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 June 30, 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 August 1, 1995 was 5,671,155.
2
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART 1
FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Condensed Statements of Consolidated Operations -
Three and Six Months Ended June 30, 1995
and 1994 (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1995 and 1994
(Unaudited)
Notes to Condensed Consolidated Financial Statements
3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars except share data)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Net sales $ 100,581 $ 87,865 $ 203,013 $ 169,446
Cost of goods sold 81,858 73,052 166,995 141,605
Gross profit 18,723 14,813 36,018 27,841
Selling, general and
administrative expense 12,163 10,789 23,813 21,609
Unusual items:
Restructuring credit (1,600) (3,100)
Loss on disposal 6,600
Operating earnings 6,560 5,624 12,205 2,732
Other income (expense):
Interest income 166 71 266 176
Interest expense (1,560) (1,679) (3,180) (3,397)
Equity in earnings
of affiliates 614 568 1,014 778
Other, net (125) 66 (150) 521
(905) (974) (2,050) (1,922)
Earnings before income taxes 5,655 4,650 10,155 810
Provision for income taxes 1,730 950 3,180 1,250
Net earnings (loss) $ 3,925 $ 3,700 $ 6,975 $ ( 440)
Primary and fully diluted
earnings (loss) per share $ .67 $ .72 $ 1.20 $ (.09)
Weighted average number of
common shares used to compute
earnings (loss) per share 5,832,312 5,107,934 5,794,737 5,107,469
See accompanying notes to condensed consolidated financial statements.
4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
June 30, December 31,
1995 1994
Assets
Current assets
Cash and cash equivalents $ 8,400 $ 9,472
Accounts and notes receivable,
less allowance for doubtful
receivables of $1,253 (1994-$1,299) 63,439 54,434
Inventories 80,684 76,299
Deferred income taxes 13,265 14,400
Prepaid expenses 2,270 2,379
Net assets held for sale 2,362 2,367
Total current assets 170,420 159,351
Investments in affiliates 16,545 14,841
Property, plant and equipment, net of
accumulated depreciation of $100,265
(1994-$99,736) 93,751 88,764
Other assets 27,308 26,290
Total assets $308,024 $ 289,246
The 1994 amounts have been reclassified for comparative purposes.
See accompanying notes to condensed consolidated financial statements.
5
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars, except share data)
June 30, December 31,
1995 1994
Liabilities and shareholders' equity
Current liabilities
Notes payable $ 5,076 $ 8,248
Accounts payable 25,479 27,163
Accrued expenses 37,093 35,190
Income taxes payable 1,865 1,259
Total current liabilities 69,513 71,860
Deferred income taxes 10,894 10,955
Long-term debt, less current installments 68,233 56,426
Retirement obligations 26,133 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 6,408,252 shares in 1995
(6,377,256 shares in 1994) 6,408 6,378
Additional paid-in capital 68,896 68,124
Retained earnings 70,691 63,716
Minimum pension liability (1,235) (1,235)
Common stock in treasury, at cost
740,922 shares in 1995 (740,897
shares in 1994) (5,991) (5,990)
Cumulative translation adjustments (5,518) (6,889)
Total shareholders' equity 133,251 124,104
Total liabilities and
shareholders' equity $308,024 $289,246
See accompanying notes to condensed consolidated financial statements.
6
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Six Months Ended
June 30,
1995 1994
Net cash provided (used) by operating
activities $ 1,894 $ (916)
Cash flows provided (used) by investing
activities
Additions to property, plant and equipment (8,808) (5,653)
Proceeds from divestitures 2,123
Proceeds from sale of property, plant
and equipment 344 1,152
Acquisitions (3,980)
Other, net (86)
Net cash used by investing activities (12,444) (2,464)
Cash flows provided (used) by financing
activities
Proceeds from borrowings 18,200 11,560
Reduction of borrowings (9,565) (8,326)
Other, net 800 34
Net cash provided by financing activities 9,435 3,268
Effect of exchange rate changes on cash 43 304
Net increase (decrease) in cash and
cash equivalents (1,072) 192
Cash and cash equivalents at
beginning of period 9,472 6,852
Cash and cash equivalents at
end of period $ 8,400 $ 7,044
See accompanying notes to condensed consolidated financial statements.
7
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 June 30, 1995, the
results of operations for the three and six-month periods
ended June 30, 1995 and 1994, and cash flows for the six-
month periods ended June 30, 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
June 30, December 31,
1995 1994
Finished goods $ 38,006 $ 35,712
Work-in-progress 19,799 17,335
Raw materials
and supplies 14,524 13,952
Tools 8,355 9,300
$ 80,684 $ 76,299
3. Unusual Items
In 1994, the Company disposed of its investment in its
subsidiary, Ferre Plana, S.A., located in Barcelona, Spain.
The loss on disposal of $6,600 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.
