<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1994
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -----------
Commission File Number 1-804
-------------------------------------------
SEQUA CORPORATION
- - ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-188-5030
- - --------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Indentification No.)
200 Park Avenue, New York, New York 10166
- - -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 986-5500
---------------
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at August 1, 1994
----- -----------------------------
Class A Common Stock, no par value 6,328,829
Class B Common Stock, no par value 3,330,778
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except per share data)
(Unaudited)
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and revenues $711,680 $839,623 $360,698 $412,402
-------- -------- -------- --------
Costs and expenses
Cost of sales and revenues 572,583 690,915 292,572 347,961
Selling, general and
administrative 111,523 128,828 57,558 61,024
Restructuring charges - 7,640 - 7,640
-------- -------- -------- --------
684,106 827,383 350,130 416,625
-------- -------- -------- --------
Operating income (loss) 27,574 12,240 10,568 (4,223)
Other income (expense)
Interest expense (29,543) (33,803) (14,166) (16,747)
Interest income 1,353 1,158 633 632
Other, net (7,143) (8,637) (1,836) (5,209)
-------- -------- -------- --------
Loss before income taxes (7,759) (29,042) (4,801) (25,547)
Income tax benefit 3,950 7,000 2,450 7,000
-------- -------- -------- --------
Loss before extraordinary item (3,809) (22,042) (2,351) (18,547)
Extraordinary loss on early
retirement of debt (1,083) - - -
-------- -------- -------- --------
Net loss $ (4,892) $(22,042) $ (2,351) $(18,547)
Preferred dividend requirements (1,582) (1,582) (791) (791)
-------- -------- -------- --------
Net loss applicable to common stock $ (6,474) $(23,624) $ (3,142) $(19,338)
======== ======== ======== ========
Loss per share
Loss before extraordinary item $ (.56) $ (2.45) $ (.33) $ (2.00)
Extraordinary loss on early
retirement of debt (.11) - - -
-------- -------- -------- -------
Net loss $ (.67) $ (2.45) $ (.33) $ (2.00)
======== ======== ======== =======
Dividends declared per share
Class A Common $ - $ .30 $ - $ .150
Class B Common - .25 - .125
Preferred - 2.50 - 1.250
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
<PAGE
<TABLE>
SEQUA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
SUMMARY BUSINESS SEGMENT DATA (in millions)
- - -------------------------------------------
<CAPTION>
Sales and Operating
Revenues Income (Loss)
Year to Date Year to Date
---------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aerospace $ 447.3 $ 495.1 $ 3.4 $(14.4)
Machinery & Metal Coatings 109.8 106.0 11.1 7.8
Specialty Chemicals 118.4 110.7 20.7 19.8
Other Products 36.2 127.8 4.6 10.1
Corporate - - (12.2) (11.1)
-------- -------- ------ ------
TOTAL $ 711.7 $ 839.6 $ 27.6 $ 12.2
======== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Sales and Operating
Revenues Income (Loss)
Second Quarter Second Quarter
-------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aerospace $217.1 $235.8 $ (4.7) $(17.1)
Machinery & Metal Coatings 64.4 54.6 7.6 3.1
Specialty Chemicals 61.2 58.6 11.1 10.5
Other Products 18.0 63.4 2.5 4.9
Corporate - - (5.9) (5.6)
------ ------ ------ -----
TOTAL $360.7 $412.4 $ 10.6 $(4.2)
====== ====== ====== =====
</TABLE>
<PAGE>
Sales and Revenues
- - ------------------
Overall sales declined 15% or $127.9 million for the six
months and 12% or $51.7 million for the second quarter of 1994,
when compared with the same periods of 1993. During 1993 and early
1994, the Company sold the ARC Professional Services Group (PSG),
three Gas Turbine units and two Northern Can Systems (NCS) can
plants, which had contributed sales of $122.9 and $67.7 million in
the six- and three-month periods of 1993. It should also be noted
that both 1993 periods were severely affected by the suspension of
F.A.A. authorized repair operations at the Gas Turbine plant in
Orangeburg, New York, for virtually the entire second quarter.
Sales of the Aerospace segment declined 10% and 8% in the
respective six- and three- month periods. At the Gas Turbine unit,
sales declined 7% in both periods. Both 1994 periods were affected
by the disposition of three units as part of the restructuring
plan. In the second quarter of 1994, sales at the Orangeburg plant
were at their highest quarterly level since the resumption of
F.A.A. authorized repair operations in June 1993, but remain at
approximately half what they were before the suspension. A portion
of Orangeburg's lower sales base is attributable to a reallocation
of certain repair activities among other Gas Turbine units. The
balance reflects lost market share and continued sluggishness in
market place demand, the latter a factor that has affected all
domestic Gas Turbine units. In both 1994 periods, sales of units
in Europe improved from the weak preceding year results.
