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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission file number 1-804
SEQUA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1885030
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 Park Avenue, New York, New York 10166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 986-5500
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Class A Common Stock, no par value New York Stock Exchange
Class B Common Stock, no par value New York Stock Exchange
$5.00 Cumulative Convertible
Preferred Stock, $1.00 Par Value New York Stock Exchange
9% Senior Notes, Due
August 1, 2009 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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, 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. [ ]
The aggregate market value of registrant's voting stock (Common and Preferred)
held by nonaffiliates as of March 15, 2000 was $131,557,817.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
Class Outstanding at March 15, 2000
----- -----------------------------
Class A Common Stock, no par value 7,041,510
Class B Common Stock, no par value 3,329,780
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its annual meeting of
stockholders scheduled to be held on May 4, 2000 are incorporated by reference
into Part III.
SEQUA CORPORATION
FORM 10-K
* * * * * * *
PART I
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ITEM 1. BUSINESS
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(a) General development of business. Sequa Corporation
--------------------------------
("Sequa"), which was incorporated in 1929, is a diversified
industrial company that produces a broad range of products
through operating units in five business segments: Aerospace,
Propulsion, Metal Coating, Specialty Chemicals, and Other
Products. Information with respect to material acquisitions and
dispositions is included in Note 17 to the Consolidated Financial
Statements on pages 60 and 61 of this Annual Report on Form 10-K
and is incorporated herein by reference.
(b) Financial information about business segments. Segment
----------------------------------------------
information is included in Note 22 to the Consolidated Financial
Statements on pages 64 through 67 of this Annual Report on Form
10-K and is incorporated herein by reference.
(c) Narrative description of business. The following is a
----------------------------------
narrative description of the business segments of Sequa:
Aerospace
- ---------
The Aerospace segment consists solely of Sequa's largest
operating unit, Chromalloy Gas Turbine (Gas Turbine). Gas
Turbine repairs and manufactures components for jet aircraft
engines. A major independent supplier in the repair market, Gas
Turbine provides domestic and international airlines with
technologically advanced repairs and coatings for turbine
airfoils and other critical engine components. In addition, the
unit repairs components for land-based turbine engines. The unit
also supplies components to the manufacturers of jet engines and
serves both the general aviation and military markets.
Gas Turbine has built on its metallurgical process
technologies to develop procedures that permit the repair and
reuse of turbine engine components. Management believes Gas
Turbine has played a key role in the development of the repair
market for certain jet engine parts. Over the years, Gas Turbine
has continued to invest in research and development projects that
have led to ceramic coatings, vacuum plasma coatings, advanced
laser drilling and welding, and diffused precious metal/aluminide
coatings. Gas Turbine has introduced a series of innovative and
in some cases proprietary processes that allow engines to perform
at improved efficiency levels, at higher operating temperatures
and under severe environmental conditions.
Propulsion
- ----------
The Propulsion segment consists solely of Atlantic Research
Corporation (ARC), a supplier of solid rocket fuel propulsion
systems since 1949. ARC is a leading developer and manufacturer
of advanced rocket propulsion systems, gas generators and
auxiliary rocket motors, and engages in research and development
relating to new rocket propellants and advanced engineered
materials. For the military contract market, ARC produces
propulsion systems primarily for tactical weapons. For space
applications, ARC produces small liquid fuel rocket engines
designed to provide attitude and orbit control for a number of
satellite systems worldwide.
ARC's strategy has been to pursue opportunities to develop
products for commercial markets in order to reduce its reliance
on defense-related business. ARC pioneered the development of
hybrid inflators for automotive airbags. ARC produces both
energetic materials for airbag deployment as well as inflators
for driver, passenger and side airbags.
Metal Coating
- -------------
The Metal Coating segment consists solely of Precoat Metals,
(Precoat) which is a leader in the application of protective and
decorative coatings to continuous steel and aluminum coils.
Precoat's principal market is the building products industry,
where coated steel is used for the construction of pre-engineered
building systems, and as components in the industrial,
commercial, agricultural and residential sectors. Precoat also
serves the container industry, where the division has established
a position in the application of coatings to steel and aluminum
stock used to fabricate metal cans and can lids. In addition,
the division has established a presence in other product markets,
including heating, ventilating and air conditioning units, truck
trailer panels and office equipment.
Specialty Chemicals
- -------------------
The Specialty Chemicals segment is composed solely of
Warwick International, which is a leading producer and supplier
of TAED, a bleach activator for laundry and dishwasher powdered
and tablet detergent products. TAED is primarily used in oxygen-
based bleaching systems to increase the cleaning power of
detergent at low wash temperatures. These bleaching systems are
used primarily in international markets, principally in Europe.
The unit is extending its TAED capabilities to large industrial
markets, such as textile bleaching and pulp and paper processing,
and continues to expand a network of European chemical
distributors that supply specialty products for use in plastics,
inks, resins, pharmaceuticals, petrochemicals, cosmetics and
ceramics.
Other Products
- --------------
This segment is composed of four ongoing businesses: MEGTEC
Systems (MEGTEC), Sequa Can Machinery, Casco Products (Casco),
and the Men's Apparel unit. This segment also included two
operations, Sequa Chemicals and Northern Can Systems, which were
divested in 1998 and 1997, respectively.
MEGTEC Systems. MEGTEC, which was formed in 1997 following
the acquisition of TEC Systems and its integration with Sequa's
existing MEG operation, supplies equipment for the web offset
printing industry, including pasters and splicers, web guides,
infeeds, chill stands and related equipment for high-speed web
presses. MEGTEC's products also include air flotation dryers for
paper, printing and other uses and emission control systems for
industrial applications.
