UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
Commission file number 1-4416
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer
101 Greenwood Avenue Identification No.)
Suite 470 19046
Jenkintown, Pennsylvania (Zip Code)
(Address of principal executive offices)
(215) 517-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange
Common Stock, Par Value $1.00 on Which Registered
Per Share New York Stock Exchange
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. ____
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
The aggregate market value of the voting stock held by non-
affiliates of the Registrant at March 7, 1994 was approximately
$111,554,994.
The number of shares of Registrant's Common Stock
outstanding on March 7, 1994 was 5,107,292.
2
Part II
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
In December 1993, under the direction of the Company's
newly appointed Chairman and Chief Executive Officer, the Company
initiated programs to reduce the Company's cost structure and
improve its future operating performance. The Company has
substantially completed a 10 percent reduction in its non-direct
workforce, which included significant reductions in corporate and
executive staff. In addition, the Company has relocated its
corporate offices to a smaller leased facility and listed its
corporate headquarters facility in Newtown, Pennsylvania for sale
and sold its aircraft. The Company also committed to exit
certain historically unprofitable product lines of its fastener
segment. In addition, the Company's plant consolidations, which
were both expensive and disruptive to the business, are now
substantially complete. As discussed in Note 3 to the financial
statement, the financial statements have been reclassified for
comparative purposes to reflect the results of operations of
certain businesses previously held for sale that are being
retained. Operating results of these businesses are included in
the financial statement line items (sales, operating earnings,
etc.) with an offsetting net adjustment to the restructuring
charges previously reported. The following discussion is based
on reclassified amounts presented.
1993 Compared to 1992
Net Sales
Sales in 1993 of $319.1 million declined by $40.3 million,
or 11.2 percent, from 1992 amounts. Fastener segment sales
declined $35.7 million, or 13.6 percent, primarily due to the
effect of exchange rate changes which affected sales by $12
million and also due to reduced shipments to the aerospace
market. Aerospace fastener sales declined by $27.8 million, or
21.7 percent, due to continued decreases in commercial and
military aircraft production and production disruptions from the
start-up of aerospace fastener operations transferred from
another facility. Transportation and industrial fastener sales
declined by $7.9 million, or 5.9 percent, due to the continuing
recession in the European markets. In the United States, sales
were adversely affected by the floods in the Midwest; however,
shipments to the automobile industry were still higher compared
to 1992 reflecting the strengthening domestic automotive
business.
3
Materials segment sales decreased $4.6 million, or 4.8
percent, as the increased sales of magnetic materials ($1.9
million) were offset by a greater decline in the sales of
superalloys ($6.5 million). Sales of magnetic materials
increased due to the acquisition of a bonded magnet business in
December 1992 and increased demand from automotive and computer
markets. Sales of proprietary superalloys increased from the
same periods in 1992, but lower sales of stainless steel alloys
and continued weakness in the aerospace market produced an
overall drop in superalloy sales. All sales of the materials
segment are sourced from the United States and are classified as
such in the geographic area information presented in Note 17 to
the financial statements.
Operating Earnings
The operating loss for the fastener segment of $34.1 million
in 1993 is attributed largely to the 1993 restructuring charge.
Other factors contributing to the fastener segment operating loss
were decreases in sales volume, continued pressure to reduce
prices and manufacturing inefficiencies resulting from the start-
up of fastener operations transferred from other facilities. The
Company's operating earnings before restructuring charges was
essentially unchanged on sharply lower sales volume, reflecting
cost reduction actions taken in 1993. The primary source of cost
reduction in 1993 was a reduction in the workforce of 447
employees since the end of 1992.
In the material segment, operating earnings decreased from
$6.1 million, or 6.3 percent of sales in 1992, to $5 million, or
5.5 percent of sales in 1993. The decrease in the sales volume
of superalloy sales resulted in lower gross profit amounts ($1.4
million) which were partially offset by a decrease in selling,
general and administrative expenses ($300 thousand).
The operating losses in the United States of $30 million in
1993 and $7.4 million in 1992 are attributed largely to the 1993
and 1992 restructuring charges. Exclusive of restructuring
charges, domestic operating earnings in both years were
approximately breakeven. The domestic operating earnings of the
materials segment of $5 million in 1993 and $6.1 million in 1992
were entirely offset by operating losses in the domestic fastener
segment.
The 1993 European operating loss of $168 thousand compares
unfavorably to the 1992 operating profit of $4 million. The
European operating results continue to be adversely affected by
the industrial fastener manufacturing operation in Barcelona,
Spain. The Spanish operation has suffered from manufacturing
inefficiencies and a declining automotive market.
