SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996 Commission file number 1-804
SEQUA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-188-5030
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(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
200 Park Avenue, New York, New York 10166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 986-5500
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Class A Common Stock, no par value New York Stock Exchange
Class B Common Stock, no par value New York Stock Exchange
$5.00 Cumulative Convertible
Preferred Stock, $1.00 Par Value New York Stock Exchange
9-5/8% Senior Notes, Due
October 15, 1999 New York Stock Exchange
8-3/4% Senior Notes, Due
December 15, 2001 New York Stock Exchange
9-3/8% Senior Subordinated Notes,
Due December 15, 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of registrant's voting stock (Common and Preferred)
held by nonaffiliates as of March 10, 1997 was $311,980,948
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
Class Outstanding at March 10, 1997
----- -----------------------------
Class A Common Stock, no par value 6,574,733
Class B Common Stock, no par value 3,330,780
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its annual meeting of
stockholders scheduled to be held on May 8, 1997 are incorporated herein by
reference into Part III.<PAGE>
<PAGE>
SEQUA CORPORATION
FORM 10-K
* * * * * * *
PART I
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ITEM 1. BUSINESS
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(a) General development of business. Sequa Corporation is a
--------------------------------
diversified industrial company that produces a broad range of
products through operating units in four industry segments:
Aerospace, Machinery and Metal Coatings, Specialty Chemicals, and
Other Products. Sequa Corporation, incorporated in 1929, is
hereinafter sometimes referred to as the "Registrant" and,
together with its consolidated subsidiaries, is hereinafter
sometimes referred to as the "Company" or "Sequa."
Divestitures
- ------------
On December 29, 1995, the Company sold substantially all of
the business and operating assets, excluding billed receivables,
of Kollsman for cash proceeds of $49.6 million. The sale
resulted in a pre-tax gain of $6.5 million.
During 1994, the Company sold three Chromalloy Gas Turbine
units primarily engaged in activities other than basic component
repair of flight engines for net cash proceeds of $57.2 million.
Losses on the sale of these units were charged to reserves
established in 1993 for Chromalloy's restructuring program.
(b) Financial information about industry segments. Segment
----------------------------------------------
information is included in Note 18 to the Consolidated Financial
Statements on page 60 of this Annual Report on Form 10-K and is
hereby incorporated by reference.
(c) Narrative description of business. The following is a
----------------------------------
narrative description of the business segments of Sequa:
Aerospace
- ---------
The Aerospace segment includes two operating units:
Chromalloy Gas Turbine and ARC Propulsion.
Chromalloy Gas Turbine. Chromalloy, the largest of Sequa's
operating units, repairs and manufactures components for jet
aircraft engines. A major independent supplier in the repair
market, Chromalloy provides domestic and international airlines
with technologically advanced repairs and coatings for turbine
airfoils and other critical engine components. The unit also
supplies components to the manufacturers of jet engines and
serves both the general aviation and military markets.
Chromalloy has built on its metallurgical process
technologies to develop procedures that permit the repair and
reuse of turbine engine components. Management believes
<PAGE>
Chromalloy has played a key role in the development of the repair
market for certain jet engine parts. Over the years, Chromalloy
has continued to invest steadily in research and development
projects that have led to ceramic coatings, vacuum plasma
coatings, advanced laser drilling and welding, and diffused
precious metal/aluminide coatings. Chromalloy has introduced a
series of innovative and in some cases proprietary processes that
allow engines to perform at improved efficiency levels, at higher
operating temperatures and under severe environmental conditions.
ARC Propulsion. ARC Propulsion, a supplier of solid rocket
fuel propulsion systems since 1949, is a leading developer and
manufacturer of advanced rocket propulsion systems, gas
generators and auxiliary rockets, and engages in research and
development relating to new rocket propellants and advanced
materials. For the military contract market, ARC Propulsion
produces propulsion systems for tactical weapons, and for space
applications, ARC Propulsion produces small liquid fueled rocket
engines designed to provide attitude and orbit control for a
number of satellite systems worldwide.
ARC Propulsion's strategy is to pursue opportunities to
develop products for commercial markets in order to reduce its
reliance on defense-related business. ARC Propulsion supplies
solid propellant and other airbag components to the Company's
unconsolidated joint ventures (BAICO and BAG SpA) participating
in the rapidly growing market for automobile airbags. A pioneer
in the development of hybrid inflator systems, BAICO has earned
widespread market acceptance among car companies. Building on
the success of BAICO in North America, the Company and its joint
venture partner, AlliedSignal, joined with a unit of European
automaker Fiat in a three-way venture (BAG SpA) that has
successfully introduced the hybrid inflator to the European
automobile market.
Machinery and Metal Coatings Segment
- ------------------------------------
The Company's Machinery and Metal Coatings segment is
composed of Precoat Metals, Sequa Can Machinery and Materiels
Equipements Graphiques.
Precoat Metals. The largest individual unit of the segment,
Precoat Metals is a leader in the application of protective and
decorative coatings to continuous steel and aluminum coil.
Precoat's principal market is the building products industry,
where coated steel is used for the construction of pre-engineered
building systems, and as components in the industrial, commercial
and agricultural sectors. Precoat also serves the container
industry, where the division has established a position in the
application of coatings to steel and aluminum stock used to
fabricate two-piece metal cans and can lids. In addition, the
division has established a presence in the truck trailer and
manufactured products markets as a supplier of pre-painted steel.
<PAGE>
Sequa Can Machinery. Sequa Can Machinery designs and
manufactures equipment for the two-piece can industry. At a
facility on the East Coast, Sequa Can Machinery manufactures
equipment to coat and decorate two-piece beverage cans. With an
installed base of over 800 machines, Sequa Can Machinery has
successfully developed a retrofit business to upgrade older
equipment to match the technical standards of newer lines. At
the same time, the division's product development team has
improved the technology of precision printing to achieve higher
speeds without compromising quality. The current generation of
equipment runs at a rate of 2,000 cans per minute, applying an
even base coat and printing crisp, clear images in up to eight
colors. At its West Coast plant, Sequa Can Machinery produces
equipment used to form the cup and body of two-piece metal cans.
The latest generation of cupping equipment supports two high
speed can lines, producing more than 4,500 shallow cups per
minute. The company's newest bodymaker operates at a rate up to
500 cans per minute.
Materiels Equipements Graphiques (MEG). MEG supplies
equipment for the web offset printing industry, including dryers,
chill rolls, paper guides, in-feeds and related equipment for
high-speed web presses. MEG's products include a line of
advanced flying pasters, a machine that unwinds a fresh roll (or
web) of paper and splices it to an expiring roll without
interrupting press operation.
Specialty Chemicals Segment
- ---------------------------
The two operations that make up the Company's Specialty
Chemicals segment, Warwick International and Sequa Chemicals,
serve distinctly different markets with performance-enhancing
additives for a broad range of end products.
Warwick International. The larger of the two businesses in
the Specialty Chemicals segment, Warwick is a leading producer
and supplier of TAED, a bleach activator for powdered laundry
detergent products. TAED is used in perborate- or oxygen-based
bleaching systems to increase the cleaning power of detergent at
low wash temperatures. These bleaching systems, as opposed to
the chlorine-based bleaches traditionally used in the US, are
used in international markets, primarily in Europe.
Sequa Chemicals. Sequa Chemicals manufactures high-quality
performance-enhancing chemicals for the paper, textile and other
industries. For the paper industry, Sequa Chemicals produces key
synthetic coating additives for coated papers including
Reactopaque, which increases the opacity of finished paper
primarily used by the newsprint industry. Sequa Chemicals
supplies the woven and knit fabric market with permanent press
resins, softeners, water repellents, soil release agents and
other chemicals to improve the look, feel and durability of
<PAGE>
clothing and other textiles. In addition, Sequa Chemicals has
developed and patented a unique series of specialty emulsion
polymers for a broad range of commercial applications including
roofing mat, industrial filtration systems and tape release
coatings.
Other Products Segment
- ----------------------
This segment includes two primary businesses: Casco
Products, which manufactures automotive cigarette lighters, power
outlets and electronic devices; and Northern Can Systems, which
manufactures easy-open steel lids for cans.
Casco Products (Casco). Casco, which has been serving the
automotive products market since 1921, is a major manufacturer of
automotive cigarette lighters and the leading supplier in North
America to Chrysler, Ford, General Motors and Honda. In
addition, the unit has established a presence in the European
automotive markets.
Casco offers a growing line of automotive accessories, led
by a series of electronic devices to monitor automotive fluid
levels. These products are presently used as gauges for engine
oil and engine coolant and may also be used to monitor brake,
transmission and power steering fluids. Casco's other products
include auxiliary power outlets, electronic control modules, and
daytime running lights.
Northern Can Systems (NCS). NCS supplies the domestic and
international food processing market with easy-open lids for
cans. Fabricated from steel, full-open ends are used on cans for
pet food, fruits, vegetables, coffee and specialty foods. When
made as pour-spout lids, which incorporate a pull-tab, easy-open
ends are used on cans for beverages, including nutritional
drinks.
Principal Products
------------------
The percentage of Sequa's consolidated sales contributed by
each class of similar products, which accounted for 10 percent or
more of such consolidated sales during the last three fiscal
years, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Chromalloy Gas Turbine 44% 39% 42%
Precoat Metals 12% 12% 10%
ARC Propulsion 10% 10% 10%
</TABLE>
<PAGE>
Markets and Methods of Distribution
-----------------------------------
Chromalloy markets its gas turbine engine component
manufacturing and repair services primarily to the major airlines
of the world, manufacturers of commercial jet engines, and the
military. Chromalloy's products and services are marketed
directly and through sales representatives working on a
commission basis.
A portion of the sales of Chromalloy's operations is made
pursuant to contracts with various agencies of the United States
Government, particularly the Department of the Air Force, with
which Chromalloy has had a long-term relationship.
Sequa markets its rocket propulsion systems generally on a
subcontract basis under various defense programs of the United
States Government. Among the programs currently in production
are the Army Extended Range Multiple Launch Rocket System,
Extended Range Army Tactical Rocket System, Javelin, Stinger,
Tomahawk, Standard Missile, Sidewinder, and Patriot Advanced
Capability (PAC-3) missile system. In addition, ARC Propulsion
markets it automotive airbag components to the automotive
industry through its two joint ventures, BAICO and BAG SpA.
Sequa's Machinery and Metal Coatings Segment sells its
machinery products directly to the container and food industries,
as well as to the web printing industry. The metal coatings
business sells its coating services to regional steel and
aluminum producers, building product manufacturers, merchant can
makers and manufacturers of other diverse products.
The Specialty Chemicals Segment sells textile chemicals and
emulsion polymers directly to manufacturers of fabric for
clothing and other products. Paper chemicals are sold directly to
paper mills and detergent chemicals are sold to detergent
manufacturers. Specialty polymers are sold directly to the
producers of roofing mats, industrial filters, and tape and label
products.
The automotive products subsidiary sells cigarette lighters,
power outlets and various electronic monitoring devices directly
to the automotive industry. NCS sells convenience steel ends
directly to domestic and international can makers and other end
users.
<PAGE>
Competition
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There is significant competition in the industries in which
Sequa operates, and, in several cases, it competes with larger
companies having substantially greater resources than those of
Sequa.
Sequa believes that it is currently the world's largest
manufacturer of cylindrical can decorating and can forming
equipment, one of the largest manufacturers of permanent press
textile finishing resins and the largest domestic supplier of
automotive cigarette lighters in the United States.
Sequa, through its Chromalloy operations, is a leader in the
development and use of advanced metallurgical and other processes
to manufacture, repair and coat blades, vanes and other
components of gas turbine engines used for commercial and
military jet aircraft. Chromalloy's divisions compete for
turbine engine repair business with a number of other companies,
including the original equipment manufacturers (OEMs). Such OEMs
generally have obligations (contractual and otherwise) to approve
vendors to manufacture components for their engines and/or
perform repair services on their engines and components.
Chromalloy has a number of such approvals, including licensing
agreements, which allow it to manufacture and repair certain
components of flight engines. The loss of approval by one of the
major OEMs to manufacture or repair components for such OEM's
engines could have an adverse effect on Chromalloy, although
management believes it has certain actions available to it to
mitigate the adverse effect.
Sequa's rocket propulsion systems business competes with
several other companies for defense business. In some cases,
these competitors are larger than Sequa and have substantially
greater resources. Government contracts in this area are
generally awarded on the basis of proven engineering capability
and price. The Company's ability to compete is enhanced by the
needs of the US Government to have alternative sources of supply
under these contracts.
Sequa's Specialty Chemicals segment competes in each of its
markets with a number of other manufacturers, some of which are
larger and have greater resources than Sequa. The units in this
segment compete on the basis of product development, technical
service, quality and price.
<PAGE>
Sequa's Precoat Metals operation is the leading independent
domestic coil coater of steel for metal building panels. Sequa's
cylindrical can decorating and can forming equipment operations
are world leaders in their markets. MEG is a leading supplier of
auxiliary press equipment in Europe.
Sequa's automotive products manufacturer is the nation's
leading producer of cigarette lighters and holds a commanding
share of both the domestic original equipment market and the auto
aftermarket. Sequa's easy-open can lid manufacturing business
competes with a number of larger and well established entities
which have substantially greater financial and other resources.
Raw Materials
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The various segments of Sequa's business use a wide variety
of raw materials and supplies. Generally, these have been
available in sufficient quantities to meet requirements, although
occasional shortages have occurred.
Seasonal Factors
----------------
Overall, Sequa's business is not considered seasonal to any
significant extent.
Patents and Trademarks
----------------------
The Company owns and is licensed to manufacture and sell
under a number of patents, including patents relating to its
metallurgical processes. These patents and licenses were secured
over a period of years and expire at various times. The Company
has also created and acquired a number of trade names and
trademarks. While Sequa believes its patents, patent licenses,
trade names and trademarks are valuable, it does not consider its
business as a whole to be materially dependent upon any
particular patent, license, trade name, trademark or any related
group thereof. It regards its technical and managerial knowledge
and experience as more important to its business.
Backlog
-------
Backlog information is included in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations on page 23 of this Annual Report on Form 10-K and is
hereby incorporated by reference.
<PAGE>
Research and Development
------------------------
Research and development costs, charged to expense as
incurred, amounted to approximately $12.9 million in 1996, $15.2
million in 1995, and $14.3 million in 1994. The level of
research and development costs declined in 1996 primarily due to
the divestiture of Kollsman in late 1995.
Environmental Matters
---------------------
The Company has been notified that it has been named as a
potentially responsible party under Federal and State Superfund
laws and/or has been named as a defendant in suits by private
parties (or governmental suits including private parties as co-
defendants) with respect to sites currently or previously owned
or operated by the Company or to which the Company may have sent
hazardous wastes. The Company is not presently aware of other
such lawsuits or notices contemplated or planned by any private
parties or environmental enforcement agencies. The aggregate
liability with respect to these matters, net of liabilities
already accrued in the Consolidated Balance Sheet, will not, in
the opinion of management, have a material adverse effect on the
results of operations or the financial position of the Company.
These environmental matters include the following:
A number of claims have been filed in connection with
alleged groundwater contamination in the vicinity of a
predecessor corporation site which operated during the 1960s and
early 1970s in Dublin, Pennsylvania. In October 1987, a class
action was filed by residents of Dublin against the Company and
two other defendants. The Borough of Dublin also filed suit
seeking remediation of alleged contamination of the Borough's
water supply and damages in an unspecified amount. A settlement
has been reached in the class action in which the Company agreed
to pay $1.8 million, while the Borough action remains unresolved.
The Pennsylvania Department of Environmental Protection
entered into a Consent Decree with the Company in 1990 providing
for the performance of a remedial investigation and feasibility
study with respect to the same alleged groundwater contamination
in Dublin. The US Environmental Protection Agency (EPA) also
placed the site on the Superfund List in 1990 and, in conjunction
therewith, entered into a Consent Agreement with the Company on
December 31, 1990. EPA estimates that the cost of the interim
remedy will be approximately $4 million. The investigation for
the final remedy is still in progress.
<PAGE>
The State of Florida issued an Administrative Order
requiring TurboCombustor Technology, Inc. (TCT), a subsidiary of
Chromalloy, to investigate and to take appropriate corrective
action in connection with alleged groundwater contamination in
Stuart, Florida. The contamination is alleged to have arisen
from a 1985 fire which occurred at TCT's former facility in
Stuart. The City of Stuart has subsequently constructed and is
operating a groundwater remediation system. The Company has
negotiated a conditional settlement with the City of Stuart in
October 1994 whereby it would contribute its ratable share of the
capital and operating costs for the groundwater treatment system.
The Company estimates the amount to be paid in settlement plus
additional groundwater sampling and analysis will be
approximately $2 million to be paid over a ten year period
beginning when the Order is unconditionally entered.
In September 1993, fourteen homeowners residing in West
Nyack, New York served a complaint on Chromalloy and others
alleging, among other things, that contamination from a former
Chromalloy site caused the plaintiffs' alleged property damage.
Chromalloy believes it has strong defenses under New York law to
the plaintiffs' complaint. Chromalloy entered into a Consent
Order with the New York Department of Environmental Conservation
on February 14, 1994, to undertake the remedial investigation and
feasibility study (RI/FS) relating to the alleged contamination
in the vicinity of the former Chromalloy site. The RI/FS is not
completed yet.
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. At December 31, 1996, the potential
exposure for such future costs is estimated to range from $17
million to $38 million and the Company's balance sheet includes
accruals for remediation costs of $34.5 million. These accruals
are at undiscounted amounts and are primarily included in accrued
expenses and other noncurrent liabilities. While the possibility
of further recovery of some of the costs from insurance companies
exists, 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.
With respect to all known environmental liabilities, the
Company's actual cash expenditures for remediation of previously
contaminated sites were $10.0 million in 1996, $10.6 million in
1995, and $10.3 million in 1994. The Company anticipates that
remedial cash expenditures will be in the $8 million to $12
million range during 1997 and between $6 million and $8 million
during 1998. For the past three years, the Company's capital
expenditures for projects to eliminate, control or dispose of
<PAGE>
pollutants have averaged approximately $2 million per year. The
Company anticipates environmental-related capital programs to be
approximately $4 million per year during 1997 and 1998. The
Company's operating expenses to eliminate, control and dispose of
pollutants have averaged approximately $11 million per year
during the last three years. The Company anticipates that
environmental operating expenses will be approximately $12
million per year during 1997 and 1998.
Employment
----------
At December 31, 1996, Sequa employed approximately 9,350
persons in its continuing operations of whom approximately 2,600
were covered by union contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 1996 was:
<TABLE>
<CAPTION>
Approximate
Segment Number of Employees
------- -------------------
<S> <C>
Aerospace 6,800
Machinery and Metal Coatings 1,200
Specialty Chemicals 650
Other Products 600
Corporate 100
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Total 9,350
=====
</TABLE>
The Company considers its relations with employees to be
generally satisfactory. Sequa maintains a number of employee
benefit programs, including life, hospitalization, surgical,
dental, and major medical insurance, and a number of 401(k) and
pension plans.
(d) Foreign Operations. Sequa's consolidated foreign
-------------------
operations, spread primarily throughout Europe, include
Chromalloy's operations within the Aerospace Segment; detergent
chemicals operations included in the Specialty Chemicals Segment;
the auxiliary press equipment supplier in the Machinery and Metal
Coatings Segment; and automotive products operation in Italy in
the Other Products Segment. Sales, operating income and
identifiable assets attributable to foreign operations, and
export sales, are set forth in Note 18 to the Consolidated
Financial Statements on page 61 of this Annual Report on
Form 10-K and is incorporated herein by reference.
<PAGE>
ITEM 2. PROPERTIES
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Aerospace
- ---------
Chromalloy operates over 40 plants in eleven states and seven
foreign countries, primarily in Europe, which have aggregate
floor space of approximately 3,200,000 square feet, of which
approximately 1,650,000 square feet is owned and approximately
1,550,000 square feet is leased. The leases covering facilities
used in this business have various expiration dates and some have
renewal or purchase options.
Rocket propulsion operations lease two principal
manufacturing facilities, a 421-acre site in Gainesville,
Virginia, and a 955-acre manufacturing facility in Camden,
Arkansas. The Gainesville lease expires in 2012, and the Camden
lease, which has various renewal options to 2014, expires in
1998. Adjacent to the Gainesville leased facility, the Company
owns 12 acres and an 89,000 square foot office and manufacturing
complex. An additional 249,000 square feet (of which 100,000
square feet is sublet) is leased for administrative, research and
manufacturing purposes in Alabama, California, Massachusetts and
Virginia. The liquid propulsion division leases a 96,000 square
foot facility in Niagara, New York. The Company also owns 2,454
acres of land in Orange County, Virginia, which has been
developed for use in the propellant business. An additional
37,000 square foot office, which is entirely sublet, is owned in
Virginia.
Facilities in this segment are suitable and adequate for the
business and are operating at a moderate level of utilization.
Capital spending plans for the operations in this segment are
primarily designed to keep up with current technology or to meet
specific requirements for various government or commercial
contracts.
Machinery and Metal Coatings
- ----------------------------
The Sequa Can Machinery operation owns two plants in the
United States with aggregate floor space of 228,000 square feet.
In Europe, through the segment's auxiliary press equipment
supplier, MEG, the Company owns a plant with aggregate floor
space of approximately 62,000 square feet. MEG also leases three
sales offices and owns a storage facility in Europe with a total
of 22,000 square feet and leases a 2,500 square foot sales office
in Singapore. The Precoat Metals operation owns seven
manufacturing facilities in six states with a total of 1,040,000
square feet of manufacturing and office space. An additional
223,000 square feet of warehouse space is leased in Illinois,
Missouri and Texas.
<PAGE>
The properties in this segment are suitable and adequate for
the business presently being conducted. With the exception of
several coil coating lines, the facilities in this segment are
functioning at a high level of utilization.
Specialty Chemicals
- -------------------
The Specialty Chemicals segment owns one plant and an office
building situated on 88 acres in Chester, South Carolina with
aggregate floor space of 164,000 square feet and a 22,000 square
foot leased warehouse in Chester. The segment owns one plant in
the United Kingdom with aggregate floor space of 203,000 square
feet on approximately 55 acres of land and leases 8,000 square
feet of office and warehouse space in six separate locations in
Europe.
Facilities in this segment are adequate and suitable for the
business being conducted. They operate at a high utilization
rate.
Other Products
- --------------
The automotive products subsidiary, Casco Products, leases a
168,000 square foot plant in Connecticut, a 1,600 square foot
sales office in Detroit, Michigan, and a 65,000 square foot
manufacturing facility in Italy. NCS owns a manufacturing
facility in Ohio with floor space of 90,000 square feet.
The Centor Company, a wholly-owned subsidiary, owns and rents
to a third party a manufacturing facility and a warehouse in
Wisconsin with aggregate floor space of 185,000 square feet. The
Centor Company also owns eight smaller properties that are either
leased to third parties and/or held for sale.
Facilities in this segment are adequate and suitable for the
business being conducted. Casco Products' leased facilities
operate at high utilization rates, while utilization at NCS is at
a moderate level.