Sequa Can Machinery. Sequa Can Machinery designs and
manufactures equipment for the two-piece can industry. At a
facility on the East Coast, Sequa Can Machinery manufactures
high-speed equipment to coat and decorate two-piece beverage
cans. With the largest installed base of equipment in the field,
Sequa Can Machinery also supplies upgrade kits and spare parts
and maintains an extensive support service program. The
division's product development team has improved the technology
of precision printing to achieve higher speeds without
compromising quality. The current generation of equipment runs
at a rate of more than 2,000 cans per minute, applying an even
base coat and printing crisp, clear images in up to eight colors.
At its West Coast plant, Sequa Can Machinery produces equipment
used to form the cup and body of two-piece metal cans. The
latest generation of cupping equipment supports two high speed
can lines, producing up to 4,000 shallow cups per minute. Sequa
Can Machinery's newest bodymaker operates at a rate up to 450
strokes per minute. At its plant in Ohio, Sequa Can Machinery
designs and manufactures tooling and turnkey systems used in the
can making process. It has developed products to broaden the
range of metal containers to include aerosol and other specialty
products such as oil cans, oil filters and non-round cans.
Casco Products. Casco, which has been serving the
automotive products market since 1921, is the world's leading
supplier of automotive cigarette lighters and power outlets.
Casco also offers a growing line of automotive accessories, led
by a series of electronic devices to monitor automotive fluid
levels. These products are presently used as gauges for engine
oil and engine coolant and may also be used to monitor brake,
transmission and power steering fluids.
Men's Apparel. The Men's Apparel unit designs and
manufactures men's formalwear and accessories marketed under the
After Six, Oscar de la Renta and Raffinati labels, all three of
which are registered trademarks.
Sequa Chemicals. Sequa Chemicals, which was sold in October
1998, manufactured performance-enhancing chemicals for the paper,
textile and other industries.
Northern Can Systems (NCS). NCS, which was sold in December
1997, supplied the domestic and international food processing
market with easy-open lids for cans.
Markets and Methods of Distribution
-----------------------------------
The Aerospace segment markets its gas turbine engine
component repair and manufacturing services primarily to the
major airlines of the world, to the manufacturers of commercial
jet engines and to the military. Gas Turbine's products and
services are marketed directly and through sales representatives
working on a commission basis. A portion of Gas Turbine's sales
is made pursuant to contracts with various agencies of the United
States Government, particularly the Air Force, with which Gas
Turbine has had a long-term relationship.
The Propulsion segment markets its rocket propulsion systems
generally on a subcontract basis under various defense programs
of the United States Government. Among the programs currently in
production are the Army Extended Range Multiple Launch Rocket
System, Extended Range Army Tactical Rocket System, Javelin,
Stinger, Tomahawk, Standard Missile, Sidewinder, PAC-3 and
Trident. In the fourth quarter of 1999, ARC won a 12-year
contract valued at approximately $60 million (including options)
to refurbish the post boost control system on the US Government
Minuteman III missile. In addition, ARC markets its automotive
airbag components to automotive customers in the US and overseas.
For at least the next several years, sales of airbag inflators
are largely dependent on ARC's largest customer, Breed
Technologies, Inc. (Breed), which, along with certain of its US
subsidiaries, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in September
1999. Future sales of energetic components for inflators are
dependent on BAG SpA, a 50% owned Italian affiliate. Further
information with respect to Breed is included in the discussion
on pages 22 and 23 of this Annual Report on Form 10-K under the
heading "Risk/Concentration of Business," which is incorporated
herein by reference.
Sequa's Metal Coating segment sells its coating services to
regional steel and aluminum producers and distributors, building
product manufacturers, merchant can makers and manufacturers of
other diverse products.
The Specialty Chemicals segment sells TAED-based detergent
chemicals directly to major producers of household and industrial
cleaning products and paper and textile manufacturers. Specialty
products for use in plastics, inks, resins, pharmaceuticals,
petrochemicals, cosmetics and ceramics are sold through a network
of wholly owned chemical distributors.
Businesses in the Other Products segment serve distinct
markets and have individual methods of distribution. MEGTEC
Systems sells auxiliary press equipment directly to international
web printing press manufacturers and to their customers, and
markets emission control equipment and industrial drying systems
directly to customers in the coating, converting and metal
finishing industries. Sequa Can Machinery sells its can forming
and decorating equipment directly to the international container
manufacturing industry. Casco sells cigarette lighters, power
outlets and various electronic monitoring devices directly to the
automotive industry. The Men's Apparel unit sells its formalwear
to rental and retail customers, primarily through independent
sales representatives.
Competition
-----------
There is significant competition in the industries in which
Sequa operates, and, in several cases, the competition consists
of larger companies having substantially greater resources than
those of Sequa.
Sequa believes that it is currently the world's largest
manufacturer of cylindrical can decorating and can forming
equipment; the world's largest supplier of automotive cigarette
lighters and power outlets; and the largest supplier of men's
formalwear coats and pants in the United States.
Sequa, through its Gas Turbine operations, is a leader in
the development and use of advanced metallurgical and other
processes to repair, manufacture and coat blades, vanes and other
components of gas turbine engines used for commercial and
military jet aircraft. Gas Turbine's divisions compete for
turbine engine repair business with a number of other companies,
including the original equipment manufacturers (OEMs). Such OEMs
generally have obligations (contractual and otherwise) to approve
vendors to manufacture components for their engines and/or
perform repair services on their engines and components. Gas
Turbine has a number of such approvals, including licensing
agreements, which allow it to manufacture and repair certain
components of flight engines. The loss of approval by one of the
major OEMs to manufacture or repair components for such OEM's
engines could have an adverse effect on Gas Turbine, although
management believes it has certain actions available to it to
mitigate this effect.
Sequa's rocket propulsion business competes with several
other companies for defense business. In some cases, these
competitors are larger than Sequa and have substantially greater
resources. Government contracts in this area are generally
awarded on the basis of proven engineering capability and price.
Sequa's ability to compete is enhanced by the US Government's
need for alternative sources of supply under these contracts.
