UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1995
Commission file number 1-4416
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer
101 Greenwood Avenue, Suite 470 Identification No.)
Jenkintown, Pennsylvania 19046
(Address of principal executive offices) (Zip Code)
(215) 517-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
The number of shares of Registrant's Common Stock
outstanding on May 2, 1995 was 5,655,833.
2
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART 1
FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Condensed Statements of Consolidated Operations -
Three Months Ended March 31, 1995 and 1994
(Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1995 and 1994
(Unaudited)
Notes to Condensed Consolidated Financial Statements
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SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars except share data)
Three Months Ended
March 31,
1995 1994
Net sales $ 102,432 $ 81,581
Cost of goods sold 85,137 68,553
Gross profit 17,295 13,028
Selling, general and administrative expense 11,650 10,820
Unusual items:
Restructuring credit (1,500)
Loss on disposal 6,600
Operating earnings (loss) 5,645 (2,892)
Other income (expense):
Interest income 100 105
Interest expense (1,620) (1,718)
Equity in earnings of affiliates 400 210
Other, net (25) 455
(1,145) (948)
Earnings (loss) before income taxes 4,500 (3,840)
Provision for income taxes 1,450 300
Net earnings (loss) $ 3,050 $ (4,140)
Net earnings (loss) per share $ .54 $ (.81)
Average shares outstanding 5,645,971 5,106,961
See accompanying notes to condensed consolidated financial statements.
4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
March 31, December 31,
1995 1994
Assets
Current assets
Cash and cash equivalents $ 10,349 $ 9,472
Accounts and notes receivable,
less allowance for doubtful
receivables of $1,374 (1994-$1,299) 62,010 54,434
Inventories 81,401 77,299
Deferred income taxes 13,705 14,400
Prepaid expenses 2,926 2,379
Net assets held for sale 2,367 2,367
Total current assets 172,758 160,351
Investments in affiliates 15,015 14,841
Property, plant and equipment, net of
accumulated depreciation of $100,887 88,950 87,764
(1994 - $99,736)
Other assets 26,461 26,290
Total assets $ 303,184 $ 289,246
See accompanying notes to condensed consolidated financial statement.
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SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars, except share data)
March 31, December 31,
1995 1994
Liabilities and shareholders' equity
Current liabilities
Notes payable $ 11,157 $ 8,248
Accounts payable 27,925 27,163
Accrued expenses 37,931 35,190
Income taxes payable 1,468 1,259
Total current liabilities 78,481 71,860
Deferred income taxes 10,910 10,955
Long-term debt, less current
installments 58,788 56,426
Retirement obligations 26,026 25,901
Shareholders' equity
Preferred stock, par value $1 per share,
Authorized 400,000 shares, Issued none
Common stock, par value $1 per share,
Authorized 30,000,000 shares,
Issued 6,396,730 shares in 1995
(6,377,256 shares in 1994) 6,397 6,378
Additional paid-in capital 68,591 68,124
Retained earnings 66,766 63,716
Minimum pension liability (1,235) (1,235)
Common stock in treasury, at cost
740,897 shares in 1995 and 1994 (5,990) (5,990)
Cumulative translation adjustments (5,550) (6,889)
Total shareholders' equity 128,979 124,104
Total liabilities and
shareholders' equity $ 303,184 $ 289,246
See accompanying notes to condensed consolidated financial statement.
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SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Three Months Ended
March 31,
1995 1994
Net cash provided (used) by operating
activities $ (1,737) $ 264
Cash flows provided (used) by investing
activities
Additions to property, plant and equipment (2,162) (3,358)
Proceeds from sale of property, plant
and equipment 76 1,051
Acquisition (1,094)
Other, net (76)
Net cash used by investing activities (3,180) (2,383)
Cash flows provided (used) by financing
activities
Proceeds from borrowings 9,100 3,766
Reduction of borrowings (3,923) ( 1,707)
Other, net 487 16
Net cash provided by financing activities 5,664 2,075
Effect of exchange rate changes on cash 130 81
Net increase in cash and cash equivalents 877 37
Cash and cash equivalents at
beginning of period 9,472 6,852
Cash and cash equivalents at
end of period $ 10,349 $ 6,889
See accompanying notes to condensed consolidated financial statements.
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SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited-Thousands of Dollars)
1. Financial Statements
In the opinion of the Company's management, the
accompanying unaudited, condensed consolidated financial
statements contain all adjustments necessary to present
fairly the financial position as of March 31, 1995, the
results of operations for the three-month periods ended
March 31, 1995 and 1994, and cash flows for the three-month
periods ended March 31, 1995 and 1994. The December 31,
1994 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by generally accepted accounting principles. The
accompanying financial statements contain only normal
recurring adjustments. All financial information has been
prepared in conformity with the accounting principles
reflected in the financial statements included in the 1994
Annual Report filed on Form 10-K applied on a consistent
basis.