Management does not expect improvement in the domestic markets
served by Gas Turbine in the short term.
At the ARC propulsion unit, sales declined 17% year to date
and 19% in the second quarter, as continued restrictions in
domestic defense spending led to reduced requirements for three
major programs: MLRS, Stinger and Tomahawk. These declines were
partially offset by increased revenues from the Trident D-5 program
and increased sales of igniters and propellant for automotive
airbags. Full year sales of the propulsion unit are expected to be
down approximately 15% in 1994. At the Kollsman unit,
six-month sales declined 15%, while second-quarter sales rose 7%.
Both periods benefitted from improvements in the electro-optics
product line, as a result of a new program to upgrade the Cobra
helicopter, as well as improvement in foreign military sales.
Sales of the avionics and medical instrumentation product lines
were lower in both periods.
Sales of the Machinery and Metal Coatings segment increased 4%
for the six months and 18% for the second quarter. At the Precoat
Metals operation, sales increased 11% in both periods, as higher
sales to the building products market more than offset a decline in
sales to the container industry. Conditions in the building
products market remain strong, while the decline in container sales
reflects a loss of a portion of the volume at a major customer, as
<PAGE>
Sales and Revenues (con't)
- - ------------------
well as pricing pressure. Precoat's new plant in Jackson,
Mississippi is scheduled to come on line in September 1994 and the
division's sales are expected to remain strong in the third
quarter. Can Machinery sales declined 5% year-to-date and advanced
22% in the second quarter, the latter as a result of strong gains
in the can decorating product line. On a year-to-date basis, sales
of can forming equipment increased, while sales of can decorating
equipment lagged the previous year. Based on current backlog,
management anticipates that 1994 sales will be at least 10% lower
than in 1993. At the auxiliary press equipment unit, six-month
sales were slightly lower than in the previous year, but second
quarter sales advanced sharply, as shipments of flying pasters
increased during the period. Management currently anticipates that
1994 sales of auxiliary press equipment will compare favorably with
1993.
Sales of the Specialty Chemicals segment advanced in both
periods. At the overseas unit, local currency sales were higher
for the six months and on a par with a strong 1993 second quarter.
Demand for TAED -- a detergent additive that is the unit's main
product -- remains strong, although the benefits of higher volume
were tempered by lower selling prices in both 1994 periods. The
domestic unit posted higher sales of every major product except
paper coatings, which declined due to industry-wide weakness. In
the second quarter, sales of specialty polymers advanced more than
50%, reflecting increased market penetration derived from the
introduction of new products. The sales patterns at both units are
expected to continue in the third quarter.
Sales of the Other Products segment (formerly the Professional
Services and Other Products segment) declined 72% in both 1994
periods, due entirely to the disposition of the ARC PSG unit and
two NCS can plants in 1993. On a pro forma basis -- excluding the
sales of divested units -- sales advanced 14% in the six months and
16% in the second quarter, with all three units recording increases
in both periods. At the automotive products unit, sales increased
17% year to date and 18% in the second quarter, with increased
domestic sales of power outlets and electronic monitoring devices
augmenting increased levels of cigarette lighter sales. At NCS,
sales of can ends increased 10% year to date and 12% in the second
quarter. At Centor, the real estate unit, rental income increased
modestly as the transfer of one property to the unit's asset base
was largely offset by lower rental revenue from the main property
in Clayton, Missouri.
Operating Income
- - ----------------
The results of the Aerospace segment improved substantially in
the first half of 1994, with a small profit recorded for the six
months and a small loss for the second quarter. The 1993 periods
<PAGE>
Operating Income (con't)
- - ----------------
included significant costs related to the government investigation
of the Company's Gas Turbine facility in Orangeburg, New York, as
well as losses stemming from suspension of F.A.A. authorized repair
activities at the plant for most of the second quarter. Gas
Turbine's results for both 1994 periods were affected by two
unusual charges -- a $6.0 million provision to cover the
unanticipated loss of a lawsuit (see "Legal Proceedings" for
additional details) and a $4.3 million charge to income for the
correction of an accounting irregularity (see "Other Matters" for
additional details) -- which converted a small operating profit to
a loss for both periods. From the standpoint of operations, Gas
Turbine continues to confront poor overall market conditions and
the challenge of restoring its Orangeburg facility's position in
the industry. At the ARC propulsion unit, operating profits
declined in both 1994 periods, primarily as the result of lower
sales and a second quarter provision stemming from technical
difficulties in a liquid propellant rocket motor program. At the
Kollsman unit, profits for the six months were on a par with the
year earlier, while second-quarter profits rose from a low 1993
base. Both periods benefitted from strong electro-optics sales and
from reduced operating expenses.