4
Other Expense
Higher levels of corporate debt offset by a decrease in
interest rates resulted in level amounts of interest expense
compared to 1992. While debt increased by $18.5 million in 1993,
the average interest rate of the Bank Credit Agreement decreased
from 4 percent in 1992 to 3.7 percent in 1993. In addition to
the decreased interest rate of the Bank Credit Agreement, $5
million of the Notes Payable to insurance companies at a fixed
rate of 8.7 percent was paid with Bank Credit Agreement loan
proceeds.
Income Taxes
The income tax benefit of the Company's 1993 loss from
continuing operations was lower than the benefit computed at the
United States federal statutory tax rate primarily due to
operating losses in the United States and Spain for which a
benefit is not currently recognizable.
Earnings
The Company recorded a net loss for 1993 of $31 million,
or $6.07 per share, compared to a net loss of $20.4 million, or
$4.00 per share, in 1992. The loss in 1993 is attributed to the
pre-tax restructuring charge of $32.4 million. The 1992 loss
results from the pre-tax restructuring charge of $6.8 million and
a charge for changes in accounting policies of $13.4 million.
The decline in the net earnings of non-United States
subsidiaries, as presented in Note 5 to the financial statements,
is attributed to the 1993 restructuring charge. The non-United
States restructuring charge in 1993 was approximately $6.3
million compared to $2.4 million in 1992.
Orders and Backlog
Incoming orders in 1993 were $333.7 million, compared to
$345.1 million in 1992. Orders improved in the United States
transportation market by $3.6 million, but overall orders were
down due to decreases in the aerospace market of $7.3 million and
the materials market of $3.2 million. The backlog in orders at
December 31, 1993, was $89 million, compared to $84.5 million at
the end of 1992 and $102.5 million at December 31, 1991.
5
Environmental
The Company has been identified as a potentially responsible
party by various federal and state authorities for clean up or
removal of waste from various disposal sites. The cost of
remediation will depend upon numerous factors, including the
number of parties found liable at each environmental site and
their ability to pay, the outcome of negotiations with regulatory
authorities, and the years of remedial activity required.
At December 31, 1993, the accrued liability for
environmental remediation represents management's best estimate
of the probable and reasonably estimable costs related to
environmental remediation. The measurement of the liability is
evaluated quarterly based on currently available information.
Chronological Summary of the Restructuring Plan
The restructuring plan was initially adopted on May 3, 1991, it
was revised on February 6, 1992, in the fourth quarter of 1992
and in the third and fourth quarters of 1993. The goals of the
plan have always been to enhance shareholder value and focus the
Company on markets in which it holds a leadership position.
1991
The specific elements of the restructuring plan as originally
adopted on May 3, 1991 were as follows:
1) sell the industrial products business in Europe, which
included of the manufacturing facilities in Coventry
and Smethwick, England and Barcelona, Spain;
2) sell the automotive fastener business in Cleveland,
Ohio;
3) sell the Unbrako products business in Europe, which
consisted of a manufacturing facility in Shannon,
Ireland and distribution businesses in West Bromwich,
England; Koblenz, Germany; Milan, Italy; Copenhagen,
Denmark and Paris, France;
4) sell the Unbrako products business in the Far East
which consisted of distribution businesses in Japan and
Singapore;
5) sell the hard ferrite magnetic materials business in
Sevierville, Tennessee;
6) sell the aerospace facility in Santa Ana, California
after transferring most of that facility's production
to facilities in Salt Lake City, Utah and Jenkintown,
Pennsylvania;
6
7) sell the Company's facilities in Newtown, Pennsylvania
that consisted of corporate headquarters and divisional
support facility; and to
8) close the research and development facility in Naas,
Ireland.
During 1991, the following items of the restructuring plan were
accomplished:
1) The Hydraulic Tensioning Division (the industrial
products manufacturing operation in Smethwick, England
consisting of two major product lines - hydraulic
tightening and push rods) was sold for $2.5 million in
October 1991.
2) The Unbrako distribution businesses in Japan and
Singapore were sold to a newly formed joint venture
(Pacific Products Limited) in which the Company owns a
50 percent interest.
3) The research and development facility in Naas, Ireland
was closed.
