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, 1998
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 July 31, 1998 was 12,725,757.
1
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
INDEX
-----
Part I. Financial Information
- -----------------------------
Item 1. Financial Statements
Statements of Consolidated Operations -
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited)
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Comprehensive Income -
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited)
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
- --------------------------
Item 4. Submission of Matters to Vote of Security
Holders
2
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales $ 175,149 $ 153,108 $ 355,014 $ 291,083
Cost of goods sold 133,376 119,691 273,054 228,336
--------- --------- --------- ---------
Gross profit 41,773 33,417 81,960 62,747
Selling, general and
administrative expense 20,904 17,709 41,359 34,261
--------- --------- --------- ---------
Operating earnings 20,869 15,708 40,601 28,486
--------- --------- --------- ---------
Other income (expense):
Interest income 345 98 552 438
Interest expense (2,561) (2,350) (5,141) (4,626)
Equity in earnings (loss)
of affiliates (503) 60 (783) 145
Minority interest (210) (86) (422) (86)
Other, net (320) (590) (447) (797)
--------- --------- --------- ---------
(3,249) (2,868) (6,241) (4,926)
--------- --------- --------- ---------
Earnings before income taxes 17,620 12,840 34,360 23,560
Provision for income taxes 5,900 4,450 11,720 8,050
--------- --------- --------- ---------
Net earnings $ 11,720 $ 8,390 $ 22,640 $ 15,510
========= ========= ========= =========
Earnings per common share:
Basic $ 0.94 $ 0.69 $ 1.82 $ 1.29
========= ========= ========= =========
Diluted $ 0.90 $ 0.66 $ 1.75 $ 1.22
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
June 30, December 31,
1998 1997
-------- ------------
Current assets
Cash and cash equivalents $ 13,967 $ 18,659
Accounts and notes receivable,
less allowance for doubtful
receivables of $2,810 (1997-$2,027) 104,540 84,419
Inventories 109,207 102,466
Deferred income taxes 15,983 17,076
Prepaid expenses and other 5,129 4,268
-------- --------
Total current assets 248,826 226,888
-------- --------
Investments in affiliates 5,205 5,988
Property, plant and equipment, net of
accumulated depreciation of $138,431
(1997-$131,627) 188,809 172,599
Other assets 80,154 66,573
-------- --------
Total assets $522,994 $472,048
======== ========
See accompanying notes to condensed consolidated financial statements.
4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars, except share data)
June 30, December 31,
1998 1997
-------- ------------
Liabilities and shareholders' equity
Current liabilities
Notes payable and current portion of
long-term debt $ 19,043 $ 15,211
Accounts payable 47,902 45,006
Accrued expenses 57,969 54,723
Income taxes payable 4,603 5,563
-------- --------
Total current liabilities 129,517 120,503
-------- --------
Deferred income taxes 16,882 14,799
Long-term debt 112,034 95,507
Retirement obligations 24,720 24,623
Minority interest 1,957 1,826
Shareholders' equity
Preferred stock, par value $1 per share,
authorized 400,000 shares, issued none
Common stock, par value $0.50 per share,
authorized 60,000,000 shares,
issued 13,753,190 shares (13,576,846
shares in 1997) 6,877 6,788
Additional paid-in capital 97,465 92,597
Retained earnings 156,031 133,391
Accumulated other comprehensive income
Minimum pension liability (2,292) (2,292)
Cumulative translation adjustments (9,286) (6,838)
Common stock in treasury, at cost,
1,246,080 shares (1,204,766 shares
in 1997) (10,911) (8,856)
-------- --------
Total shareholders' equity 237,884 214,790
-------- --------
Total liabilities and
shareholders' equity $522,994 $472,048
======== ========
See accompanying notes to condensed consolidated financial statements.
