UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 Identification No.)
101 Greenwood Avenue, Suite 470
Jenkintown, Pennsylvania 19046
(Address of principal executive offices) (Zip Code)
(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 $0.50 on Which Registered
Per Share New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 9, 1999, was approximately $489,057,000.
The number of shares of registrant's common stock outstanding on March 9,
1999 was 12,687,070.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 13, which contains portions of the 1998 Annual Report to
Shareholders of the registrant is incorporated by reference in Parts I, II and
IV of this Report. Portions of the Definitive Proxy Statement of registrant, if
filed with the Securities and Exchange Commission within 120 days after December
31, 1998, are incorporated by reference in Part III of this report. To the
extent not so filed, such information will be provided on a Form 10-K/A filed
with the Securities and Exchange Commission.
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I
Item 1. BUSINESS
SPS Technologies, Inc. and subsidiaries (the "Company") was incorporated
in Pennsylvania in 1903. The Company is engaged in the design, manufacture and
marketing of fasteners, specialty materials, magnetic materials, aerospace
structures and precision tools. The Company is multinational in operation. In
addition to 18 manufacturing plants in the United States, it operates 15
manufacturing facilities in five different countries: England, Ireland, Canada,
Brazil and Australia. The Company also has a 55% interest in a manufacturing
operation in China and a minority interest in a manufacturing operation in
India. Marketing operations are carried on by subsidiaries in five other
countries.
In 1998, the Company's sales and net earnings continued to increase. The
improvement in operating results was primarily the result of increased sales of
aerospace fasteners and specialty materials and the inclusion of the operating
results of the businesses acquired during the past three years. The Company's
businesses continued to develop and expand through its capital expenditure and
"bolt on" acquisition programs. In 1998, the Company acquired the Chevron
Aerospace Group, which marks the Company's expansion into the production of
aerospace structural components. The Company also initiated further downsizing
of its automotive fastener manufacturing operation in Coventry, England.
Additional information regarding the general development of business operations
in 1998 is provided in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The Company is organized as seven business groups that have been
aggregated into four reportable segments for financial reporting purposes. The
four reportable segments are: Fasteners, Specialty Materials and Alloys,
Magnetic Materials and Other. The Fasteners segment consists of three business
groups which produce fasteners for the aerospace, automotive and industrial
machinery markets. Principal fastener products are SPS(R) aerospace fasteners,
MULTIPHASE(R) alloy fasteners and other aerospace fasteners; UNBRAKO(R) brand
socket screws, hex keys, dowel pins, FLEXLOC(R) all-metal locknuts, Greer Stop
Nuts(TM), SPS micro screws and SPS Non-Ferrous nuts and bolts, and engineered
fasteners and precision components for gasoline and diesel engines, other
critical and non-critical automotive applications, and off-highway equipment.
The Specialty Materials and Alloys (SMA) segment produces specialty metals,
melting services, superalloys and ceramic cores for the manufacture of
components for aerospace, industrial gas turbine, medical and general
engineering applications. Principal SMA products are air and vacuum-melted iron,
cobalt, and nickel-based superalloys, including CMSX(R) single-crystal alloys.
The Magnetic Materials segment produces magnetic materials and products for the
automotive, aerospace, reprographic, computer security and advertising specialty
markets. Principal magnetic materials products are metallic and ceramic
permanent magnets, wound and pressed powder magnetic components, bonded
magnetics, magnetic components and assemblies and magnetic ultra-thin foil and
strip products. The Other segment consists of two business groups which produce
structural assemblies for the aerospace market and precision consumable tools
used for metal forming and cutting. Principal products of the Other segment are
precision machined components, sheetmetal fabrications, avionic assemblies and
HI-LIFE(R) thread roll dies and other metalworking tools.
The Company sells directly to original equipment manufacturers and
industrial, commercial and governmental users, and also sells through
independent stocking distributors and dealers. There were no changes in the
methods of distribution during 1998.
The principal sources of raw materials include major and specialty steel
producers, and non-ferrous metal producers, converters and distributors. The
Company anticipates it will have no significant problem with respect to sources
or availability of the raw materials essential to the conduct of its business.
