acquisition has been accounted for
under the purchase method and accordingly, Avibank's net assets and
results of operations will be included in the registrant's
consolidated financial statements from the date of acquisition.
Avibank is a manufacturer of latches, hold open rods, quick release
pins, structural panel fasteners, self-retaining bolts and
expandable fasteners for aerospace markets. Avibank, through its
AVK Industrial Products Division, also manufactures threaded
inserts for the automotive and industrial markets. The registrant
intends to continue to use the assets acquired for the
manufacturing of fasteners for the aerospace, automotive and
industrial markets.
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 8, 2000 /s/ 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.
EXHIBIT INDEX
27 Financial Data Schedule.
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