The restructuring plan was first revised on February 6, 1992 to
retain the automotive fastener business in Cleveland, Ohio and to
consolidate the Unbrako product operations from the Puerto Rico
manufacturing facility into the Cleveland, Ohio plant and to sell
the Company's Puerto Rico manufacturing facility. The Company
prepared estimates of the net realizable value of related assets
to be sold and other costs directly associated with the decision
to dispose of such assets along with expected operating results
during the wind-down period. The restructure plan (including the
February 1992 revision) was not expected to result in a loss.
Accordingly, no restructuring charge to operations was provided
during 1991.
1992
In the fourth quarter of 1992, the Company revised the
restructuring plan as follows:
1) to retain the Unbrako fastener manufacturing facility
in Shannon, Ireland and the Unbrako distribution
business in West Bromwich, England.
2) transfer all of Jenkintown's UNBRAKO socket screw
manufacturing operations to Cleveland, Ohio, for
consolidation with the UNBRAKO production transferred
to Cleveland from Puerto Rico.
7
As a result of these modifications, as well as the protracted
period required to complete the restructuring due to depressed
economic and market conditions, the Company recorded a 1992
restructuring charge of $9.6 million (revised in 1993 by $2.8
million to reflect the reclassifications for businesses
subsequently retained as described in the "Summary of
Restructuring Charges").
During 1992, the Company completed the transfer of manufacturing
operations from the Puerto Rico manufacturing facility to
Cleveland, Ohio. The Puerto Rico manufacturing facility was
closed and is currently held for sale. The distribution business
in Copenhagen, Denmark was sold in 1992.
1993
In the third and fourth quarters of 1993, the Company made
revisions to the restructuring plan. The combined effect of the
1993 revisions were as follows:
1) The Company decided to retain the following businesses:
A) the Industrial Products Division in Europe which
consisted of the manufacturing facilities in Coventry
and Smethwick, England and Barcelona, Spain;
B) the Unbrako distribution business in Koblenz, Germany,
and;
C) the hard ferrite magnetic materials business in
Sevierville, Tennessee.
2) The Company decided to lease to a third party the
remaining space at the Santa Ana, California facility.
3) The Company decided to reduce the non-direct workforce by
10 percent, including significant reductions in corporate
and executive staff.
4) In addition, the Company decided to either sell the
Assembly Systems Division which is a fastener segment
product line, or liquidate the computer-controlled
fastener tightening systems part of this division and
only operate the hand wrenches, spare parts and service
portion.
5) The Company wrote off certain costs previously deferred
in contemplation of gains on the sale of the related
businesses as required by Staff Accounting Bulletin 93 of
the Securities and Exchange Commission due to the
protracted period of disposal.
8
The 1993 statement of consolidated operations includes
restructuring charge of $32.4 million to reflect the costs
associated with the actions described above and higher than
expected costs of completing the previously announced plant
consolidations.
During 1993, the Company accomplished the following components of
the restructuring plan:
1) The transfer of the aerospace manufacturing operations
from the Santa Ana, California fastener plant to the
Company's facilities in Salt Lake City, Utah and
Jenkintown, Pennsylvania was completed. While some minor
operations were retained at the Santa Ana facility, the
majority of the plant is contemplated to be leased to
third parties in 1994.
2) The Company moved all of the Jenkintown, Pennsylvania
UNBRAKO socket screw manufacturing operations to
Cleveland, Ohio, for consolidation with the UNBRAKO
production transferred to Cleveland from Puerto Rico.
3) Unbrako S.r.l., a distribution and marketing subsidiary
in Milan, Italy was sold in the second quarter of 1993
and SPS-Unbrako S.A., the Company's distribution and
marketing subsidiary located in Paris, France was closed
and distribution activities in France were transferred to
independent distributors. The net assets of these
businesses comprised all of the non-United States net
assets held for sale at December 31, 1992 as presented in
Note 5 to the financial statements.
While the consolidations in items 1 and 2 above have caused
manufacturing disruptions in 1993, they will permit more
effective utilization of the remaining plants in the future.
As of December 31, 1993, the following items remain to be
accomplished to complete the Company's restructuring plan:
1) Reduce the non-direct workforce by 10 percent.
2) Move the Corporate staff and divisional support staff
from the Newtown, Pennsylvania facility to rented office
space in Jenkintown, Pennsylvania and the related
divisions.
3) Liquidate or sell the Assembly Systems Division.
4) Sell the Unbrako manufacturing facility in Puerto Rico.
5) Sell the facility in Newtown, Pennsylvania.
9
6) Lease the remaining available space in the Santa Ana,
California facility.
7) Make all remaining severance payments.