The Company owns certain trademarks and patents that it considers to be
of importance to its four segments. The principal trademarks of the Company
include SPS(R), ARNOLD(R), FLEXLOC(R), MULTIPHASE(R), MP35N(R), MP159(R),
UNBRAKO(R), U130(R), CMSX(R), PLASTIFORM(R) and HI-LIFE(R). The trademarks have
been registered in the United States and certain foreign countries. Generally,
trademark registrations are valid so long as the trademarks registered are used
and renewal of the registration is timely made. United States patents of the
Company expire at various times over the next 17 years. Patents covering the
CMSX-4, CMSX-10 and CM 247
2
LC superalloys are of particular importance in protecting the proprietary
superalloy technology of the Company's subsidiary, Cannon-Muskegon Corporation.
However, the Company does not believe that its business as a whole is dependent
on any one or more patents or trademarks or on patent or trademark protection
generally.
No material portion of the Company's business in any segment is seasonal.
No material part of the Company's business is dependent upon a single
customer. In 1998, the five largest customers accounted for 16% of the Company's
reported consolidated sales.
The backlog of orders at December 31, which represents firm orders with
scheduled delivery within the next twelve months was as follows (in thousands of
dollars):
1998 1997
-------- --------
Fasteners segment $186,771 $192,703
Specialty Materials and Alloys segment 28,444 20,773
Magnetic Materials segment 29,259 33,795
Other 51,643 3,866
-------- --------
Total $296,117 $251,137
======== ========
The Company's business is highly competitive. Competition is based
primarily on technology, price, service, product quality and performance. The
Company believes that its favorable competitive position is based upon its
high-quality product performance and service to its customers, supported by its
commitment to research and development.
Total expenditures during 1998, 1997 and 1996 for Company-sponsored
research and development were $5.3 million, $5.3 million and $5.6 million,
respectively. In 1998, approximately 61% of the expenditures were for the
Company's Fasteners segment.
Capital expenditures for property, plant and equipment are planned at
$38.0 million in 1999, excluding capital spending for businesses acquired in
1999.
There were approximately 3,683 persons employed in the Fasteners segment,
440 persons employed in the Specialty Materials and Alloys segment, 916 persons
employed in the Magnetic Materials segment and 944 persons employed in the Other
segment at December 31, 1998.
Additional narrative information and the financial information concerning
industry segments and the foreign and domestic operations are included in Note
18 to the Company's Consolidated Financial Statements on pages 45 and 46 in the
1998 Annual Report to Shareholders. Exhibit 13.1 contains the information and is
incorporated herein by reference.
3
Item 2. PROPERTIES
The Company owns or leases the manufacturing properties described below.
All properties are in good condition.
Location
Owned Square Feet
----- -----------
Jenkintown, Pennsylvania 663,000(a)
Cleveland, Ohio 365,000(a)
Sorocaba, Brazil 339,000(a)
Santa Ana, California 305,000(a)(e)
Coventry, England 224,000(a)(f)
Smethwick, England 137,000(a)
Leicester, England 109,000(a)
Salt Lake City, Utah 86,000(a)
Waterford, Michigan 75,000(a)
Melbourne, Australia 44,000(a)
Transfer, Pennsylvania 245,000(b)
Muskegon, Michigan 130,000(b)
Marengo, Illinois 356,000(c)
Norfolk, Nebraska 112,000(c)
Marietta, Ohio 78,000(c)
Sevierville, Tennessee 65,000(c)
Derbyshire, England 44,000(c)
Ogallala, Nebraska 22,000(c)
Mansfield, England 26,000(d)
Nuneaton, England 9,400(d)
Leased Lease Expires Square Feet
------ ------------- -----------
Shannon, Ireland (g)(h) 157,000(a)
Nashville, Tennessee (i) 99,000(a)
Las Vegas, Nevada (j) 60,000(a)
Leicester, England (k) 38,000(a)
Pointe-Claire, Quebec, Canada (l) 35,000(a)
Wickliffe, Ohio (m)(n) 76,000(b)
Rochester, New York (o) 70,000(c)
Adelanto, California (p) 45,000(c)
Rochester, England (q) 12,000(c)
Shannon, Ireland (r)(s) 123,000(d)
Essex, England (t) 80,000(d)
Howell, Michigan (u) 44,000(d)
Nottingham, England (v) 42,000(d)
4
- --------------------
(a) Fasteners segment.
(b) Specialty Materials and Alloys segment.
(c) Magnetic Materials segment.
(d) Other segment.
(e) Approximately 70,000 square feet used for manufacturing purposes, with
remaining 235,000 square feet sub-leased.
(f) Approximately 211,000 square feet used for manufacturing purposes, with
remaining 13,000 square feet sub-leased.
(g) Lease for 100,000 square feet expires November 13, 2010.