The liquid propulsion unit operates primarily in the commercial
satellite market and competes on the technical capabilities of
its products and on price.
ARC is a second tier automotive supplier that supplies
airbag inflators to first tier airbag module (airbag, inflator
and covers) suppliers, many of whom have their own inflator
capabilities. The unit competes on product capabilities,
energetics expertise, quality and price. Breed, ARC's largest
customer, is supplied under the terms of a long-term contract.
Under an Agreed Order and Stipulation that was entered with the
Bankruptcy Court, ARC and Breed have agreed to enter into
negotiations to modify the long-term supply contract. If these
negotiations are unsuccessful, Breed must assume or reject the
existing contract no later than May 1, 2000, unless the deadline
is extended by the mutual consent of the two parties. Further
information with respect to Breed is included in the discussion
on pages 22 and 23 of this Annual Report on Form 10-K under the
heading "Risk/Concentration of Business," which is incorporated
herein by reference.
Sequa's Precoat Metals operation is a leading independent
domestic coater of coiled steel for metal building panels.
Precoat competes in all its markets based on price, quality,
customer service and technical capabilities.
Sequa's Specialty Chemicals segment competes in each of its
markets with several other manufacturers, one of which is larger
and has greater resources than Sequa. This segment competes in
the detergent additive market with its TAED products based on
breadth of product offerings and performance characteristics,
quality and price. In the European chemical distribution market,
it competes primarily on the technical expertise of its sales
force and the breadth of its product offerings.
MEGTEC is a major international supplier of auxiliary press
equipment, air flotation dryers and emission control equipment.
This unit has several major competitors (including certain press
manufacturers in the graphic arts market) in each of its main
product areas. It competes on the basis of price, quality and
technical capabilities. Sequa's cylindrical can decorating and
can forming equipment operations are world leaders in their
markets. Sequa Can Machinery has one or two major competitors in
each major product area, and the unit competes on the basis of
price, quality, technical capabilities and equipment speed.
Sequa's automotive products manufacturer is the world's leading
producer of cigarette lighters for both the original equipment
market and the auto aftermarket and competes on the basis of
price, quality and customer service. The Men's Apparel unit is
the leading domestic producer of men's formalwear and competes on
the basis of design, quality of manufacturing and price.
Raw Materials
-------------
Sequa's businesses use a wide variety of raw materials and
supplies. Generally, these have been available in sufficient
quantities to meet requirements, although occasional shortages
have occurred.
Seasonal Factors
----------------
With the exception of the Men's Apparel business, which has
stronger sales in the first six months of the year, Sequa's
businesses are not considered seasonal to any significant extent.
Patents and Trademarks
----------------------
Sequa owns and is licensed to manufacture and sell under a
number of patents, including patents relating to its
metallurgical processes. These patents and licenses were secured
over a period of years and expire at various times. Sequa has
also created and acquired a number of trade names and trademarks.
While Sequa believes its patents, patent licenses, trade names
and trademarks are valuable, it does not consider its business as
a whole to be materially dependent upon any particular patent,
license, trade name, or trademark. Sequa regards its technical
and managerial knowledge and experience as more important to its
business.
Major Customers
---------------
No single commercial customer accounted for more than 10% of
consolidated sales during the past three years. Prime and
subcontracts with all government agencies accounted for
approximately 10% of sales in 1999, 9% of sales in 1998 and 10%
of sales in 1997. One customer accounted for approximately 29%
of the Propulsion segment's 1999 sales. Further information with
respect to this customer is included in the discussion appearing
on pages 22 and 23 of this Annual Report on Form 10-K under the
heading "Risk/Concentration of Business," which is incorporated
herein by reference. In the Specialty Chemicals segment, one
customer accounted for approximately 29% of the segment's 1999
sales, and the top three customers accounted for approximately
49% of the segment's 1999 sales. All of these customers are well
known international consumer products companies that Warwick
International has been doing business with for many years.
Backlog
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Backlog information is included in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations on page 26 of this Annual Report on Form 10-K and is
incorporated herein by reference.
Maintenance and Repairs
-----------------------
Expenditures for maintenance and repairs of $47.8 million in
1999, $50.7 million in 1998 and $50.9 million in 1997 were
expensed as incurred, while betterments and replacements were
capitalized.
Research and Development
------------------------
Research and development costs, charged to expense as
incurred, amounted to $20.0 million in 1999, $21.4 million in
1998 and $13.3 million in 1997. The increase during 1998
primarily resulted from research and development related to new
automotive airbag inflator products.
Environmental Matters
---------------------
Sequa has been notified that it has been named as a
potentially responsible party under Federal and State Superfund
laws and/or has been named as a defendant in suits by private
parties (or governmental suits including private parties as co-
defendants) with respect to sites currently or previously owned
or operated by Sequa or to which Sequa may have sent hazardous
wastes. Sequa is not presently aware of other such lawsuits or
notices contemplated or planned by any private parties or
environmental enforcement agencies. The aggregate liability with
respect to these matters, net of liabilities already accrued in
the Consolidated Balance Sheet, will not, in the opinion of
management, have a material adverse effect on the results of
operations or the financial position of Sequa. These
environmental matters include the following:
A number of claims have been filed in connection with
alleged groundwater contamination in the vicinity of a
predecessor corporation site which operated during the 1960s and
early 1970s in Dublin, Pennsylvania. In October 1987, a class
action was filed by residents of Dublin against Sequa and two
other defendants. The Borough of Dublin also filed suit seeking
remediation of alleged contamination of the Borough's water
supply and damages in an unspecified amount. A settlement
was reached in the class action in which Sequa paid $1.8 million
in 1997. The Borough action was settled in 1998 when Sequa
agreed to transfer to the Borough the water treatment system it
constructed and $2.0 million was paid to the Borough.