Management expects to complete items 1 through 6 above by
December 31, 1994. Certain severance payments will extend beyond
that date.
10
Summary of Restructuring Charges ($000s)
1993 1992 1991
Costs of employee separations $ 10,000 $ 1,000
Plant consolidation costs, including
cost to consolidate and relocate
plant facilities, cost to exit leased
warehouses and losses on asset impair-
ments and disposal of assets 7,500 6,100
Product line disposal cost (principally
the Assembly Systems Division) 3,800 500
Other nonrecurring restructuring costs,
including advisory fees, appraisal
fees, disposition costs, attorneys
and accountants fees and cost to
relocate the corporate and division
support staff 3,500 1,500
Losses (profits) during the wind-
down period 2,710 (464)
Losses of businesses originally planned
to be sold but ultimately retained:
1992 Decision to retain the Unbrako
fastener manufacturing facility in
Shannon, Ireland, and the Unbrako
fastener distribution business in
West Bromwich, England 964 (964)
1993 Decision to retain the European
industrial fastener businesses in
Coventry and Smethwick, England and
Barcelona, Spain; the Unbrako fastener
distribution business in Koblenz, Germany
and the hard ferrite magnetic materials
business in Sevierville, Tennessee. 4,890 (2,800) (2,090)
Reversal of reserves associated with a
1990 restructuring charge which was
completed during 1991 (1,346)
Restructuring charge (credit) on the
Statement of Consolidated Operations
for the years ended December 31, 1993,
1992 and 1991 $ 32,400 $ 6,800 $ (4,400)
11
Retention of Certain Businesses Previously Held for Sale
During December 1993, the Company hired a new chief
executive officer. One of his early actions was to focus the
Company's resources on its core fastener businesses. Therefore,
the decision was made to retain certain businesses previously
held for sale including the European industrial fastener
businesses in Coventry and Smethwick, England, and Barcelona,
Spain; the Unbrako fastener distribution business in Koblenz,
Germany; and the hard ferrite magnetic materials business in
Sevierville, Tennessee in order to maintain the Company's market
presence and preserve the critical mass of its fastener business.
The 1992 and 1991 financial statements and notes have been
reclassified for comparative purposes to reflect these
modifications. The net operating results of these businesses
have been included in the operating line items (sales, operating
earnings, etc.) with an offsetting net adjustment to the
restructuring charges previously reported. Total assets,
liabilities, revenues and operating losses for each of the years
that these businesses were reported as "net assets held for
sale", was disclosed in Note 3 to the 1993 financial statements.
Based on the Company's analyses, independent appraisals and
discussions with investment bankers, the Company determined that
the aggregate net realizable value of these businesses exceeded
the aggregate cost basis and thus no loss recognition was
required in any of the periods prior to its decision to retain
the businesses. Except for the fastener company located in
Barcelona, Spain, the decision to retain these businesses is not
expected to have a material impact on the Company's results of
operations, liquidity, capital resources and known trends,
commitments or contingencies. The decision to retain the Spanish
operation could adversely affect the Company's results of
operations and be a drain on capital resources in the short-term
period. The Company has initiated certain steps to improve
operating performances at this fastener location but the Spanish
automotive market remains weak.
Reduction of Employment
Consistent with the lower levels of business activity, the
Company has reduced employment in all operations. Since the end
of 1990, the workforce employed in continuing businesses has been
reduced by 1,974 employees, or 35 percent. Since the end of
1992, the workforce employed in continuing businesses has been
reduced by 447 employees, or 10.8 percent. A portion of the
reduction in employment was achieved through the implementation
of an early retirement program. The cost of this program and
other severance cost are included in the 1993 restructuring
charge.
12
1992 Compared to 1991
Net Sales
Sales in 1992 of $359.4 million declined by $49.1 million,
or 12 percent, from 1991 amounts. Fastener segment sales
declined $59.4 million, or 18.4 percent, as sales declined in all
served markets of the fastener segment. Continued economic
difficulties in the worldwide airline industry have led to
significant reductions in new aircraft orders as well as to
cancellations and deferrals of existing orders. The continued
economic difficulties of the transportation and industrial
fastener markets also contributed to the decline in sales.
Material segment sales increased $10.3 million, or 11.9
percent, in 1992 due to strong demand for cobalt-based medical
alloys and high-value, proprietary single-crystal superalloys,
and to higher cobalt metal prices.