(h) Lease for 57,000 square feet expires April 1, 2004.
(i) Lease for 99,000 square feet expires August 14, 2002.
(j) Lease for 60,000 square feet expires February 28, 1999.
(k) Lease for 38,000 square feet expires January 12, 2002.
(l) Lease for 35,000 square feet expires October 31, 2002.
(m) Lease for 38,000 square feet expires May 1, 2009.
(n) Lease for 38,000 square feet expires July 1, 2010.
(o) Lease for 70,000 square feet expires October 31, 2006.
(p) Lease for 45,000 square feet expires January 1, 2005.
(q) Lease for 12,000 square feet expires June 24, 2007.
(r) Lease for 75,000 square feet expires November 15, 2010.
(s) Lease for 48,000 square feet expires January 1, 2112.
(t) Lease for 80,000 square feet expires July 8, 2012.
(u) Lease for 44,000 square feet expires June 30, 2003.
(v) Leases for 42,000 square feet with various expirations. Primary lease
expires December 24, 2001.
Industrial Development Revenue Bonds were issued to finance the
acquisition and improvement of the Salt Lake City, Utah manufacturing facility.
These bonds are collateralized by a first mortgage on the facility and a bank
letter of credit.
Item 3. LEGAL PROCEEDINGS
A discussion of legal proceedings is included in Note 10 to the Company's
Consolidated Financial Statements on page 36 and 37 in the 1998 Annual Report to
Shareholders. Exhibit 13.1 contains the information and is incorporated herein
by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1998, through the solicitations of proxies or otherwise.
5
EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers of the Company are named below and are appointed
by the Board of Directors. The date that each officer was first appointed to
their present position is indicated. No officer listed was appointed as a result
of any arrangement between them and any other person as that phrase is
understood under the Securities Exchange Act regulations. No family relationship
exists among the executive officers of the Company.
Name Experience and Position Held Age
- ---- ---------------------------- ---
Charles W. Grigg Chairman, Chief Executive Officer 59
and President since April 1997.
Previously, Chairman and
Chief Executive Officer since
December 1993. Previously,
President and Chief Operating Officer,
Watts Industries, Inc. since 1986.
James D. Dee Vice President, General Counsel 41
and Secretary since April 1997.
Previously, Vice President, Environmental
and Legal Affairs since February 1996.
Previously, Assistant Counsel and
Patent Counsel since 1988.
John M. Morrash Vice President, Treasurer and Assistant 44
Secretary since July 1995. Previously,
Treasurer since February 1988.
William M. Shockley Vice President, Chief Financial Officer 37
since October 1998. Previously, Vice
President, Chief Financial Officer and
Controller since July 1995. Previously,
Corporate Controller since September 1992.
Margaret B. Zminda Controller since October 1998. Previously, 40
Aerospace Fasteners Group Controller since
September 1993.
6
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Information regarding the principal markets on which SPS Technologies'
common stock is traded, the high and low sales price for the stock on the New
York Stock Exchange for each quarterly period during the past 2 years, and the
approximate number of holders of common stock at March 3, 1999 is included under
the caption entitled "Common Stock Information" on page 48 in the 1998 Annual
Report to Shareholders. Exhibit 13.4 contains this information and is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
A summary of selected financial data for SPS Technologies for the years
and year ends specified is included under the caption entitled "Selected
Financial Data" on page 48 in the 1998 Annual Report to Shareholders.
Exhibit 13.3 contains this information and is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding SPS Technologies' financial condition, changes in
financial condition and results of operations is included under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 49 through 55 in the 1998 Annual Report to
Shareholders. Exhibit 13.5 contains this information and is incorporated herein
by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's quantitative and qualitative information about market risk
is included in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 49 through 55 in the
1998 Annual Report to Shareholders. Exhibit 13.5 contains this information and
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements for SPS Technologies and the
required supplementary data "Summary of Quarterly Results" are included on pages
27 through 46 and page 48, respectively, in the 1998 Annual Report to
Shareholders. Exhibits 13.1 and 13.2 contain this information and are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of directors
Information regarding directors is incorporated by reference to
the Definitive Proxy Statement, Election of Directors, if filed with the
Securities and Exchange Commission (SEC) within 120 days after December
31, 1998. To the extent not so filed, such information will be provided
on a Form 10-K/A filed with the SEC.
(b) Identification of executive officers:
Information regarding executive officers is contained in Part I of
this report (page 6).