Operating income in the Machinery and Metal Coatings segment
increased 42% for the six months and 148% for the second quarter of
1994. It should be noted that results for both 1993 periods were
reduced by a restructuring provision of $2.8 million at the can
machinery operation. Without this charge, the segment's operating
income was on a par with the first six months of 1993 and up 28%
for the second quarter. At the Precoat Metals unit, the increased
profits resulting from higher sales to the building products market
were partially offset by declines in container sales and expenses
related to the start-up of the new Jackson facility. Profits
(excluding the 1993 restructuring charge) of the can machinery
operation for both 1994 periods were on a par with 1993 levels. At
the auxiliary press equipment unit, second-quarter losses narrowed
from the year earlier largely due to improved sales levels
partially offset by pricing pressures. Although losses are
expected to continue at this unit in the third quarter, current
booking trends indicate a profitable fourth quarter.
Operating income in the Specialty Chemicals segment advanced
approximately 5% in the six months and second quarter, with
increases at both operating units. At the overseas unit, profits
increased modestly in both periods, as the benefits of higher sales
and manufacturing efficiencies were tempered by lower selling
prices and increased research and development costs. The domestic
unit recorded solid advances in both periods, as the benefits of
increased sales were partially offset by an unfavorable sales mix
shift and increased environmental costs. In addition, this
operation incurred higher marketing and selling expenses related
<PAGE>
Operating Income (con't)
- - ----------------
to the introduction of a new paper specialties product line and
acceleration of a direct sales effort in Europe. Continued strong
operating results are expected for both units in this segment in
the third quarter.
Operating income in the Other Products segment declined 54%
year to date and 50% in the second quarter. Excluding profits of
the units sold during 1993, operating income would have increased
modestly in both periods. Profits at the automotive products unit
increased in both periods as the benefits of higher sales were
partially offset by start-up costs related to the move to a new
facility, as well as increased product development costs. At NCS,
year-to-date profits from the lid operation were down from the
prior year as the benefits of higher sales were offset by reduced
plant absorption due to lower volume. Results for the second
quarter were on a par with the 1994 period. At Centor, current
year results were in line with prior year results in both periods.
Restructuring Charges
- - ---------------------
During the second and third quarters of 1993, the Company
recorded $7.6 million and $19.0 million, respectively, in
restructuring costs largely related to Gas Turbine's plan to reduce
its investment in units engaged in activities other than the repair
of components for flight engines. In the second quarter of 1994,
the Company sold two Gas Turbine units primarily engaged in engine
overhaul and a small unit primarily engaged in the manufacture of
aircraft parts for an aggregate sale price of approximately $59.3
million. Losses on these disposals were in line with amounts
recorded by the Company during 1993. As of June 30, 1994, $14.6
million of the restructuring reserve remained in accrued expenses.
Management does not anticipate material net cash outlays to be
associated with future charges to the remaining restructuring
reserve.
Interest Expense
- - ----------------
The decrease in interest expense of approximately $4.3 million
during the 1994 six-month period and approximately $2.6 million in
the second quarter of 1994 was primarily due to a decrease in
average borrowings attributable to the Company's cash generation
program.
Other, Net
- - ----------
During the six-month period ended June 30, 1994, Other, net
included a $2.7 million charge to adjust the carrying value of
options sold on interest rate swaps. This charge includes a $0.5
million favorable adjustment during the second quarter of 1994.
Other, net also includes a $1.3 million charge in both six-month
<PAGE>
Other, Net (con't)
- - ----------
periods of 1994 and 1993 and a $0.7 million charge in both three-
month periods for discount expenses related to the Company's sale
of accounts receivable. The Company recorded equity losses in its
unconsolidated airbag businesses of $1.6 million and $4.0 million
in the six-month periods of 1994 and 1993, respectively, and $0.8
million and $2.4 million in the three-month periods. Other, net
includes $1.3 million and $1.6 million charges for the amortization
of capitalized debt costs in the six-month periods of 1994 and
1993, respectively, and $0.6 million and $0.9 million in the three-
month periods.
Income Tax Provision
- - --------------------
The effective tax rates for the six-month periods in 1994
and 1993 were 51% and 24%, respectively, and 51% and 27% for the
three-month periods ended June 30, 1994 and 1993, respectively.
These tax rates were based upon estimated annual pre-tax
accounting earnings in 1994 and estimated annual pre-tax losses
in 1993. The estimates were adjusted for goodwill amortization,
a provision for state income and franchise taxes, and the
favorable tax treatment of earnings of the Company's foreign
sales corporations.