5
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Six Months Ended
June 30,
----------------------
1998 1997
-------- ---------
Net cash provided by operating
activities (including depreciation
and amortization of $14,328 in
1998 and $11,841 in 1997) $ 30,290 $ 24,477
-------- --------
Cash flows provided by (used in)
investing activities
Additions to property, plant and equipment (13,960) (19,480)
Proceeds from sale of property, plant
and equipment 122 1,360
Acquisitions of businesses, net of cash
acquired (22,536) (28,349)
-------- --------
Net cash used in investing activities (36,374) (46,469)
-------- --------
Cash flows provided by (used in) financing
activities
Proceeds from borrowings 27,531 10,663
Reduction of borrowings (26,461) (10,615)
Purchases of treasury stock (812) (333)
Proceeds from exercise of stock options 1,389 1,365
-------- --------
Net cash provided by financing activities 1,647 1,080
-------- --------
Effect of exchange rate changes on cash (255) (201)
-------- --------
Net decrease in cash and cash equivalents (4,692) (21,113)
Cash and cash equivalents at
beginning of period 18,659 33,310
-------- --------
Cash and cash equivalents at
end of period $ 13,967 $ 12,197
======== ========
Significant noncash investing
and financing activities
Debt assumed with businesses acquired $ 19,686 $ 1,578
Acquisition of treasury shares for
stock options exercised $ 1,243 $ 139
See accompanying notes to condensed consolidated financial statements.
6
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - Thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
Net earnings $11,720 $ 8,390 $22,640 $15,510
Other comprehensive
income(expense):
Foreign currency
translation adjustments (765) 1,292 (2,448) (2,494)
------- ------- ------- -------
Total comprehensive income $10,955 $ 9,682 $20,192 $13,016
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
7
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited-Thousands of dollars, except share data)
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, 1998, the results of
operations for the three and six month periods ended June 30,
1998 and 1997, and cash flows for the six month periods ended
June 30, 1998 and 1997. The December 31, 1997 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 1997 Annual Report filed on Form 10-K applied
on a consistent basis.
2. Business Acquisitions
All acquisitions have been accounted for under the
purchase method. The results of operations of the acquired
businesses are included in the consolidated financial
statements from the dates of acquisition.
On March 23, 1998, the Company acquired all of the
outstanding shares of Greenville Metals, Inc. (Greenville), a
manufacturer of specialty metals and alloys, located in
Transfer, Pennsylvania, for $15,500. The excess of the
purchase price over the fair values of the net assets acquired
was approximately $7,700 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 40
years.
On June 30, 1998, the Company acquired all of the
outstanding shares of Terry Machine Company (Terry), a
manufacturer of specialty cold headed fasteners for the
automotive industry, located in Waterford, Michigan, for
$22,300. The excess of the purchase price over the fair
values of the net assets acquired was approximately $7,800 and
has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
On June 30, 1998, the Company also acquired the operating
assets of Howell Penncraft (Penncraft), a manufacturer of
high-speed tool steel and carbide products used in metal
forming, located in Howell, Michigan, for $3,500. The
purchase price approximated the fair value of the net assets
acquired.
8
In January 1997, the Company acquired all of the
outstanding shares of Postkey, Ltd. (Postkey), a manufacturer of
cylindrical thread roll dies, located in Nuneaton, England for
$1,200. The excess of purchase price over the fair values of
the net assets acquired was approximately $860 and has been
recorded as goodwill, which is being amortized on a straight-
line basis over 20 years.
On February 24, 1997, the Company acquired all of the
outstanding shares of Greer Stop Nut, Inc. (Greer), a
manufacturer of nylon insert nuts, located in Nashville,
Tennessee for $10,000. The excess of the purchase price over
the fair values of the net assets acquired was approximately
$5,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 40 years.
On March 7, 1997, the Company acquired the assets of RJF
International Corporation's (RJF) Bonded Magnet Business, a
manufacturer of flexible ferrite bonded magnets, located in
Cincinnati and Marietta, Ohio for $9,200. The excess of the
purchase price over the fair values of the net assets acquired
was approximately $5,200 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 30 years.
On May 5, 1997, the Company acquired all of the outstanding
shares of Lake Erie Design Co., Inc. (LED), a manufacturer of
high precision ceramic cores for the investment casting
industry, located in Wickliffe, Ohio for $8,100. The excess of
the purchase price over the fair values of the net assets
acquired was approximately $6,500 and has been recorded as
goodwill, which is being amortized on a straight-line basis over
30 years.