7
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the Definitive Proxy Statement, Executive Compensation and Board Meetings,
Committees and Compensation of Directors, if filed with the SEC within 120 days
after December 31, 1998. To the extent not so filed, such information will be
provided on a Form 10-K/A filed with the SEC.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the Definitive Proxy Statement,
Ownership of Voting Securities, if filed with the SEC within 120 days after
December 31, 1998. To the extent not so filed, such information will be provided
on a Form 10-K/A filed with the SEC.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The Consolidated Financial Statements and related Notes to
Consolidated Financial Statements are set forth on pages 27
through 46 of the 1998 Annual Report to Shareholders. Exhibit
13.1 contains this information and is incorporated by
reference. The Report of Independent Accountants, which covers
both the Consolidated Financial Statements and the financial
statement schedule, appears on page 12 of this report.
2. Financial Statement Schedules:
The following supplemental schedule is located in this Report
on the page indicated.
Page
----
II Valuation and Qualifying Accounts 12
Schedules other than those listed above are omitted for the reason
that they are either not applicable or not required or because the
information required is contained in the financial statements or
notes thereto.
3. Exhibits:
3a Articles of Incorporation as amended. Exhibit 3a to the Annual
Report on Form 10-K for the year ended December 31, 1997, is
hereby incorporated by reference.
3b By-Laws as amended, effective April 29, 1998. Exhibit 3 to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1998, is hereby incorporated by reference.
4a Rights Agreement, effective November 21, 1998. Exhibit 1 to
the Form 8-A filed November 18, 1998, is hereby incorporated
by reference.
4b Form of Registration Rights Agreement between the Company, the
Purchasers and the Investors dated November 16, 1994. Exhibit
4.5 to the Form S-3 filed August 26, 1994, is hereby
incorporated by reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended, effective
February 2, 1989. Exhibit 10a to the Annual Report on Form
10-K for the year ended December 31, 1988, is hereby
incorporated by reference.
8
10b SPS Exempt Employees Savings and Investment Plan as Amended
and Restated, effective November, 1991. Exhibit 10b to the
Annual Report on Form 10-K for the year ended December 31,
1991, is hereby incorporated by reference.
10c SPS Technologies, Inc. Non-Exempt Employees Savings and
Investment Plan as Amended and Restated, effective November,
1991. Exhibit 10c to the Annual Report on Form 10-K for the
year ended December 31, 1991, is hereby incorporated by
reference.
10d SPS Technologies, Inc. Management Incentive Plan as Amended
and Restated, effective April 26, 1994. Exhibit 10d to the
Annual Report on Form 10-K for the year ended December 31,
1995, is hereby incorporated by reference.
10e Form of standby Purchase Agreement dated November 16, 1994.
Exhibit 10.1 to the Form S-3/A filed November 17, 1994, is
hereby incorporated by reference.
10f Retirement Benefit Agreement, dated February 28, 1979. Exhibit
10f to the Annual Report on Form 10-K for the year ended
December 31, 1991, is hereby incorporated by reference.
10g Fee Arrangement with Former Directors, effective November 29,
1984. Exhibit 10g to the Annual Report on Form 10-K for the
year ended December 31, 1990, is hereby incorporated by
reference.
10h Form of Employment Agreements between SPS Technologies, Inc.
and certain employees, as amended and restated effective
December 14, 1992. Exhibit 10h to the Annual Report on Form
10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation Plan,
as amended and restated, effective December 14, 1992. Exhibit
10i to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred Compensation Plan
II, as amended and restated effective December 1, 1993.
Exhibit 10j to the Annual Report on Form 10-K for the year
ended December 31, 1993, is hereby incorporated by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement Plan,
as amended and restated effective December 14, 1992. Exhibit
10k to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10l Employment Agreement between SPS Technologies, Inc. and
Charles W. Grigg, Chairman and Chief Executive Officer,
effective December 1, 1993. Exhibit 10l to the Annual Report
on Form 10-K for the period ended December 31, 1993, is hereby
incorporated by reference.
10m Form of Indemnification Agreements between SPS Technologies,
Inc. and officers and directors dated February 2, 1987.
Exhibit 10m to the Annual Report on Form 10-K for the period
ended December 31, 1992, is hereby incorporated by reference.
10n Split Dollar Insurance Agreements regarding certain officers
and directors effective April 2, 1990, and November 27, 1991.
Exhibit 10n to the Annual Report on Form 10-K for the year
ended December 31, 1991, is hereby incorporated by reference.