The Pennsylvania Department of Environmental Protection
entered into a Consent Decree with Sequa in 1990 providing for
the performance of a remedial investigation and feasibility study
with respect to the same alleged groundwater contamination in
Dublin. The US Environmental Protection Agency also placed the
site on the Superfund List in 1990 and, in conjunction therewith,
entered into a Consent Agreement with Sequa on December 31, 1990.
The investigation for the final remedy is still in progress.
The State of Florida issued an Administrative Order in 1988
requiring TurboCombustor Technology, Inc. (TCT), a subsidiary of
Gas Turbine, to investigate and to take appropriate corrective
action in connection with alleged groundwater contamination in
Stuart, Florida. The contamination is alleged to have arisen
from a 1985 fire which occurred at TCT's former facility in
Stuart. The City of Stuart has subsequently constructed and is
operating a groundwater remediation system. Sequa negotiated a
conditional settlement with the City of Stuart in October 1994
whereby it would contribute its ratable share of the capital and
operating costs for the groundwater treatment system. On
February 14, 2000, the Stuart City Commission approved the
execution of the settlement. Sequa estimates the amount to be
paid in settlement plus additional groundwater sampling and
analysis will be approximately $2 million to be paid over a ten-
year period beginning in the second quarter of 2000.
In September 1993, fourteen homeowners residing in West
Nyack, New York served a complaint on Gas Turbine and others
alleging, among other things, that contamination from a former
Gas Turbine site caused the plaintiffs' alleged property damage.
Gas Turbine believes it has strong defenses under New York law to
the plaintiffs' complaint. Gas Turbine entered into a Consent
Order with the New York Department of Environmental Conservation
(DEC) on February 14, 1994, to undertake the remedial
investigation and feasibility study (RI/FS) relating to the
alleged contamination in the vicinity of the former Gas Turbine
site. The RI/FS was submitted to the DEC for its review in 1998.
The DEC submitted their comments on the RI/FS to Sequa in 1999
and negotiations are still in progress.
It is Sequa's policy to accrue environmental remediation
costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably
estimated. At December 31, 1999, the potential exposure for such
future costs is estimated to range from $15 million to $27
million, and Sequa's balance sheet includes accruals for
remediation costs of $23.4 million. These accruals are at
undiscounted amounts and are included in accrued expenses and
other noncurrent liabilities. Actual costs to be incurred at
identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental
exposures.
With respect to all known environmental liabilities, Sequa's
actual cash expenditures for remediation of previously
contaminated sites were $4.9 million in 1999, $8.2 million in
1998 and $9.7 million in 1997. Sequa anticipates that remedial
cash expenditures will be between $4 million and $7 million
during 2000 and between $4 million and $6 million during 2001.
Sequa's capital expenditures for projects to eliminate, control
or dispose of pollutants were $1.6 million, $2.3 million and $4.6
million in 1999, 1998 and 1997, respectively. Sequa anticipates
annual environmental-related capital expenditures to be
approximately $6 million during 2000 and $2 million during 2001.
Sequa's operating expenses to eliminate, control and dispose of
pollutants have averaged approximately $11 million per year
during the last three years. Sequa anticipates that
environmental operating expenses will be approximately
$11 million per year during 2000 and 2001.
Employment
----------
At December 31, 1999, Sequa employed approximately 11,800
people of whom approximately 3,200 were covered by union
contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 1999 was:
Approximate
Segment Number of Employees
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Aerospace 6,800
Propulsion 1,550
Metal Coating 750
Specialty Chemicals 400
Other Products 2,200
Corporate 100
------
Total 11,800
======
Sequa considers its relations with employees to be generally
satisfactory. Sequa maintains a number of employee benefit
programs, including life, medical and dental insurance, pension
and 401(k) plans.
(d) Foreign Operations. Sequa's consolidated foreign operations
-------------------
include Gas Turbine's operations in England, France, Israel,
Mexico, Netherlands and Thailand within the Aerospace Segment;
ARC's liquid rocket motor business in England within the
Propulsion segment; detergent chemicals operations in Wales and
chemical distribution operations in France, Italy, Spain,
Portugal and South Africa within the Specialty Chemicals segment;
the auxiliary press equipment suppliers in France, Germany,
Singapore, Sweden and the United Kingdom, and the automotive
products operations in Germany, Italy and Brazil in the Other
Products segment. Sales and long-lived assets attributable to
foreign countries are set forth in Note 22 to the Consolidated
Financial Statements on page 67 of this Annual Report on Form
10-K and are incorporated herein by reference.
ITEM 2. PROPERTIES
- -------------------
Aerospace
- ---------
Gas Turbine operates over 40 plants in eleven states and six
foreign countries, which have aggregate floor space of 3,200,000
square feet, of which 1,800,000 square feet is owned and
1,400,000 square feet is leased. The leases covering facilities
used in this business have various expiration dates, and some
have renewal or purchase options.
Facilities in this segment are adequate and suitable for the
business being conducted and operate at a moderate level of
utilization.
Propulsion
- ----------
ARC operates ten manufacturing and research facilities in six
states and one manufacturing facility in the United Kingdom with
aggregate floor space of 1,850,000 square feet. The segment owns
150,000 square feet and leases 1,700,000 square feet. The
largest lease, expiring in 2002 with renewal options through
2014, is for a 937,000 square foot facility in Arkansas. The
segment also holds a lease on a 270,000 square foot facility in
Virginia that expires in 2012. Other leased production
facilities are located in Tennessee, New York, California, West
Virginia and the United Kingdom.
Facilities in this segment are suitable and adequate for the
business. Utilization at various facilities ranges from moderate
to high.
Metal Coating
- -------------
The Precoat Metals operation owns seven manufacturing
facilities in six states with a total of 1,300,000 square feet of
manufacturing and office space. An additional 142,000 square
feet of office space and warehouse space is leased in Illinois
and Missouri.
The properties in this segment are suitable and adequate for
the business presently being conducted. Facilities within this
segment operate at a moderate utilization rate.