On September 23, 1997, the Company acquired all of the
outstanding shares of Mohawk Europa Limited (Mohawk), a
specialty cutting tool manufacturer, located in Shannon, Ireland
for $9,100. The purchase price approximated the fair value of
the net assets acquired.
On December 2, 1997, the Company acquired all of the
outstanding shares of Magnetic Technologies Corporation (MTC), a
designer and manufacturer of magnetic, electronic, and
mechanical subassemblies of copiers and printers for the
electronic office equipment industry, located in Rochester, New
York and Rochester, England for $14,400. Approximately $9,600
was paid in cash and the remainder in common stock of the
Company. The excess of the purchase price over the fair values
of the net assets acquired was approximately $8,700 and has been
recorded as goodwill, which is being amortized on a straight-
line basis over 40 years.
9
The following unaudited pro forma consolidated results of
operations are presented as if the Greenville, Terry,
Penncraft, Greer, RJF, LED, Mohawk and MTC acquisitions had
been made at the beginning of the periods presented. The
effects of the Postkey acquisition is not material and,
accordingly, has been excluded from the pro forma
presentation.
Six Months Ended
June 30,
--------------------
1998 1997
-------- --------
Net sales $383,507 $351,139
Net earnings 22,589 16,712
Basic earnings
per common share 1.82 1.37
Diluted earnings
per common share 1.75 1.32
The pro forma consolidated results of operations include
adjustments to give effect to amortization of goodwill,
interest expense on acquisition debt and certain other
adjustments, together with related income tax effects. The
unaudited pro forma information is not necessarily indicative
of the results of operations that would have occurred had the
purchase been made at the beginning of the periods presented
or the future results of the combined operations.
3. Inventories
June 30, December 31,
1998 1997
-------- ------------
Finished goods $ 39,659 $ 38,222
Work-in-process 39,096 36,871
Raw materials
and supplies 24,208 20,843
Tools 6,244 6,530
-------- --------
$109,207 $102,466
======== ========
The June 30, 1998 inventory balances include $7,100
of inventory from businesses acquired in 1998.
4. 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, 1998, the accrued liability for environmental
remediation represents management's best estimate of the
undiscounted costs related to environmental remediation which
are considered probable and can be reasonably estimated.
Management believes the overall costs of environmental
remediation will be incurred over an extended period of time.
The Company has not included any insurance recovery in the
10
accrued environmental liability. 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.
Management does not anticipate that its consolidated financial
condition will be materially affected by environmental
remediation costs in excess of amounts accrued.
5. Common Stock Split
On July 29, 1997, the Company's Board of Directors approved
a two-for-one split of its common stock, effective August 20,
1997, distributed to shareholders on August 29, 1997. In
conjunction with the stock split, the Board of Directors also
approved a reduction in the par value of the common shares from
$1.00 to $0.50, and increased the number of authorized common
shares from 30,000,000 to 60,000,000. All share and per share
data for prior periods presented have been restated to reflect
the stock split.
6. Per Share Data
Earnings per share amounts have been restated in
accordance with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." This restatement resulted in
no material change from amounts previously reported. Earnings
per share are computed as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net earnings $ 11,720 $ 8,390 $ 22,640 $ 15,510
=========== =========== =========== ===========
Average shares of
common stock
outstanding used
to compute basic
earnings per
common share 12,454,097 12,079,232 12,415,615 12,057,184
Additional common
shares to be
issued assuming
exercise of stock
options, net of
shares assumed
reacquired 527,941 642,554 505,587 642,564
----------- ----------- ----------- -----------
Shares used to
compute dilutive
effect of stock
options 12,982,038 12,721,786 12,921,202 12,699,748
=========== =========== =========== ===========
11
Basic earnings per
common share $0.94 $0.69 $1.82 $1.29
===== ===== ===== =====
Diluted earnings per
common share $0.90 $0.66 $1.75 $1.22
===== ===== ===== =====
7. Recently Issued Accounting Standards
During the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income." This Statement establishes
standards for reporting and disclosing comprehensive income
and its components. Comprehensive income includes all changes
in equity except those resulting from investments by owners
and distribution to owners.