Corporate
- ---------
The Company leases 58,000 square feet of corporate office
space in New York, New York and Hackensack, New Jersey.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Information with respect to the Company's legal proceedings
is included in Note 19 to the Consolidated Financial Statements
on pages 62 through 64 of this Annual Report on Form 10-K and is
hereby incorporated by reference. Additional information on
environmental matters is covered in the Environmental Matters
section on pages 9 through 11 of this Annual Report on Form 10-K
and is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
<PAGE>
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) Market Information.
The following table sets forth the high and low sales prices
of Sequa Class A common stock and Sequa Class B common stock for
the calendar periods indicated on the Exchange Composite Tape, as
reported by the National Quotation Bureau Incorporated:
<TABLE>
<CAPTION>
SEQUA CLASS A SEQUA CLASS B
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1996:
First Quarter....... 35 5/8 29 1/2 41 5/8 39
Second Quarter...... 43 1/8 34 50 40 1/2
Third Quarter....... 46 1/2 38 3/8 53 5/8 47 1/4
Fourth Quarter...... 45 3/4 38 3/4 53 1/8 48 1/4
1995:
First Quarter....... 31 1/4 22 32 5/8 22
Second Quarter...... 31 27 35 1/8 30 3/4
Third Quarter....... 30 1/4 25 3/4 34 30 1/8
Fourth Quarter...... 31 24 1/8 39 3/4 31 1/2
</TABLE>
(b) Holders.
Shares of Sequa Class A common stock and Sequa Class B
common stock are listed on the New York Stock Exchange. There
were approximately 2,730 holders of record of the Sequa Class A
common stock and approximately 600 holders of record of the Sequa
Class B common stock at March 10, 1997.
(c) Dividends.
During the years ended December 31, 1996 and 1995, no
dividends were declared on Sequa Class A common shares or Class B
common shares. The Company's revolving credit agreement contains
covenants, which among other matters, restricts the Company's
ability to pay dividends on Sequa's common shares.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth selected financial information for, and as of
the end of, each of the five years in the period ended December 31, 1996. Such
information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, filed herewith.
<CAPTION>
(Amounts in millions, except per share)
Year ended December 31, 1996 1995 1994 1993 1992
- ----------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Continuing operations
Sales $1,459.0 $1,414.1 $1,419.6 $1,697.0 $1,868.3
Operating income 65.2 67.9 39.8 15.7 124.6
Income (loss) from
continuing operations 9.6 8.8 (24.7) (55.5) 17.9
Loss from discontinued
operations - - - - (21.7)
Extraordinary loss (0.4) - (1.1) (8.5) -
Cumulative effect of
accounting change - - - - (7.3)
Net income (loss) $ 9.2 $ 8.8 $ (25.8)$ (64.0)$ (11.1)
======== ======== ======== ================
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $ .65 $ .57 $(2.87) $(6.07) $ 1.53
Discontinued operations - - - - (2.26)
Extraordinary loss (.04) - (.11) (.88) -
Cumulative effect of
accounting change - - - - (.76)
------- ------- ------ ------ ------
Net income (loss) $ .61 $ .57 $(2.98) $(6.95) $(1.49)
======= ======= ====== ====== ======
CASH DIVIDENDS DECLARED
Preferred $ 5.00 $ 5.00 $ 7.50*$
2.50 $ 5.00
Class A common - - - .30 .60
Class B common - - - .25 .50
FINANCIAL POSITION
Current assets $ 612.2 $ 621.2 $ 604.3 $ 661.6 $ 679.2
Total assets 1,548.2 1,622.0 1,648.2 1,803.5 1,912.5
Current liabilities 302.7 324.7 321.3 376.5 350.1
Long-term debt 531.9 563.2 586.6 624.1 690.0
Shareholders' equity 590.8 576.6 566.5 575.8 651.7
<FN>
* Includes $2.50 of dividends in arrears for the third and fourth quarters of
1993.
</TABLE>
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OPERATING RESULTS 1996 - 1995
SALES
Reported sales increased 3% in 1996. On a pro forma basis,
excluding the sales of units divested in 1995, sales increased
11% to $1.5 billion. Approximately 20% of the pro forma increase
was attributable to sales generated by metal coatings and
automotive products operations acquired in the second half of
1995.
Sales of the Aerospace segment were 1% ahead of 1995. In the
earlier year, reported sales included a contribution of $97.3
million from Kollsman, a division divested in December 1995.
Both operations continuing in the segment recorded solid sales
gains in 1996. Chromalloy Gas Turbine posted a 16% sales
increase in 1996, with units serving both repair and OEM
customers contributing to the advance. At the repair units, both
commercial airline and US Government military repair business was
significantly ahead of prior year levels. Commercial repair
advances reflect Chromalloy's participation in the continuing
recovery of the domestic and international airline industry, as
well as increased penetration of this key market. Units
primarily serving the OEM market posted sales gains in 1996 and
entered 1997 with significantly improved backlog positions.
Pricing to the OEM markets has improved as capacity utilization
rates in the industry have increased substantially. Although
management currently anticipates that the upward sales trend of
the gas turbine unit will continue in early 1997, pricing
pressure and increased activity in the repair aftermarket by the
engine manufacturers continue. ARC Propulsion registered an 11%
increase in sales for 1996, driven by improvements in airbag
components and liquid propellant motors for use on commercial
satellites as the unit's sales mix shifted toward commercial
applications.
Sales in the Machinery and Metal Coatings segment increased
12% in 1996, with each of the three units recording advances.
Sales of the metal coatings unit reflected the addition of three
coil coating lines acquired in the third quarter of 1995. Demand
from the unit's largest market, building products, remained
strong, and continued expansion into diverse markets for
manufactured products also contributed to the sales advance. The
favorable impact of growth in these areas was tempered by the
effect of a major container customer's late-1995 decision to
bring a large portion of its metal coating work in house. The
can machinery unit achieved a solid advance in 1996, driven by
increased sales of can decorating equipment, bodymakers and spare
parts. Based on this unit's current backlog, sales for
<PAGE>
SALES (con't)
1997 are expected to be lower than in 1996. Sales of the
auxiliary press equipment unit advanced 6% in 1996, with sharply
higher sales of flying pasters partially offset by lower sales of
dryers and other auxiliary equipment. Based on current backlog,
this unit also is expected to report lower sales in 1997.
Sales of the Specialty Chemicals segment decreased 10% in
1996, as a small increase at the domestic unit was more than
offset by a decline at the overseas unit. The decline at the
overseas unit reflects lower sales to the international detergent
sector; the absence of sales from a unit that was divested in
mid-1995; and reduced sales at the chemical distribution units.
The domestic unit recorded a small sales increase, derived from
advances in specialty polymers and graphic arts chemicals,
partially offset by a decline in exports.
Sales of the Other Products segment increased 33% in 1996,
with both the automotive products unit and the can lid operation
recording strong gains, and the real estate operation recording
lower revenues. The automotive products unit benefitted from the
December 1995 addition of an Italian cigarette lighter line
serving European OEMs and from increases in all domestic OEM
products -- electronics modules, power outlets, lighters -- and
strong aftermarket sales. This unit's sales are expected to
remain strong in early 1997, while the outlook for the full year
is largely dependent on the volume and mix of North American car
and light truck production. Sales of the can lid unit increased
sharply, as exports more than tripled from 1995, and domestic
sales recorded a strong advance. Management currently
anticipates continued solid sales growth in the first quarter of
1997. The real estate unit recorded lower revenues, primarily
due to the July 1996 disposition of its largest property, an
office building in Clayton, Missouri. Revenues of this unit will
continue to be affected by Sequa's ongoing program to dispose of
excess properties.
OPERATING INCOME
Operating income declined 4% in 1996, due to the following
principal factors: the high level of expense related to the
Company's litigation with the Pratt & Whitney unit of United
Technologies Corporation (UTC); the absence of profits from the
Kollsman division, which was divested in December 1995; and lower
profits at the overseas specialty chemicals unit and the metal
coatings unit. These factors were partially offset by the return
to profitability of the gas turbine unit and improvement in the
Other Products segment.
<PAGE>
OPERATING INCOME (con't)
Operating income in the Aerospace segment advanced 54% in
1996, despite the December 1995 sale of the Kollsman unit, which
had contributed $12.9 million to the segment's 1995 reported
profits. Chromalloy Gas Turbine, which had incurred a loss in
1995, posted a profit on higher sales in 1996. The turnaround at
Gas Turbine reflects significant improvement at repair units,
reduced losses at OEM units, the absence of the downsizing
provisions recorded in 1995, and the effect of earlier efforts to
reduce the overall cost structure. These improvements were
partially offset by $33.0 million of costs related to the UTC
litigation. Both years benefitted from the reversal of workers'
compensation insurance reserves, which were actuarially
determined to be in excess of requirements. Management currently
anticipates the continuation of improved operating results in the
first quarter of 1997. Significant legal expenses are expected
in 1997 (albeit at a lower level than 1996), as the unit remains
involved in litigation related to UTC. The propulsion unit
registered a small decline in profits in 1996, due entirely to a
fourth-quarter restructuring provision related to the advanced
materials product line. Without this provision, profits would
have advanced, due to the benefit of increased sales and lower
bid and proposal costs.
Operating income in the Machinery and Metal Coatings segment
declined 16% in 1996, as the advance at the can machinery unit
was more than offset by declines at the metal coatings and
auxiliary press equipment units. The decline in operating income
at the metal coatings unit primarily reflects lower average
coating line utilization; increased costs related to the three
coating lines acquired in 1995; and substantially higher prices
for the natural gas used in the curing ovens. Can machinery
profits advanced in 1996, driven primarily by the increased level
of sales. The auxiliary press equipment unit incurred a larger
loss in 1996, entirely due to two factors: restructuring costs in
excess of $2.5 million and the write-off in the third quarter of
the remaining goodwill related to this operation. On an
operating basis, excluding these costs, significant improvements
were achieved, as the benefit of increased sales and reduced
costs more than offset the impact of a significant increase in
the allowance for doubtful accounts, continuing pricing
pressures, and higher warranty expense. Based on the December
31, 1996 backlog, management anticipates a loss for this unit in
the first quarter of 1997.
Operating income of the Specialty Chemicals segment declined
14% in 1996, as a decline at the overseas unit was partially
offset by a solid gain at the domestic unit. The decline at the
overseas unit reflected lower sales of detergent chemicals,
reduced margins, and reduced profits from the chemical
<PAGE>
OPERATING INCOME (con't)
distribution units. The Company anticipates that profits from
this unit will be significantly lower in 1997, due primarily to
the effects of the strengthening of the pound sterling against
other European currencies, which began in the fourth quarter of
1996. The domestic unit recorded a solid profit advance, due to
a favorable sales mix shift, improved margins, and the favorable
settlement of a lawsuit.
Operating income in the Other Products segment increased 53%
in 1996, as improvements at the automotive products and can lid
operations more than offset a decline at the real estate unit.
The improvement at the automotive products unit was the result of
increased worldwide sales. The can lid unit recorded a loss in
1995 and a profit in 1996. The improvement was primarily
attributable to a sharply higher level of sales, a trend that is
expected to continue in 1997. Profits at the real estate
operation declined in 1996 due to reduced revenues.
INTEREST EXPENSE
The decrease in interest expense of approximately $1.5 million
was due to a decrease in average borrowings attributable to
scheduled principal payments and early retirement of debt.
OTHER, NET
In 1996, Other, net included an $8.8 million gain on the sale of
the Company's office building in Clayton, Missouri; $2.1 million
in charges for the amortization of capitalized debt costs; and
$4.0 million of equity in the income of unconsolidated joint
ventures.
In 1995, Other, net included a $6.5 million gain on the sale of
Kollsman; $6.1 million of gains on the sale of assets; $2.1
million of dividend income on an investment; $2.1 million of
charges for the amortization of capitalized debt costs; $1.8
million of equity in the losses of unconsolidated joint ventures;
and $0.9 million of discount expense related to the sale of
accounts receivable.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
manage interest rate and foreign exchange risks. The Company has
established a control environment which includes policies and
procedures for risk assessment and the approval, reporting and
monitoring of derivative financial instrument activities. The
Company does not hold or issue derivative financial instruments
for trading purposes.
The Company accounts for interest rate swaps as hedges
provided that the derivative changes the nature of a designated
debt instrument on the Company's balance sheet. In accordance
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS (con't)
with hedge accounting, any gains or losses from changes in the
value of the swaps are deferred and interest expense on the
hedged debt instrument is recorded using the interest rate as
effectively revised by the related swap. Gains or losses on
terminated interest rate swaps that were accounted for as hedges
are deferred and amortized to interest expense over the original
lives of the terminated swaps.
The Company's weighted average borrowing rate was 9.3% during
1996, 9.1% during 1995 and 9.4% during 1993. The Company's
hedging activities related to interest rate swaps reduced
interest expense by $2.2 million (or 39 basis points) during
1996; $3.1 million (or 53 basis points) during 1995; and $0.3
million (or 5 basis points) during 1994. As of December 31,
1996, deferred gains on terminated interest rate swaps amounted
to $1.6 million and amortization of such deferred gains will
serve to reduce interest expense by $1.5 million and $0.1 million
during 1997 and 1998, respectively.
The Company accounts for interest rate options written and
other complex interest-related derivative instruments under non-
hedge accounting. In 1994, Other, net included mark-to-market
losses of $2.4 million to adjust the carrying value of interest
rate derivatives considered to be non-hedging instruments. All
interest-related derivatives were closed out as of December 31,
1994 and the Company was not a party to any interest rate
derivatives thereafter.
The Company utilizes forward exchange contracts in several
ways. The Company's specialty chemicals operation in the United
Kingdom uses such contracts to hedge existing assets, liabilities
and firm commitments denominated in currencies other than the
pound sterling. Gains and losses on forward exchange contracts
designated as hedges of existing assets and liabilities are
recognized in income as exchange rates change. Gains and losses
on hedges of firm sales and purchase commitments are deferred and
included in the basis of the transactions when they are
completed. The Company has also utilized forward foreign
exchange contracts to hedge foreign investments. Gains and
losses on these contracts are not included in income but are
recorded in the cumulative translation adjustment, a component of
shareholders' equity.
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
<PAGE>
ENVIRONMENTAL MATTERS (con't)
management fees; the projected cost of remediation activities;
and site closure and post-remediation monitoring costs. The
assessments take into account known conditions, probable
conditions, regulatory requirements, past expenditures, and other
potentially responsible parties and their probable level of
involvement. Outside legal, technical and scientific consulting
services are used to support management's assessments of costs at
significant individual sites.
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. At December 31, 1996, the potential
exposure for such costs is estimated to range from $17 million to
$38 million and the Company's balance sheet includes accruals for
remediation costs of $34.5 million. These accruals are at
undiscounted amounts and are primarily included in accrued
expenses and other noncurrent liabilities. While the possibility
of further recovery of some of the costs from insurance companies
exists, 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.
With respect to all known environmental liabilities, the
Company's actual cash expenditures for remediation of previously
contaminated sites were $10.0 million in 1996, $10.6 million in
1995 and $10.3 million in 1994. The Company anticipates that
remedial cash expenditures will be in the $8 million to $12
million range during 1997 and between $6 million and $8 million
during 1998. For the past three years, the Company's capital
expenditures for projects to eliminate, control or dispose of
pollutants have averaged approximately $2 million per year. The
Company anticipates environmental-related capital programs to be
approximately $4 million per year during 1997 and 1998. The
Company's operating expenses to eliminate, control and dispose of
pollutants have averaged approximately $11 million per year
during the last three years. The Company anticipates that
environmental operating expenses will be approximately $12
million per year during 1997 and 1998.
AUTOMOTIVE AIRBAGS
The Company has investments in two unconsolidated joint venture
partnerships which were formed to develop, produce and market
hybrid inflators for automotive airbags: Bendix Atlantic Inflator
Company (BAICO), a 50/50 joint venture formed with AlliedSignal;
and BAG SpA, an Italian company formed with AlliedSignal and
Gilardini (a unit of Fiat Group) with each participant owning a
one-third interest in the venture. The Company's share of the
earnings or losses of the unconsolidated airbag businesses was
equity income of $1.4 million in 1996 and equity losses of $2.2
million and $2.4 million in 1995 and 1994, respectively.
<PAGE>
AUTOMOTIVE AIRBAGS (con't)
BAICO has a $50 million revolving credit agreement which is
guaranteed equally by each partner. In December 1995 and 1994,
BAICO borrowed $15 million and $35 million, respectively, under
the facility and remitted half the proceeds to each partner.
Sequa accounted for the $7.5 million it received in 1995 and the
$17.5 million received in 1994 as financing activities in the
Consolidated Statement of Cash Flows and reduced its investment
in BAICO, which is carried as an equity investment. At December
31, 1996 and 1995, the Company's equity in the losses of its
airbag businesses exceeded its investment by $15.8 million and
$15.1 million, respectively, and the negative investment is
included in Other noncurrent liabilities in the Consolidated
Balance Sheet.
BACKLOG
The businesses of Sequa for which backlogs are significant are
the Turbine Airfoils, Caval Tool, Turbocombustor Technology and
Castings units of Chromalloy 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 units at December 31,
1996 was $293.5 million ($330.4 million at December 31, 1995).
CAPITAL SPENDING
Capital expenditures amounted to $50.2 million in 1996, with
spending concentrated in the Chromalloy Gas Turbine, metal
coatings and chemicals operations. These funds were primarily
used to upgrade existing facilities and equipment and to expand
capacity. The Company anticipates that capital spending in 1997
will be approximately $90 million and will again be concentrated
in the gas turbine, metal coatings and chemicals operations.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company extended its revolving credit agreement
one year to March 31, 1998. Under the terms of the amended
revolver, the maximum amount of credit available under the
facility was reduced from $150.0 million to $125.0 million at the
Company's request and the facility fee was reduced from an annual
rate of 0.5% to 0.375% of the maximum amount available under the
credit line. Management anticipates that cash flow from
operations, the $107.1 million of credit available under the
revolving credit agreement, the $45.0 million of available
financing under the Receivables Purchase Agreement, plus the
$92.1 million of cash and cash equivalents on hand at December
31, 1996 will be more than sufficient to fund the Company's
operations for the foreseeable future.
<PAGE>
OTHER INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," was implemented by the Company
in the first quarter of 1996. This statement requires long-lived
assets to be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash
flows is less than the carrying amount of the asset, then an
impairment loss is to be recognized based on the fair value of
the asset. The Company's previous accounting policies related to
long-lived assets were similar to the requirements of SFAS No.
121; accordingly, the impact of adopting the new standard did not
have a material effect on the Company's results of operations or
financial position.
SFAS No. 123, "Accounting for Stock-Based Compensation,"
encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation under Accounting Principles Board
Opinion (APBO) No. 25, which measures compensation cost for stock
options as the excess, if any, of the quoted market price of the
Company's stock at the grant date over the amount an employee
must pay to acquire the stock. As the Company's stock option
plans require the option price to be no less than the fair market
value of the stock at the date of grant, no compensation expense
is recognized by the Company for stock options granted.
SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," was issued
in June 1996 and establishes, among other things, new criteria
for determining whether a transfer of financial assets should be
accounted for as a sale or as a pledge of collateral in a secured
borrowing. Under SFAS No. 125, transfers of financial assets
occurring after December 31, 1996 are considered sold only if the
transferor meets a three-part test to demonstrate that control
over the assets has been surrendered. Management is currently
reviewing the criteria of SFAS No. 125 as they may relate to the
Company's Receivables Purchase Agreement in 1997.
OPERATING RESULTS 1995 - 1994
SALES
Sales were roughly on a par with 1994 results, as declines in the
Aerospace segment were largely offset by increased sales in the
Machinery and Metal Coatings segment and in the domestic
chemicals and automotive products units. In 1994, reported sales
included $73.5 million of sales generated by units disposed of in
1994 and early 1995, while the 1995 figure includes $22.0 million
<PAGE>
SALES (con't)
of sales of newly acquired units and two units sold in 1995. If
reported sales in both years are adjusted for these amounts, pro
forma sales would have increased 3% for 1995.
Sales in the Aerospace segment were 7% lower than in 1994,
with all units registering declines. Chromalloy Gas Turbine
sales declined 8% in 1995, reflecting its withdrawal from the
engine overhaul business, combined with a 12% decline at units
primarily serving OEM customers. These declines were partially
offset by a 7% increase in sales of Chromalloy units primarily
serving repair customers. On a pro forma basis -- eliminating
from both years the sales of divested units -- Chromalloy posted
a 3% sales increase. Despite the recovery in repair sales,
extensive pricing pressures continued, as well as increased
activity in the repair aftermarket by engine manufacturers. ARC
Propulsion experienced a small sales decline in 1995, reflecting
reductions in the overall level of military sales, largely offset
by an increase in sales of automotive airbag components. At the
Kollsman unit (which was divested on December 29, 1995), 1995
sales declined 11%.
Sales in the Machinery and Metal Coatings segment advanced
20% in 1995 (16% excluding the sales of the two metal coating
plants acquired in 1995), with all three units contributing to
the advance. Before giving effect to its 1995 acquisition of two
plants, the Precoat Metals unit achieved advances in building
products and manufactured products while container product sales
declined as a large customer brought more work in house. Can
machinery sales rose 23% in 1995, primarily as a result of
increased overseas sales of can decorating equipment and the
successful introduction in late 1994 of the latest generation of
can bodymakers. At MEG, sales increased 28% in 1995, driven by
strong increases in dryers and other auxiliary equipment.
Sales of the Specialty Chemicals segment increased 1% as a
small decline at the overseas unit was offset by a modest advance
at the domestic unit. A decline in detergent chemical sales and
the 1995 disposition of a manufacturing facility that produced
textile and bromine chemicals were partially offset by improved
performance at the unit's specialty chemical distribution
operations and the late 1994 addition of a distribution operation
in Portugal. The domestic unit recorded a sales increase, as
price increases offset a modest volume decline. Sales advances
were recorded in specialty polymers, paper specialties, export
and graphics markets, while textile chemical sales declined and
paper chemical sales were on a par with 1994.
<PAGE>
SALES (con't)
Sales of the Other Products segment increased 3%, as advances
at the automotive products unit and the can lid unit were
partially offset by a 16% decline in revenues at the Centor real
estate unit. The automotive products unit reported a 5% increase
in 1995 sales. A small decline in cigarette lighter sales to the
domestic auto makers was more than offset by increased North
American sales of power outlets and electronic devices. Sales of
lighters by Casco's European operation also improved in 1995, and
late in the year Casco acquired an automobile lighter product
line in Italy. At the can lid unit, sales increased 1% in 1995,
as advances in the export market more than made up for a small
decline in domestic sales. The uptrend in exports primarily
reflects resumption of shipments to the Mexican market, which had
been severely curtailed by the devaluation of the peso. At the
Centor real estate unit, revenues declined primarily because of a
lower occupancy rate and reduced parking revenues at its office
building in Missouri. Revenues were also affected by the
Company's continuing sales of excess properties.
OPERATING INCOME
Overall operating income increased 71% in 1995 to $67.9 million,
with all operating segments contributing to the improvement.