2. Inventories
March 31, December 31,
1995 1994
Finished goods $ 34,239 $ 35,712
Work-in-process 21,636 17,335
Raw materials
and supplies 17,052 13,952
Tools 8,474 10,300
$ 81,401 $ 77,299
3. Unusual Items
In April 1994, the Company decided to dispose of its
investment in its subsidiary, Ferre Plana, S.A., located in
Barcelona, Spain. The loss on disposal of $6.6 million was
included in the 1994 condensed statement of consolidated
operations as an unusual charge. This disposal charge was
for the write-off of the net assets associated with Ferre
Plana, including the related intangible assets and
cumulative translation adjustment account.
In 1993, the Company recorded a restructuring charge
that included a provision for the liquidation of the
Assembly Systems Division (ASD), a fastener segment product
line. During the first quarter of 1994, the Company
identified a buyer for this product line. As a result of
this modification of the restructuring plan and the related
8
change in estimate, and because actual restructuring costs
were lower than estimated costs, the Company recorded a $1.5
million credit for the reversal of excess reserves
associated with the 1993 restructuring charge. Because the
sale closed on April 22, 1994, the $1.6 million gain on the
sale of ASD's net assets was recorded in the condensed
statement of consolidated operations for the second quarter
of 1994.
4. Income Taxes
The Company's provision for income taxes for the first
quarter of 1994 resulted principally from the inability to
recognize a full tax benefit on the loss on disposal of the
Company's subsidiary in Spain.
5. Earnings Per Share
Per share data was calculated using the weighted
average number of shares outstanding during the periods.
Common share equivalents in the form of stock options have
been excluded from the calculations as their dilutive effect
is not material, or their effect is anti-dilutive.
6. Environmental Contingency
The Company has been identified as a potentially
responsible party by various federal and state authorities
for clean up or removal of waste from various disposal
sites. At March 31, 1995, the accrued liability for
environmental remediation represents management's best
estimate of the costs related to environmental remediation
which are considered probable and can be reasonably
estimated. The measurement of the liability is evaluated
quarterly based on currently available information. As the
scope of the Company's environmental liability becomes more
clearly defined, it is possible that additional reserves may
be necessary. Accordingly, it is possible that the
Company's results of operations in future quarterly or
annual periods could be materially affected. However,
management believes that the overall costs of environmental
remediation will be incurred over an extended period of time
and, as a result, are not expected to have a material impact
on the consolidated financial position of the Company.
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SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
Net earnings for the first quarter of 1995 of $3.1 million
represent a significant improvement over the net loss reported
for the first quarter of 1994. Last year's loss included an
unusual net non-cash charge related to the disposal of the
Company's former subsidiary in Spain. With significant and
continuing improvement in operating performance and with most
markets served by the Company enjoying a favorable economic
environment, the Company's sales, orders and backlog were up
substantially in the first quarter of 1995.
Sales
Net sales in the first quarter of 1995 were $102.4 million,
compared to $81.6 million for the same period in 1994. Sales
increased $20.8 million, or 25.6 percent, compared to the first
quarter of 1994 and increased $11.4 million or 12.6 percent,
compared to the fourth quarter of 1994.
Fastener segment sales were $67.6 million, compared to first
quarter of 1994 sales of $58.1 million, an increase of $9.5
million, or 16.3 percent. Despite continued weakness in the
aerospace fastener market, the Company's aerospace fastener sales
were up 18 percent to $31.2 million in the first quarter of 1995.
The increase in sales volume is attributed to improved operating
efficiencies which have resulted in the Company recapturing
business lost to competitors in prior years. Sales in the
transportation and industrial fastener markets increased by $4.7
million, or 14.8 percent, due to the continuing strength of the
automobile business in the United States and the United Kingdom.
Although automotive production levels in North America for the
first quarter of 1995 exceeded prior year's level, the Company
does not expect this trend to continue throughout 1995.
Materials segment sales were $34.8 million in the first
quarter of 1995 compared to $23.5 million in the first quarter of
1994, an increase of $11.3 million, or 48.5 percent. Sales of
magnetic materials to the domestic automobile and anti-theft
security markets continued to increase compared to prior
quarters. Cobalt-based medical and stainless steel alloy sales
to the air melt investment casting market increased significantly
from the first quarter of 1994 and are expected to remain strong
throughout 1995.
10
Operating Earnings
Excluding the $5.1 million net unusual charge in the prior
year, operating earnings for the fastener segment improved from
$100 thousand in the first quarter of 1994 to $1.9 million in the
first quarter of 1995. The improvement in earnings is attributed
to the higher volume, better pricing of fastener product sales
and to the investment in new state-of-the-art computer controlled
machine tools which have reduced the Company's costs.
In the materials segment, first quarter 1995 operating
earnings of $3.7 million, or 10.7 percent of sales, were up from
$2.1 million, or 8.9 percent of sales, in the first quarter of
1994. This increase in operating earnings is attributed to
higher volume of sales and to efficiencies gained from
significant capital expenditure programs, which are continuing in
1995.