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." This Statement establishes standards for
reporting segment results based on the way management
organizes segments within the enterprise for making operating
decisions and assessing performance. This Statement is
effective for financial statements for periods beginning after
December 15, 1997. This Statement need not be applied to
interim financial statements in the initial year of its
application. The Company will adopt SFAS No. 131 in the
fourth quarter of 1998. Under the management approach
described in SFAS No. 131, the Company expects to replace its
fasteners and materials segments with fasteners, precision
tools, specialty materials and magnetic materials operating
segments.
In February 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." This Statement revises the
required disclosures for employee benefit plans, but it does
not change the measurement or recognition of such plans. This
Statement is effective for financial statements for periods
beginning after December 15, 1997. This Statement need not be
applied to interim financial statements in the initial year of
its application. The Company will adopt SFAS No. 132 in the
fourth quarter of 1998, and is still evaluating its impact on
the Company's retirement plans and other benefits disclosures.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement requires that all derivative
instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income,
12
depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge
transaction. This Statement is effective for all interim
period financial statements for fiscal years beginning after
June 15, 1999. The Company will adopt SFAS No. 133 in the
first quarter of 2000. The Company anticipates that, due to
its limited use of derivative instruments, the adoption of
SFAS No. 133 will not have a material effect on the Company's
results of operations or its financial position.
13
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations
- -------------------------
Introduction
- ------------
Sales, net earnings and net cash provided by operating
activities are a major improvement over the corresponding periods
in the prior year. With the inclusion of businesses acquired in
1997 and 1998, all business groups within the fasteners and
materials segments contributed to the improvement in operating
results. In the first six months of 1998, the Company completed
three acquisitions which expands the product offerings of the
related business groups.
Sales and Operating Earnings by Segment
- ---------------------------------------
(Unaudited-Thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net sales:
Fasteners $110,362 $102,999 $223,404 $195,981
Materials 64,787 50,109 131,610 95,102
-------- -------- -------- --------
$175,149 $153,108 $355,014 $291,083
======== ======== ======== ========
Operating earnings:
Fasteners $ 14,829 $ 10,912 $ 28,443 $ 20,193
Materials 8,775 7,346 17,543 13,153
Unallocated
corporate costs (2,735) (2,550) (5,385) (4,860)
-------- -------- -------- --------
$ 20,869 $ 15,708 $ 40,601 $ 28,486
======== ======== ======== ========
Net Sales
- ---------
Net sales increased $22.0 million, or 14.4 percent, in the
second quarter of 1998 and $63.9 million, or 22.0 percent, for the
six month period ended June 30, 1998 compared to the same periods
in 1997.
Fastener segment sales increased $7.4 million, or 7.1 percent,
in the second quarter of 1998 and $27.4 million, or 14.0 percent,
for the six month period. The Company's aerospace fastener sales
were up 15.1 percent to $62.1 million in the second quarter and
20.3 percent to $124.4 million for the six month period. The
Company believes that demand for aerospace fasteners in 1998 should
remain relatively high given the forecasted build rates for new
aircraft and the ongoing need for maintenance and repair parts for
the aging fleet of commercial and military aircraft. While
aerospace orders did level off in the first half of 1998, the
14
Company believes that production volume should remain at a level
that will continue to generate reasonable profits and significant
free cash flow.
The Company's automotive and industrial fastener sales
decreased $1.7 million, or 3.9 percent, compared to the second
quarter of 1998 but increased $3.5 million, or 4.1 percent, for the
six month period. Modest growth in sales of fasteners manufactured
in North America and Europe have been offset by a decrease in sales
of fasteners manufactured in Brazil and Australia. The overall
weakness of the Brazilian economy and increased fastener industry
capacity has adversely affected the Company's Brazilian operation.
The Company's Australian operation was adversely affected by weak
conditions in the automotive industry as a result of the Asian
economic slowdown.
The fastener segment includes sales by the Precision Tool
Group. This group was formed to build a full service, global tool
business focusing on precision consumable tools used for metal
forming and cutting. Due primarily to the acquisition of Mohawk
Europa Limited (Mohawk) on September 23, 1997, this group increased
sales by $3.5 million in the second quarter and $7.0 million for
the six month period.