The Aerospace segment recorded operating income of $10.2
million in 1995, up $23.0 million from 1994, with all three
operations contributing to the improvement. At Chromalloy Gas
Turbine, the 1995 loss was less than half that recorded in the
previous year. The improvement was primarily the result of the
following factors: an actuarially determined reduction in
workers' compensation insurance expense; a lower level of
inventory and other reserve provisions; and the absence of a
charge taken in 1994 to correct an accounting irregularity. The
favorable effect of these factors was partially offset by 1995
downsizing expenses. After eliminating the net effects of these
variances, Chromalloy's loss in 1995 was relatively unchanged
from 1994, as weakness in the first half gave way to improved
results in the second half, due to a cost reduction program and
an improving sales pattern. At the ARC Propulsion unit, profits
increased, principally due to a sharp decline in administrative
costs and improvements in the airbag components and liquid rocket
motors product lines. Profits on military programs declined, as
the impact of lower sales more than offset an improvement in
margins. The advanced materials product line recorded increased
losses in 1995. Operating income at Kollsman increased 26% in
1995.
Operating income in the Machinery and Metal Coatings segment
increased 13%, as solid advances at the metal coatings and can
machinery units were partially offset by increased losses at the
auxiliary press equipment unit. The Precoat Metals unit recorded
<PAGE>
OPERATING INCOME (con't)
increased profits, although the benefits of higher sales were
partially offset by the costs associated with the newly completed
Jackson, Mississippi plant and newly acquired plants in Portage,
Indiana and McKeesport, Pennsylvania. At the can machinery unit,
the increased profitability was primarily the result of higher
sales volume, improved factory utilization and manufacturing
improvements implemented in 1994 and 1995, partially offset by
increased warranty costs and higher general and administrative
expenses. The overseas auxiliary press equipment operation
reported a larger loss in 1995, as the benefits of higher sales
were more than offset by sharply higher manufacturing, warranty
and selling costs. Increased losses were exacerbated by an 11%
drop in the average value of the US dollar against the French
franc in 1995.
Operating income in the Specialty Chemicals segment was up 3%
in 1995, as a small improvement at the overseas unit was
partially offset by a decline at the domestic unit. At the
overseas unit, profits measured in local currency registered an
increase, as manufacturing efficiencies more than offset the
impact of lower volume in the detergent chemical product line,
and higher sales led to improved profitability at the chemical
distribution operations. Local currency results were further
bolstered by a favorable foreign exchange rate swing. At the
domestic unit, profits for the year declined as a result of
increased raw material costs and higher selling and
administrative costs, partially offset by the higher level of
sales and by significantly lower environmental clean-up costs.
Operating income in the Other Products segment increased 27%,
as improvements at the can lid and real estate units offset a
small decline at the automotive products operation. In 1995, the
benefit of increased sales at Casco was offset by certain price
reductions and increased manufacturing costs. The improvement at
Northern Can Systems was entirely due to the absence of the 1994
writedown of two lid lines, which were later sold. The
improvement at Centor resulted primarily from the favorable
resolution of a multi-year real estate tax appeal on its office
building in Missouri.
INTEREST EXPENSE
The decrease in interest expense of approximately $5.8 million
was primarily due to a decrease in average borrowings and the
termination in 1994 of interest rate swaps, accounted for as
hedges, for which $2.8 million of interest expense was incurred
during 1994.
<PAGE>
OTHER, NET
In 1995, Other, net included a $6.5 million gain on the sale of
Kollsman; $6.1 million of gains on the sale of assets; $2.1
million of dividend income on an investment; $2.1 million of
charges for the amortization of capitalized debt costs; $1.8
million of equity in the losses of unconsolidated joint ventures;
and $0.9 million of discount expense related to the sale of
accounts receivable.
In 1994, Other, net included $2.4 million of mark-to-market
losses on non-hedging interest rate derivatives; $1.8 million of
discount expense related to the sale of accounts receivable; $2.2
million of equity in the losses of unconsolidated joint ventures;
and amortization of capitalized debt costs of $2.4 million.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and
the Board of Directors of
Sequa Corporation:
We have audited the accompanying consolidated balance sheet
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated
statements of income, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Sequa Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
February 28, 1997
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- ----------------------------------- ---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 92,079 $ 62,667
Trade receivables, net (Note 2) 248,835 255,342
Unbilled receivables, net (Note 3) 26,771 23,602
Inventories (Note 4) 223,498 242,126
Other current assets 20,994 37,476
--------- ---------
Total current assets 612,177 621,213
--------- ---------
INVESTMENTS
Net assets of discontinued operations
(Note 5) 130,193 144,891
Other investments 20,492 15,891
--------- ---------
150,685 160,782
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 6) 457,511 496,588
--------- ---------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 307,952 320,214
Deferred charges and other 19,837 23,181
--------- ---------
327,789 343,395
--------- ---------
TOTAL ASSETS $1,548,162 $1,621,978
========== ==========
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Amounts in thousands, except share data)
At December 31, 1996 1995
- ---------------------------------------- --------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 7) $ 2,859 $ 16,316
Accounts payable 109,115 123,529
Taxes on income (Note 8) 40,391 38,422
Accrued expenses (Note 9) 150,381 146,388
---------- ----------
Total current liabilities 302,746 324,655
---------- ----------
NONCURRENT LIABILITIES
Long-term debt (Note 7) 531,868 563,245
Deferred taxes on income (Note 8) 13,652 3,521
Other noncurrent liabilities 109,120 153,962
---------- ----------
654,640 720,728
---------- ----------
SHAREHOLDERS' EQUITY (Notes 7, 12 and 13)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 1996
and 1995 (involuntary liquidation
value--$25,393 at December 31, 1996) 797 797
Class A common stock--no par value,
25,000,000 shares authorized; 7,188,000
shares issued at December 31, 1996 and
1995 7,188 7,188
Class B common stock--no par value,
5,000,000 shares authorized; 3,727,000
shares issued at December 31, 1996
and 1995 3,727 3,727
Capital in excess of par value 285,912 287,204
Cumulative translation adjustment 10,512 2,333
Retained earnings 366,369 360,290
---------- ----------
674,505 661,539
Less: cost of treasury stock 83,729 84,944
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 590,776 576,595
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,548,162 $1,621,978
========== ==========
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(Amounts in thousands, except per share)
Year ended December 31, 1996 1995 1994
- ------------------------------------ -------- -------- --------
<S> <C> <C> <C>
SALES $1,459,029 $1,414,139 $1,419,550
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 1,160,192 1,129,955 1,164,739
Selling, general and administrative 233,679 216,257 215,058
---------- ---------- ----------
1,393,871 1,346,212 1,379,797
---------- ---------- ----------
OPERATING INCOME 65,158 67,927 39,753
OTHER INCOME (EXPENSE)
Interest expense (51,794) (53,302) (59,114)
Interest income 4,271 3,870 2,819
Other, net (Note 15) 8,321 8,984 (11,353)
---------- ---------- ----------
(39,202) (40,448) (67,648)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 25,956 27,479 (27,895)
Income tax benefit (provision) (Note 8) (16,400) (18,700) 3,200
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 9,556 8,779 (24,695)
Extraordinary loss on early retirement
of debt, net of applicable income
taxes (Note 7) (369) - (1,083)
---------- ---------- ----------
NET INCOME (LOSS) 9,187 8,779 (25,778)
Preferred dividend requirements (3,108) (3,165) (3,163)
---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCK $ 6,079 $ 5,614 $ (28,941)
========== ========== ==========
EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary item $ .65 $ .57 $ (2.87)
Extraordinary loss on early retirement
of debt (.04) - (.11)
---------- ----------- ----------
Net income (loss) $ .61 $ .57 $ (2.98)
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- -------------------------------------------- ------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income taxes $ 25,956 $ 27,479 $(27,895)
Adjustments to reconcile income (loss) to
net cash provided by operating activities:
Depreciation and amortization 91,587 96,485 103,974
Provision for losses on receivables 5,927 4,694 4,891
Gain on sale of assets (8,268) (13,771) -
Equity in (income) losses of unconsolidated
joint ventures (4,038) 1,774 2,154
Other items not requiring (providing) cash 129 809 (79)
Changes in operating assets and liabilities,
net of businesses acquired and sold:
Receivables (3,208) (5,272) 18,877
Inventories 15,788 (11,408) (13,549)
Other current assets 14,808 (5,878) 28,743
Accounts payable and accrued expenses (4,984) (2,691) (32,671)
Other noncurrent liabilities (28,802) (9,017) (6,952)
--------- --------- --------
Net cash provided by continuing operations
before income taxes 104,895 83,204 77,493
Net cash provided by discontinued operations
before income taxes (Note 17) 6,970 5,621 28,228
Income taxes paid, net (6,057) (6,565) (10,444)
--------- --------- --------
Net cash provided by operating activities 105,808 82,260 95,277
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (50,228) (56,899) (59,241)
Sale of property, plant and equipment 15,475 9,122 8,492
Sale of businesses, net of cash sold 1,558 57,580 57,248
Businesses purchased, net of cash acquired - (42,659) -
Purchase of minority interest in subsidiary - - (16,701)
Other investing activities (806) (2,254) (10,139)
--------- --------- --------
Net cash used for investing
activities (34,001) (35,110) (20,341)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 512 3,392 6,253
Payments of debt (16,833) (8,979) (21,214)
Early retirement of debt (27,900) - (34,839)
Dividends paid (3,108) (3,165) (3,956)
Purchase of treasury stock (1,680) - -
Proceeds from exercise of stock options 1,474 - -
Repurchase of accounts receivable - - (45,000)
Proceeds from joint venture financing
arrangement - 7,500 17,500
--------- --------- --------
Net cash used for financing activities (47,535) (1,252) (81,256)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents 5,140 (1,886) 195
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents 29,412 44,012 (6,125)
Cash and cash equivalents at beginning of year 62,667 18,655 24,780
--------- --------- --------
Cash and cash equivalents at end of year $ 92,079 $ 62,667 $ 18,655
========= ========= ========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Class A Class B Capital in Cumulative
(Amounts in thousands, Preferred Common Common Excess of Translation Retained Treasury
except per share data) Stock Stock Stock Par Value Adjustment Earnings Stock
- --------------------- -------- ------- ------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 797 $ 7,054 $3,861 $295,841 $(16,771) $383,617 $ (98,615)
Net loss - - - - - (25,778) -
Issuance and amortization
of restricted stock grant - - - (1,313) - - 1,366
Treasury stock contributed
to pension plan - - - (7,324) - - 12,047
Exchange of common stock - 134 (134) - - - -
Foreign currency translation
adjustment - - - - 12,897 - -
Sale of foreign subsidiary - - - - 1,975 - -
Cash dividends:
Preferred - $5.00 per share - - - - - (3,163) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1994 797 7,188 3,727 287,204 (1,899) 354,676 (85,202)
Net income - - - - - 8,779 -
Amortization of restricted
stock grant - - - - - - 258
Foreign currency translation
adjustment - - - - 4,906 - -
Sale of foreign subsidiary - - - - (674) - -
Cash dividends:
Preferred - $5.00 per share - - - - - (3,165) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995 797 7,188 3,727 287,204 2,333 360,290 (84,944)
Net income - - - - - 9,187 -
Amortization of restricted
stock grant - - - - - - 223
Foreign currency translation
adjustment - - - - 8,179 - -
Purchase of treasury stock - - - - - - (1,680)
Stock grants forfeited - - - 307 - - (401)
Stock options exercised - - - (1,599) - - 3,073
Cash dividends:
Preferred - $5.00 per share - - - - - (3,108) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996 $ 797 $ 7,188 $3,727 $285,912 $ 10,512 $366,369 $ (83,729)
======= ======= ====== ======== ======== ======== =========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<PAGE>
SEQUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. At December
31, 1996 and 1995, SRC had no obligations outstanding to its
creditors. All material accounts and transactions between the
consolidated subsidiaries have been eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statement of Cash Flows, the
Company considers time deposits, certificates of deposit and
marketable securities with original maturities of three months or
less to be cash equivalents. Where the right of set-off exists,
the Company has netted overdrafts with unrestricted cash and cash
equivalents.
INVENTORIES AND CONTRACT ACCOUNTING
Inventories are stated at the lower of cost or market.
Non-contract related inventories are primarily valued on a
first-in, first-out basis (FIFO). Inventoried costs relating to
long-term contracts are stated at actual or average costs,
including engineering and manufacturing labor and related
overhead incurred, reduced by amounts identified with sales. The
costs attributable to sales reflect the estimated costs of all
items to be produced under the related contract.
PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation and amortization
are computed using the straight-line method to amortize the cost
of assets over their estimated useful lives. Accelerated
depreciation methods are used for income tax purposes.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
PROPERTY, PLANT AND EQUIPMENT (con't)
The Company reviews properties for impairment whenever events
or changes in circumstances indicate that the carrying value of
an asset may not be fully recoverable. If the estimated future
cash flows expected to result from the use of an asset and its
eventual disposition are less than the carrying amount of the
asset, then the property is written down to its fair market
value.
Upon sale or retirement of properties, the related cost and
accumulated depreciation are removed from the accounts, and any
gain or loss is reflected currently. Expenditures for
maintenance and repairs of $45,030,000 in 1996, $42,534,000 in
1995 and $43,438,000 in 1994 were expensed as incurred, while
betterments and replacements were capitalized.
EXCESS OF COST OVER NET ASSETS OF COMPANIES ACQUIRED
Excess of cost over net assets of companies acquired (goodwill)
is being amortized on a straight-line basis over periods not
exceeding forty years. The recoverability of goodwill is
evaluated at the operating unit level by an analysis of operating
results and consideration of other significant events or changes
in the business environment. If an operating unit has current
operating losses, and based upon projections there is a
likelihood that such operating losses will continue, the Company
evaluates whether impairment exists on the basis of undiscounted
expected future cash flows from operations before interest during
the remaining amortization period. If impairment exists, the
carrying amount of the goodwill is reduced by the estimated
shortfall of cash flows. In connection with the Company's
impairment review, goodwill was written down by $830,000 during
1996. Amortization and writedowns charged against earnings in
1996, 1995 and 1994 were $11,337,000, $10,716,000 and
$10,440,000, respectively. Accumulated amortization at December
31, 1996 and 1995 was $106,055,000 and $94,718,000, respectively.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of operations
denominated in foreign currencies are translated into US dollars
at exchange rates in effect at year-end, while revenues and
expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and
losses are charged directly to cumulative translation adjustment,
a component of shareholders' equity, and are not included in net
income until realized through sale or liquidation of the
investment. Foreign exchange gains and losses incurred on
foreign currency transactions are included in net income.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
manage interest rate and foreign exchange risks. The Company has
established a control environment which includes policies and
procedures for risk assessment and the approval, reporting and
monitoring of derivative financial instrument activities. The
Company does not hold or issue derivative financial instruments
for trading purposes.
The Company accounts for interest rate swaps as hedges
provided that the derivative changes the nature of a designated
debt instrument on the Company's balance sheet. In accordance
with hedge accounting, any gains or losses from changes in the
value of the swaps are deferred and interest expense on the
hedged debt instrument is recorded using the interest rate as
effectively revised by the related swap. Gains or losses on
terminated interest rate swaps that were accounted for as hedges
are deferred and amortized to interest expense over the original
lives of the terminated swaps.
Gains and losses on forward exchange contracts designated as
hedges of existing assets and liabilities are recognized in
income as exchange rates change. Gains and losses on forward
exchange contracts that hedge firm commitments are deferred and
included in the basis of the transactions when they are
completed. Gains or losses on forward foreign exchange contracts
that hedge foreign investments are not included in income but are
recorded in the cumulative translation adjustment, a component of
shareholders' equity.
The Company accounts for interest rate options written, other
complex interest-related derivative instruments, and forward
foreign exchange contracts that hedge anticipated transactions
under non-hedge accounting. Accordingly, the market values of
these financial instruments are recorded in the Company's balance
sheet at the reporting date and changes in fair values are
recognized in income during the period in which the changes
occur.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
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. Accrued environmental remediation and compliance
costs include remedial investigation and feasibility studies,
outside legal, consulting and remediation project management
fees, projected cost of remediation activities, site closure and
post-remediation monitoring costs. At December 31, 1996, the
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
ENVIRONMENTAL REMEDIATION AND COMPLIANCE (con't)
potential exposure for such costs is estimated to range from
$17,000,000 to $38,000,000 and the Company's balance sheet
includes accruals for remediation costs of $34,498,000. These
accruals are at undiscounted amounts and are primarily included
in accrued expenses and other noncurrent liabilities. While the
possibility of further recovery of some of the costs from
insurance companies exists, 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.
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped or
services are rendered. Long-term contracts are accounted for
under the percentage-of-completion method whereby sales are
primarily recognized based upon costs incurred as a percentage of
estimated total costs, and gross profits are recognized under a
more conservative "efforts-expended" method primarily based upon
direct labor costs incurred as a percentage of estimated total
direct labor costs. Changes in estimates for sales, costs and
gross profits are recognized in the period in which they are
determinable using the cumulative catch-up method. Any
anticipated losses on contracts are charged to current operations
as soon as they are determinable.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred
and amounted to approximately $12,856,000 in 1996, $15,176,000 in
1995 and $14,317,000 in 1994.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-
based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation under
Accounting Principles Board Opinion (APBO) No. 25, which measures
compensation cost for stock options as the excess, if any, of the
quoted market price of the Company's stock at the grant date over
the amount an employee must pay to acquire the stock. As the
Company's stock option plans require the option price to be no
less than the fair market value of the stock at the date of
grant, no compensation expense is recognized by the Company for
stock options granted.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
INCOME TAXES
Income taxes are recognized during the year in which transactions
enter into the determination of financial statement income, with
deferred taxes being provided for temporary differences between
amounts of assets and liabilities recorded for tax and financial
reporting purposes.
No provision has been made for US or additional foreign taxes
on $222,086,000 of undistributed earnings of foreign subsidiaries
as those earnings are intended to be permanently reinvested.
Such earnings would become taxable upon the sale or liquidation
of these foreign subsidiaries or upon the remittance of
dividends. It is not practicable to estimate the amount of
deferred tax liability on foreign undistributed earnings which
are intended to be permanently reinvested.
EARNINGS PER SHARE
Primary earnings per share for each of the respective years have
been computed by dividing the net earnings, after deducting
dividend requirements on cumulative convertible preferred stock,
by the weighted average number of common and common equivalent
shares outstanding during the year. The weighted average number
of common and common equivalent shares for 1996, 1995 and 1994
was 9,921,000 shares, 9,867,000 shares and 9,722,000 shares,
respectively.
Fully diluted earnings per common share calculations for the
assumed conversion of the cumulative convertible preferred stock
were anti-dilutive in 1996, 1995 and 1994.
NOTE 2. TRADE RECEIVABLES, NET
Sequa Receivables Corporation, a wholly owned special purpose
subsidiary of the Company, has a Receivables Purchase Agreement
with a group of banks, under which it is able to sell up to
$45,000,000 of Company receivables without recourse through March
1998. At December 31, 1996 and 1995, all receivables sold under
the agreement were repurchased. Other, net in the Consolidated
Statement of Income includes discount expenses of $30,000 in
1996, $947,000 in 1995 and $1,829,000 in 1994 related to the sale
of receivables under this agreement.
SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," was issued
in June 1996 and established, among other things, new criteria
for determining whether a transfer of financial assets should be
accounted for as a sale or as a pledge of collateral in a secured
borrowing. Under SFAS No. 125, transfers of financial assets
occurring after December 31, 1996 are considered sold only if the
transferor meets a three-part test to demonstrate that control
<PAGE>
NOTE 2. TRADE RECEIVABLES, NET (con't)
over the assets has been surrendered. Management is currently
reviewing the criteria of SFAS No. 125 as they may relate to the
Company's Receivables Purchase Agreement in 1997.
Trade receivables at December 31, 1996 and 1995 have been
reduced by allowances for doubtful accounts of $12,992,000 and
$12,045,000, respectively.
NOTE 3. UNBILLED RECEIVABLES, NET
Unbilled receivables, net consist of the following:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- -------------------------------- ---- ----
<S> <C> <C>
Fixed-price contracts $22,640 $19,746
Cost-reimbursement contracts 4,131 3,856
------- -------
$26,771 $23,602
======= =======
</TABLE>
Unbilled receivables on fixed-price contracts arise as revenues
are recognized under the percentage-of-completion method. These
amounts are billable at specified dates, when deliveries are made
or at contract completion, which is expected to occur within one
year. All amounts included in unbilled receivables are related
to long-term contracts and are reduced by appropriate progress
billings.
Unbilled amounts on cost-reimbursement contracts represent
recoverable costs and accrued profits not yet billed. These
amounts are billable upon receipt of contract funding, final
settlement of indirect expense rates, or contract completion.
Allowances for estimated nonrecoverable costs are primarily
to provide for losses which may be sustained on contract costs
awaiting funding and for the finalization of indirect expenses.
Unbilled amounts at December 31, 1996 and 1995 are reduced by
allowances for estimated nonrecoverable costs of $2,587,000 and
$1,616,000, respectively.
<PAGE>
NOTE 4. INVENTORIES
<TABLE>
The components of inventories are as follows:
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- ------------------------------ ---- ----
<S> <C> <C>
Finished goods $ 63,158 $ 67,910
Work in process 71,583 72,600
Raw materials 89,254 106,627
Long-term contract costs 8,275 9,600
Customer deposits (6,890) (12,974)
--------
225,380 243,763
Adjustment to reduce
carrying value to LIFO basis (1,882) (1,637)
--------
$223,498 $242,126
======== ========
</TABLE>
NOTE 5. MET ASSETS OF DISCONTINUED OPERATIONS
During 1991, the Company adopted a formal plan to divest Sequa
Capital's investment portfolio and to sell a group of businesses
which it classified as discontinued operations. As of December
31, 1996, approximately $356,000,000 of Sequa Capital's
investment portfolio had been sold, written down or otherwise
disposed of since the Company adopted a formal plan to divest the
portfolio. During the same period, the Company repaid
approximately $367,000,000 of Sequa Capital's debt. Debt of
discontinued operations at December 31, 1996 represents the
accreted principal amount of the $25,000,000 in proceeds received
from the non-recourse securitization of Sequa Capital's leveraged
lease portfolio in 1994. The leveraged lease cash flow stream
will service the payment of principal and interest until the loan
is paid off. To the extent that the leveraged lease cash flow
stream during the next several years is less than the amount
necessary to service the debt, the loan will increase.
Subsequent to the payment of the secured indebtedness, the
remaining investment in leveraged leases will be liquidated over
time as rentals are received and residual values are realized.
Disposal activities are ongoing for other discontinued assets.