Specialty Chemicals
- -------------------
Warwick International owns a plant in the United Kingdom with
floor space of 203,000 square feet on 55 acres of land. The
segment also leases 62,000 square feet of office and warehouse
space in seven separate locations in Europe.
Facilities in this segment are adequate and suitable for the
business being conducted. Facilities within this segment operate
at a high utilization rate.
Other Products
- --------------
MEGTEC owns manufacturing and office facilities in Wisconsin
with aggregate floor space of 314,000 square feet and a facility
in France with aggregate floor space of 62,000 square feet.
MEGTEC also leases a manufacturing plant and four sales offices
and owns a storage facility in Europe with a total of 93,000
square feet and leases a 2,500 square foot sales office in
Singapore.
The Sequa Can Machinery operation owns two plants in the
United States with aggregate floor space of 228,000 square feet
and leases manufacturing and office space of 16,000 square feet.
The automotive products subsidiary, Casco, leases a 168,000
square foot plant in Connecticut, a 1,600 square foot sales
office in Michigan, a 37,500 square foot manufacturing facility
in Italy, and a 9,900 square foot facility in Brazil. Casco owns
an 81,000 square foot plant in Germany and a 39,000 square foot
plant in Kentucky.
The Men's Apparel unit owns manufacturing and office
facilities in Georgia with aggregate floor space of 158,000
square feet. This unit also leases 1,250 square feet of office
space in Hackensack, New Jersey.
Facilities in this segment are adequate and suitable for the
business being conducted. Casco and Men's Apparel facilities
operate at high utilization rates, while MEGTEC's operate at a
moderate utilization rate. Sequa Can Machinery facilities
currently operate at a low utilization rate due to economic
difficulties in key export markets of Asia and South America.
Corporate
- ---------
Sequa leases 57,000 square feet of corporate office space in
New York, New York and Hackensack, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
Information with respect to Sequa's legal proceedings is
included in Note 23 to the Consolidated Financial Statements on
pages 67 through 69 of this Annual Report on Form 10-K and is
incorporated herein by reference. Additional information on
environmental matters is covered in the Environmental Matters
section on pages 25 and 26 of this Annual Report on Form 10-K and
is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- ------------------------------------
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K with respect to the executive officers of the
Company:
Name Age Position Held
---- --- -------------
Norman E. Alexander 85 Chairman of the Board, Chief
Executive Officer, Director and
member of the Executive
Committee
John J. Quicke 50 President, Chief Operating
Officer, Director and member of
the Executive Committee
Stuart Z. Krinsly 82 Senior Executive Vice President
- General Counsel, Director and
member of the Executive
Committee
Martin Weinstein 64 Executive Vice President, Gas
Turbine Operations and Director
Howard M. Leitner 59 Senior Vice President, Finance
William P. Ksiazek 52 Vice President and Controller
Sequa is not aware of any family relationship among any of
the above-named executive officers. All of the above-named
executive officers have been employed by Sequa in the same or a
similar capacity for at least five years, except for Mr. Leitner.
Mr. Leitner was elected Senior Vice President, Finance by the
Board of Directors on December 16, 1999. Prior to joining Sequa,
Mr. Leitner was Senior Vice President and Chief Financial Officer
(1980-1986 and 1995-1999) and was president (1986-1995) of Chock
Full O'Nuts Corporation (a beverage products manufacturing
company). Each of such officers holds his office until his
successor shall have been chosen and qualified by the Board of
Directors at its annual meeting, subject to the provisions of
Section 4 of Article IV of the Company's By-Laws relative to
resignation of officers and Section 5 of Article IV of the
Company's By-Laws relative to removal of officers.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) Market Information.
The following table sets forth the high and low sales prices
of Sequa Class A common stock and Sequa Class B common stock for
the calendar periods indicated on the Exchange Composite Tape, as
reported by the National Quotation Bureau Incorporated:
SEQUA CLASS A SEQUA CLASS B
----------------- ---------------
High Low High Low
---- --- ---- ---
1999
First Quarter 60 7/8 44 73 67 3/4
Second Quarter 70 47 13/16 71 1/2 67 5/16
Third Quarter 72 3/4 61 7/8 77 1/2 66
Fourth Quarter 61 7/8 48 7/8 66 1/2 54 1/4
1998
First Quarter 75 7/8 63 7/8 80 73 7/8
Second Quarter 75 1/4 65 7/16 85 3/4 78 3/4
Third Quarter 74 56 1/8 81 1/2 73 1/8
Fourth Quarter 66 3/8 45 3/4 75 1/2 68
Shares of Sequa Class A common stock and Sequa Class B
common stock are listed on the New York Stock Exchange. There
were approximately 2,200 holders of record of the Sequa Class A
common stock and approximately 470 holders of record of the Sequa
Class B common stock at March 15, 2000.
(c) Dividends.
During the years ended December 31, 1999 and 1998, no
dividends were declared on Sequa Class A common shares or Class B
common shares. Sequa has no present intention to pay cash
dividends on its common shares.
ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
The following table sets forth selected financial information for, and as of
the end of, each of the five years in the period ended December 31, 1999. Such
information should be read in conjunction with Sequa's Consolidated Financial
Statements and Notes thereto, filed herewith.