Liquidity
- - ---------
In March 1994, Sequa Capital, a discontinued operation,
received $25.0 million in proceeds from the nonrecourse
securitization of its leveraged lease portfolio. Proceeds from
this financing arrangement were primarily used to reduce debt of
continuing operations. Management's continuing effort to
liquidate Sequa Capital, through asset sales and portfolio run-
off, generated an additional $11.5 million during the six months
ended June 30, 1994.
During the second quarter of 1994, the Company completed the
sale of three Gas Turbine units engaged primarily in activities
other than basic component repair of flight engines for an
aggregate sale price of approximately $59.3 million, of which
$52.4 million has been received in cash as of June 30, 1994. The
proceeds from the businesses sold were used to fund operations
and to extinguish the remaining $33.5 million principal balance
of the Company's 10 1/2% senior subordinated notes due 1998 which
were called in April 1994. The early retirement of this debt
resulted in an extraordinary loss of $1.1 million, net of tax
benefits of $0.6 million.
The dividend restrictions under the terms of the 10 1/2%
senior subordinated notes have been eliminated by the full
redemption of the related indebtedness; however, pursuant to the
terms of the Company's senior notes due 2001 and the senior
subordinated notes due 2003, the Company's earnings must be
sufficient to maintain a consolidated interest coverage ratio of
2.0 to 1.0 to permit the Company to pay dividends among other
<PAGE>
Liquidity (con't)
- - ---------
restricted activities. While the Company met the minimum
consolidated interest coverage ratio at June 30, 1994, the
Company is precluded from paying dividends during the third
quarter of 1994 as the debt covenants require the pro forma
effect of such dividend payments to be included in the second
quarter 1994 calculation. The resultant June 1994 pro forma
consolidated interest coverage ratio would fall below 2.0 to 1.0
if the Company paid dividends during the third quarter of 1994.
Management anticipates that cash flow from operations,
proceeds from the divestiture of the remaining discontinued
operations and other assets, the $90.5 million of credit
available at August 2, 1994 under the revolving credit agreement,
plus cash and cash equivalents on hand at June 30, 1994 will be
more than sufficient to fund the Company's operations for the
foreseeable future.
Backlog
- - -------
The businesses of Sequa for which backlogs are significant
are the Kollsman division, the Turbine Airfoils, Caval Tool and
Castings units of Gas Turbine, and the ARC Propulsion operations
of the Aerospace segment; and the Can Machinery and MEG
operations of the Machinery and Metal Coatings segment. The
aggregate dollar amount of backlog in these segments at June 30,
1994 was $367.3 million ($369.7 million at December 31, 1993).
There is no seasonal variation in the Company's backlog.
Environmental Matters
- - ---------------------
The Company's environmental department, under senior
management direction, manages all activities related to the
Company's involvement in environmental clean-up. This department
establishes the projected range of expenditures for individual
sites with respect to which the Company may be considered a
potentially responsible party under applicable federal or state
law. These projected expenditures, which are reviewed
periodically, include: remedial investigation and feasibility
studies; outside legal, consulting and remediation project
management fees; the projected cost of remediation activities;
site closure and post-remediation monitoring costs. The
assessments take into account currently available facts, existing
technology, presently enacted laws, past expenditures, and other
potentially responsible parties and their probable level of
involvement. Outside technical, scientific and legal consulting
services are used to support management's assessments of costs at
significant individual sites.
<PAGE>
Environmental Matters (con't)
- - ---------------------
It is the Company's policy to accrue environmental
remediation costs for identified sites when it is probable that
a liability has been incurred and the amount of loss can be
reasonably estimated. The potential exposure for such costs is
estimated to range from $24 million to $66 million. At June 30,
1994, the Company's balance sheet includes accruals for
remediation costs of $51.7 million, which represents the best
estimate within this range. These accruals, which are generally
included in other long-term liabilities, are at undiscounted
amounts. While the possibility of recovery of some of the costs
from insurance companies exist, the Company does not recognize
these recoveries in its financial statements until they are
realized. Actual costs to be incurred at identified sites in
future periods may vary from the estimates, given inherent
uncertainties in evaluating environmental exposures.
In connection with a grand jury investigation being
conducted by the United States Attorney's Office in the Southern
District of Florida, federal, state and local environmental
agents executed a search warrant on June 2, 1994 at
TurboCombustor Technologies Inc. (TCT), a subsidiary of
Chromalloy Gas Turbine Corporation, located in Stuart, Florida.
TCT is cooperating with this investigation, which involves the
manner in which TCT neutralizes and disposes of certain hazardous
waste water. Government sources have stated publicly that no
health risk was posed by the alleged discharges. To date, the
U.S. Attorney's Office has not provided TCT with any more
specific information.