<PAGE>
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS (con't)
Net assets of discontinued operations approximate net
realizable value and have been classified as noncurrent. The
amounts the Company will ultimately realize from the leveraged
lease portfolio and other investments could differ materially
from management's best estimates of their realizable value. A
summary of the net assets of discontinued operations is as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- -------------------------------- ------ ------
<S> <C> <C>
Working capital $ 7,740 $ 7,690
Investment in leveraged leases and
other investments 148,778 159,987
Other assets, net 5,634 6,742
Debt (31,959) (29,528)
-------- --------
Net assets of discontinued operations $130,193 $144,891
======== ========
</TABLE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- ------------------------------- ---- ----
<S> <C> <C>
Land and improvements $ 48,185 $ 49,792
Buildings and improvements 216,146 234,070
Machinery and equipment 756,673 736,820
Construction in progress 29,900 26,273
---------- ----------
1,050,904 1,046,955
Accumulated depreciation (593,393) (550,367)
---------- ----------
$ 457,511 $ 496,588
========== ==========
</TABLE>
<PAGE>
<TABLE>
NOTE 7. INDEBTEDNESS
Long-term debt is as follows:
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- ---------------------------------- ---- ----
<S> <C> <C>
Senior unsecured notes, at 9 5/8%,
due 1999 $138,519 $150,000
Senior unsecured notes, at 8 3/4%, due 2001 109,948 125,000
Medium-term notes, at a weighted average
interest rate of 10.0%, payable in varying
amounts through 2001 86,275 100,000
Senior subordinated notes, at 9 3/8%,
due 2003 175,000 175,000
Capital lease obligations, at a weighted
average interest rate of 9.3%, payable in
varying amounts through 2000 17,818 21,327
Other, at weighted average interest rates of
5.4% and 5.3%, respectively, payable in
varying amounts through 2004 7,167 8,234
-------- --------
534,727 579,561
Less current maturities (2,859) (16,316)
-------- --------
Total long-term debt $531,868 $563,245
======== ========
</TABLE>
The Company may borrow up to $125,000,000 under the terms of
an amended revolving credit agreement expiring March 31, 1998.
The rate of interest payable under the agreement is, at the
Company's option, a function of the prime rate or the Eurodollar
rate. The agreement requires the Company to pay a facility fee
at an annual rate of 0.375% of the maximum amount available under
the credit line. Under the terms of the credit facility, usage
of up to approximately $46,000,000 is to be secured by the stock
of certain of the Company's subsidiaries. At December 31, 1996,
there were no borrowings outstanding under this facility;
however, $17,851,000 of the available credit line was used for
the issuance of letters of credit leaving $107,149,000 of unused
credit available.
In 1996, the Company recognized a $369,000 extraordinary
loss as a result of the early redemption of debt in the principal
amount of $27,608,000. The extraordinary loss consisted of the
write-off of the associated debt issue costs plus premiums
associated with the redemption, net of income tax benefits of
$199,000.
PAGE>
NOTE 7. INDEBTEDNESS (con't)
In April 1994, the Company called the total outstanding
$33,450,000 principal amount of the senior subordinated notes due
1998 and deposited $34,839,000 of US Government securities into
an irrevocable trust to cover the principal amount called, the
call premium of $1,171,000 and net interest expense of $218,000
during the 30-day call period. This transaction resulted in an
extraordinary loss of $1,083,000 in 1994, net of tax benefits of
$583,000.
The aggregate maturities of total long-term debt during the
next five years are $2,859,000 in 1997, $29,805,000 in 1998,
$139,431,000 in 1999, $4,960,000 in 2000 and $176,373,000 in
2001.
The Company's loan agreements and indentures contain
covenants which, among other matters, restrict or limit the
ability of the Company to pay dividends, incur indebtedness, make
capital expenditures, repurchase common and preferred stock, and
repurchase the 9 3/8% senior subordinated notes due 2003. The
Company must also maintain certain ratios regarding interest
coverage, leverage and net worth, among other restrictions.
NOTE 8. INCOME TAXES
<TABLE>
The components of income (loss) before income taxes were:
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
Domestic $ (5,097) $(12,600) $(60,667)
Foreign 31,053 40,079 32,772
-------- --------
$ 25,956 $ 27,479 $(27,895)
======== ========
</TABLE>
The income tax provision (benefit) consisted of:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
United States Federal
Current $ (374) $ 144 $ 4,668
Deferred 3,087 (3,251) (23,064)
State and local 1,128 5,508 5,131
Foreign 12,559 16,299 10,065
-------- -------- --------
$ 16,400 $ 18,700 $ (3,200)
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
NOTE 8. INCOME TAXES (con't)
The income tax provision (benefit) is different from the amount
computed by applying the US Federal statutory income tax rate of
35% to income (loss) before income taxes. The reasons for this
difference are as follows:
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Computed income taxes at statutory
rate $ 9,085 $ 9,618 $ (9,763)
Foreign subsidiaries at different
tax rates (410) (835) (1,303)
State and local taxes, net of
Federal income tax benefit 733 3,580 3,883
Benefit from Foreign Sales
Corporations - (1,296) (670)
Goodwill amortization 3,691 4,741 3,598
Foreign losses not benefitted 2,100 3,106 -
Other, net 1,201 (214) 1,055
------- -------- --------
$16,400 $ 18,700 $ (3,200)
======= ======== ========
</TABLE>
The deferred tax provision represents the change in deferred
tax liabilities and assets from the beginning of the year to the
end of the year resulting from changes in the temporary
differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities.
<PAGE>
<TABLE>
NOTE 8. INCOME TAXES (con't)
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities are as follows:
<CAPTION>
(Amounts in thousands)
At December 31, 1996
- ------------------------- --------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Accounts receivable allowances $ 2,990 $ -
Inventory valuation differences 21,083 6,330
Recognition of income on
long-term contracts 4,196 6,285
Depreciation 11,982 54,909
Lease and finance transactions - 125,503
Accruals not currently deductible
for tax purposes 88,171 -
Tax net operating loss carryforward 81,433 -
Tax capital loss carryforward 319 -
Alternative minimum tax (AMT)
credit carryforward 23,094 -
Other tax credit carryforwards 11,667 -
All other 18,011 16,126
-------- --------
Subtotal 262,946 209,153
Valuation allowance (11,476) -
-------- --------
Total deferred taxes $251,470 $209,153
======== ========
</TABLE>
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1995
- ------------------------- -------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Accounts receivable allowances $ 3,215 $ -
Inventory valuation differences 11,156 3,560
Recognition of income on
long-term contracts 3,063 5,601
Depreciation 11,824 59,390
Lease and finance transactions - 119,156
Accruals not currently deductible
for tax purposes 92,256 -
Taxes on undistributed foreign earnings - 2,153
Tax net operating loss carryforward 84,732 -
Tax capital loss carryforward 1,326 -
Alternative minimum tax (AMT)
credit carryforward 24,981 -
Other tax credit carryforwards 7,817 -
All other 22,258 19,135
-------- --------
Subtotal 262,628 208,995
Valuation allowance (8,329) -
-------- --------
Total deferred taxes $254,299 $208,995
======== ========
</TABLE>
<PAGE>
NOTE 8. INCOME TAXES (con't)
At December 31, 1996, current deferred tax assets of
$55,969,000 are netted against $96,360,000 of current taxes
payable and noncurrent deferred tax assets of $195,501,000 are
netted against noncurrent deferred tax liabilities in the
Consolidated Balance Sheet. At December 31, 1995, current
deferred tax assets of $48,825,000 are netted against $87,247,000
of current taxes payable and noncurrent deferred tax assets of
$205,474,000 are netted against noncurrent deferred tax
liabilities in the Consolidated Balance Sheet.
The Company has a tax capital loss carryforward of $912,000
at December 31, 1996 that most likely will expire unutilized in
1998. A valuation allowance has been established to reduce the
deferred tax asset recorded for the capital loss carryforward to
zero, to reduce the tax asset recorded for certain tax credits
which may expire unutilized in 1998 through 2008 and to reduce
the tax benefit recorded for a portion of the cumulative losses
of the Company's French subsidiaries. The AMT credit
carryforward does not expire and can be carried forward
indefinitely. The Company has a tax net operating loss
carryforward of $232,667,000 at December 31, 1996 that expires in
2006 through 2011.
Although the Company has experienced book and tax domestic
losses, management believes that the Company will return to
profitability and will be able to utilize its domestic net
operating loss carryforwards before expiration through future
reversals of existing taxable temporary differences and future
earnings. The domestic losses were largely attributable to loss
provisions recorded during 1991 and 1992 for the Company's
discontinued leasing unit and operating losses incurred by
Chromalloy Gas Turbine from 1993 through 1995 resulting from the
government investigation during 1993 of jet engine component
repairs and repair procedures at Chromalloy's Orangeburg plant,
restructuring charges and the persistent difficulties of
overcapacity and pricing pressure in the airline marketplace.
The Company has divested itself of a significant portion of Sequa
Capital's assets, has decreased interest expense by significantly
reducing debt levels and has downsized and restructured the
Chromalloy operation. During 1996, despite $33,040,000 of costs
related to litigation with United Technologies Corporation,
Chromalloy Gas Turbine became profitable due to rising demand for
jet engine component repair and a reduced cost structure.
The Company's ability to generate the expected amounts of
domestic taxable income from future operations is dependent upon
general economic conditions, the state of the airline industry,
competitive pressures on sales and margins, and other factors
beyond management's control. There can be no assurance that the
<PAGE>
NOTE 8. INCOME TAXES (con't)
Company will meet its expectations for future domestic taxable
income in the carryforward period; however, management has
considered the above factors in reaching the conclusion that it
is more likely than not that future domestic taxable income will
be sufficient to fully realize the net domestic deferred tax
assets at December 31, 1996. The amount of the deferred tax
assets considered realizable, however, could be reduced in the
near term if estimates of future domestic taxable income during
the carryforward period are reduced.
NOTE 9. ACCRUED EXPENSES
<TABLE>
The Company's accrued expenses consisted of the following items:
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- ------------------------------- ---- ----
<S> <C> <C>
Salaries and wages $ 38,179 $ 34,675
Current portion of environmental
liabilities 10,000 9,500
Current portion of self-insurance
liabilities 5,100 6,700
Current portion of pension liabilities 1,633 3,312
Warranty 6,371 4,347
Customer rebates 8,470 6,271
Legal 8,413 7,335
Royalties 5,704 6,083
Interest 5,642 6,265
Insurance 5,912 5,586
Taxes other than income 4,133 4,581
Other 50,824 51,733
-------- --------
$150,381 $146,388
======== ========
</TABLE>
NOTE 10. FINANCIAL INSTRUMENTS
The Company has had limited involvement with derivative financial
instruments and does not use them for trading purposes. During
1993, the Company received proceeds of $9,796,000 from the early
termination of interest rate swaps that were accounted for as
hedges and that effectively converted $75,000,000 of fixed-rate
debt into variable-rate borrowings. The resulting gains were
deferred and are being amortized to income over the remaining
original lives of the swaps terminated. In December 1994, the
Company closed out all of its outstanding interest-related
derivatives for a cash payment of $7,729,000, the approximate net
carrying value of these instruments. There were no interest rate
derivatives outstanding at December 31, 1996 and 1995.
<PAGE>
NOTE 10. FINANCIAL INSTRUMENTS (con't)
The Company's weighted average borrowing rate was 9.3% during
1996, 9.1% during 1995 and 9.4% during 1994. The Company's
hedging activities related to interest rate swaps reduced
interest expense by $2,169,000 in 1996 (or 39 basis points);
$3,105,000 (or 53 basis points) during 1995; and $335,000 (or 5
basis points) during 1994. Deferred gains on terminated interest
rate swaps amounted to $1,583,000 and $3,752,000 at December 31,
1996 and 1995, respectively. Amortization of such deferred gains
will serve to reduce interest expense by $1,524,000 and $59,000
during 1997 and 1998, respectively.
Forward foreign exchange contracts are used by the Company's
specialty chemicals operation in the United Kingdom to hedge
existing assets, liabilities and firm commitments denominated in
currencies other than the pound sterling. These contracts
involve the purchase of Swedish kronor and the sale of German
marks to hedge the effects of exchange rate movements on sales of
products to foreign customers and purchases from foreign
suppliers. The Company has also used forward foreign exchange
contracts to hedge foreign investments. At December 31, 1996 and
1995, the Company had forward foreign exchange contracts
outstanding with notional amounts of $30,644,000 and $7,765,000,
respectively.
The following table presents the carrying amounts and fair
values of the Company's financial instruments:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- ---------------------- ------------- --------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets
Forward foreign exchange
contracts $ 1,129 $ 2,795 $ - $ -
Liabilities
Current and long-term
debt 534,727 544,424 579,561 568,500
Forward foreign exchange
contracts - - 50 102
</TABLE>
The fair value of the Company's debt is primarily based upon
quoted market prices of the Company's publicly traded debt
securities. The fair value of forward foreign exchange contracts
is based on year-end exchange rates.
<PAGE>
NOTE 10. FINANCIAL INSTRUMENTS (con't)
At December 31, 1996, the Company was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
$63,720,000. The Company is not currently aware of any existing
conditions which would cause risk of loss relative to outstanding
letters of credit. The Company was also contingently liable at
December 31, 1996 for $25,000,000 in guarantees of debt owed by
one of the Company's unconsolidated joint ventures. The Company
believes that its unconsolidated joint venture will be able to
perform under its payment obligations in connection with such
guaranteed indebtedness.
<PAGE>
<TABLE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company sponsors various noncontributory defined benefit pension plans
covering certain hourly and most salaried employees. The defined benefit plans
provide benefits based primarily on the participant's years of service and
compensation. The Company's pension plans are funded to accumulate sufficient
assets to provide for accrued benefits.
The status of all the Company's significant funded domestic and foreign
defined benefit plans was as follows:
(Amounts in thousands)
At December 31, 1996 1995
- ------------------------- ---------------------- --------------------
<CAPTION>
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $217,738 $ - $ 49,590 $153,191
Accumulated benefit obligation 221,543 - 51,006 155,553
Projected benefit obligation 235,851 - 52,417 167,128
Plan assets at fair value 239,633 - 54,119 145,575
-------- ------- ------- --------
(Excess) deficiency of assets
over projected benefit
obligation (3,782) - (1,702) 21,553
Unrecognized net transition asset
(obligation) 3,147 - (1,190) 5,190
Unrecognized prior service cost (3,750) - (832) (2,199)
Unrecognized net loss (1,306) - (575) (17,277)
Adjustment needed to recognize
minimum liability - - - 1,914
-------- ------- ------- --------
(Prepaid pension cost) pension
liability $ (5,691) $ - $(4,299) $ 9,181
======== ======= ======= ========
Included in:
Deferred charges $ (7,433) $ - $(4,838) $ -
Accrued expenses 1,633 - 539 2,773
Other noncurrent liabilities 109 - - 6,408
-------- ------- ------- --------
(Prepaid pension cost) pension
liability $ (5,691) $ - $(4,299) $ 9,181
======== ======= ======= ========
The plans' assets consist primarily of listed common stock, pooled equity funds
and index funds. At December 31, 1996 and 1995, the plans' assets included
Company stock with market values of $21,051,000 and $12,480,000, respectively.
</TABLE>
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
Assumptions used in the accounting for all the Company's
significant funded domestic and foreign defined benefit plans
were:
<TABLE>
<CAPTION>
At December 31, 1996 1995 1994
- --------------- ---- ---- ----
<S> <C> <C> <C>
Discount rate for obligations 7.5% 7.5% 8.5%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
</TABLE>
The periodic net pension cost of all the Company's significant
funded domestic and foreign defined benefit plans includes the
following components:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned $ 6,886 $ 7,096 $ 8,099
Interest cost on projected benefit
obligation 16,147 14,908 13,807
Actual (return) loss on plan
assets (34,918) (22,308) 2,539
Net amortization and deferral 16,739 6,443 (17,354)
------- ------- -------
$ 4,854 $ 6,139 $ 7,091
======= ======= =======
</TABLE>
The net amortization and deferral component of pension cost
includes deferred asset gains of $11,945,000 in 1996 and
$7,453,000 in 1995, and $16,868,000 of deferred asset losses in
1994. These unrecognized gains and losses resulted from actual
returns on plan assets differing from the expected returns on
plan assets. Such deferred gains and losses are subject to
amortization in future periods. Pension expense includes a
curtailment gain of $612,000 in 1995 and a curtailment loss of
$434,000 in 1994.
Employees not covered by the defined benefit plans discussed
above generally are covered by multiemployer plans as part of
collective bargaining agreements or small local plans. Pension
expense for these multiemployer plans and small local plans was
not significant in the aggregate.
The Company also has several unfunded supplemental executive
retirement plans for certain key executives. These plans provide
for benefits that supplement those provided by the Company's
other retirement plans. At December 31, 1996, the projected
benefit obligation for these plans of $11,426,000 is included in
Other noncurrent liabilities in the accompanying Consolidated
Balance Sheet. The expense for these plans was $1,948,000 in
1996, $1,755,000 in 1995 and $1,824,000 in 1994.
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
The Company's domestic non-union employees are eligible to
participate in the Company's 401(k) plans. Expenses recorded for
the Company's matching contributions under these plans were
$4,314,000 in 1996, $3,542,000 in 1995 and $4,978,000 in 1994.
Postretirement health care and other insurance benefits are
provided to certain retirees. The actuarial and recorded
liabilities for these postretirement benefits, none of which have
been funded, are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1996 1995
- --------------------- ------ ------
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retirees $1,420 $ 1,796
Employees fully eligible 377 424
Other active participants 734 776
----- -----
Total 2,531 2,996
Unrecognized prior service cost 1,288 (299)
Unrecognized net gain (loss) (1,728) 418
Unrecognized transition obligation (1,240) (2,613)
------ -------
Postretirement benefit liability $ 851 $ 502
====== =======
</TABLE>
Net periodic postretirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- -------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned $139 $124 $138
Interest cost on accumulated
postretirement benefit obligation 223 228 212
Amortization of net gain (22) (15) (7)
Amortization of unrecognized prior
service cost 28 - -
Amortization of transition obligation 154 154 153
---- ---- ----
Net periodic postretirement benefit
cost $522 $491 $496
==== ==== ====
</TABLE>
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.5%, at December 31, 1996
and 1995 and 8.5% at December 31, 1994, and an average health
care cost trend rate of approximately 11% progressively
decreasing to approximately 6% in the year 2007 and thereafter.
Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions
constant would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by approximately $119,000 and
increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for
1996 by approximately $21,000.
<PAGE>
NOTE 12. CAPITAL STOCK
The Company's capital stock consists of Class A and Class B
common stock, and $5.00 cumulative convertible preferred stock.
Holders of Class A common stock have one vote per share, holders
of Class B common stock have ten votes per share and preferred
stockholders have one vote per share. Holders of Class B common
stock are entitled to convert their shares into Class A common
stock at any time on a share-for-share basis. Each share of
$5.00 cumulative convertible preferred stock is convertible into
1.322 shares of Class A common stock. The preferred stock is
redeemable, at the option of the Company, at $100 per share.
At December 31, 1996, 4,367,698 shares of Sequa Class A
common stock were reserved for stock options outstanding and the
conversion of preferred and Class B common stock.
The following table summarizes shares held in treasury:
<TABLE>
<CAPTION>
At December 31, 1996 1995 1994
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Class A common stock 614,100 652,000 652,000
Class B common stock 396,283 396,283 396,283
Preferred stock 186,689 163,489 163,489
</TABLE>
During 1994, 180,000 shares of Class A common stock in
treasury were contributed to the Company's defined benefit
pension plans and 32,052 shares of Class A common stock in
treasury were granted to certain key employees.
<PAGE>
NOTE 13. STOCK OPTIONS AND GRANTS
The Company has two incentive and nonqualified stock option plans
in effect: the 1986 Stock Option Plan and the 1988 Stock Option
Plan. These plans provide for the granting of options of the
Company's Class A common stock to key employees. The option
price per share may not be less than the fair market value of a
share on the date the option is granted, and the maximum term of
an option may not exceed ten years. Options vest in three equal
annual installments, commencing on the first anniversary of the
grant date. Authority to grant options under the 1986 Stock
Option Plan expired during 1996 and authority to grant options
under the 1988 Stock Option Plan expires January 25, 1998. The
following table summarizes the activity related to the Company's
stock options for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Average
Options Price
------- -----
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1993 331,600 $32.68
Granted 15,500 $32.05
Expired or Cancelled (41,300) $33.06
Exercised - -
-------
OUTSTANDING AT DECEMBER 31, 1994 305,800 $32.60
Granted 12,200 $25.48
Expired or Cancelled (25,000) $33.89
Exercised - -
-------
OUTSTANDING AT DECEMBER 31, 1995 293,000 $32.18
Granted 1,800 $43.40
Expired or Cancelled (18,334) $34.95
Exercised (46,121) $32.33
-------
OUTSTANDING AT DECEMBER 31, 1996 230,345 $32.02
=======
EXERCISABLE AT
December 31, 1994 99,767 $33.36
December 31, 1995 183,534 $32.62
December 31, 1996 219,578 $32.15
AVAILABLE FOR FUTURE GRANT 80,969 -
</TABLE>
Under the provisions of APBO No. 25, the Company has
recognized no compensation expense for stock options granted.
Pro forma compensation expense determined under the fair-value
provisions of SFAS No. 123 is immaterial due to the insignificant
number of options granted.
<PAGE>
NOTE 13. STOCK OPTIONS AND GRANTS (con't)
During 1994, 32,052 shares of the Company's Class A common
stock held in treasury were granted to certain key employees.
Such stock is subject to restrictions which prohibit sale or
transfer by the grantee for periods of three to five years and
require forfeiture by the employee in the event of employment
termination within the restricted periods. The market value of
the shares granted was $831,000 and is being amortized to expense
over the respective periods in which the restrictions lapse. The
charge to operations was $223,000 in 1996, $258,000 in 1995 and
$53,000 in 1994. In addition to amortization, the original
market value of the grants was reduced by employee forfeitures in
1996. The unamortized value of the shares granted of $168,000 is
included in treasury stock in the accompanying Consolidated
Balance Sheet at December 31, 1996.
NOTE 14. ACQUISITIONS AND DISPOSITIONS
In December 1996, the business and assets of Chromalloy Castings
Miami Corporation (an OEM unit) were sold for cash proceeds of
$1,558,000. The loss on the sale was charged against reserves
established for this purpose.
On December 29, 1995, the Company sold substantially all of
the business and operating assets, excluding billed receivables,
of Kollsman for cash proceeds of $49,612,000. The sale resulted
in a pre-tax gain of $6,461,000 included in Other, net. Kollsman
had revenues of $97,271,000 and $109,167,000 in 1995 and 1994,
respectively, and operating income of $12,857,000 and $10,223,000
in 1995 and 1994, respectively. The consolidated financial
statements and accompanying footnotes reflect the operating
results of Kollsman as a continuing operation in 1995 and 1994.
During 1995, Chromalloy sold an OEM unit and its 51% interest
in an engine overhaul business for cash proceeds aggregating
$5,908,000, with one of the purchasers assuming $17,236,000 of
the Company's debt. A small net loss on the sale of these two
businesses was charged against restructuring reserves established
in 1993 for this purpose. Also during 1995, an overseas
chemicals plant was sold for cash proceeds of $2,060,000. The
sale resulted in a pre-tax gain of $1,711,000 which is included
in Other, net.
In July 1995, the Company purchased two coil coating
operations from Enamel Products and Plating Co. (EP&P) for
$38,258,000. In connection with the acquisition, the Company
entered into an operating lease with a financial institution for
the rental of a metal coating line located at one of the EP&P
facilities. In December 1995, the Company acquired an automobile
lighter product line in Italy for $4,401,000. These acquisitions
have been accounted for as purchases; accordingly, operating
<PAGE>
NOTE 14. ACQUISITIONS AND DISPOSITIONS (con't)
results are included in the Consolidated Statement of Income from
the date of purchase. Pro forma combined results of operations
giving effect to these purchases would not vary materially from
historical results.