(Amounts in millions, except per share data)
YEAR ENDED DECEMBER 31, 1999 1998* 1997 1996 1995
- --------------------------- ------ ------ ------ ------ ------
OPERATING RESULTS
Sales $1,699.5 $1,802.4 $1,595.1 $1,459.0 $1,414.1
Operating income 94.5 105.5 84.7 65.2 67.9
Income before
extraordinary item 27.8 63.9 19.6 9.6 8.8
Extraordinary loss (5.7) - - (0.4) -
-------- -------- -------- -------- --------
Net income $ 22.1 $ 63.9 $ 19.6 $ 9.2 $ 8.8
======== ======== ======== ======== ========
BASIC EARNINGS PER SHARE
Income before
extraordinary item $ 2.48 $ 6.01 $ 1.66 $ .65 $ .57
Extraordinary loss (.55) - - (.04) -
-------- -------- -------- -------- --------
Net income $ 1.93 $ 6.01 $ 1.66 $ .61 $ .57
======== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE
Income before
extraordinary item $ 2.48 $ 5.87 $ 1.66 $ .65 $ .57
Extraordinary loss (.55) - - (.04) -
-------- -------- -------- -------- --------
Net income $ 1.93 $ 5.87 $ 1.66 $ .61 $ .57
======== ======== ======== ======== ========
CASH DIVIDENDS DECLARED
Preferred $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00
FINANCIAL POSITION
Current assets $ 680.3 $ 715.9 $ 695.8 $ 612.2 $ 621.2
Total assets 1,671.7 1,624.1 1,591.7 1,548.2 1,622.0
Current liabilities 300.7 337.9 366.7 302.7 324.7
Long-term debt 569.9 500.7 508.7 531.9 563.2
Shareholders' equity 668.9 665.5 594.4 590.8 576.6
* Income results for 1998 include gains on the divestiture of
operations that increased after-tax income by $35.2 million or
$3.43 per basic share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OPERATING RESULTS 1999 - 1998
SALES
Sales of the Aerospace segment (Chromalloy Gas Turbine)
declined 5% in 1999, as a 4% increase in aftermarket repair sales
was more than offset by a sharp decline in sales to the aircraft
engine manufacturers. While the increase in sales to the
commercial aviation repair market reflects a generally higher
level of overall demand, the advance was derived principally from
contracts with major airlines to provide repair services and
inventory management. These benefits were tempered by the
continuing effects of competition from the jet engine
manufacturers. The increase in military repair sales was driven
by Chromalloy's share of sales from a seven-year program to
privatize Kelly Air Force Base in San Antonio, Texas. This
program, which was awarded in February 1999, began to contribute
revenues in the second half of 1999. The decline in sales to the
engine manufacturers primarily reflects three factors: a
slowdown in demand for new aircraft engines; a loss of business
due to global outsourcing programs; and the absence of sales from
a United Kingdom unit divested in mid-1998, which had contributed
sales of $8.7 million in 1998. The 1999 trends in both repair
and OEM sales are expected to continue in 2000.
Sales of the Propulsion segment (Atlantic Research
Corporation (ARC)) advanced 3% in 1999, as an 11% increase in
solid propellant rocket motors was partially offset by a decline
in sales of automotive airbag inflator products. Liquid
propulsion sales were on a par with 1998. The advance in solid
rocket motor sales primarily reflects an enhanced position in the
market. The decline in airbag inflator products reflects reduced
sales of energetic components to BAG SpA, a 50%-owned affiliate
in Europe. This decline was partially offset by higher sales of
airbag inflators, although a shift to lower-priced advanced
products tempered the magnitude of the volume increase. For at
least the next several years, sales of airbag inflators are
largely dependent on ARC's largest customer, Breed Technologies,
Inc. (Breed), which, along with certain of its US subsidiaries,
filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in September 1999. Future
sales of energetic components for inflators are dependent on BAG
SpA. (See the Risk/Concentration of Business section of this
MD&A for additional information.) In the liquid propulsion
portion of ARC's business base, the benefit of sales added by a
late-1998 United Kingdom acquisition was offset by weakness in
the US commercial satellite market. In the fourth quarter of
1999, the liquid rocket motor operation won a 12-year contract
valued at approximately $60 million (including options) to
SALES (cont'd)
refurbish the post boost control system on the US Government
Minuteman III missile.
Sales of the Metal Coating segment (Precoat Metals) rose 4%
in 1999, with increases in each of its major market areas:
building products, containers and manufactured products. The
overall increase was tempered by the effect of sales lost when a
major building products customer acquired internal coating
capacity in the second quarter of 1998. On a pro forma basis to
exclude the impact of these lost sales, segment sales increased
8% in 1999.
Sales of the Specialty Chemicals segment (Warwick
International) rose 3% (6% in local currency) in 1999, with
increases in both TAED-based products and the distribution of
specialty chemicals. The benefit of a strong volume increase in
TAED was partially offset by the impact the strong British Pound
Sterling had on pricing in the international marketplace. Demand
for TAED rose sharply following the successful introduction by
Warwick's customers of new detergent tablets. Demand was
particularly strong in the fourth quarter and management
currently anticipates that it will remain high at least through
the first quarter of 2000. The benefit of this increased volume
in the first quarter of 2000 will be unfavorably affected by
further pricing pressures created by the continued strengthening
of the British Pound Sterling against other key currencies.
Sales of the Other Products segment declined 22% in 1999,
largely due to the late-1998 disposition of the domestic
chemicals unit. On a pro forma basis, to eliminate the $74.0
million of sales added by the chemicals unit in 1998, sales of
ongoing businesses in the segment declined 4% in 1999. Sales of
the MEGTEC unit declined 2% in 1999, as a sharp decline in the
North American graphic arts industry more than offset the benefit
of sales added by the February 1999 acquisition of Thermo
Wisconsin and higher sales of emission control equipment. Sales
to the industrial products market were on a par with 1998. Based
on year-end backlog, management anticipates a weak first quarter
2000. Sales of the can machinery unit declined 38% in 1999 as a
result of economic difficulties in its key export markets of Asia
and South America. Management does not currently anticipate a
significant sales recovery in 2000. Sales of the automotive
products supplier, Casco Products, increased 23% in 1999, led by
sales of Schoeller & Co. GmbH, a German automotive products
supplier acquired in June 1999, and by strong worldwide demand
for lighters and power outlets. Sales of the Men's Apparel unit
increased 3% in 1999, reflecting continued strong demand for
formal attire. This unit is expected to continue to generate
strong sales in the first quarter of 2000.