The Company is committed to conducting its operations in
full compliance with all federal, state and local environmental
laws and regulations. In furtherance of such objective, TCT is
reviewing its environmental health and safety procedures and
providing additional training to all employees. Based upon the
information known to the Company at this preliminary stage,
management is not in a position to make an assessment as to
whether this matter is material.
With respect to all known environmental liabilities, it is
currently estimated that the Company will spend in the range of
$8 million to $12 million in 1994 and between $5 million to $7
million during each of the following several years. Actual
remedial expenditures for the first six months of 1994 were
approximately $5.1 million.
<PAGE>
Other Matters
- - -------------
Recently the Company uncovered accounting irregularities at
one of the domestic Chromalloy Gas Turbine plants, through which
operating income for 1993 and the first quarter of 1994 was
overstated by approximately $3.9 million and $0.4 million,
respectively, and after-tax losses were understated by
approximately $2.4 million or $.25 per share in 1993 and $0.2
million or $.02 per share in the first quarter of 1994. In the
second quarter of 1994, the Company recorded correcting entries
which reduced operating income by $4.3 million and increased the
after-tax loss by $2.1 million or $.22 per share. Preliminary
findings of an ongoing internal review indicate that the 1993
amount was largely confined to the fourth quarter. After
reviewing the issue with its independent auditors, the Company
has concluded that no restatement of prior period financial
statements is required since the net adjustments are not material
to the Company's financial position or results of operations for
the affected reporting periods. Additionally, it should be noted
that the irregularities had no cash impact.
Management believes that these irregularities resulted from
the isolated actions of certain individuals at the plant. Such
individuals are no longer employees.
Management believes that the Company's internal controls are
adequate. However, this situation has prompted management to
initiate a review by the Company's internal audit group of
certain of Gas Turbine's internal control systems and to engage
the Company's independent auditors to review certain of Gas
Turbine's internal control procedures.
<PAGE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
ASSETS
<CAPTION>
(Unaudited)
June 30, December 31,
1994 1993
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 36,764 $ 24,780
Receivables (less allowances of
$11,036 and $10,892) 220,536 227,688
Unbilled receivables (less allowances
of $13,404 and $13,165) 39,765 55,451
Inventories 284,267 290,323
Other current assets 39,321 63,350
---------- ----------
Total current assets 620,653 661,592
---------- ----------
INVESTMENTS
Net assets of discontinued operations 155,432 188,964
Non-current receivables and other
investments 24,030 17,179
---------- ----------
179,462 206,143
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 541,344 562,623
---------- ----------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 329,807 348,696
Deferred charges and other 22,273 24,467
---------- ----------
352,080 373,163
---------- ----------
TOTAL ASSETS $1,693,539 $1,803,521
========== ==========
</TABLE>
[FN]
The accompanying notes are an integral part of the financial
statements.
<PAGE>
TABLE
<PAGE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(Unaudited)
June 30, December 31,
1994 1993
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of
long-term debt $ 5,687 $ 23,998
Accounts payable 109,633 114,529
Taxes on income 18,954 16,357
Accrued expenses 209,524 221,654
---------- ----------
Total current liabilities 343,798 376,538
---------- ----------
LONG-TERM DEBT, NET OF
CURRENT MATURITIES 590,610 624,092
---------- ----------
DEFERRED TAXES AND OTHER LIABILITIES
Deferred taxes on income 16,998 27,039
Other long-term liabilities 162,714 200,068
---------- ----------
179,712 227,107
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock--$1 par value,
1,825,000 shares authorized,
797,000 shares of $5 cumulative
convertible stock issued in 1994
and 1993 (involuntary
liquidation value--$26,359 at
June 30, 1994) 797 797
Class A common stock--no par value,
25,000,000 shares authorized,
7,188,000 shares issued in 1994
and 7,054,000 shares issued in
1993 stated at 7,188 7,054
Class B common stock--no par value,
5,000,000 shares authorized,
3,727,000 shares issued in 1994
and 3,861,000 shares issued in
1993 stated at 3,727 3,861
Capital in excess of par value 295,841 295,841
Cumulative translation adjustment (6,664) (16,771)
Retained earnings 377,145 383,617
---------- ----------
678,034 674,399
Less: Cost of treasury stock (98,615) (98,615)
---------- ----------
Total shareholders' equity 579,419 575,784
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,693,539 $1,803,521
========== ===========
</TABLE>
[FN]
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1993 AND PERIOD ENDED JUNE 30, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Class A Class B Capital in Cum.