During 1994, three Chromalloy operations, all engaged in
activities other than the repair of components for flight
engines, were sold for net cash proceeds of $57,248,000. Losses
on the sale of these businesses were charged against
restructuring reserves established in 1993 for this purpose.
NOTE 15. OTHER, NET
Other, net includes the following income (expense) items:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Gain on sale of building $ 8,777 $ - $ -
Equity in income (losses) of
unconsolidated joint ventures 4,038 (1,774) (2,154)
Amortization of capitalized
debt costs (2,145) (2,145) (2,389)
Discount expense related to the
sale of accounts receivable (30) (947) (1,829)
Gain on sale of Kollsman - 6,461 -
Gain on sale of investment - 2,664 -
Gain on sale of chemicals plant - 1,711 -
Dividend income - 2,080 -
Gain on sale of land - 1,701 -
Mark-to-market loss on
interest rate derivatives - - (2,394)
Other (2,319) (767) (2,587)
------- ------- --------
$ 8,321 $ 8,984 $(11,353)
======= ======= ========
</TABLE>
<PAGE>
NOTE 16. OPERATING LEASES
Certain businesses of the Company utilize leased premises or
equipment under noncancelable agreements having initial or
remaining terms of more than one year. The majority of the real
property leases require the Company to pay maintenance, insurance
and real estate taxes. Rental expense totaled $18,065,000,
$17,826,000 and $17,997,000 in 1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
(Amounts in thousands)
1997 $11,908
1998 8,212
1999 6,760
2000 5,547
2001 4,804
After 2001 18,621
-------
$55,852
=======
</TABLE>
<TABLE>
NOTE 17. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by discontinued operations:
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
Changes in working capital $ (50) $ 2,160 $(6,039)
Investment in leveraged leases
and other investments 5,674 4,133 13,915
Increase in debt 2,431 2,499 27,029
Other changes in net assets (1,085) (3,171) (6,677)
------- ------- -------
$ 6,970 $ 5,621 $28,228
======= ======= =======
</TABLE>
Non-cash investment activities:
During 1994, 180,000 shares of the Company's Class A common
stock, with a market value of $4,723,000, were contributed to the
Company's defined benefit pension plans.
Other supplemental cash flow information:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Interest paid $52,417 $53,436 $60,746
</TABLE>
<PAGE>
NOTE 18. SEGMENT INFORMATION
Sequa Corporation is a diversified industrial company that
produces a broad range of products in four industry segments:
Aerospace, Machinery and Metal Coatings, Specialty Chemicals and
Other Products.
The Aerospace segment includes two operating units: Chromalloy
Gas Turbine and ARC Propulsion. Chromalloy, the largest of the
Company's operating units, manufactures and repairs gas turbine
engine components, principally for domestic and international
airlines, original equipment manufacturers and the US military.
ARC Propulsion manufactures solid rocket propulsion systems for
use in tactical military weapons sold to the US Government,
automotive airbag components and liquid propellant motors for use
on commercial satellites.
The Machinery and Metal Coatings segment is composed of
Precoat Metals, Sequa Can Machinery and MEG. Precoat Metals
applies polymer coatings to continuous steel and aluminum coil
for the nationwide building products market, the diverse markets
for manufactured products, and the two-piece container market.
Sequa Can Machinery produces high-speed equipment to form and
decorate two-piece metal cans for the worldwide container
industry. MEG provides auxiliary press equipment for web offset
printing for the European, North American and Asian printing
markets.
The Specialty Chemicals segment is composed of Warwick
International and Sequa Chemicals. Warwick produces bleach
activators for powdered detergent laundry products sold
principally in European markets. Sequa Chemicals produces a
broad range of specialty chemicals primarily for national
textile, paper and building products markets.
The Other Products segment is composed of two primary
businesses: Casco Products and Northern Can Systems. Casco
manufactures cigarette lighters, power outlets and electronic
monitoring devices primarily for North American automobile
manufacturers. Northern Can Systems produces easy-open steel
lids for the domestic and international food processing industry.
<PAGE>
<TABLE>
NOTE 18. SEGMENT INFORMATION (con't)
Operations by business segment is presented below:
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- --------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
AEROSPACE
Sales $ 793,617 $ 785,627 $ 847,173
Operating income (loss) 15,658 10,179 (12,777)
Identifiable assets 889,000 956,120 1,078,269
Capital expenditures 26,519 27,312 25,246
Depreciation and amortization 60,512 67,740 74,714
MACHINERY AND METAL COATINGS
Sales $ 350,991 $ 312,891 $ 261,581
Operating income 27,216 32,287 28,570
Identifiable assets 214,916 210,850 162,518
Capital expenditures 10,877 10,062 15,035
Depreciation and amortization 10,524 8,528 6,363
SPECIALTY CHEMICALS
Sales $ 217,996 $ 243,030 $ 240,170
Operating income 38,026 44,394 43,265
Identifiable assets 177,282 163,112 149,396
Capital expenditures 8,016 14,523 14,329
Depreciation and amortization 12,314 12,123 12,344
OTHER PRODUCTS
Sales $ 96,425 $ 72,591 $ 70,626
Operating income 11,697 7,671 6,057
Identifiable assets 64,118 74,706 71,431
Capital expenditures 4,242 4,393 4,336
Depreciation and amortization 5,665 5,592 7,893
CORPORATE
Expenses $ (27,439) $ (26,604) $ (25,362)
Identifiable assets (a) 202,846 217,190 186,634
Capital expenditures 574 609 295
Depreciation and amortization 2,572 2,502 2,660
TOTALS
Sales $1,459,029 $1,414,139 $1,419,550
Operating income 65,158 67,927 39,753
Identifiable assets 1,548,162 1,621,978 1,648,248
Capital expenditures 50,228 56,899 59,241
Depreciation and amortization 91,587 96,485 103,974
<FN>
(a) Includes net assets of discontinued operations.
</TABLE>
<PAGE>
<TABLE>
NOTE 18. SEGMENT INFORMATION (con't)
Geographic data is presented below:
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
SALES
United States $1,078,940 $1,027,390 $1,028,737
Europe 380,089 386,749 390,813
---------- ---------- ----------
Total $1,459,029 $1,414,139 $1,419,550
========== ========== ==========
OPERATING INCOME
United States $ 56,601 $ 57,335 $ 28,561
Europe 35,996 37,196 36,554
Corporate expenses (27,439) (26,604) (25,362)
---------- ---------- ----------
Total $ 65,158 $ 67,927 $ 39,753
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996 1995 1994
- ------------------- ---- ---- ----
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
United States $1,030,260 $1,089,438 $1,129,271
Europe 315,056 315,350 332,343
Corporate and discontinued
operations 202,846 217,190 186,634
---------- ---------- ----------
Total $1,548,162 $1,621,978 $1,648,248
========== ========== ==========
</TABLE>
Operating income includes all costs and expenses directly
related to the segment or geographic area. Identifiable assets
are those used in each segment's operation.
No single commercial customer accounted for more than 10% of
sales in any year.
Export sales were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1996 1995 1994
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Europe $117,873 $121,918 $120,288
Far East 76,830 74,830 52,112
Middle East 19,330 15,737 18,137
Canada 28,253 27,241 21,962
Central and South America 33,637 31,725 23,037
Other 21,089 15,680 14,816
-------- -------- --------
$297,012 $287,131 $250,352
======== ======== ========
</TABLE>
<PAGE>
NOTE 18. SEGMENT INFORMATION (con't)
The largest single contract with any one US Government agency
accounted for approximately 1% of sales in 1996 and 2% in 1995
and 1994. Prime and subcontracts with all government agencies
accounted for approximately 10% of sales in 1996 and
approximately 11% of sales in 1995 and 1994.
NOTE 19. CONTINGENCIES
The Company 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
the Company 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 Corporation (Chromalloy), a subsidiary of Sequa,
concerning amounts owed to Chromalloy. In 1994, the arbitral
tribunal issued a net award of $16,250,000 plus interest in favor
of Chromalloy. Chromalloy filed a petition in the United States
District Court for the District of Columbia to confirm and
enforce the award. The government of Egypt succeeded in a
challenge to this award in the Court of Appeal of Cairo.
Notwithstanding the Egyptian court decision, the United States
District Court granted Chromalloy's enforcement petition. In
September 1996, Chromalloy received $13,943,000 from the Defense
Security Assistance Agency in partial satisfaction of the claim,
with the consent of the Egyptian government. The Egyptian
government has agreed in principle with Chromalloy to pay the
remainder of the arbitration award, with interest, once certain
outstanding issues are resolved.
On July 11, 1995, United Technologies Corporation (UTC),
through its Pratt & Whitney division, commenced an action against
Chromalloy in the United States District Court for the District
of Delaware. The complaint seeks unspecified monetary damages
(including treble and punitive damages with respect to certain
claims) and injunctive relief based upon alleged breaches of
certain license agreements, alleged infringement of patents and
misuse of other Pratt & Whitney intellectual and intangible
property. Management intends to vigorously defend against all
claims. In this connection, on August 30, 1995, Chromalloy filed
its answer denying the significant allegations in such complaint,
and included numerous affirmative defenses and a counterclaim
against UTC. Since the filing of its answer, Chromalloy has
added further counterclaims against UTC. Although discovery and
motion practice are progressing, it would be premature at this
stage for management to make an evaluation of the likely outcome
<PAGE>
NOTE 19. CONTINGENCIES (con't)
of either UTC's claims or Chromalloy's counterclaims. The court
has tentatively set aside May 19, 1997 as a possible trial date
for some of UTC's claims and some of Chromalloy's counterclaims,
although it is not certain which issues, if any, will be tried in
May.
On August 29, 1995, Chromalloy filed suit against UTC in the
131st District Court of Bexar County, Texas. This suit sought
unspecified damages for and injunctive relief against alleged
violations by UTC of the Texas Free Enterprise and Antitrust Act.
Chromalloy's claims focused on allegedly illegal, exclusionary,
and monopolistic activities with respect to key segments of
commerce in repairs for Pratt & Whitney commercial jet engines.
UTC had also filed counterclaims against Chromalloy in this
action for alleged breach of contract and unfair competition.
After a three-month trial, which commenced on August 26, 1996, in
unanimous liability findings in favor of Chromalloy, the jury
found UTC had attempted to monopolize the relevant market, which
materially harmed Chromalloy, and found UTC's conduct to be
willful or flagrant. However, the jury awarded no monetary
damages. Chromalloy effectively prevailed on all but one of
UTC's counterclaims, which related to an alleged breach under a
1990 contract between UTC and one of the Chromalloy divisions.
The jury awarded no monetary relief on any of UTC's
counterclaims. The court heard post-trial motions on January 24,
1997 concerning Chromalloy's motion for judgment and injunctive
relief and UTC's motion for judgment and declaratory relief on
the one counterclaim relating to the 1990 contract. The Company
is currently awaiting the court's decisions on these post-trial
motions.
On October 17, 1996, Chromalloy filed suit against UTC in
the United States District Court for the District of Delaware.
The suit seeks unspecified damages for and injunctive relief
against alleged infringement of Chromalloy patents. On December
6, 1996, UTC filed its answer asserting several affirmative
defenses and four counterclaims. On January 21, 1997, Chromalloy
filed a reply to UTC's counterclaims and also filed a motion to
dismiss two of those four counterclaims. This lawsuit is in a
preliminary stage. Accordingly, management cannot make an
evaluation of the likely outcome at this time. The United States
District Court has issued a scheduling order, setting a trial
date of March 9, 1998.
During 1996, the Company incurred $33,040,000 of costs
related to litigation with UTC.
Chromalloy's divisions compete for turbine engine repair
business with a number of other companies, including the original
equipment manufacturers (OEMs). Such OEMs generally have
obligations (contractual and otherwise) to approve vendors to
manufacture components for their engines and/or perform repair
services on their engines and components. Chromalloy has a
<PAGE>
NOTE 19. CONTINGENCIES (con't)
number of such approvals, including licensing agreements, which
allow it to manufacture and repair certain components of flight
engines. The loss of a major OEM's approval to manufacture or
repair components for such OEM's engines could have an adverse
effect on Chromalloy, although management believes it has certain
actions available to it to mitigate the adverse effect.
The ultimate legal and financial liability of the Company in
respect to all claims, lawsuits and proceedings referred to above
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
significant impact on the Company's results of operations for
that period.
<PAGE>
<PAGE>
<TABLE>
NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<CAPTION>
(Amounts in thousands, except per share)
1996 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ --------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Sales $349,126 $361,436 $367,723 $380,744 $1,459,029
Cost of sales 283,872 288,565 297,734 290,021 1,160,192
Operating income 10,122 13,021 7,182 34,833 65,158
Income (loss) before extraordinary item(3,753) (1,385) 2,849 11,845 9,556
Extraordinary loss - - (369) - (369)
Net income (loss) $ (3,753) $ (1,385) $ 2,480 $ 11,845 $ 9,187
======== ======== ======== ======== ==========
Per Share:
Net income (loss) before extraordinary
item $ (.46) $ (.22) $ .21 $ 1.12 $ .65
Extraordinary loss - - (.04) - (.04)
-------- -------- -------- -------- ---------
Net income (loss) per share $ (.46) $ (.22) $ .17 $ 1.12 $ .61
======== ======== ======== ======== ==========
1995 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
Sales $327,534 $357,263 $353,288 $376,054 $1,414,139
Cost of sales 261,511 288,716 288,328 291,400 1,129,955
Operating income 11,107 6,780 13,628 36,412 67,927
Net income (loss) $ (1,875) $ (6,087) $ 1,930 $ 14,811 $ 8,779
======== ======== ======== ======== ==========
Net income (loss) per share $ (.27) $ (.70) $ .12 $ 1.42 $ .57
======== ======== ======== ======== ==========
<FN>
The following unusual item is included in the quarterly financial information:
Operating income for the fourth quarters of 1996 and 1995 includes the reversal of $7,859,000 and $11,981,000,
respectively, of workers' compensation insurance reserves, which were actuarially determined to be in excess of
requirements.
</TABLE>
<PAGE>
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
--------
<TABLE>
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K with respect to the executive officers of the Registrant:
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Norman E. Alexander 82 Chairman of the Board, Chief
Executive Officer, Director and
member of the Executive Committee
John J. Quicke 47 President, Chief Operating Officer,
Director and member of the Executive
Committee
Stuart Z. Krinsly 79 Senior Executive Vice President -
General Counsel, Director and member
of the Executive Committee
Gerald S. Gutterman 68 Executive Vice President -
Finance and Administration
Antonio L. Savoca 73 Senior Vice President -
Atlantic Research Operations
Ira A. Schreger 46 Senior Vice President - Legal -
Corporate Secretary
Martin Weinstein 61 Senior Vice President -
Chromalloy Gas Turbine Operations
</TABLE>
Sequa is not aware of any family relationship among any of
the above-named executive officers. Each of such officers holds
his office for a term expiring on the date of the annual
organization meeting of the Board of Directors, subject to the
provisions of Section 5 of Article IV of the Company's By-Laws
relative to removal of officers.
ITEMS 10 (IN PART) THROUGH 13
The Company intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation
14A involving the election of directors not later than 120 days
after the end of its fiscal year ended December 31, 1996.
Accordingly, the information required by Part III (Items 10
(concerning Sequa's directors and disclosure pursuant to Item 405
of Regulation S-K), 11, 12 and 13) is incorporated herein by
reference to such definitive proxy statement in accordance with
General Instruction G(3) to Form 10-K.
<PAGE>
<TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements:
The following consolidated financial statements are included
in Part II of this Annual Report on Form 10-K:
<CAPTION>
Page Numbers
in this Annual
Report on Form
10-K
----------
<S> <C>
Report of Independent Public Accountants. 29
Consolidated Balance Sheet as of December 31,
1996 and 1995. 30-31
Consolidated Statement of Income for the three
years ended December 31, 1996. 32
Consolidated Statement of Cash Flows for the three
years ended December 31, 1996. 33
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1996. 34
Notes to Consolidated Financial Statements. 35-65
2. Financial Statement Schedules:
Financial statement schedules are omitted due to the absence of
conditions under which they are required.
</TABLE>
<PAGE>
3. Exhibits
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
3.1 - Restated Certificate of Incorporation of Sequa and two
Certificates of Amendment of the Restated Certificate of
Incorporation of Sequa (incorporated by reference to
Exhibit 4(a) of Sequa's Registration Statement No.
33-12420 on Form S-8 filed on March 6, 1987).
3.2 - Certificate of Amendment of Certificate of Incorporation
of Sequa, dated May 7, 1987 (incorporated by reference
to Exhibit 3(b) of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1988,
filed on March 28, 1989).
3.3 - Restated and amended (as of August 26, 1993) By-laws of
Sequa, (incorporated by reference to Exhibit 3.3 of
Sequa's Registration Statement No. 33-50843 on Form S-1,
filed on October 29, 1993).
4.1 - Indenture, dated as of December 15, 1993, by and between
Sequa and Bankers Trust Company, as Trustee, and Form of
9 3/8% Senior Subordinated Note due December 15, 2003
(incorporated by reference to Exhibits 4.7 and 4.3,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.2 - Indenture, dated as of December 15, 1993, by and between
Sequa and IBJ Schroder Bank & Trust Company, as Trustee,
and Form of 8 3/4% Senior Note due December 15, 2001
(incorporated by reference to Exhibits 4.6 and 4.2,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.3 - Indenture, dated as of September 1, 1989, by and between
Sequa and The First National Bank of Chicago, as
Trustee, with respect to an aggregate of $250 million of
senior debt (incorporated by reference to Exhibit 4.1 of
Sequa's Form S-3 Registration Statement No. 33-30959,
filed on September 12, 1989).
4.4 - First Supplemental Indenture, dated as of October 15,
1989, by and between Sequa and The First National Bank
of Chicago, as Trustee (incorporated by reference to
Exhibit 4.5 of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.5 - Prospectus Supplement, dated October 19, 1989, for $150
million of senior unsecured 9 5/8% Notes due October 15,
1999 (incorporated by reference to Sequa's filing under
Rule 424 (b)(2) on October 20, 1989).
<PAGE>
4.6 - Purchase Agreement, dated October 19, 1989, by and
between Sequa and certain Underwriters, and Form of
Supplemental Indenture, dated as of October 15, 1989,
both with respect to $150 million of senior unsecured
9 5/8% Notes due October 15, 1999 (incorporated by
reference to Sequa's Report on Form 8-K, File No. 1-804,
filed on October 25, 1989) and Form of 9 5/8% Note
(incorporated by reference to Exhibit 4.1 of Sequa's
Registration Statement on Form 8-A, File No. 1-804,
filed on January 25, 1994).
4.7 - Prospectus and Prospectus Supplement, both dated April
22, 1991, with respect to $100 million of medium-term
notes (incorporated by reference to Sequa's filing under
Rule 424 (b)(5) on April 23, 1991).
4.8 - Sales Agency and Distribution Agreement, executed as of
April 22, 1991, by and among Sequa and Bear, Stearns &
Co., Inc. and Merrill Lynch & Co., with respect to $100
million of medium-term notes, and Forms of Notes
thereunder (incorporated by reference to Exhibits 4.1
and 12.1 of Sequa's Report on Form 8-K, File No. 1-804,
filed on April 25, 1991).
4.9 - Instruments with respect to other long-term debt of
Sequa and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the amount of debt authorized under each such omitted
instrument does not exceed 10 percent of the total
assets of Sequa and its subsidiaries on a consolidated
basis. Sequa hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10.1 - Amended and Restated Receivables Purchase Agreement,
dated as of June 24, 1993, among Sequa, Sequa
Receivables Corp., Chemical Bank, Barton Capital
Corporation and Westpac Banking Corporation
(incorporated by reference to Exhibit 10.1 of Sequa's
Report on Form 8-K, File No. 1-804, filed on July 12,
1993); Amendments No. 1 (dated as of September 30,
1993), No. 2 (dated as of December 1, 1993) and No. 3
(dated as of December 14, 1993) (incorporated by
reference to Exhibit 10.1 of Sequa's Report on Form
10-K, File No. 1-804, for the year ended December 31,
1993, filed on March 30, 1994); Amendments No. 4 (dated
as of July 1, 1994) and No. 5 (dated as of March 3,
1995) (incorporated by reference to Exhibit 10.1 of
Sequa's Report on Form 10-K, File No. 1-804, for the
year ended December 31, 1994, filed on March 30, 1995);
Amendments No. 6 (dated as of May 31, 1995) and No. 7
(dated as of August 16, 1995) (incorporated by reference
<PAGE>
10.1 - (con't)
to Exhibit 10.1 of Sequa's Report on Form 10-K, File No.
1-804, for the year ended December 31, 1995, filed on
March 28, 1996); and Amendments No. 8 (dated as of
September 30, 1996) and No. 9 (dated as of December 30,
1996) (both of which are filed herewith).
10.2 - $150 Million Amended and Restated Credit Agreement,
dated as of December 14, 1993, among Sequa Corporation,
The Bank of New York, The Bank of Nova Scotia, Chemical
Bank, Bank of America NT & SA, Chase Manhattan Bank,
N.A. and The Nippon Credit Bank, Ltd. and certain other
lenders (incorporated by reference to Exhibit 10.2 of
Sequa's Report on Form 10-K, File No. 1-804, for the
year ended December 31, 1993, filed on March 30, 1994);
Amendments No. 1 (dated as of June 13, 1994), No. 2
(dated as of December 14, 1994) and No. 3 (dated as of
March 3, 1995) (incorporated by reference to Exhibit
10.2 of Sequa's Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1994, filed on March 30,
1995); Amendment No. 4 (dated as of April 1, 1995)
(incorporated by reference to Exhibit 10.2 of Sequa's
Report on Form 10-K, File No. 1-804, for the year ended
December 31, 1995, filed on March 28, 1996); and
Amendments No. 5 (dated as of March 29, 1996) and No. 6
(dated as of December 13, 1996) and Consent to Payment
(dated August 1, 1996) (all filed herewith).
COMPENSATORY PLANS OR ARRANGEMENTS
10.3 - 1986 Key Employees Stock Option Plan (incorporated by
reference to Annex B of Sequa's Registration Statement
No. 33-12420 on Form S-8 filed March 6, 1987).
10.4 - 1988 Key Employees Stock Option Plan (incorporated by
reference to Annex A of Sequa's Registration Statement
No. 33-30711 on Form S-8 filed August 25, 1989).
10.5 - Sequa's Supplemental Executive Retirement Plans I, II,
and III, effective as of January 1, 1990 (incorporated
by reference to Exhibit 10(c) of Sequa's Annual Report
on Form 10-K, File No. 1-804, for the year ended
December 31, 1990, filed on April 1, 1991) and
amendments thereto (incorporated by reference to Exhibit
10(c) of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1991, filed
on March 30, 1992).