Other Expense
Interest expense decreased from $1.7 million in the first
quarter of 1994 to $1.6 million in the first quarter of 1995.
Lower levels of debt decreased interest expense by approximately
$370 thousand, but higher interest rates caused interest expense
to increase by $270 thousand. The unfavorable change in "other,
net" income is attributed to the approximately $400 thousand gain
from the sale of the Company's airplane in the first quarter of
1994.
Income Taxes
In the first quarter of 1994, the Company incurred a
provision for income taxes despite a pre-tax loss from operations
because of the inability to recognize a full tax benefit on the
loss on disposal of the Company's subsidiary in Spain.
Earnings
The Company recorded net earnings for the first quarter of
1995 of $3.1 million, or $.54 per share, compared to a net loss
of $4.1 million, or $.81 per share, for the first quarter of
1994. Excluding last year's net non-cash unusual charge of $5.1
million, net earnings for 1994 were $960 thousand, or $.19 per
share.
Orders and Backlog
Incoming orders in the first quarter of 1995 were $122.1
million, compared to $92.3 million for the first quarter of 1994
and $90.3 million for the fourth quarter of 1994. The increase
in orders reflects greater demand for the Company's products in
all major markets served in both segments. Backlog at March 31,
1995 was $117.2 million, compared to $95.4 million on the same
date a year ago and $98.5 million at December 31, 1994.
11
Unusual Items
As discussed in Note 3 to the financial statements, the
Company sold its Spanish subsidiary, Ferre Plana, S.A., and a
fastener segment product line, the Assembly Systems Division
(ASD), in 1994. Ferre Plana, S.A., which manufactured commodity
industrial fasteners, had incurred cumulative operating losses of
$9.4 million since it was acquired in 1990, and would have
incurred additional losses and required a substantial cash
investment in 1994. ASD, which manufactured computer-controlled
fastener tightening equipment, had accumulated operating losses
totaling $11.6 million over the past five years. The exit of
these historically unprofitable manufacturing operations allowed
management to focus on and make needed investments into the
Company's more profitable businesses.
Acquisition
On March 3, 1995, the Company executed an Asset Purchase
Agreement with Harvard Industries, Inc. to acquire certain assets
of Harvard's Elastic Stop Nut Division (ESNA) which designs,
manufactures and sells aerospace locknuts and is located in
Union, New Jersey. The acquired assets will be consolidated into
existing aerospace operations in Jenkintown, Pennsylvania and
Santa Ana, California. Following relocation of the machinery and
equipment into existing facilities, the Company will commence
manufacturing certain products previously manufactured by ESNA.
The purchase price of approximately $4.5 million includes value
for machinery and equipment, an agreement not to compete and
other intangible assets.
Liquidity and Capital Resources
Management considers liquidity to be the ability to generate
adequate amounts of cash to meet its needs and capital resources
to be the resources from which such cash can be obtained,
principally from operating and external sources. The Company
believes that capital resources available to it will be
sufficient to meet the needs of its business, both on a short-
term and long-term basis.
Cash flow provided or used by operating activities,
investing activities and financial activities is summarized in
the condensed statements of consolidated cash flows. Consistent
with the increase in sales and orders experienced in the first
quarter, higher accounts receivable and inventory resulted in net
cash used by operating activities for the first quarter of 1995.
The increase in the cash used by investing activities is
attributed to the first quarter 1995 payments related to the ESNA
asset acquisition ($1.1 million) and the first quarter 1994
proceeds from the sale of the Company's aircraft ($1.1 million).
12
The remaining balance of approximately $3.4 million of the ESNA
asset purchase price is expected to be paid out in the second
quarter of 1995. Additionally, the Company spent $2.2 million
for capital expenditures in the first quarter of 1995 and has
budgeted $20.6 million for the full year of 1995, as reported on
Form 10-K for the year ended December 31, 1994.
The Company's total debt to equity ratio was 54 percent at
March 31, 1995 compared to 52 percent at December 31, 1994.
Total debt was $69.9 million at March 31, 1995 and $64.7 million
at December 31, 1994, As of March 31, 1995, under the terms of
the existing credit agreements, the Company is permitted to incur
an additional $36 million in debt and prohibited from paying cash
dividends unless the terms are waived by the lenders or the
agreements are amended.
13
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Dilution (Anti-dilution) of Earnings Per
Share Resulting from Common Stock Equivalents.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995
14
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SPS TECHNOLOGIES, INC.
(Registrant)
Date: May 5, 1995 /s/William M. Shockley
William M. Shockley
Controller
Mr. Shockley is signing on behalf of the registrant and as the
principal financial officer of the registrant.
15
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of Dilution (Anti-dilution)
of Earnings per Share Resulting from
Common Stock Equivalents