Preferred Common Common Excess of Trans. Retained Treasury
Stock Stock Stock Par Value Adj. Earnings Stock
----- ------- ------- ---------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 797 $7,042 $3,873 $295,806 $(10,583) $453,486 $ (98,755)
Net Loss - - - - - (63,982) -
Revaluation and amortization
of restricted stock grant - - - 35 - - 140
Exchange of common stock - 12 (12) - - - -
Foreign currency translation
adjustment - - - - (6,696) - -
Sale of foreign subsidiary - - - - 508 - -
Cash dividends:
Class A - $.30 per share - - - - - (1,854) -
Class B - $.25 per share - - - - - (870) -
Preferred - $2.50 per share - - - - - (1,581) -
Preferred dividends in
arrears* - $2.50 per share - - - - - (1,582) -
------ ------ ------ -------- -------- -------- ---------
Balance at December 31, 1993 $ 797 $7,054 $3,861 $295,841 $(16,771) $383,617 $ (98,615)
Net Loss - - - - - (4,892) -
Exchange of common stock - 134 (134) - - - -
Foreign currency translation
adjustment - - - - 8,121 - -
Sale of foreign subsidiary - - - - 1,986 - -
Preferred dividends in
arrears* - $2.50 per share - - - - - (1,582) -
------ ------ ------ -------- -------- -------- ---------
Balance at June 30, 1994 $ 797 $7,188 $3,727 $ 295,841 $ (6,664) $377,143 $ (98,615)
====== ====== ====== ========= ======== ======== =========
</TABLE>
[FN]
* Aggregate preferred dividends in arrears were $3,164 ($5.00 per share) as of
June 30, 1994.
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
For the Six Months
Ended June 30,
------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
LOSS BEFORE INCOME TAXES $ (7,759) $(29,042)
Adjustments to reconcile loss to net cash
provided by operating activities:
Depreciation and amortization 49,835 55,351
Provision for losses on receivables 1,101 2,704
Equity in losses of joint ventures 1,199 3,886
Other items not requiring cash 159 720
Changes in operating assets and liabilities,
net of businesses sold:
Receivables 8,846 27,989
Inventories (33,199) 11,515
Other current assets 20,175 591
Accounts payable and accrued expenses (5,324) 18,272
Other long-term liabilities (3,875) 9,161
Funding of insurance reserves - (24,239)
-------- --------
Net cash provided by continuing operations
before income taxes 31,158 76,908
Net cash provided by (used for) discontinued
operations before income taxes 30,982 (10,007)
Income taxes paid, net (3,069) (7,152)
-------- --------
Net cash provided by operating activities 59,071 59,749
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Businesses sold 52,448 9,329
Purchase of minority interest in subsidiary (16,701) -
Purchase of property, plant and equipment (28,918) (45,274)
Sale of property, plant and equipment 5,012 2,243
Other investing activities (5,379) (1,696)
-------- --------
Net cash provided by (used for) investing
activities 6,462 (35,398)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,206 11,087
Payments of debt (20,244) (16,650)
Early retirement of debt (34,839) -
Dividends paid - (4,286)
Repurchase of accounts receivable sold - (19,000)
-------- --------
Net cash used for financing activities (53,877) (28,849)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 328 (358)
-------- --------
Net increase (decrease) in cash and cash equivalents 11,984 (4,856)
Cash and cash equivalents at beginning of period 24,780 14,807
-------- --------
Cash and cash equivalents at end of period $ 36,764 $ 9,951
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
SEQUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Sequa Corporation
(the "Company") include the accounts of all majority-owned
subsidiaries including those of Sequa Receivables Corp. ("SRC"), a
special purpose corporation formed for the sale of eligible
receivables. Under the terms of the receivables purchase
agreement, SRC's assets will be available to satisfy its
obligations to its creditors, which have security interests in
certain of SRC's assets, prior to any distribution to the Company.
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to fairly
present the Company's results for the interim periods presented.
With the exception of accruals for the $5.0 million remedial
payment made to the Federal Aviation Administration in April 1993,
a $2.5 million accrual for the testing of jet engine parts, $4.8
million of restructuring charges related to Gas Turbine's plan to
reduce its investment in units engaged in activities other than the
repair of components for flight engines, and a $2.8 million
restructuring provision of the can machinery operation, such
adjustments to the June 30, 1993 Consolidated Statement of Income
consisted only of normal recurring items. The June 30, 1994
Consolidated Statement of Income includes a $6.0 million accrual
for the unexpected loss of a lawsuit, a $4.3 million charge to
correct an accounting irregularity, a $2.7 million charge to adjust
the carrying value of options sold on interest rate swaps and a
$1.1 million after-tax extraordinary loss related to the redemption
of the Company's 10 1/2% senior subordinated notes. All other
adjustments in the June 30, 1994 interim period consisted of normal
recurring items. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed
or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K. The results of
operations for the six months ended June 30, 1994 are not
necessarily indicative of the results to be expected for the full
year.