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS (con't)
10.6 - Management Incentive Bonus Program of Sequa for
Corporate Executive Officers and Corporate Staff
(Revised 1996 - Amendment No. 2) (incorporated by
reference to Exhibit 10.19 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1995, filed on March 28, 1996).
10.7 - Letter Agreements, dated May 24, 1984, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10(h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1989, filed on March 30,
1990).
10.8 - Letter Agreements, dated April 30, 1990, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10 (h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1990, filed on April 1,
1991).
10.9 - Employment Agreement, dated April 1, 1993, by and
between John J. Quicke and Sequa, (incorporated by
reference to Exhibit 10(k) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1992, filed on March 31, 1993); Amendment thereto,
dated March 1, 1995 (incorporated by reference to
Exhibit 10.11 of Sequa's Report on Form 10-K, File No.
1-804, for the year ended December 31, 1994, filed on
March 30, 1995); and Amendment thereto, dated September
26, 1996 (filed herewith).
10.10 - Employment Agreement, dated May 6, 1991, by and between
Antonio L. Savoca and Sequa, (incorporated by reference
to Exhibit 10(1) of Sequa's Annual Report on Form 10-K
for the year ended December 31, 1991, filed on March 30,
1992). Amendment thereto, dated August 18, 1992
(incorporated by reference to Exhibit 10(1) of Sequa's
Annual Report on Form 10-K, File No. 1-804 for the year
ended December 31, 1992, filed on March 31, 1993); and
Amendment thereto, dated June 10, 1993 (incorporated by
reference to Exhibit 10.12 of Sequa's Report on Form
10-K, File No. 1-804, for the year ended December 31,
1993, filed on March 30, 1994).
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS (con't)
10.11 - Employment Agreement, dated as of October 1, 1991, by
and between Martin Weinstein and Chromalloy Gas Turbine
Corporation, (incorporated by reference to Exhibit 10(n)
of Sequa's Annual Report on Form 10-K, File No. 1-804
for the year ended December 31, 1991, filed on March 30,
1992); Amendment thereto, dated as of June 1, 1993
(incorporated by reference to Exhibit 10.14 of Sequa's
Registration Statement No. 33-50843 on Form S-1 filed on
October 29, 1993); Amendment thereto, dated as of
February 23, 1995 (incorporated by reference to Exhibit
10.12 of Sequa's Report on Form 10-K, File No. 1-804,
for the year ended December 31, 1995, filed on March 28,
1996); and Amendment thereto, dated as of June 1, 1996
(filed herewith).
10.12 - Executive Life Insurance Plan of Sequa, (incorporated by
reference to Exhibit 10(o) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1991, filed on March 30, 1992).
10.13 - Key Employee Medical Insurance Plan of Sequa,
(incorporated by reference to Exhibit 10(p) of Sequa's
Annual Report on Form 10-K, File No. 1-804 for the year
ended December 31, 1991, filed on March 30, 1992).
10.14 - Exec-U-Care Medical Reimbursement Insurance Trust of
Atlantic Research Corporation, (incorporated by
reference to Exhibit 10(q) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1991, filed on March 30, 1992).
10.15 - Cafeteria Plan of Atlantic Research Corporation,
(incorporated by reference to Exhibit 10(r) of Sequa's
Annual Report on Form 10-K, File No. 1-804 for the year
ended December 31, 1991, filed on March 30, 1992).
10.16 - Supplemental Retirement Program of Atlantic Research
Corporation, (incorporated by reference to Exhibit 10(s)
of Sequa's Annual Report on Form 10-K, File No. 1-804
for the year ended December 31, 1991, filed on March 30,
1992).
10.17 - Sequa Corporation 1994 Corporate Staff Stock Award Plan
(incorporated by reference to Exhibit 10.20 of Sequa's
Report on Form 10-K, File No. 1-804, for the year ended
December 31, 1994, filed on March 30, 1995).
10.18 - Sequa Corporation Management Incentive Bonus Program for
Operating Divisions (Revised 1997) (filed herewith).
<PAGE>
11.1 - Computation of earnings per share, filed herewith.
21.1 - List of subsidiaries of Sequa, filed herewith.
23.1 - Consent of Independent Public Accountants, filed
herewith.
27.1 - Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the last quarter of
1996.
<PAGE>
<TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SEQUA CORPORATION
Date: March 21, 1997 By: /S/ GERALD S. GUTTERMAN
-------------------------
Gerald S. Gutterman
Executive Vice President,
Finance and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on March 21, 1997.
<S> <C>
By: /S/ NORMAN E. ALEXANDER Chairman of the Board, Chief
Norman E. Alexander Executive Officer and Director
By: /S/ JOHN J. QUICKE President, Chief Operating Officer
John J. Quicke and Director
By: /S/ STUART Z. KRINSLY Senior Executive Vice President,
Stuart Z. Krinsly General Counsel and Director
By: /S/ GERALD S. GUTTERMAN Executive Vice President, Finance
Gerald S. Gutterman and Administration
By: /S/ WILLIAM P. KSIAZEK Vice President and Controller
William P. Ksiazek
By: /S/ALVIN DWORMAN Director
Alvin Dworman
By: /S/ A. LEON FERGENSON Director
A. Leon Fergenson
By: /S/ DAVID S. GOTTESMAN Director
David S. Gottesman
By: /S/ DONALD D. KUMMERFELD Director
Donald D. Kummerfeld
By: /S/ RICHARD S. LEFRAK Director
Richard S. LeFrak
By: /S/ MICHAEL I. SOVERN Director
Michael I. Sovern
By: /S/ FRED R. SULLIVAN Director
Fred R. Sullivan
By: /S/ GERALD TSAI Director
Gerald Tsai, Jr.
</TABLE>
<PAGE>
Exhibit 10.1
[EXECUTION COPY]
AMENDMENT NO. 8
Dated as of September 30, 1996
to
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Dated as of June 24, 1993
Sequa Receivables Corp., a New York corporation ("SRC" or
the "Seller"), Sequa Corporation, a Delaware corporation (in its
individual capacity and as Servicer, "Sequa"), the financial
institutions parties hereto (the "Purchasers") and Chemical Bank,
as managing agent (the "Managing Agent") agree as follows:
SECTION 1. Receivables Purchase Agreement. Reference is
made to the Amended and Restated Receivables Purchase Agreement
dated as of June 24, 1993, and as amended by Amendment No. 1
dated as of September 30, 1993, Amendment No. 2 dated as of
December 1, 1993, Amendment No. 3 dated as of December 14, 1993,
Amendment No. 4 dated as of July 1, 1994, Amendment No. 5 dated
as of March 3, 1995, Amendment No. 6 dated as of May 31, 1995 and
Amendment No. 7 dated as of August 16, 1995, each among SRC,
Sequa, the Managing Agent and the Purchasers (the "Receivables
Purchase Agreement"). Capitalized terms used herein but not
defined herein shall have the meanings ascribed thereto in the
Receivables Purchase Agreement. The Receivables Purchase
Agreement, as amended by this Amendment No. 8 (this "Amendment
No. 8"), is and shall continue to be in full force and effect and
is hereby in all respects ratified and confirmed.
SECTION 2. Amendments. Upon and after the Effective Date
(as defined in Section 4 hereof), the Receivables Purchase
Agreement shall be amended as follows:
<PAGE>
(a) Section 1.05 of the Receivables Purchase Agreement
shall be restated in its entirety to read as follows:
"1.05 Commitment Termination Date. The
"Commitment Termination Date" shall be the earliest to
occur of (i) March 31, 1998 (such date, the "Scheduled
Commitment Termination Date"), (ii) the date on which
the commitment is terminated pursuant to Section 1.06,
1.07 or 10.02 and (iii) the closing date of a
replacement structured receivables financing.".
(b) Section 4.01 of the Receivables Purchase Agreement
shall be amended by deleting the percentage ".50%" appearing
in the sixth line, and substituting in lieu thereof ".375%".
(c) Section 7.03(k)(iii) of the Receivables Purchase
Agreement shall be restated in its entirety to read as
follows:
"(iii) the Consolidated Fixed Charge Coverage
Ratio at any time to be less than 2.25 to 1.00.".
(d) Appendix A to the Receivables Purchase Agreement
is amended by inserting before the period at the end of the
definition of "Consolidated Net Income" therein the
following:
"; and provided further, that all gains described
in clause (y) of the definition of Consolidated Net
Worth in excess of all losses described in such clause
shall be disregarded in the computation of Consolidated
Net Income".
SECTION 3. Covenants, Representations and Warranties.
(a) Each of SRC and Sequa has the power, and has taken
all necessary action (including any necessary stockholder
action) to authorize it, to execute, deliver and perform in
accordance with its terms this Amendment No. 8. This
Amendment No. 8 has been duly executed and delivered by SRC
and Sequa and is a legal, valid and binding obligation of
each such party, enforceable against such party in
accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally;
(b) The execution, delivery and performance in
accordance with its terms by SRC and Sequa of this Amendment
No. 8 and the Receivables Purchase Agreement, as amended by
<PAGE>
this Amendment No. 8, do not and (absent any change in any
applicable law or applicable Transaction Document) will not
(i) require any governmental approval or any other consent
or approval, including any consent or approval of the
stockholders of SRC or Sequa, other than consents and
approvals that have been obtained, are final and not subject
to review on appeal or to collateral attack and are in full
force and effect, or (ii) violate or conflict with, result
in a breach of, constitute a default under, or result in or
require the creation of any lien upon any assets of SRC,
Sequa or any Originator under, (A) any Transaction Document
to which SRC, Sequa or any Originator is a party or by which
SRC, Sequa or any Originator or any of their respective
properties may be bound, the breach of which, either singly
or in the aggregate with all other such breaches, would have
a Materially Adverse Business Effect upon SRC, Sequa or any
Originator, or (B) any applicable law or judgment;
(c) Each of SRC and Sequa hereby reaffirms all
agreements, covenants, representations and warranties made
in the Receivables Purchase Agreement and, to the extent the
same are not amended hereby, agrees that all such
agreements, covenants, representations and warranties shall
be deemed to have been remade as of the Effective Date.
Each of SRC and Sequa hereby further represents and warrants
that as of the Effective Date no event has occurred and is
continuing or will result from the execution, delivery and
performance by it of this Amendment No. 8 which constitutes
a Liquidation Event or which, after notice or lapse of time
or both, would constitute a Liquidation Event; and
(d) Except as specifically amended herein, the
Receivables Purchase Agreement shall remain in full force
and effect and is hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment No.
8 shall not operate as a waiver of any right, power or
remedy of the Managing Agent or any of the Purchasers under
the Receivables Purchase Agreement or any other document,
instrument or agreement executed and delivered in connection
therewith, except as specifically set forth herein.
SECTION 4. Effective Date; Conditions to Effectiveness.
This Amendment No. 8 shall become effective as of the date first
written above on the first day (the "Effective Date") on which
each of the following conditions is satisfied:
(a) The Managing Agent shall have received an
officer's certificate, dated the Effective Date of this
Amendment No. 8, in the form attached hereto as Schedule 1.
<PAGE>
(b) This Amendment No. 8 shall have been duly executed
and delivered by Sequa, SRC and the Required Purchasers.
SECTION 5. Governing Law. This Amendment No. 8 shall be
construed in accordance with and governed by the substantive law
of the State of New York.
SECTION 6. Headings. Section headings in this Amendment
No. 8 are included herein for convenience and reference only and
shall not constitute a part of this Amendment No. 8 for any other
purpose.
SECTION 7. Counterparts. This Amendment No. 8 may be
executed in any number of counterparts and on separate
counterparts, each of which shall be deemed to be an original and
shall be binding upon the parties hereto, their successors and
assigns.
SECTION 8. Cross-References. References in this Amendment
No. 8 to any Section or Subsection, unless otherwise specified,
refer to such Section or Subsection of this Amendment No. 8.
SECTION 9. Instrument Pursuant to Receivables Purchase
Agreement. This Amendment No. 8 is an instrument executed
pursuant to the Receivables Purchase Agreement and shall (unless
otherwise expressly indicated therein) be construed, administered
and applied in accordance with the terms and provisions of the
Receivables Purchase Agreement, including Article XIV thereof.
[Next page is signature page]<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 8, or caused it to be executed and delivered by
their duly authorized officers, all as of the day and year first
above written.
SEQUA RECEIVABLES CORP.,
as Seller
By
Name:
Title:
SEQUA CORPORATION,
individually and as Servicer
By
Name:
Title:
CHEMICAL BANK,
as Managing Agent and Purchaser
By
Name:
Title:
THE BANK OF NEW YORK,
as Purchaser
By
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
as Purchaser
By
Name:
Title:
<PAGE>
<PAGE>
Schedule 1
[FORM OF]
SEQUA CORPORATION
OFFICERS'S CERTIFICATE
I, Kenneth A. Drucker, do hereby certify that I am the duly
elected and qualified Vice President and Treasurer of SEQUA
CORPORATION, a Delaware corporation (the "Company"), that I am
authorized to execute this Certificate, and that as of the date
hereof, the following statements are true and correct.
Capitalized terms used herein but not otherwise defined herein
shall have the meanings assigned thereto in Appendix A to that
certain Amended and Restated Receivables Purchase Agreement dated
June 24, 1993, as amended by Amendment No. 1 thereto dated as of
September 30, 1993, Amendment No. 2 thereto dated as of December
1, 1993, Amendment No. 3 thereto dated as of December 14, 1993,
Amendment No. 4 thereto dated as of July 1, 1994, Amendment No. 5
thereto dated as of March 3, 1995, Amendment No. 6 thereto dated
as of May 31, 1995 and Amendment No. 7 thereto dated as of August
16, 1995 (the "Receivables Purchase Agreement"), among the
Company, Sequa Receivables Corp. ("SRC"), Chemical Bank, as
Managing Agent, and the financial institution parties thereto.
(i) The representations, warranties and covenants
made by the Company and SRC in the Receivables Purchase
Agreement and in the certificates delivered by officers of
the Company or SRC (as the case may be) in connection
therewith, are true and correct in all material respects on
and as of the date hereof, with the same effect as if made
on the date hereof, and the Company and SRC have complied
with all agreements and satisfied all conditions to be
performed or satisfied on their part at or prior to the
execution of Amendment No. 8 to the Receivables Purchase
Agreement; and
(ii) As of the date hereof, no event has occurred and
is continuing or will result from the execution, delivery
and performance by the Company or SRC of Amendment No. 8 to
the Receivables Purchase Agreement which constitutes a
Liquidation Event or which, after notice or lapse of time or
both, would constitute a Liquidation Event.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of this 30th day of September, 1996.
______________________________
Kenneth A. Drucker
Treasurer<PAGE>
<PAGE>
SEQUA CORPORATION
OFFICERS'S CERTIFICATE
I, Kenneth A. Drucker, do hereby certify that I am the duly
elected and qualified Vice President and Treasurer of SEQUA
CORPORATION, a Delaware corporation (the "Company"), that I am
authorized to execute this Certificate, and that as of the date
hereof, the following statements are true and correct.
Capitalized terms used herein but not otherwise defined herein
shall have the meanings assigned thereto in Appendix A to that
certain Amended and Restated Receivables Purchase Agreement dated
June 24, 1993, as amended by Amendment No. 1 thereto dated as of
September 30, 1993, Amendment No. 2 thereto dated as of December
1, 1993, Amendment No. 3 thereto dated as of December 14, 1993,
Amendment No. 4 thereto dated as of July 1, 1994, Amendment No. 5
thereto dated as of March 3, 1995, Amendment No. 6 thereto dated
as of May 31, 1995 and Amendment No. 7 thereto dated as of August
16, 1995 (the "Receivables Purchase Agreement"), among the
Company, Sequa Receivables Corp. ("SRC"), Chemical Bank, as
Managing Agent, and the financial institution parties thereto.
(i) The representations, warranties and covenants
made by the Company and SRC in the Receivables Purchase
Agreement and in the certificates delivered by officers of
the Company or SRC (as the case may be) in connection
therewith, are true and correct in all material respects on
and as of the date hereof, with the same effect as if made
on the date hereof, and the Company and SRC have complied
with all agreements and satisfied all conditions to be
performed or satisfied on their part at or prior to the
execution of Amendment No. 8 to the Receivables Purchase
Agreement; and
(ii) As of the date hereof, no event has occurred and
is continuing or will result from the execution, delivery
and performance by the Company or SRC of Amendment No. 8 to
the Receivables Purchase Agreement which constitutes a
Liquidation Event or which, after notice or lapse of time or
both, would constitute a Liquidation Event.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of this 30th day of September, 1996.
______________________________
Kenneth A. Drucker
Treasurer
<PAGE>
<PAGE>
Exhibit 10.1
[EXECUTION COPY]
AMENDMENT NO. 9
Dated as of December 30, 1996
to
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Dated as of June 24, 1993
Sequa Receivables Corp., a New York corporation ("SRC" or
the "Seller"), Sequa Corporation, a Delaware corporation (in its
individual capacity and as Servicer, "Sequa"), the financial
institutions parties hereto (the "Purchasers") and Chemical Bank,
as managing agent (the "Managing Agent") agree as follows:
SECTION 1. Receivables Purchase Agreement. Reference is
made to the Amended and Restated Receivables Purchase Agreement
dated as of June 24, 1993, and as amended by Amendment No. 1
dated as of September 30, 1993, Amendment No. 2 dated as of
December 1, 1993, Amendment No. 3 dated as of December 14, 1993,
Amendment No. 4 dated as of July 1, 1994, Amendment No. 5 dated
as of March 3, 1995, Amendment No. 6 dated as of May 31, 1995,
Amendment No. 7 dated as of August 16, 1995 and Amendment No. 8
dated as of September 30, 1996, each among SRC, Sequa, the
Managing Agent and the Purchasers (the "Receivables Purchase
Agreement"). Capitalized terms used herein but not defined
herein shall have the meanings ascribed thereto in the
Receivables Purchase Agreement. The Receivables Purchase
Agreement, as amended by this Amendment No. 9 (this "Amendment
No. 9"), is and shall continue to be in full force and effect and
is hereby in all respects ratified and confirmed.
SECTION 2. Amendments. Upon and after the Effective Date
(as defined in Section 4 hereof), the Receivables Purchase
Agreement shall be amended as follows:<PAGE>
<PAGE>
(a) Appendix A to the Receivables Purchase Agreement
is amended by
(i) in the definition of "Consolidated Net
Worth", (A) inserting a new clause (w) immediately before
the existing clause (x) contained therein to read as
follows:
"(w) 1996 Excess Gas Turbine Litigation
Expenses,"; and
(B) inserting "(w)," immediately before
the phrase "(x), (y) and (z)" contained therein:
(ii) in the definition of "EBITDA", deleting
the "and" immediately before clause (vi) thereof and
replacing it with "," and inserting a new clause (vii)
immediately after the existing clause (vi) to read as
follows:
"and (vii) 1996 Excess Gas Turbine
Litigation Expenses";
(iii) adding a definition of "1996 Excess
Gas Turbine Litigation Expenses" in the correct alphabetical
order as follows:
"1996 Excess Gas Turbine Litigation
Expenses" means the lesser of (i)
$27,275,000 and (ii) the litigation
expenses in excess of $12,725,000
actually incurred by the Servicer or a
Subsidiary of the Servicer for the
fiscal year ended December 31, 1996, in
connection with the antitrust litigation
involving Chromalloy Gas Turbine
Corporation, which litigation was
identified in the Servicer's letter to
the Managing Agent dated November 25,
1996."
SECTION 3. Covenants, Representations and Warranties.
(a) Each of SRC and Sequa has the power, and has taken
all necessary action (including any necessary stockholder
action) to authorize it, to execute, deliver and perform in
accordance with its terms this Amendment No. 9. This
Amendment No. 9 has been duly executed and delivered by SRC
and Sequa and is a legal, valid and binding obligation of
each such party, enforceable against such party in
accordance with its terms, except as enforceability may be
<PAGE>
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally;
(b) The execution, delivery and performance in
accordance with its terms by SRC and Sequa of this Amendment
No. 9 and the Receivables Purchase Agreement, as amended by
this Amendment No. 9, do not and (absent any change in any
applicable law or applicable Transaction Document) will not
(i) require any governmental approval or any other consent
or approval, including any consent or approval of the
stockholders of SRC or Sequa, other than consents and
approvals that have been obtained, are final and not subject
to review on appeal or to collateral attack and are in full
force and effect, or (ii) violate or conflict with, result
in a breach of, constitute a default under, or result in or
require the creation of any lien upon any assets of SRC,
Sequa or any Originator under, (A) any Transaction Document
to which SRC, Sequa or any Originator is a party or by which
SRC, Sequa or any Originator or any of their respective
properties may be bound, the breach of which, either singly
or in the aggregate with all other such breaches, would have
a Materially Adverse Business Effect upon SRC, Sequa or any
Originator, or (B) any applicable law or judgment;
(c) Each of SRC and Sequa hereby reaffirms all
agreements, covenants, representations and warranties made
in the Receivables Purchase Agreement and, to the extent the
same are not amended hereby, agrees that all such
agreements, covenants, representations and warranties shall
be deemed to have been remade as of the Effective Date.
Each of SRC and Sequa hereby further represents and warrants
that as of the Effective Date no event has occurred and is
continuing or will result from the execution, delivery and
performance by it of this Amendment No. 9 which constitutes
a Liquidation Event or which, after notice or lapse of time
or both, would constitute a Liquidation Event; and
(d) Except as specifically amended herein, the
Receivables Purchase Agreement shall remain in full force
and effect and is hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment No.
9 shall not operate as a waiver of any right, power or
remedy of the Managing Agent or any of the Purchasers under
the Receivables Purchase Agreement or any other document,
instrument or agreement executed and delivered in connection
therewith, except as specifically set forth herein.
<PAGE>
SECTION 4. Effective Date; Conditions to Effectiveness.
This Amendment No. 9 shall become effective as of the date first
written above on the first day (the "Effective Date") on which
each of the following conditions is satisfied:
(a) The Managing Agent shall have received an
officer's certificate, dated the Effective Date of this
Amendment No. 9, in the form attached hereto as Schedule 1.
(b) This Amendment No. 9 shall have been duly executed
and delivered by Sequa, SRC and the Required Purchasers.
SECTION 5. Governing Law. This Amendment No. 9 shall be
construed in accordance with and governed by the substantive law
of the State of New York.
SECTION 6. Headings. Section headings in this Amendment
No. 9 are included herein for convenience and reference only and
shall not constitute a part of this Amendment No. 9 for any other
purpose.
SECTION 7. Counterparts. This Amendment No. 9 may be
executed in any number of counterparts and on separate
counterparts, each of which shall be deemed to be an original and
shall be binding upon the parties hereto, their successors and
assigns.
SECTION 8. Cross-References. References in this Amendment
No. 9 to any Section or Subsection, unless otherwise specified,
refer to such Section or Subsection of this Amendment No. 9.
SECTION 9. Instrument Pursuant to Receivables Purchase
Agreement. This Amendment No. 9 is an instrument executed
pursuant to the Receivables Purchase Agreement and shall (unless
otherwise expressly indicated therein) be construed, administered
and applied in accordance with the terms and provisions of the
Receivables Purchase Agreement, including Article XIV thereof.
[Next page is signature page]<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 9, or caused it to be executed and delivered by
their duly authorized officers, all as of the day and year first
above written.