Material segment sales increased $14.7 million, or 29.3
percent, in the second quarter of 1998 and $36.5 million, or 38.4
percent, for the six month period. Material segment acquisitions
made after the second quarter of 1997, primarily Magnetic
Technologies Corporation (MTC) and Greenville Metals, Inc.,
accounted for $11.4 million of the increased sales in the second
quarter and $18.2 million of the increased sales in the six month
period. Superalloy sales by the Cannon-Muskegon Corporation
increased $2.1 million in the second quarter and $7.5 million in
the six month period. Superalloy sales benefited from strong
demand from the aerospace and medical markets.
Operating Earnings
- ------------------
Operating earnings of the fasteners segment improved signif-
icantly from $20.2 million, or 10.3 percent of sales, for the six
months ended June 30, 1997, to $28.4 million, or 12.7 percent of
sales, for the six months ended June 30, 1998. The improvement in
earnings is attributed to increased sales of aerospace fasteners
and improved operating efficiencies in all fastener businesses as a
result of the aggressive capital expenditure programs over the past
three years. The operating earnings from Mohawk (acquired on
September 23, 1997) also contributed to this increase.
In the materials segment, operating earnings increased by $1.4
million in the second quarter and $4.4 million for the six month
period. The improvement in operating earnings is attributed to
increased volume of superalloy sales and operating earnings from
the recently acquired material businesses noted above.
15
Other Income and Expense
- ------------------------
Due to higher levels of debt, interest expense increased from
$4.6 million in the first six months of 1997 to $5.1 million in the
first six months of 1998. The $783 thousand loss in equity in
earnings of affiliates is the result of losses incurred by the
Company's affiliates in China and India. The loss from the Chinese
joint venture is primarily due to the significant decrease in sales
(27 percent or $1.3 million). The loss from the India affiliate is
primarily due to the writeoff of certain receivables and higher
interest expense. A portion of the profits before tax reported by
Mecair and National-Arnold Magnetics Company have been offset in
minority interest because the Company owns less than 100 percent of
these consolidated subsidiaries. Minority interest was $422
thousand in the first half of 1998.
Orders and Backlog
- ------------------
Incoming orders for the second quarter of 1998 were $166.9
million compared to $161.1 million in 1997, a 3.6 percent increase.
Incoming orders for the six months ended June 30, 1998 were $350.6
million compared to $324.5 million for the same period in 1997, an
8.1 percent increase. Recently acquired businesses (primarily
Mohawk, MTC and Greenville) increased orders by $18.3 million for
the quarter and $31.5 million for the six month period. Partially
offsetting these increases was a decrease in orders received for
aerospace fasteners ($13.5 million for the quarter and $15.8
million for the six month period). The decrease in aerospace
orders is attributed to extended delivery times for certain
aerospace products due to the high backlog of orders and to a
flattening of current demand for aerospace fasteners, particularly
in the United States. Backlog at June 30, 1998 was $245.9 million,
compared to $221.8 million on the same date a year ago and $251.1
million at December 31, 1997.
Acquisitions
- ------------
As discussed in Note 2 to the financial statements, the
Company acquired three businesses in the first six months of 1998.
On March 23, 1998, the Company acquired all of the outstanding
shares of Greenville Metals, Inc. (Greenville) located in Transfer,
Pennsylvania, for $15.5 million. Greenville manufactures master
alloy ingot and shot, foundry additive products, miscellaneous
induction alloys and refines and converts scrap for a wide variety
of customers. In 1997, Greenville had sales of approximately $20.5
million. Greenville's capabilities complement and expand those of
the Cannon-Muskegon Corporation and the Company expects future
benefits from the operational synergies that can be achieved
between Cannon-Muskegon and Greenville. On June 30, 1998, the
Company acquired all of the outstanding shares of Terry Machine
Company (Terry) located in Waterford, Michigan, for $22.3 million.