<PAGE>
<TABLE>
NOTE 2 - INVENTORIES
The inventory amounts at June 30, 1994 and December 31, 1993
were as follows:
<CAPTION>
(Thousands of Dollars)
(Unaudited)
June 30, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
Finished Goods $ 68,686 $ 73,460
Work in process 82,148 100,341
Raw materials 128,065 111,866
Long-term contract costs 9,519 9,097
Progress payments (4,151) (4,441)
-------- --------
$284,267 $290,323
======== ========
</TABLE>
<TABLE>
NOTE 3 - DISCONTINUED OPERATIONS
Net assets of discontinued operations approximate net
realizable value and have been classified as non-current.
The net assets of discontinued operations comprise Sequa
Capital's remaining investment portfolio and the men's apparel
unit and are summarized as follows:
<CAPTION>
(Amounts in thousands)
(Unaudited)
June 30, December 31,
1994 1993
-------- --------
<S> <C> <C>
Funds designated for use by
Sequa Capital $ 619 $ 571
Receivables, net 6,067 6,380
Inventories 11,553 10,354
Sequa Capital investment portfolio, net 164,201 176,363
Property, plant, and equipment 3,721 3,519
Other assets 10,477 11,818
-------- --------
Total assets 196,638 209,005
-------- --------
Accounts payable 3,721 2,756
Accrued expenses 11,756 15,776
Debt 24,657 -
Other long-term liabilities 1,072 1,509
-------- --------
Total liabilities 41,206 20,041
-------- --------
Net assets of discontinued
operations $155,432 $188,964
======== ========
</TABLE>
<PAGE>
NOTE 4 - LOSSES PER SHARE
Primary losses per common share in 1994 and 1993 were computed
by dividing net losses, after deducting dividend requirements on
cumulative convertible preferred stock, by the weighted average
number of shares of common stock outstanding during the periods.
These computations were based on 9,655,000 shares for the six and
three month periods in both 1994 and 1993.
Fully diluted losses per common share calculations for the
assumed conversion of the cumulative convertible preferred stock
were anti-dilutive in both the six-month and three-month periods of
1994 and 1993.
<TABLE>
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
<CAPTION>
(Amounts in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1994 1993
---- ----
<S> <C> <C>
Net cash provided by (used for)
discontinued operations:
Provision for losses on leasing assets $ 310 $ 1,264
Depreciation and amortization 203 278
Changes in working capital (3,276) 834
Increase (decrease) in debt 24,657 (37,432)
Increase in Sequa Capital cash (48) (1,527)
Principal repayments on leasing assets 4,769 1,451
Sale of leasing assets 6,752 28,449
Other changes in net assets (2,385) (3,324)
-------- --------
$ 30,982 $(10,007)
======== ========
</TABLE>
In March 1994, Sequa Capital received $25.0 million in
proceeds from the nonrecourse securitization of its leveraged lease
portfolio.
Other supplemental Cash Flow information:
Interest paid during the six months ended June 30, 1994 and
1993 was $30.1 million and $32.2 million, respectively.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
-----------------
Sequa is involved in a number of claims, lawsuits and
proceedings (environmental and otherwise) which arose in the
ordinary course of business. Other litigation is pending against
Sequa involving allegations that are not routine and include, in
certain cases, compensatory and punitive damage claims. Included
in this other class of litigation is an arbitration proceeding that
was formally commenced in 1992 to resolve a dispute between the
Egyptian Air Force and Chromalloy Gas Turbine. In the damage
portion of the arbitration hearing in October 1993, Chromalloy Gas
Turbine claimed $29.6 million in damages (which includes $17.5
million of net assets in the Company's Consolidated Balance Sheet)
and the Egyptian Air Force counterclaimed for $46.5 million in
damages.
An adverse judgment in the amount of $6.0 million was entered
against Chromalloy Gas Turbine Corporation (d/b/a Chromalloy
Aeroservices and Chromalloy Aeroservices International, Ltd.) in
the District Court of Dallas County, Texas (68th Judicial District)
on July 25, 1994. This judgment was the result of a jury finding
that Chromalloy breached an alleged 1987 oral contract with an
independent sales agent, Hassan M.K. Elwakil, plus a finding that
the agent had been slandered in 1989. This action was commenced in
June 1991. The June 30, 1994 Consolidated Statement of Income
includes a charge of $6.0 million for the unexpected loss of this
lawsuit. Chromalloy is filing post-verdict motions and intends to
vigorously pursue an appeal of this judgement.
In connection with a grand jury investigation being conducted
by the United States Attorney's Office in the Southern District of
Florida, federal, state and local environmental agents executed a
search warrant on June 2, 1994, at TurboCombustor Technologies Inc.