8
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. In 1994, the Company was able to sell this product
line. As a result of this modification of the restructuring
plan and the related change in estimate, and because actual
restructuring costs were lower than estimated costs, the
Company recorded a $1,500 credit for the reversal of excess
reserves in the first quarter of 1994. Additionally, the
Company recorded a $1,600 gain on the sale of ASD's net
assets in the second quarter of 1994.
4. Income Taxes
For the six months ended June 30, 1994, the effective
tax rate is higher than the statutory tax rate due to the
inability to recognize a full tax benefit on the disposal
loss of the Company's subsidiary in Spain.
5. Earnings Per Share
Earnings or loss per share is computed by dividing net
income by the weighted average number of common shares
outstanding. When dilutive, stock options are included as
common share equivalents.
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 June 30, 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.
9
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
The Company's operating results, excluding the effects of
unusual items, are a major improvement over the corresponding
periods in the prior year. The improvement in operating results
was due primarily to significant increases in the operating
performance of the Aerospace Products Division and the Arnold
Engineering Company, which manufactures and sells magnetic
materials. The Company's sales, orders and backlog were up
substantially in 1995.
Sales and Operating Earnings by Segment
(Unaudited-Thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Net Sales:
Fasteners $ 66,567 $ 60,543 $134,175 $118,674
Materials 34,014 27,322 68,838 50,772
$100,581 $ 87,865 $203,013 $169,446
Operating Earnings:
Fasteners $ 3,012 $ 2,846 $ 4,914 $ (2,082)
Materials 3 548 2,778 7,291 4,814
$ 6,560 $ 5,624 $ 12,205 $ 2,732
Net Sales
Net sales increased $12.7 million, or 14.5 percent, in the
second quarter of 1995 and $33.6 million, or 19.8 percent, for
the six month period ended June 30, 1995 compared to the same
periods in 1994.
Fastener segment sales increased $6 million, or 10 percent,
in the second quarter and $15.5 million, or 13.1 percent, for the
six month period. Despite continued weakness in the aerospace
market, the Company's aerospace fastener sales were up 12.2
percent to $31.4 million in the second quarter and 15 percent to
$62.6 million for the six month period. Sales volume has
increased due to improved operating efficiencies which have
resulted in the Company recapturing business lost to competitors
in prior years. Additional product lines gained from the ESNA
acquisition and certain inventory adjustments in the supply chain
also contributed
10
to the increase in aerospace fastener's volume of sales and
orders. Sales in the transportation and industrial fastener
markets increased $2.6 million, or 8 percent, in the second
quarter and $7.3 million, or 11.4 percent, for the six month
period. The strengthening European economy resulted in higher
sales volume of both automotive and Unbrako products manufactured
in England and Ireland. Second quarter automotive fastener sales
in the United States remained level with the second quarter of
1994. The increase in automotive production levels in North
America that occurred in the first quarter of 1995 did not
continue into the second quarter.
Materials segment sales increased by $6.7 million, or 24.5
percent, in the second quarter and $18.1 million, or 35.6
percent, for the six month period. Strong demand for bonded
magnetics by automotive customers and other magnetic materials by
the anti-theft security system and power supply equipment
manufactures has resulted in a higher sales volume of magnetic
materials in 1995. Stainless steel alloy sales to the air melt
investment casting market increased significantly from the 1994
periods and are expected to remain strong throughout 1995.
Operating Earnings
Excluding the net unusual charge in the prior year periods,
operating earnings for the fastener segment improved by $1.8
million in the second quarter and $3.5 million for the six month
period. The improvement in earnings is attributed to higher
sales volume, better pricing of fastener product sales and to
investment in new state-of-the-art computer controlled machine
tools which have reduced the Company's costs.
Operating earnings for the materials segment improved by
$770 thousand in the second quarter and $2.5 million for the six
month period. Higher sales of magnetic materials coupled with
control of related fixed cost accounted for a $1.2 million
increase in the second quarter and $2.1 million increase in the
six month period. Despite higher sales of superalloys, the
contribution to operating earnings decreased in the second
quarter and increased by $400 thousand for the six month period.
Lower earnings on second quarter superalloy sales is attributed
to an unfavorable product mix compared to 1994.
Other Expense
Interest expense decreased from $3.4 million for the first
six months of 1994 to $3.2 million for the first six months of
1995. Lower levels of debt decreased interest expense by
approximately $670 thousand, but higher interest rates caused
interest expense to increase by $450 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.
11
Income Taxes
For the six months ended June 30, 1994, the effective tax
rate is higher than the statutory tax rate due to the inability
to recognize a full tax benefit on the disposal loss of the
Company's subsidiary in Spain.
Earnings
The Company recorded second quarter 1995 net earnings of
$3.9 million or $.67 per share, compared to net earnings of $2.1
million or $.41 per share for the second quarter of 1994 prior to
recording a gain of $1.6 million or $.31 per share on the sale of
the Assembly Systems Division's net assets in April of 1994.