SEQUA RECEIVABLES CORP.,
as Seller
By
Name:
Title:
SEQUA CORPORATION,
individually and as Servicer
By
Name:
Title:
THE CHASE MANHATTAN BANK
(FORMERLY KNOWN AS CHEMICAL
BANK), as Managing Agent and
Purchaser
By
Name:
Title:
THE BANK OF NEW YORK,
as Purchaser
By
Name:
Title:
<PAGE>
<PAGE>
THE BANK OF NOVA SCOTIA,
as Purchaser
By
Name:
Title:
<PAGE>
<PAGE>
Schedule 1
[FORM OF]
SEQUA CORPORATION
OFFICERS'S CERTIFICATE
I, Kenneth A. Drucker, do hereby certify that I am the duly
elected and qualified Vice President and Treasurer of SEQUA
CORPORATION, a Delaware corporation (the "Company"), that I am
authorized to execute this Certificate, and that as of the date
hereof, the following statements are true and correct.
Capitalized terms used herein but not otherwise defined herein
shall have the meanings assigned thereto in Appendix A to that
certain Amended and Restated Receivables Purchase Agreement dated
June 24, 1993, as amended by Amendment No. 1 thereto dated as of
September 30, 1993, Amendment No. 2 thereto dated as of December
1, 1993, Amendment No. 3 thereto dated as of December 14, 1993,
Amendment No. 4 thereto dated as of July 1, 1994, Amendment No. 5
thereto dated as of March 3, 1995, Amendment No. 6 thereto dated
as of May 31, 1995, Amendment No. 7 thereto dated as of August
16, 1995 and Amendment No. 8 thereto dated as of September 30,
1996 (the "Receivables Purchase Agreement"), among the Company,
Sequa Receivables Corp. ("SRC"), Chemical Bank, as Managing
Agent, and the financial institution parties thereto.
(i) The representations, warranties and covenants
made by the Company and SRC in the Receivables Purchase
Agreement and in the certificates delivered by officers of
the Company or SRC (as the case may be) in connection
therewith, are true and correct in all material respects on
and as of the date hereof, with the same effect as if made
on the date hereof, and the Company and SRC have complied
with all agreements and satisfied all conditions to be
performed or satisfied on their part at or prior to the
execution of Amendment No. 9 to the Receivables Purchase
Agreement; and
(ii) As of the date hereof, no event has occurred and
is continuing or will result from the execution, delivery
and performance by the Company or SRC of Amendment No. 9 to
the Receivables Purchase Agreement which constitutes a
Liquidation Event or which, after notice or lapse of time or
both, would constitute a Liquidation Event.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of this 30th day of December, 1996.
______________________________
Kenneth A. Drucker
Treasurer<PAGE>
<PAGE>
SEQUA CORPORATION
OFFICERS'S CERTIFICATE
I, Kenneth A. Drucker, do hereby certify that I am the duly
elected and qualified Vice President and Treasurer of SEQUA
CORPORATION, a Delaware corporation (the "Company"), that I am
authorized to execute this Certificate, and that as of the date
hereof, the following statements are true and correct.
Capitalized terms used herein but not otherwise defined herein
shall have the meanings assigned thereto in Appendix A to that
certain Amended and Restated Receivables Purchase Agreement dated
June 24, 1993, as amended by Amendment No. 1 thereto dated as of
September 30, 1993, Amendment No. 2 thereto dated as of December
1, 1993, Amendment No. 3 thereto dated as of December 14, 1993,
Amendment No. 4 thereto dated as of July 1, 1994, Amendment No. 5
thereto dated as of March 3, 1995, Amendment No. 6 thereto dated
as of May 31, 1995, Amendment No. 7 thereto dated as of August
16, 1995 and Amendment No. 8 thereto dated as of September 30,
1996 (the "Receivables Purchase Agreement"), among the Company,
Sequa Receivables Corp. ("SRC"), Chemical Bank, as Managing
Agent, and the financial institution parties thereto.
(i) The representations, warranties and covenants
made by the Company and SRC in the Receivables Purchase
Agreement and in the certificates delivered by officers of
the Company or SRC (as the case may be) in connection
therewith, are true and correct in all material respects on
and as of the date hereof, with the same effect as if made
on the date hereof, and the Company and SRC have complied
with all agreements and satisfied all conditions to be
performed or satisfied on their part at or prior to the
execution of Amendment No. 9 to the Receivables Purchase
Agreement; and
(ii) As of the date hereof, no event has occurred and
is continuing or will result from the execution, delivery
and performance by the Company or SRC of Amendment No. 9 to
the Receivables Purchase Agreement which constitutes a
Liquidation Event or which, after notice or lapse of time or
both, would constitute a Liquidation Event.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of this 30th day of December, 1996.
______________________________
Kenneth A. Drucker
Treasurer
<PAGE>
Exhibit 10.2
AMENDMENT NO. 5
Dated as of March 29, 1996
to
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 14, 1993
Sequa Corporation, a Delaware corporation (the
"Borrower"), The Bank of New York, as Administrative Agent (the
"Administrative Agent"), The Bank of New York, The Bank of Nova
Scotia and Chemical Bank, as Managing Agents (the "Managing
Agents"), Bank of America National Trust and Savings Association,
Chase Manhattan Bank, N.A. and The Nippon Credit Bank, Ltd., as
Co-Agents (the "Co-Agents"), and the banks listed on the
signature pages hereto (the "Banks") agree as follows:
SECTION 1. Credit Agreement. Reference is made to
the Amended and Restated Credit Agreement, dated as of December
14, 1993 among the Borrower, the Administrative Agent, the
Managing Agents, the Co-Agents and the Banks, as amended by
Amendment No. 1, dated as of June 13, 1994, Amendment No. 2,
dated as of December 14, 1994, Amendment No. 3 and Waiver, dated
as of March 3, 1995 and Amendment No. 4, Consent and Waiver,
dated as of April 1, 1995 (as so amended, the "Credit
Agreement"). Capitalized terms used herein but not defined
herein shall have the meanings ascribed thereto in the Credit
Agreement. The Credit Agreement as amended by this Amendment No.
5 is and shall continue to be in full force and effect and is
hereby in all respects ratified and confirmed.
SECTION 2. Amendments. Upon and after the
Amendment Effective Date (as defined in Section 4 hereof), the
Credit Agreement shall be amended as follows:
(a) Section 1.09(b) is amended by
(i) replacing the figure "0.50%" in the fourth
line thereof with the figure "0.375%"; and
(ii) deleting in its entirety the phrase
"; provided that, for each day during which the Borrower's long-
term senior debt shall be rated both (i) Baa3 or better by
Moody's Investors Service and (ii) BBB- or better by Standard &
Poor's Corporation, the applicable rate per annum shall instead
be 0.375%";
(b) Section 4.13(c) is amended by replacing the table
therein with the following:
<PAGE>
<TABLE>
<CAPTION>
"Calendar Year Maximum Capital Expenditures
<S> <C>
1993 $85,000,000;
1994 $95,000,000 (less the aggregate
amount of Capital Expenditures
made in calendar year 1993 in excess of $80,000,000);
1995 $100,000,000;
1996 $100,000,000;
1997 $100,000,000;
1998 $100,000,000;";
</TABLE>
(c) Section 4.16 is amended by replacing the table
therein with the following:
<TABLE>
<CAPTION>
"Date Minimum Fixed Charge
Coverage Ratio
<S> <C>
December 31, 1994 1.70 to 1.00
March 31, 1995 1.70 to 1.00
June 30, 1995 1.70 to 1.00
September 30, 1995 1.80 to 1.00
December 31, 1995 2.00 to 1.00
March 31, 1996 2.25 to 1.00
Thereafter 2.25 to 1.00";
</TABLE>
(d) Section 5.01(a) is amended to read in its entirety
as follows:
"(a) Monthly Operating Reports; Officer's
Certificate. As soon as available and in any event
within 30 days after the close of each monthly
accounting period beginning on or after November 1,
1993, Monthly Operating Reports of the Borrower and the
Consolidated Subsidiaries as at the end of such monthly
period, together with a certificate of the president,
chief financial officer, controller or treasurer of the
Borrower stating that such reports (a) were prepared in
good faith and (b) present with reasonable accuracy the
financial performance for the covered period.";
(e) Section 10.01 is amended by
(i) inserting before the period at the end of the
definition of "Consolidated Net Income" therein the
following:
<PAGE>
"; and provided further, that all gains described
in clause (y) of the definition of Consolidated Net
Worth in excess of all losses described in such
clause shall be disregarded in the computation of
Consolidated Net Income"; and
(ii) restating the definition of "Maturity Date"
therein in its entirety as follows:
"`Maturity Date' means, unless extended under
Section 1.15 of this Agreement, March 31, 1998.";
and
(f) Annex A is amended, in its entirety, to read as set
forth on Annex A attached hereto.
SECTION 3. Representations and Warranties.
Each of the Borrower and each Guarantor (as defined after giving
effect to this Amendment No. 5) has the power, and has taken all
necessary action (including any necessary stockholder action) to
authorize it, to execute, deliver and perform in accordance with
its terms Amendment No. 5 and the Credit Agreement as amended
thereby. Amendment No. 5 has been duly executed and delivered by
the Borrower and each such Guarantor and is a legal, valid and
binding obligation of each Loan Party that is a party thereto,
enforceable against such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally. The execution,
delivery and performance in accordance with its terms by the
Borrower and such Guarantors of Amendment No. 5 and the Credit
Agreement as amended thereby do not and (absent any change in any
Applicable Law or applicable Contract) will not (a) require any
Governmental Approval or any other consent or approval, including
any consent or approval of any Subsidiary or any consent or
approval of the stockholders of the Borrower or any Subsidiary or
(b) violate or conflict with, result in a breach of, constitute a
default under, or result in or require the creation of any Lien
upon any assets of the Borrower or any Subsidiary under, (i) any
Contract to which the Borrower or any Subsidiary is a party or by
which the Borrower or any Subsidiary or any of their respective
properties may be bound, the breach of which, either singly or in
the aggregate with all other such Contracts, would have a
Materially Adverse Effect upon the Borrower or any Subsidiary, or
(ii) any Applicable Law.
SECTION 4. Amendment Effective Date;
Conditions to Effectiveness. This Amendment No. 5 shall become
effective as of the date first written above (the "Amendment
Effective Date") on the first date on which this Amendment No. 5
shall have been duly executed and delivered by the Borrower, the
<PAGE>
Guarantors and the Banks and the Administrative Agent has
received each of the following, in form and substance and, in the
case of the materials referred to in clauses (a), (b), (c) and
(e) certified in a manner satisfactory to the Administrative
Agent and Winthrop, Stimson, Putnam & Roberts, special counsel to
the Administrative Agent:
(a) a certificate of the Secretary or an Assistant
Secretary of each Loan Party, dated the Amendment Effective Date,
substantially in the form of Schedule 2.01(a)(i) or (ii) to the
Credit Agreement, as the case may be, to which shall be attached
copies of the resolutions and by-laws referred to in such
certificate;
(b) a copy of the certificate of incorporation of
each Loan Party, (x) certified, as of a recent date, by the
Secretary of State or other appropriate official of such Loan
Party's jurisdiction of incorporation or (y) if such Loan Party
has previously delivered such a certified copy of its certificate
of incorporation to the Administrative Agent, certified, as of
the Amendment Effective Date, by the Secretary or other
appropriate officer of such Loan Party, which certificate shall
certify that the certificate of incorporation for such Loan Party
has not been amended or modified since the date of the previously
delivered Secretary of State's certificate;
(c) a good standing certificate with respect to
each Loan Party and each of their respective U.S. domestic
Material Subsidiaries, issued as of a recent date by the
Secretary of State or other appropriate official of such Person's
jurisdiction of incorporation;
(d) an opinion of counsel for each
Loan Party, dated the Amendment Effective Date, in form
satisfactory to the Managing Agents;
(e) a certificate of the president,
chief financial officer or treasurer of the Borrower, certifying
that, immediately prior to giving effect to this Amendment No. 5,
no Default exists under the Credit Agreement;
(f) payment of all facility fees accrued and
unpaid as of the Amendment Effective Date pursuant to Section
1.09(b) and payment of such fees and expenses of Winthrop,
Stimson, Putnam & Roberts, special counsel to the Administrative
Agent, as shall have been billed as of the Effective Date; and
(g) such instruments and other
documents as the Administrative Agent or its special counsel may
request.
<PAGE>
SECTION 5. Governing Law.This Amendment No.
5 shall be construed in accordance with and governed by the
substantive law of the State of New York.
SECTION 6. Headings.Section headings in
this Amendment No. 5 are included herein for convenience and
reference only and shall not constitute a part of this Amendment
No. 5 for any other purpose.
SECTION 7. Counterparts.This Amendment No.
5 may be executed in any number of counterparts and on separate
counterparts, each of which shall be deemed to be an original and
shall be binding upon the parties, their successors and assigns.<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment No. 5, or caused it to be executed and
delivered by their duly authorized officers, all as of the day
and year first above written.
SEQUA CORPORATION
By /s/ K.A. Drucker
Name:
Title:
CASCO INVESTORS CORPORATION
CHROMALLOY AMERICAN CORPORATION
CHROMALLOY GAS TURBINE
CORPORATION
SEQUA CHEMICALS, INC.
CASCO PRODUCTS CORPORATION
SEQUA FINANCIAL CORPORATION
NORTHERN TECHNOLOGIES, INC.
each as a Guarantor,
By /s/ K.A. Drucker
Name:
Title:
THE BANK OF NEW YORK, as
Administrative Agent, as a
Managing Agent and as a Bank
By /s/ William A. Kerr
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA, as a
Managing Agent and as a Bank
By /s/ Herman Santiago
Name:
Title:
CHEMICAL BANK, as a Managing
Agent and as a Bank
By /s/ Peter Eckstein
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Co-Agent and as a Bank
By /s/ John W. Pocalyko
Name:
Title:
CHASE MANHATTAN BANK, N.A., as
a Co-Agent and as a Bank
By /s/ Lawrence C. Shields
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
as a Co-Agent and as a Bank
By /s/ David C. Carrington
Name:
Title:
<PAGE>
BANK BRUSSELS LAMBERT, NEW YORK
BRANCH
By /s/ Eric Hollanders
Name:
Title:
By /s/ Gerrit Verlodt
Name:
Title:
<PAGE>
<PAGE>
ANNEX A
Banks, Lending Offices
and Notice Addresses Commitments
THE BANK OF NEW YORK $27,500,000
Domestic Lending Office:
THE BANK OF NEW YORK
One Wall Street
New York, New York 10286
Eurodollar Lending Office:
THE BANK OF NEW YORK
One Wall Street
New York, New York 10286
Notice Address:
THE BANK OF NEW YORK
One Wall Street
New York, New York 10286
Facsimile No. : (212) 635-1480
Telephone No. : (212) 635-1368
Attention: William A. Kerr
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 22.00000000%<PAGE>
<PAGE>
THE BANK OF NOVA SCOTIA $27,500,000
Domestic Lending Office:
THE BANK OF NOVA SCOTIA
NEW YORK AGENCY
One Liberty Plaza
New York, New York 10006
Eurodollar Lending Office:
THE BANK OF NOVA SCOTIA
NEW YORK AGENCY
One Liberty Plaza
New York, New York 10006
Notice Address:
THE BANK OF NOVA SCOTIA
One Liberty Plaza
26th Floor
New York, New York 10006
Facsimile No. : (212) 225-5090
Telephone No. : (212) 225-5070
Attention: Herman Santiago
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 22.00000000%<PAGE>
<PAGE>
CHEMICAL BANK $27,500,000
Domestic Lending Office:
CHEMICAL BANK
270 Park Avenue, 10th Floor
New York, New York 10017
Eurodollar Lending Office:
CHEMICAL BANK
270 Park Avenue, 10th Floor
New York, New York 10017
Notice Address:
CHEMICAL BANK
270 Park Avenue, 10th Floor
New York, New York 10017
Facsimile No. : (212) 682-8937
Telephone No. : (212) 270-3867
Attention: Andrew Stawsi
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 22.00000000%
<PAGE>
<PAGE>
BANK OF AMERICA NT&SA $7,500,000
Domestic Lending Office:
BANK OF AMERICA NT&SA
1850 Gateway Blvd.
Concord, CA 94520
Eurodollar Lending Office:
BANK OF AMERICA NT&SA
1850 Gateway Blvd.
Concord, CA 94520
Notice Address:
BANK OF AMERICA NT&SA
1850 Gateway Blvd.
Concord, CA 94520
Facsimile No. : (510) 675-7233
Telephone No. : (510) 675-7212
Attention: Cheryl Colombo
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 6.00000000%
<PAGE>
<PAGE>
THE CHASE MANHATTAN BANK, N.A. $14,500,000
Domestic Lending Office:
THE CHASE MANHATTAN BANK, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Eurodollar Lending Office:
THE CHASE MANHATTAN BANK, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Notice Address:
THE CHASE MANHATTAN BANK, N.A.
2 Chase Manhattan Plaza
5th Floor
New York, New York 10081
Facsimile No. : (212) 552-7375
Telephone No. : (212) 552-7529
Attention: Lenora Kiernan
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 11.60000000%
<PAGE>
<PAGE>
THE NIPPON CREDIT BANK, LTD. $14,500,000
Domestic Lending Office:
THE NIPPON CREDIT BANK, LTD.
245 Park Avenue - 30th Floor
New York, New York 10167
Eurodollar Lending Office:
THE NIPPON CREDIT BANK, LTD.
245 Park Avenue - 30th Floor
New York, New York 10167
Notice Address:
THE NIPPON CREDIT BANK, LTD.
245 Park Avenue - 30th Floor
New York, New York 10167
Facsimile No. : (212) 697-8034
Telephone No. : (212) 984-1263
Attention: PETER FIORILLO
Loan Administration
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 11.60000000%
<PAGE>
<PAGE>
BANK BRUSSELS LAMBERT, $6,000,000
NEW YORK BRANCH
Domestic Lending Office:
BANK BRUSSELS LAMBERT
NEW YORK BRANCH
630 Fifth Avenue
Suite 2020
New York, New York 10111
Eurodollar Lending Office:
BANK BRUSSELS LAMBERT
NEW YORK BRANCH
630 Fifth Avenue
Suite 2020
New York, New York 10111
Notice Address:
BANK BRUSSELS LAMBERT
NEW YORK BRANCH
630 Fifth Avenue
Suite 2020
New York, New York 10111
Facsimile No. : (212) 333-5786
Telephone No. : (212) 632-5316
Attention: JOHN E. KIPPAX
Vice President
Pro rata share of aggregate amount of all Commitments as of March
29, 1996 : 4.80000000%
<PAGE>
<PAGE>
Exhibit 10.2
WSP&R Draft
12/11/96
AMENDMENT NO. 6
Dated as of December 13, 1996
to
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 14, 1993
Sequa Corporation, a Delaware corporation (the
"Borrower"), The Bank of New York, as Administrative Agent (the
"Administrative Agent"), The Bank of New York, The Bank of Nova
Scotia and Chemical Bank, as Managing Agents (the "Managing
Agents"), Bankers Trust Company, The Chase Manhattan Bank and The
Nippon Credit Bank, Ltd., as Co-Agents (the "Co-Agents"), and the
banks listed on the signature pages hereto (the "Banks") agree as
follows:
SECTION 1. Credit Agreement. Reference is made to
the Amended and Restated Credit Agreement, dated as of December
14, 1993 among the Borrower, the Administrative Agent, the
Managing Agents, the Co-Agents and the Banks, as amended by
Amendment No. 1, dated as of June 13, 1994, Amendment No. 2,
dated as of December 14, 1994, Amendment No. 3 and Waiver, dated
as of March 3, 1995, Amendment No. 4, Consent and Waiver, dated
as of April 1, 1995 and Amendment No. 5 dated as of March 29,
1996 (as so amended, the "Credit Agreement"). Capitalized terms
used herein but not defined herein shall have the meanings
ascribed thereto in the Credit Agreement. The Credit Agreement
as amended by this Amendment No. 6 is and shall continue to be in
full force and effect and is hereby in all respects ratified and
confirmed.
SECTION 2.Amendments. Upon and after the Amendment
Effective Date (as defined in Section 4 hereof), the Credit
Agreement shall be amended as follows:
(a) Section 10.01 is amended by
(i) in the definition of "Consolidated Net
Worth", (A) inserting a new clause (w) immediately before
the existing clause (x) contained therein to read as
follows:
"(w) 1996 Excess Gas Turbine Litigation
Expenses,"; and
<PAGE>
(B) inserting "(w)," immediately before the
phrase "(x), (y) and (z)" contained therein;
(ii) in the definition of "EBITDA", deleting the
"and" immediately before clause (vi) thereof and replacing
it with "," and inserting a new clause (vii) immediately
after the existing clause (vi) to read as follows:
" and (vii) 1996 Excess Gas Turbine
Litigation Expenses";
(iii) adding a definition of "1996 Excess Gas
Turbine Litigation Expenses" in the correct alphabetical
order as follows:
"1996 Excess Gas Turbine Litigation Expenses"
means the lesser of (i) $27,275,000 and (ii)
the litigation expenses in excess of
$12,725,000 actually incurred by the Borrower
or a Subsidiary of the Borrower for the
fiscal year ended December 31, 1996, in
connection with the antitrust litigation
involving Chromalloy Gas Turbine Corporation,
which litigation was identified in the
Borrower's letter to the Administrative Agent
dated November 25, 1996."
SECTION 3. Representations and Warranties. Each of
the Borrower and each Guarantor (as defined after giving effect
to this Amendment No. 6) has the power, and has taken all
necessary action (including any necessary stockholder action) to
authorize it, to execute, deliver and perform in accordance with
its terms Amendment No. 6 and the Credit Agreement as amended
thereby. Amendment No. 6 has been duly executed and delivered by
the Borrower and each such Guarantor and is a legal, valid and
binding obligation of each Loan Party that is a party thereto,
enforceable against such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally. The execution,
delivery and performance in accordance with its terms by the
Borrower and such Guarantors of Amendment No. 6 and the Credit
Agreement as amended thereby do not and (absent any change in any
Applicable Law or applicable Contract) will not (a) require any
Governmental Approval or any other consent or approval, including
any consent or approval of any Subsidiary or any consent or
approval of the stockholders of the Borrower or any Subsidiary or
(b) violate or conflict with, result in a breach of, constitute a
default under, or result in or require the creation of any Lien
upon any assets of the Borrower or any Subsidiary under, (i) any
<PAGE>
Contract to which the Borrower or any Subsidiary is a party or by
which the Borrower or any Subsidiary or any of their respective
properties may be bound, the breach of which, either singly or in
the aggregate with all other such Contracts, would have a
Materially Adverse Effect upon the Borrower or any Subsidiary, or
(ii) any Applicable Law.
SECTION 4. Amendment Effective Date. This Amendment
No. 6 shall become effective as of the date first written above
(the "Amendment Effective Date") on the first date on which this
Amendment No. 6 shall have been duly executed and delivered by
the Borrower, the Guarantors and the Required Banks.
SECTION 5. Governing Law. This Amendment No. 6
shall be construed in accordance with and governed by the
substantive law of the State of New York.