10o SPS Technologies, Inc. Senior Executive Severance Plan,
effective December 14, 1992. Exhibit 10o to the Annual Report
on Form 10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10p Agreement with Retiring Executive, approved December 14, 1992.
Exhibit 10p to the Annual Report on Form 10-K for the year
ended December 31, 1992, is hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization Plan, as amended
and restated effective December 14, 1992. Exhibit 10 to the
Quarterly Report on Form 10-Q for the quarter ended March 31,
1993, is hereby incorporated by reference.
10r SPS Technologies, Inc. Long Range Incentive Plan, effective
January 1, 1995. Exhibit 10r to the Annual Report on Form 10-K
for the year ended December 31, 1995, is hereby incorporated
by reference.
10s SPS Technologies, Inc. Executive Deferred Compensation Plan
III, effective January 1, 1998.
9
13.1 1998 Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Report of Independent Accountants.
13.2 Summary of Quarterly Results for 1998 and 1997.
13.3 Selected Financial Data for 1994 through 1998.
13.4 Common Stock Information for 1998 and 1997.
13.5 1998 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during the last quarter of 1998:
None.
10
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/William M. Shockley
----------------------
William M. Shockley
Vice President,
Chief Financial Officer
Date: March 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/CHARLES W. GRIGG Chairman, Chief Executive March 22, 1999
- ------------------------------ Officer, President and Director
Charles W. Grigg (Principal Executive Officer)
/s/WILLIAM M. SHOCKLEY Vice President, March 22, 1999
- ------------------------------- Chief Financial Officer
William M. Shockley (Principal Financial Officer)
/s/HOWARD T. HALLOWELL III Director March 22, 1999
- -------------------------------
Howard T. Hallowell, III
/s/JAMES F. O'CONNOR Director March 22, 1999
- -------------------------------
James F.O'Connor
/s/ERIC M. RUTTENBERG Director March 22, 1999
- -------------------------------
Eric M. Ruttenberg
/s/HARRY J. WILKINSON Director March 22, 1999
- -------------------------------
Harry J. Wilkinson
11
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
SPS Technologies, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 8, present fairly, in all material
respects, the financial position of SPS Technologies, Inc. and subsidiaries at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the index appearing under
Item 14(a)(2) on page 8, presents fairly, in all material respects, the
information set forth therein, when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements, based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 2, 1999
SCHEDULE II
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996
(Thousands of dollars)
Additions Additions
charged charged
(deductions (deductions
Balance at credited) credited) Balance at
beginning to costs and to other end of
Description of year expenses accounts Deductions year
- ----------- ---------- ------------ ----------- ---------- ----------
Year ended December 31, 1998:
$ (9) (b)
Allowance for doubtful accounts .... $ 2,027 $ 990 324 (c) $(372) (a) $2,960
======= ======= ======= ===== ======
Deferred income tax valuation
allowance ........................ $ 7,291 $ 752 $ $ $8,043
======= ======= ======= ===== ======
Year ended December 31, 1997:
$ (28) (b)
Allowance for doubtful accounts .... $ 1,668 $ 407 263 (c) $(283) (a) $2,027
======= ======= ======= ===== ======
Deferred income tax valuation
allowance ........................ $ 8,857 $ 150 $(1,716) (d) $7,291
======= ======= ======= ===== ======
Year ended December 31, 1996:
$ 26 (b)
Allowance for doubtful accounts .... $ 1,292 $ 189 186 (c) $ (25) (a) $1,668
======= ======= ======= ===== ======
Deferred income tax valuation
allowance ........................ $10,349 $(2,417) $ 925 (c) $ $8,857
======= ======= ======= ===== ======
(a) Write off of uncollectible receivables, net of recoveries
(b) Translation adjustments
(c) Balance acquired in connection with acquisitions
(d) Release of valuation allowances related to prior year business acquisitions
and credited to goodwill, net of balances acquired with 1997 business
acquisitions.
12
EXHIBIT INDEX
3a Articles of Incorporation as amended. Exhibit 3a to the Annual Report on
Form 10-K for the year ended December 31, 1997, is hereby incorporated by
reference.
3b By-Laws as amended, effective April 29, 1993. Exhibit 3 to the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, is hereby
incorporated by reference.
4a Rights Agreement, effective November 21, 1998. Exhibit 1 to the Form 8-A
filed November 18, 1998, is hereby incorporated by reference.