OPERATING INCOME
Operating income in the Aerospace segment was modestly higher in
1999 than in 1998. Units primarily serving the repair
aftermarket posted improvement, due to the benefits of higher
sales and cost control programs. The results of OEM units were
lower, due primarily to a combination of reduced volume and
pricing constraints. Overall operating income for the segment
reflects the effect of increased expenses to develop advanced
processes and products, higher selling and administrative costs,
and the absence of $1.3 million of profit from a U.K. business
divested in mid-1998. Both years were also affected by legal
expenses related to litigation with the Pratt & Whitney division
of United Technologies Corporation, which amounted to $0.9
million in 1999 and $5.5 million in 1998.
Operating income in the Propulsion segment declined 53% in
1999, with each of the three major product areas down from 1998
levels. The automotive airbag decline was primarily attributable
to lower margins, due to changes in mix, volume and price. Cost
reduction programs began to offset these factors as the year
progressed. The liquid rocket motor product line was affected by
a weak US commercial satellite market, costs related to a newly
acquired unit in the United Kingdom, and higher bid and proposal
costs on several key programs, of which two have been won, and
one is still pending. The decline in the solid rocket motor
business was primarily caused by lower margins resulting from the
mix of sales and the impact of lower advanced materials sales.
Operating income in the Metal Coating segment advanced 29%.
Despite continuing margin pressures in its major markets, the
unit improved profitability through a combination of extensive
cost reduction programs, quality improvement initiatives and
higher sales.
Operating income in the Specialty Chemicals segment was up
4% in 1999, as the benefit of a strong volume gain in detergent
chemical sales was partially offset by the effect of currency
factors -- both on marketplace pricing and on the translation of
results into US dollars. Comparisons for the first quarter of
2000 will be unfavorably affected by currency factors, as the
British Pound Sterling has strengthened further against other key
currencies.
Operating income in the Other Products segment was 47% lower
in 1999. On a pro forma basis, to eliminate the $3.1 million of
1998 profit from the now divested domestic chemicals unit,
operating income was 38% lower. The principal factor in the
decline was an unfavorable swing of $6.0 million in the results
OPERATING INCOME (cont'd)
of MEGTEC, which had recorded a profit in 1998. The 1999 MEGTEC
loss reflects pricing pressures in key markets, combined with a
high level of research and development spending and the expenses
related to the integration of two businesses acquired during the
year. Based on year-end backlog, management anticipates that
MEGTEC will report a loss for the first quarter of 2000.
Operating income at the can machinery unit declined 32% in 1999,
as the impact of lower sales was partially offset by a favorable
sales mix shift and the absence of 1998 losses and shutdown costs
at a Texas facility. Profits of Casco Products, the automotive
products supplier, were on a par with 1998, as profits added by
the recently acquired German unit and improved results at the
Brazilian and Italian operations were offset by the effects of
continued margin pressures on domestic operations. Profits of
the Men's Apparel unit advanced, benefiting from higher sales and
strict cost control.
INTEREST EXPENSE
The increase in interest expense of approximately $9.0 million
was due to an increase in average borrowings resulting from the
issuance in July 1999 of $500 million of 9% Senior Notes due
2009, and to support Sequa's working capital needs. See the
Liquidity and Capital Resources section of this MD&A regarding
the use of proceeds of this debt offering.
INTEREST INCOME
The increase in interest income of approximately $3.4 million was
primarily due to the proceeds from the 9% Senior Notes issued in
July 1999 which were temporarily invested in short-term
instruments.
EQUITY IN LOSS/INCOME OF UNCONSOLIDATED JOINT VENTURES
Sequa has investments in numerous unconsolidated joint ventures
which amounted to $42.4 million and $11.1 million at December 31,
1999 and 1998, respectively. Sequa's equity in the net losses of
these joint ventures was $2.9 million in 1999 and $4.9 million in
1998 (which included a $2.1 million permanent impairment write-
down related to a joint venture producing advanced titanium
matrix composite fibers). The largest of these joint ventures
are discussed in the following paragraphs.
During 1999 and 1998, Sequa had an investment in BAG SpA, an
Italian company which manufactures and markets hybrid inflators
for automotive airbags. In 1998, Sequa owned one of three equal
interests in the venture, along with Breed (whose Italian
subsidiary Breed Italian Holdings S.r.l. (BIH) is the venture's
only customer) and a subsidiary of Fiat Avio. In April 1999,
EQUITY IN (LOSS) INCOME OF UNCONSOLIDATED JOINT VENTURES (cont'd)
Sequa and Breed purchased equal shares from the Fiat Avio
subsidiary, increasing their ownership to 50% each. In September
1999, Breed and certain of its US subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code. In December 1999, letters of credit
issued by Sequa and Breed to guarantee BAG SpA's bank debt and
other liabilities were drawn upon, in the case of Sequa in the
amount of $10.4 million. At December 31, 1999, Sequa's
investment in BAG SpA, including earlier contributions and the
funds transferred under the letters of credit, totaled $18.5
million. In January 2000, ARC, ARC Automotive Italia (a newly
established subsidiary), BAG SpA and Breed signed a contract
which provides for ARC Automotive Italia to acquire certain of
the assets and the automotive inflator business of BAG SpA. The
closing of this transaction is subject to several significant
conditions, including the approval of the Bankruptcy Court
overseeing Breed's reorganization and the completion of several
other key agreements. See the Risk/Concentration of Business
section of this MD&A for additional information.
Sequa's share of the losses of the airbag joint ventures was
$1.9 million in 1999 and $3.7 million in 1998, which included one
month of 1998 losses of BAICO, the former domestic inflator joint
venture, which became wholly owned on January 28, 1998.