SECTION 6. Headings. Section headings in this
Amendment No. 6 are included herein for convenience and reference
only and shall not constitute a part of this Amendment No. 6 for
any other purpose.
SECTION 7. Counterparts. This Amendment No. 6 may
be executed in any number of counterparts and on separate
counterparts, each of which shall be deemed to be an original and
shall be binding upon the parties, their successors and assigns.<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment No. 6, or caused it to be executed and delivered
by their duly authorized officers, all as of the day and year
first above written.
SEQUA CORPORATION
By /s/ K.A. Drucker_
Name:
Title:
CASCO INVESTORS CORPORATION
CHROMALLOY AMERICAN CORPORATION
CHROMALLOY GAS TURBINE CORPORATION
SEQUA CHEMICALS, INC.
CASCO PRODUCTS CORPORATION
SEQUA FINANCIAL CORPORATION
NORTHERN TECHNOLOGIES, INC.
each as a Guarantor,
By /s/ K.A. Drucker
Name:
Title:
THE BANK OF NEW YORK, as Administrative
Agent, as a Managing Agent and as a Bank
By /s/ William A. Kerr
Name:
Title:
THE BANK OF NOVA SCOTIA, as a Managing Agent
and as a Bank
By /s/ H. Santiago
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, as a Managing Agent
and as a Bank
By /s/ Lawrence C. Shields
Name:
Title:
BANKERS TRUST COMPANY, as a Co-Agent and as a
Bank
By /s/ P. Hogan
Name:
Title:
THE NIPPON CREDIT BANK, LTD., as a Co-Agent
and as a Bank
By /s/ David C. Carrington
Name:
Title:
<PAGE>
<PAGE>
BANK BRUSSELS LAMBERT, NEW YORK BRANCH
By /s/ Eric Hollanders
Name:
Title:
By /s/ Gerrit Verlodt
Name:
Title:
<PAGE>
<PAGE>
Exhibit 10.2
August 1, 1996
Sequa Corporation
200 Park Avenue
New York, NY 10166
Attention: Jenny S. Kade,
Assistant Treasurer
Re: Consent to Make Restricted Payment
Reference is made to the Amended and Restated Credit
Agreement dated as of December 14, 1993, among Sequa Corporation
(the "Borrower"), The Bank of New York, as Administrative Agent,
The Bank of New York, The Bank of Nova Scotia and Chemical Bank,
as Managing Agents, Bank of America, NT&SA, Chase Manhattan Bank,
N.A. and The Nippon Credit Bank, Ltd., as Co-Agents, and the
Banks listed on the signature pages thereof (as amended from time
to time, the "Credit Agreement") (capitalized terms used and not
defined herein shall have the meanings ascribed thereto in the
Credit Agreement).
The Required Banks hereby consent to the making of a
Restricted Payment by the Borrower for the purpose of
repurchasing shares of its Capital Securities (the "Repurchased
Stock"), notwithstanding Section 4.06 of the Credit Agreement;
provided, that (i) such Restricted Payment shall not exceed ten
million Dollars ($10,000,000) and (ii) no Default or Event of
Default shall have occurred and be continuing at the time such
Restricted Payment is made or at the time the Borrower becomes
obligated to make such Restricted Payment, and no Default or
Event of Default shall result from the making of such Restricted
Payment or the purchase of the Repurchased Stock by the Borrower.
This consent shall become effective as of the date
hereof on the first date upon which this consent has been
executed by the Required Banks.<PAGE>
<PAGE>
This consent may be executed in any number of
counterparts and on separate counterparts, each of which shall be
deemed to be an original and shall be binding upon the parties,
their successors and assigns.
THE BANK OF NEW YORK
By /s/ William A. Kerr
Name:
Title:
THE BANK OF NOVA SCOTIA
By /s/ H. Santiago
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By /s/ John W. Pocalyko
Name:
Title:
THE CHASE MANHATTAN BANK
By /s/ Lawrence C. Shields
Name:
Title:
THE NIPPON CREDIT BANK, LTD.
By /s/ David C. Carrington
Name:
Title:
<PAGE>
BANK BRUSSELS LAMBERT, NEW YORK BRANCH
By /s/ Eric Hollanders
Name:
Title:
By /s/Gerrit Verlodt
Name:
Title:
<PAGE>
EXHIBIT 10.9
September 26, 1996
Mr. John J. Quicke
11 Stony Hollow Road
Chappaqua, NY 10514
Dear John:
Reference is made to your Employment Agreement dated April
1, 1993 (the "Agreement"). This shall confirm that Paragraph
6(a) of the Agreement is hereby amended to read in its entirety
as follows:
"Subject to earlier termination pursuant to the provisions
of subparagraphs 6(b) and 6(c) below, the term of your
employment hereunder is for a period of five (5) years
commencing as of January 1, 1995 to December 31, 1999."
This shall also confirm that the first sentence of paragraph
2 of the Agreement is hereby amended to read in its entirety as
follows:
"In full consideration of all of the services to be rendered
by you under this Agreement, the Company will pay to you a
base salary at the rate of Four Hundred Thirty-two Thousand
Three Hundred Twenty-eight Dollars ($432,328) per year (that
being the effective rate commencing March 1, 1996) during
the term of your employment hereunder, payable in equal bi-
weekly installments."
Except as set forth above, this letter shall not amend or
affect your Agreement; said Agreement, as hereby amended, shall
remain in full force and effect. If the above is in accordance
with your understanding, please sign the enclosed duplicate of
this letter and return it to the undersigned. Upon our receipt
of such fully executed copy, this shall constitute a binding
agreement between us.
SEQUA CORPORATION
By:__________________________
Norman E. Alexander
Chairman and Chief Executive Officer
<PAGE>
Exhibit 10.11
AGREEMENT dated as of June 1, 1996 by and between
Chromalloy Gas Turbine Corporation, a Delaware corporation
(the "Company") and Martin Weinstein ("Executive").
WHEREAS, the Company and the Executive have agreed to
further modify said Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements herein contained, the
parties hereto agree as follows:
1. Paragraph 1 of the Agreement dated June 1, 1993 is
modified by adding the following:
The three (3) years having expired May 31, 1996, the
parties agree that up to and until December 31, 1996, the
Executive will continue the temporary assignment of the
direct management of Chromalloy Research and Technology
("R&T") for an additional temporary period ending December
31, 1996 during which period the Executive will be required
to maintain a temporary residence in the New York
metropolitan area. On and after January 1, 1997 the payment
of additional compensation provided for in paragraph 2 of
the Agreement dated June 1, 1993 shall cease.
After January 1, 1997, the Executive shall perform the
normal duties of the Chief Executive Officer of the Company
as set forth in paragraphs 1(b) and (c) of the Agreement
dated as of October 1, 1991 which shall include among his
<PAGE>
duties, supervisory management of R&T consistent with the
approval of the Board of Directors of the Company.
2. Paragraph 1(a) of the Agreement dated as of
October 1, 1991 is further modified to change the expiration
date of December 31, 1996 to December 31, 1999.
Paragraph 2(a) of the Agreement dated as of
October 1, 1991 is modified to change the rate of Base
Salary to a minimum of $412,000 per annum, commencing
January 1, 1997.
3. Paragraph 1(d) of the Agreement dated October 1,
1991 is hereby deleted.
Except as herein expressly modified and as
heretofore modified, all of the terms, covenants, and
conditions of the Agreement dated as of October 1, 1991
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement as of the day and year
first above written.
CHROMALLOY GAS TURBINE CORPORATION
By:_______________________________
Norman E. Alexander
_______________________________
Martin Weinstein
<PAGE>
Exhibit 10.18
SEQUA CORPORATION
MANAGEMENT INCENTIVE
BONUS PROGRAM
OPERATING DIVISIONS
(Revised 1997)
<PAGE>
INDEX
I. General Outline
II. Division Bonus Program
III. Policies & Procedures
IV. Exhibits
- 2 -
<PAGE>
SEQUA CORPORATION
MANAGEMENT INCENTIVE BONUS PROGRAM
FOR OPERATING UNITS
GENERAL OUTLINE
The purpose of implementing Sequa Corporation's (the Company's)
Management Incentive Bonus Program (MIBP) is to improve the Company's
performance through the efforts of key executive and management
personnel who are in positions to significantly contribute to operating
results. In all instances below the Chairman/Chief Executive Officer
(CEO) will oversee the administration of the MIBP on behalf of Gas
Turbine operations and the President/Chief Operating Officer (COO) will
oversee the administration of the MIBP on behalf of The Group
operations. The Vice President Human Resources (VPHR) will be
responsible for coordination of administration on behalf of both the CEO
and the COO.
For divisional operations specific financial goals will be established
in the beginning of the year for all MIBP participants.
The MIBP will provide substantial rewards for participants who
accomplish or exceed targeted goals at the end of the year. The bonus
pool from which bonuses will be paid to each participant will be
calculated based upon the overall financial performance - Operating
Profit, Return on Net Assets and Sales Growth - of the operating unit as
determined by the CEO/COO as appropriate. It should be noted that no
points for Sales Growth will be recognized for purposes of granting a
bonus award unless Minimum Operating Profit is achieved.
- 3 -
<PAGE>
<TABLE>
I. Chart Ia below shows Potential Bonus Awards for Minimum, Par,
Outstanding and Maximum Performance for various level participants.
Chart Ib and Ic depict the financial goals of Operating Profit,
Return on Net Assets and Sales Growth and corresponding weighting
factors used to measure performance.
Ia) MIBP Participants and Potential Payout Levels
(Percent of Salary)
<CAPTION>
Minimum Target Bonus Level Outstanding Maximum
Bonus Level ("Par" Performance) Bonus Level Bonus Level
(90% of Plan) (Plan) (115% of Plan)(125% of Plan)
<S> <C> <C> <C> <C>
Participants
Operating Unit
Presidents/
General Managers 25% 50% 75% 90%
A-Pool 15% 30% 45% 54%
</TABLE>
B-Pool
Level I Up to 8 weeks pay
Level II Up to 4 weeks pay
Level III Up to 2 weeks pay
- 4 -
<PAGE>
<TABLE>
Ib) Operating Unit Presidents/General Managers
Weighting
--------------------
- -------
<CAPTION>
Goals Min Par* Out Max Min Par Out Max
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Operating
Profit (90%) (Budget) (115%) (125%) 15 30 45 54
2. Return on
Net Assets (90%) (Budget) (115%) (125%) 7.5 15 22.5 27
3. Sales (102.5% (105% (110% (115%
Growth PY) PY) PY) PY) 2.5 5 7.5 9
TOTAL 25 50 75 90
</TABLE>
* Par Equals
Operating Profit Budget
RONA Budget
Sales 105% of Prior Year
Notes: 1. No points for Sales Growth unless Minimum Operating Profit is
achieved.
2. Overall Bonus Pool level of 10% for 1997.
- 5 -
<PAGE>
<PAGE>
<TABLE>
Ib) Operating Unit Presidents/General Managers
Weighting
---------------------------
<CAPTION>
Goals Min Par* Out Max Min Par Out Max
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Operating
Profit (90%) (Budget) (115%) (125%) 9 18 27 32.4
2. Return on
Net Assets (90%) (Budget) (115% (125%) 4.5 9.0 13.5 16.2
3. Sales (102.5% (105% (110% (115%
Growth PY) PY) PY) PY) 1.5 3 4.5 5.4
TOTAL 15 30 45 54
</TABLE>
* Par Equals
Operating Profit Budget
RONA Budget
Sales 105% of Prior Year
Notes: 1. No points for Sales Growth unless Minimum Operating
Profit is
achieved.
2. Overall Bonus Pool level of 10% for 1997.
- 5 -
Sample Management Incentive Bonus Plan worksheet showing both
Potential Bonus Payouts and financial goals with weighting
measurement factors are provided for Operating Unit
Presidents/General Managers (Exhibit A) and A-Pool participants
(Exhibit B).
- 6 -
<PAGE>
OPERATING UNIT PLAN
MANAGEMENT INCENTIVE BONUS PROGRAM
I. Participants
A. Operating Unit Presidents/General Managers.
B. A-Pool participants in accordance with the following
guidelines.
1. First level of management reporting directly to the
business unit President/General Manager.
2. Certain first-level managers may be excluded if the
reporting relationship is due to special circumstances.
3. Certain second-level managers may be included if the
responsibilities of their position warrant participation
at the A-Pool level.
C. B-Pool participation shall consist of select managers and
professional level employees who are in a position to
influence financial goals through sustained performance.
1. There will be three categories in the B-Pool:
B-I Individuals who have a strong influence on
divisional financial and performance goals, but who
are not eligible for the A-Pool.
B-II Individuals with moderate impact on divisional
financial and performance goals.
B-III Individuals with some influence on divisional
financial and performance goals.
D. Prior to March 15th of each year, the recommended list of
participants are to be submitted by the Operating Unit
heads to the CEO/COO and VPHR for approval.
E. Any organizational changes during the year which impact
on participation at the President/General Manager or A-
Pool level will be reviewed and approved by the CEO/COO
and VPHR.
- 7 -
<PAGE>
II. Operating Unit Goals
A. Financial Goals: represent 100% of total bonus.
1. Each Operating Unit President/General Manager will be
assigned financial goals by the CEO/COO for the
following:
Operating Income
Return on Net Assets (RONA), see Exhibit C - RONA
calculation.
Sales Growth
B. Each Operating Unit President's/General Manager's Sales
Growth goal will be expressed as a percentage of prior
year's sales.
III. Bonuses
A. In accord with the Policies and Procedures section of
this Plan a pool of funds shall be calculated and
established from which bonuses will be paid subject to
the following:
1. Amounts paid to participants shall not in the
aggregate exceed the bonus pool, nor may unused bonus
accruals be "carried over".
2. No individual may receive more than the maximum award
for his/her position.
3. The Bonus Pool for the Operating Unit shall not
exceed 10% of operating profit of the Operating Unit
before deduction for the accrued Bonus Pool.
4. In those instances where the percentage cap impacts
the value of the pool, the bonus recommendations will
be calculated without regard to the cap and then
reduced by a uniform percentage factor in order to
comply with the cap set forth in 3 above. For
example, if the total bonus pool without the cap
would be $800,000 and with the cap it is $600,000 the
uniform factor is 75%.
- 8 -
<PAGE>
POLICIES AND PROCEDURES
MANAGEMENT INCENTIVE BONUS PROGRAM
I. Determination of Eligible Participants
A. Prior to March 15th of each year, each Operating Unit President/General
Manager shall prepare and submit a list of proposed plan participants.
The list shall include the proposed participants' level of participation.
This list will be reviewed and approved by the CEO/COO and the VPHR.
II. Time of Participation
A. In order to participate in the MIBP, each participant must be in an
eligible position at the end of the plan year.
B. Any employee promoted or hired to a position included in the MIBP will
be entitled to participate in the bonus program on a pro-rated basis.
C. The plan year is January 1 to December 31.
III. Bonus Plan Reviews
A. Every quarter, the CEO/COO will meet with each Operating Unit
President/General Manager to review status of the assigned financial
goals.
IV. Determination of Bonus Awards
A. Following the close of the plan year, the Vice President, Controller will
agree with each Operating Unit President/General Manager on the goal
ratings for operating income, RONA and sales growth for their respective
businesses. The Vice President, Controller will report his findings for
each operating division to the CEO/COO. Based on these results, the
CEO/COO will approve the goal ratings for each of the Operating Units.
- 9 -
<PAGE>
Once the pool has been established, proposed individual bonuses to A and B
Pool participants shall be calculated by the Operating Unit President/General
Manager. Actual proposed awards may vary based upon the judgment of the
Operating Unit President/General Manager with respect to the performance of
each plan participant.
V. Award Approval Process
A. Each Operating Unit President/General Manager will submit to the
VPHR, the recommended bonus for each member of the plan.
B. These recommendations will be accompanied by a summary sheet
containing a detailed calculation of the available bonus pool including
participant name, December 31 salary and level of participation.
C. The VPHR will submit all bonus recommendations for Operating Unit
Presidents/General Managers to the CEO/COO who will coordinate
approval with the Executive Management Committee and then the
Compensation Committee of the Board of Directors of the Company.
VI. Division Profit and Plan Payout
A. ot withstanding anything contained in this plan to the contrary, if
there is no operating profit for a given plan year, there will be no
bonuses paid.
VII. Frequency of Awards
Bonuses will be generated once every year during the month of March, for
performance in the previous plan year.
VIII. Contingencies Beyond Participant's Control
In those instances where significant events affect the accomplishment of
financial goals for a participant, the CEO/COO may use his judgment in
recommending to the Executive Management Committee the amount of bonus to
be awarded. Examples of such events include: labor disputes, acquisitions,
natural catastrophes.
- 10 -
<PAGE>
IX. Forfeiture of Award
A plan participant will not be eligible for consideration for a bonus if:
A. Participant is discharged for cause at anytime prior to the end of the
plan year.
B. Participant voluntarily resigned prior to the end of the plan year.
Any exception to this Policy must be approved by the CEO/COO and VPHR.
X. Retirement, Disability, Not For Cause Termination, or Death During the
Plan Year
Any participant who retires, becomes permanently disabled, is terminated
other than for cause, or dies during the plan year shall be reviewed
individually to determine whether a bonus award is appropriate.
XI. Budgeting
The budget shall include the cost for a "Par" Bonus for all participants
in the Plan.
XII. Disclaimer
This plan shall neither create any right to a bonus payment or future
participation therein for any employee, nor limit the right of Sequa
Corporation to modify, amend or rescind this plan for any subsequent plan
year. Nor shall it be construed as creating any right to employment.
- 11 -
<PAGE>
EXHIBIT C
RONA - calculation
For purposes of this plan, RONA is calculated on a pretax operating basis as
follows:
o RONA =
Annual Operating Income
Average of Net Operating Assets (13 month-end average)
o Net Operating Assets is the sum of the following:
Hyperion Balance Sheet Caption
+ Accounts Receivable - Trade
- Allowance for Doubtful Accounts Receivable - Trade
+ Unbilled Receivables
- Allowance for Unbilled Receivables
+ Inventories
+ Prepaid Expenses and Other
+ Other Investments
+ Net Property and Equipment
+ Total Deferred Charges & Other
- Accounts Payable Trade
- Accounts Payable Other
- Accrued Expenses
- Other Deferred Liabilities
- 12 -
<PAGE>
<TABLE>
Exhibit 11.1
SEQUA CORPORATION & SUBSIDIARIES
CALCULATION OF PRIMARY EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Primary
Earnings
Income (loss) before extraordinary item $ 9,556 $ 8,779 $(24,695)
Preferred dividend requirements (3,108) (3,165) (3,163)
Income (loss) before extraordinary item
applicable to common stock 6,448 5,614 (27,858)
Extraordinary loss (369) - (1,083)
Net income (loss) applicable to common stock $ 6,079 $ 5,614 $(28,941)
Shares
Common and common equivalent shares 9,921 9,867 9,722
Primary earnings (loss) per common share
Income (loss) before extraordinary item $ .65 $ .57 $ (2.87)
Extraordinary loss (.04) - (.11)
Net income (loss) $ .61 $ .57 $ (2.98)
Shares
Weighted average common shares outstanding 9,880 9,867 9,722
Common shares issuable in respect to common
stock equivalents, with a dilutive effect 41 - -
Common and common equivalent shares 9,921 9,867 9,722
Fully Diluted
Earnings
Income (loss) before extraordinary item $ 9,556 $ 8,779 $(24,695)
Extraordinary loss (369) - (1,083)
Net income (loss) $ 9,187 $ 8,779 $(25,778)
Shares
Common and common equivalent shares 10,729 10,705 10,559
Fully diluted earnings (loss) per common share (a)
Income (loss) before extraordinary item $ .89 $ .82 $ (2.34)
Extraordinary loss (.03) - (.10)
Net income (loss) $ .86 $ .82 $ (2.44)
Shares
Weighted average common shares outstanding 9,880 9,867 9,722
Preferred stock assumed to be converted 807 838 837
Common shares issuable in respect to common
stock equivalents, with a dilutive effect 42 - -
Common and common equivalent shares 10,729 10,705 10,559
<FN>
(a) Fully diluted earnings per share calculation is anti-dilutive; therefore,
fully diluted earnings per share have not been presented in the Consolidated
Statement of Income.
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
There follows alphabetically a list of domestic and foreign
subsidiaries of the registrant as of December 31, 1996. The
names of particular subsidiaries which, considered in the
aggregate as a single subsidiary would not constitute a
significant subsidiary as of December 31, 1996 within the meaning
of Regulation S-X, have been omitted:
State or Other
Jurisdiction
in which
Name of Subsidiary Incorporated
Atlantic Research Corporation Delaware
Casco IMOS Italia S.R.L. Italy
Casco Products Corporation Delaware
The Centor Company Missouri
Chromalloy American Corporation Delaware
Chromalloy Castings Tampa Corporation Delaware
Chromalloy Gas Turbine Corporation Delaware
Chromalloy Gas Turbine France France
Chromalloy Heavy Industrial Turbines, Ltd. Delaware
Chromalloy Holland B.V. Netherlands
Chromalloy Israel Ltd Israel
Chromalloy Men's Apparel, Inc. Delaware
Chromalloy San Diego Corporation California
Chromalloy Thailand Ltd Thailand
Chromalloy U.K. Ltd. England
Chromalloy Wallkill Corp. New York
Chromizing, S.A. de C.V. Mexico
Jamo Matrizjen B.V. Netherlands
Malichaud et CIE S.A. France
Materiels Equipements Graphiques France
Northern Can Systems, Inc. Delaware
Sequa Capital Corporation New York
Sequa Chemicals Corporation Delaware
Sequa Coatings Corporation Indiana
Sequa Financial Corporation New York
Sequa Receivables Corporation Delaware
TurboCombustor Technology, Inc. Florida
Warwick International Group Ltd England
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Annual Report on
Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File No. 33-12420 and File No. 33-30711)
and on Form S-3 (File No. 33-47552).
ARTHUR ANDERSEN LLP
New York, New York
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 92,079
<SECURITIES> 0
<RECEIVABLES> 291,185
<ALLOWANCES> 15,579
<INVENTORY> 223,498
<CURRENT-ASSETS> 612,177
<PP&E> 1,050,904
<DEPRECIATION> 593,393
<TOTAL-ASSETS> 1,548,162
<CURRENT-LIABILITIES> 302,747
<BONDS> 531,868
0
797
<COMMON> 10,915
<OTHER-SE> 579,064
<TOTAL-LIABILITY-AND-EQUITY> 1,548,162
<SALES> 1,459,029
<TOTAL-REVENUES> 1,459,029
<CGS> 1,160,192
<TOTAL-COSTS> 1,393,871
<OTHER-EXPENSES> (12,592)
<LOSS-PROVISION> 5,927
<INTEREST-EXPENSE> 51,794
<INCOME-PRETAX> 25,956
<INCOME-TAX> 16,400
<INCOME-CONTINUING> 9,556
<DISCONTINUED> 0
<EXTRAORDINARY> (369)
<CHANGES> 0
<NET-INCOME> 9,187
<EPS-PRIMARY> .61
<EPS-DILUTED> .86
</TABLE>