Terry manufactures specialty cold headed fasteners for the
automotive industry and had sales for the twelve months ended April
30, 1998 of approximately $37.2 million. This acquisition expands
16
the Company's automotive product lines at a time when auto makers
are attempting to limit the number of suppliers they do business
with. On June 30, 1998, the Company purchased the operating assets
of Howell Penncraft (Penncraft) located in Howell, Michigan, for
$3.5 million. Penncraft is a manufacturer of high-speed tool steel
and carbide products used in metal forming. This acquisition
expands the product range and geographic sales coverage of the
Company's Precision Tool Group.
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 financing activities is summarized in the condensed
statements of consolidated cash flows. Net cash provided by
operating activities increased by $5.8 million compared to the
first six months of 1997 primarily due to the $7.1 million
improvement in net earnings.
The decrease in cash used in investing activities is
attributed to the 1998 payments for the acquisitions of Greenville
($9.7 million), Terry ($8.4 million) and Penncraft ($4.0 million)
versus the 1997 payments for the acquisitions of Greer Stop Nut,
Inc. ($10 million), RJF International Corporation's bonded magnet
business ($9.2 million) and Lake Erie Design Co., Inc. ($7.8
million). In January 1997, the Company sold land and a building
located in Puerto Rico, a former site of an Unbrako manufacturing
operation closed in 1992, for $1.1 million and these proceeds are
included in the consolidated cash flow from investing activities.
Additionally, the Company spent $14.0 million for capital
expenditures in the first six months of 1998 and has budgeted $30.0
million for the full year of 1998, as reported on Form 10-K for the
year ended December 31, 1997.
The Company's total debt to equity ratio was 55 percent at
June 30, 1998, compared to 52 percent at December 31, 1997. Total
debt was $131.1 million at June 30, 1998 and $110.7 million at
December 31, 1997. As of June 30, 1998, under the terms of the
existing credit agreements, the Company is permitted to incur an
additional $106 million in debt. In the second quarter of 1998,
the Company amended its Bank Credit Agreement and $85 million Note
Purchase Agreement to, among other items, redefine the covenants
which limit the Company's total allowable debt. The redefined
covenants use net worth versus tangible net worth in the maximum
leverage ratio computation, thus increasing the amount of
borrowings allowed under these debt agreements.
17
Forward-Looking Statements
- --------------------------
Certain statements in management's discussion and analysis of
financial condition and results of operations contain "forward-
looking" information, within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve risk and uncertainty.
The Company's expectations of demand for aerospace fasteners and
its effect on the Company's aerospace operations and future
benefits from operational synergies with newly acquired companies
are "forward looking" statements contained in management's
discussion and analysis of financial condition and results of
operations. Actual future results may differ materially depending
on a variety of factors, such as: the effects of competition on
products and pricing, customer satisfaction and qualification
issues, labor disputes, worldwide political and economic stability
and changes in fiscal policies, laws and regulations on a national
and international basis. The Company undertakes no obligation to
publicly release any forward-looking information to reflect
anticipated or unanticipated events or circumstances after the
date of this document.
18
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
PART II
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OTHER INFORMATION
-----------------
Item 4. Submission of Matters to Vote of Security Holders
- ---------------------------------------------------------
(a) The Annual Meeting of Shareholders was held on April 28, 1998.
(b) The name of each director elected at the Annual Meeting as the
Company's three Class I directors, each to hold office until
the 2001 Annual Meeting of Shareholders, is as follows:
Howard T. Hallowell, III
Charles W. Grigg
Richard W. Kelso
The name of each other director whose term of office continued
after the meeting is as follows:
Harry J. Wilkinson
Eric M. Ruttenberg
Raymond P. Sharpe
James F. O'Connor
(c) The results of the election of directors with respect to each
nominee for office was as follows:
For Withheld
--------- --------
Howard T. Hallowell, III 9,443,053 57,538
Charles W. Grigg 9,442,865 57,726
Richard W. Kelso 9,442,253 58,338
19
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.
----------------------
Date: August 10, 1998 /s/William M. Shockley
----------------------
William M. Shockley
Vice President, Chief
Financial Officer and
Controller
Mr. Shockley is signing on behalf of the registrant and as the
Chief Financial Officer of the registrant.
20