(TCT), a subsidiary of Chromalloy Gas Turbine Corporation, located
in Stuart, Florida. TCT is cooperating with this investigation,
which involves the manner in which TCT neutralizes and disposes of
certain hazardous waste water. Government sources have stated
publicly that no health risk was posed by the alleged discharges.
To date, the U.S. Attorney's Office has not provided TCT with any
more specific information.
The Company is committed to conducting its operations in full
compliance with all federal, state and local environmental laws and
regulations. In furtherance of such objective, TCT is reviewing
its environmental health and safety procedures and providing
additional training to all employees. Based upon the information
known to the Company at this preliminary stage, management is not
in a position to make an assessment as to whether this matter is
material.
The ultimate legal and financial liability of the Company in
respect to all claims, lawsuits and proceedings referred to above
<PAGE>
ITEM 1 - LEGAL PROCEEDINGS (con't)
-----------------
cannot be estimated with any certainty. However, in the opinion of
management, based on its examination of such matters, its
experience to date and discussions with counsel, the ultimate
outcome of these contingencies, net of liabilities already accrued
in the Company's Consolidated Balance Sheet, is not expected to
have a material adverse effect on the Company's consolidated
financial position, although the resolution in any reporting period
of one or more of these matters could have a material impact on the
Company's results of operations for that period.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits
11 - Schedule showing calculations of Primary and Fully
Diluted Losses Per Share for the six-month and
three-month periods ended June 30, 1994 and 1993.
(B) Reports on Form 8-K
No report on Form 8-K was filed during the three-
month period ended June 30, 1994.
<PAGE>
<PAGE>
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.
SEQUA CORPORATION
BY:/S/ WILLIAM P. KSIAZEK
-----------------------------
William P. Ksiazek
Vice President and Controller
August 8, 1994
<PAGE>
<TABLE>
EXHIBIT 11
SEQUA CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED LOSSES PER SHARE
-----------------------------------------------------------
<CAPTION>
(Unaudited)
For the Six Months
Ended June 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
PRIMARY
Losses
Loss before extraordinary loss $ (3,809) $(22,042)
Preferred stock dividend requirements (1,582) (1,582)
------- --------
Loss applicable to common
shareholders before extraordinary loss (5,391) (23,624)
Extraordinary loss on early retirement of
debt (1,083) -
-------- --------
Net loss applicable to common
shareholders $ (6,474) $(23,624)
======== ========
Shares
Common and common equivalent shares 9,655 9,655
======== ========
Primary loss per common share
Loss before extraordinary loss $ (.56) $ (2.45)
Extraordinary loss on early retirement of
debt (.11) -
------- --------
Net loss $ (.67) $ (2.45)
======= ========
*FULLY DILUTED
-------------
Losses
Loss before extraordinary loss $ (3,809) $(22,042)
Extraordinary loss on early retirement of
debt (1,083) -
Net loss $ (4,892) $(22,042)
======== ========
Shares
Common and common equivalent shares 10,493 10,493
======== ========
Fully diluted loss per common share
Loss before extraordinary loss $ (.37) $ (2.10)
Extraordinary loss on early retirement
of debt (.10) -
-------- --------
Net loss $ (.47) $ (2.10)
======== ========
SHARES
- - ------
Weighted average common shares outstanding 9,655 9,655
Preferred stock assumed to be converted 838 838
-------- --------
Common and common equivalent shares 10,493 10,493
======== ========
</TABLE>
[FN]
(*)The 1994 and 1993 fully diluted losses per share calculations are
anti-dilutive; therefore, fully diluted losses per share have not been presented
in the Consolidated Statement of Income.
<PAGE>
<TABLE>
EXHIBIT 11
SEQUA CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED LOSSES PER SHARE
-----------------------------------------------------------
<CAPTION>
(Unaudited)
For the Three Months
Ended June 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
PRIMARY
Losses
Net loss $ (2,351) $(18,547)
Preferred stock dividend requirements (791) (791)
-------- --------
Net loss applicable to common
stockholders $ (3,142) $(19,338)
======== ========
Shares
Common and common equivalent shares 9,655 9,655
======== ========
Primary net loss per common share $ (.33) $ (2.00)
======== ========
*FULLY DILUTED
-------------
Losses
Net loss $ (2,351) $(18,547)
======== ========
Shares
Common and common equivalent shares 10,493 10,493
======== ========
Fully diluted net loss per
common share $ (.22) $ (1.77)
======== ========
Shares
- - ------
Weighted average common shares outstanding 9,655 9,655
Preferred stock assumed to be converted 838 838
-------- --------
Common and common equivalent shares 10,493 10,493
======== ========
</TABLE>
[FN]
* The 1994 and 1993 fully diluted losses per share calculations
are anti-dilutive; therefore, fully diluted losses per share
have not been presented in the Consolidated Statement of Income.