Operating Earnings
In the fastener segment, operating losses of $9.2 million in
1992 compares unfavorably to the operating earnings of $16.4
million in 1991. The 1992 restructuring charge, significant
decreases in fastener sales and costs associated with workforce
reductions contributed to the decrease in 1992 operating
earnings.
In the materials segment, operating earnings increased from
$3.6 million, or 4.2 percent of sales in 1991, to $6.1 million,
or 6.3 percent of sales in 1992. The increase is attributed to a
higher volume of superalloy sales, higher prices for cobalt-based
products and productivity improvements in the manufacture of
magnetic materials.
Other Expense
Interest expense decreased from $8.2 million in 1991 to $5.8
million in 1992, as a result of lower levels of corporate debt
coupled with reduced interest rates. The Company's Brazilian
affiliate reported net earnings in 1992 compared to a net loss in
1991. As a result, the Company's equity in earnings (loss) of
affiliates improved by $2.8 million.
13
Income Taxes
The income tax benefit of the Company's 1992 loss from
continuing operations was lower than the benefit computed at the
United States federal statutory tax rate due to certain losses
for which no tax benefits were available, an increase in the
valuation allowance on deferred income tax assets and state
income taxes.
Earnings
The Company recorded a net loss for 1992 of $20.4 million,
or $4.00 per share, compared to earnings of $6.6 million, or
$1.30 per share, in 1991. The loss in 1992 is attributed to the
pre-tax restructuring charge of $6.8 million and the charge
related to the changes in accounting policies of $13.4 million
on an after-tax basis. The additional decrease in net earnings
from 1991 is attributed to declines in the operating earnings of
the fastener segment partially offset by improved results in the
materials segment, lower interest expense and improved results
from the Company's Brazilian affiliate. Included in net earnings
for 1991 was a restructuring credit of $4.4 million and a $1
million favorable adjustment to discontinued operations.
Liquidity and Capital Resources
Management considers liquidity to be the ability to generate
adequate amounts of cash to meet its needs and capital resources
to be the resources from which such cash can be obtained,
principally from operating and external sources. The Company
believes that capital resources available to it will be
sufficient to meet the needs of its business, both on a short-
term and long-term basis.
Cash flow provided by or used for operating activities,
investing activities and financial activities is summarized in
the statements of consolidated cash flow. The 1993 cash flow
provided from operating activities decreased from 1992 due to the
1993 cash expenditures to fund plant consolidations, severance
payments and other restructuring activities. Other line items
that comprise the net cash provided by operating activities and
which materially affected the Company's liquidity are
inventories, income taxes payable and other assets and
liabilities, net. The decrease in inventory levels, which is a
source of cash, lessened as sales decreased over the three year
period. As earnings deteriorated in the years presented, the
cash outflow for income taxes decreased. The source of cash
reflected in the "other assets and liabilities, net" line item
related principally to the 1993 collection of a long-term
receivable of $2.5 million.
14
The changes in cash used by investing activities is
attributed to 1993 proceeds from the sale and liquidation of two
distribution businesses in Europe, 1992 acquisition cost of a new
bonded magnet business for the material segment and 1991 proceeds
from the sale of the Unbrako fastener manufacturing facility in
Mexico and the Hydraulic Tensioning Division in the United
Kingdom. The Company spent $12.2 million for capital
expenditures in 1993 and is budgeting $13 million for 1994, which
approximates depreciation expense. Additionally, cash flow is
expected to be generated from the sale of the corporate
headquarters facility and the manufacturing facility in Puerto
Rico.
The Company's total debt to equity ratio was 87 percent at
December 31, 1993, 49 percent at December 31, 1992 and 37 percent
at December 31, 1991. Total debt was $89.2 million, $70.4
million and $65.6 million at the end of 1993, 1992 and 1991,
respectively. As of December 31, 1993, under the terms of the
existing credit agreements, the Company is permitted to incur an
additional $16 million in debt.
In connection with the 1993 restructuring charge, the
Company reached agreement with its lenders to amend certain loan
agreement covenants. Under the Amended and Restated Bank Credit
Agreement with the lending banks, the Company is prohibited from
paying cash dividends unless waived by the banks or the agreement
is amended. Additional details of the credit agreement with
commercial banks, the industrial bonds and the notes payable to
insurance companies are provided in Note 12 "Long-Term Debt" to
the financial statements.
15
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SPS TECHNOLOGIES, INC.
(Registrant)
Date: November 14, 1994 /s/William M. Shockley
William M. Shockley
Controller
Mr. Shockley is signing on behalf of the registrant and as the
chief financial officer of the registrant.