4b Form of Registration Rights Agreement between the Company, the Purchasers
and the Investors dated November 16, 1994. Exhibit 4.5 to the Form S-3
filed August 26, 1994, is hereby incorporated by reference.
10a SPS 1988 Long Term Incentive Stock Plan as amended, effective February 2,
1989. Exhibit 10a to the Annual Report on Form 10-K for the year ended
December 31, 1988, is hereby incorporated by reference.
10b SPS Exempt Employees Savings and Investment Plan as Amended and Restated,
effective November, 1991. Exhibit 10b to the Annual Report on Form 10-K
for the year ended December 31, 1991, is hereby incorporated by reference.
10c SPS Technologies, Inc. Non-Exempt Employees Savings and Investment Plan as
Amended and Restated, effective November, 1991. Exhibit 10c to the Annual
Report on Form 10-K for the year ended December 31, 1991, is hereby
incorporated by reference.
10d SPS Technologies, Inc. Management Incentive Plan as Amended and Restated,
effective April 26, 1994. Exhibit 10d to the Annual Report on Form 10-K
for the year ended December 31, 1995, is hereby incorporated by reference.
10e Form of standby Purchase Agreement dated November 16, 1994. Exhibit 10.1
to the Form S-3/A file November 17, 1994, is hereby incorporated by
reference.
10f Retirement Benefit Agreement, dated February 28, 1979. Exhibit 10f to the
Annual Report on Form 10-K for the year ended December 31, 1991, is hereby
incorporated by reference.
10g Fee Arrangement with Former Directors, effective November 29, 1984.
Exhibit 10g to the Annual Report on Form 10-K for the year ended December
31, 1990, is hereby incorporated by reference.
10h Form of Employment Agreements between SPS Technologies, Inc. and certain
employees, as amended and restated effective December 14, 1992. Exhibit
10h to the Annual Report on Form 10-K for the year ended December 31,
1992, is hereby incorporated by reference.
10i SPS Technologies, Inc. Executive Deferred Compensation Plan, as amended
and restated, effective December 14, 1992. Exhibit 10i to the Annual
Report on Form 10-K for the year ended December 31, 1992, is hereby
incorporated by reference.
10j SPS Technologies, Inc. Executive Deferred Compensation Plan II, as amended
and restated effective December 1, 1993. Exhibit 10j to the Annual Report
on Form 10-K for the year ended December 31, 1993, is hereby incorporated
by reference.
10k SPS Technologies, Inc. Supplemental Executive Retirement Plan, as amended
and restated effective December 14, 1992. Exhibit 10k to the Annual Report
on Form 10-K for the year ended December 31, 1992, is hereby incorporated
by reference.
10l Employment Agreement between SPS Technologies, Inc. and Charles W. Grigg,
Chairman and Chief Executive Officer, effective December 1, 1993. Exhibit
10l to the Annual Report on Form 10-K for the period ended December 31,
1993, is hereby incorporated by reference.
10m Form of Indemnification Agreements between SPS Technologies, Inc. and
officers and directors dated February 2, 1987. Exhibit 10m to the Annual
Report on Form 10-K for the period ended December 31, 1992, is hereby
incorporated by reference.
10n Split Dollar Insurance Agreements regarding certain officers and directors
effective April 2, 1990, and November 27, 1991. Exhibit 10n to the Annual
Report on Form 10-K for the year ended December 31, 1991, is hereby
incorporated by reference.
10o SPS Technologies, Inc. Senior Executive Severance Plan, effective December
14, 1992. Exhibit 10o to the Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10p Agreement with Retiring Executive, approved December 14, 1992. Exhibit 10p
to the Annual Report on Form 10-K for the year ended December 31, 1992, is
hereby incorporated by reference.
10q SPS Technologies, Inc. Benefit Equalization Plan, as amended and restated
effective December 14, 1992. Exhibit 10 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 1993, is hereby incorporated by
reference.
10r SPS Technologies, Inc. Long Range Incentive Plan, effective January 1,
1995. Exhibit 10r to the Annual Report on Form 10-K for the year ended
December 31, 1995, is hereby incorporated by reference.
10s SPS Technologies, Inc. Executive Deferred Compensation Plan III, effective
January 1, 1998.
13.1 1998 Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Report of Independent Accountants.
13.2 Summary of Quarterly Results for 1998 and 1997.
13.3 Selected Financial Data for 1994 through 1998.
13.4 Common Stock Information for 1998 and 1997.
13.5 1998 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.