Including the 1994 non-recurring gain, the net earnings for the
second quarter of 1994 were $3.7 million or $.72 per share.
Net earnings were $7 million, or $1.20 per share for the six
months ended June 30, 1995 compared to a net loss of $440
thousand or $.09 per share in 1994. Excluding a net unusual
charge, of $3.5 million or $.69 per share in 1994, prior year's
earnings would have been $3.1 million or $.60 per share.
Orders and Backlog
Incoming orders for the second quarter of 1995 were $113.8
million compared to $94.9 million in 1994, a 20 percent increase.
Incoming orders for the six months ended June 30, 1995 were
$235.9 million compared to $187.2 million for the same period in
1994, a 26 percent increase. The increase in orders was due
primarily to increased orders received by the Aerospace Products
Division and the materials segment. Backlog at June 30, 1995 was
$127.6 million, compared to $101.9 million on the same date a
year ago and $98.5 million at December 31, 1994.
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.
12
Acquisitions
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 are being consolidated
into existing aerospace operations in Jenkintown, Pennsylvania
and Santa Ana, California. After relocation of the machinery and
equipment into existing facilities, the Company commenced
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.
On June 30, 1995, the Company paid approximately $1 million
to increase its ownership interest in Unbrako K.K. to 100
percent. Unbrako K.K., located in Tokyo, Japan, was previously
owned by Pacific Products Limited, a joint venture in which the
Company had a 50 percent interest. Unbrako K.K. is a distributor
of the Company's Unbrako and aerospace products in the Japanese
market.
During the third quarter of 1995, the Company expects to
execute a purchase agreement to acquire approximately 48 percent
of the outstanding stock of Metalac S.A. Industria e Comercio
(Metalac) located in Sao Paulo, Brazil. The acquisition, which
is subject to various regulatory approvals in Brazil, will
increase the Company's ownership to approximately 95 percent.
The Company intends to make a public tender offer for the
remaining 5 percent of the outstanding shares. Metalac is a
leading manufacturer and distributor of industrial and automotive
fasteners in Brazil. In 1994, Metalac reported sales of
approximately $25 million and net earnings of approximately $2.5
million.
On August 3, 1995, the Company announced it has signed a
non-binding Letter of Intent to purchase the business of Magnetic
Specialty, Inc. (MSI) located in Marietta, Ohio. MSI designs,
manufactures and sells a broad range of flexible bonded magnets.
The Company intends to combine this acquisition with the Arnold
Engineering Company. Completion of the transaction is subject to
a number of conditions including a due diligence review and
negotiation of a definitive agreement.
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.
13
Cash flow provided or used by operating activities,
investing activities and financial activities is summarized in
the condensed statements of consolidated cash flows. The
increase of $2.8 million in net cash provided by operating
activities is attributed to the decrease in cash used for
restructuring activities ($400 thousand in 1995 versus $5.8
million in 1994) partially offset by higher accounts receivable
and inventory balances at June 30, 1995. The increase in the
Company's working capital is consistent with the increase in
sales activity.
The increase in cash used by investing activities is
attributed to 1995 payments for ESNA asset acquisition ($2.9
million) and the Company's increase in ownership interest in
Unbrako K.K. ($1 million) versus 1994 proceeds from the sale of
ASD ($2.1 million) and the Company's aircraft ($1.1 million).
The remaining balance of approximately $1.6 million for the ESNA
asset purchase price is expected to be paid in the third quarter
of 1995. Additionally, the Company spent $8.8 million for
capital expenditures in the first six months 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 55 percent at
June 30, 1995, compared to 52 percent at December 31, 1994.
Total debt was $73.3 million at June 30, 1995 and $64.7 million
at December 31, 1994. As of June 30, 1995, under the terms of
the existing credit agreements, the Company is permitted to incur
an additional $28 million in debt.
14
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 2, 1995.
(b) The name of each director elected at the Annual Meeting as
the Company's two Class I directors, each to hold office
until the 1998 Annual Meeting of Shareholders, is as
follows:
Charles W. Grigg
Howard T. Hallowell III
The name of each other director whose term of office
continued after the meeting is as follows:
Dr. John F. Lubin
Raymond P. Sharpe
Paul F. Miller, Jr.
Eric M. Ruttenberg
Harry J. Wilkinson
(c) 1. The results of the election of directors with respect
to each nominee for office was as follows:
For Withheld
Charles W. Grigg 4,969,737 130,324
Howard T. Hallowell III 4,980,325 119,736
2. A proposal to amend the SPS 1988 Long Term Incentive
Stock Plan received 2,685,437 votes for and 645,293
votes against, with 1,404,580 abstentions and 19,574
broker non-votes.
3. A shareholder proposal concerning the annual election
of directors received 973,559 votes for and 2,331,316
votes against, with 1,430,435 abstentions and 19,574
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Share Statement.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
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: August 10, 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.
16
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of Earnings Per Share
Statement