Chromalloy Gas Turbine has several 50/50 joint venture
partnerships, two of which are significant. The first is
Advanced Coatings Technologies (ACT), a joint venture with United
Technologies Corporation which owns and operates an electron beam
ceramic coater for the application of Pratt & Whitney coatings to
jet engine parts. The second, Pacific Gas Turbine (PGT), was
formed in 1999 with Willis Lease Finance. PGT overhauls and
tests certain jet engines. Sequa's investment in these two Gas
Turbine partnerships at December 31, 1999 was $13.4 million and
its investment in ACT at December 31, 1998 was $1.8 million.
Sequa's equity share of earnings was $0.2 million in 1999 and
$1.8 million in 1998.
Precoat Metals has a 50/50 partnership with NCI Building
Systems, Inc. in Midwest Metal Coatings (MMC) to coat coils of
heavy gauge steel for structural components used in the building
products market. Sequa's investment in MMC at December 31, 1999
and 1998 was $9.5 million and $6.8 million, respectively, and its
equity share of losses in the start up phase of MMC was $0.5
million in 1999 and $0.1 million in 1998.
OTHER, NET
In 1999, Other, net included $3.9 million of gains on the sale of
excess real estate; $2.7 million of income related to the
OTHER, NET (cont'd)
demutualization of an issuer of corporate-owned life insurance
policies; $2.2 million of income related to the adjustment of the
gain on the sale of Sequa Chemicals recorded upon final
settlement with the purchaser; $1.6 million of income related to
the collection of a note receivable that was written off more
than ten years ago; a $1.3 million gain on the sale of short-term
investments; $1.0 million of income on the cash surrender value
of corporate-owned life insurance; discount expense of $2.3
million related to the sale of accounts receivable; charges of
$1.5 million for the amortization of capitalized debt issuance
costs; and letters of credit and commitment fees of $1.1 million.
In 2000, management currently expects a significant increase in
discount expense due to a higher average level of accounts
receivable sold.
In 1998, Other, net included a $2.0 million provision for
the loss of funds advanced to a vendor engaged to implement a
freight consolidation program; $1.2 million in charges for the
amortization of capitalized debt issuance costs; $1.0 million of
income on the cash surrender value of corporate-owned life
insurance; and letters of credit and commitment fees of $0.9
million.
RISK/CONCENTRATION OF BUSINESS
Sequa is engaged in the automotive airbag inflator business
through both ARC and ARC's 50% equity investment in BAG SpA.
ARC's major customer for airbag inflators is Breed, which is
supplied under the terms of a long-term contract. ARC also
supplies inflator components to BAG SpA.
On September 20, 1999 (the "Filing Date"), Breed and certain
of its US subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of
Delaware. Breed has received a commitment from its lending group
for up to $125 million of debtor-in-possession financing, which
Breed expects will provide adequate funding for its post-petition
trade and employee obligations. Subsequent to the Filing Date,
ARC began shipping to Breed on a prepaid basis.
Under an Agreed Order and Stipulation that was entered with
the Bankruptcy Court, ARC and Breed have agreed to enter into
negotiations to modify the long-term supply contract. If these
negotiations are unsuccessful, Breed must assume or reject the
existing contract no later than May 1, 2000, unless the deadline
is extended by the mutual consent of the two parties. Breed
accounted for $79.9 million of ARC's sales in 1999 and $69.9
million in 1998. Additionally, Breed holds the remaining 50%
equity investment in BAG SpA, and BIH, a foreign subsidiary of
Breed, is the sole customer of BAG SpA. BAG SpA accounted for
$21.2 million of ARC's sales in 1999 and $26.5 million in 1998.
RISK/CONCENTRATION OF BUSINESS (cont'd)
At December 31, 1999, ARC had pre-petition net accounts
receivable of $12.1 million due from Breed and $9.5 million of
accounts receivable due from BAG SpA. BAG SpA had trade accounts
receivable of $22.2 million due from BIH (a subsidiary which is
not part of the bankruptcy filing) and an additional $1.2 million
of non-trade receivables due from BIH. As of early March 2000,
BIH was substantially current in its payment of receivables to
BAG SpA. At December 31, 1999, neither ARC nor BAG SpA had any
significant reserves related to the Breed or BIH accounts
receivable. Management continues to monitor this situation
closely.
Based on the current facts and circumstances, Sequa's
management believes that the long-term supply contract with
Breed will be accepted in either its current or modified form
and therefore believes that the opportunity to recover the full
amount of the $12.1 million Breed pre-petition net accounts
receivable remains. However, due to the uncertainty of the
ultimate resolution of the Chapter 11 proceedings, Sequa has
reclassified the receivable to long-term.
In January 2000, ARC, ARC Automotive Italia, BAG SpA and
Breed signed a contract under which ARC Automotive Italia will
acquire certain of the assets, as well as the automotive inflator
business of BAG SpA. While Sequa management currently
anticipates that this transaction will close, it is subject to
significant pre-closing conditions. In the event this
transaction is not consummated, the $18.5 million investment in
BAG SpA and the $9.5 million of accounts receivable due from BAG
SpA would likely not be fully recoverable, primarily due to
Breed's current inability in the Chapter 11 environment to make
any additional capital contributions to BAG SpA to cover future
cash requirements.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
Sequa is exposed to market risk from changes in foreign currency
exchange rates which impact its earnings, cash flows and
financial condition. Sequa manages its exposure to this market
risk through its regular operating and financial activities and,
when appropriate, through the use of derivative financial
instruments. Sequa has well-established policies and procedures
governing the use of derivative financial instruments as risk
management tools and does not buy, hold or sell derivative
financial instruments for trading purposes. Sequa's primary
foreign currency exposures relate to the British, French, German
and Italian currencies and to the Euro. To mitigate the short-
term effect of changes in currency exchange rates, Sequa utilizes
forward foreign exchange contracts and foreign currency options
to hedge certain existing assets and liabilities, firm
commitments and anticipated transactions denominated in
currencies other than the functional currency.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS (cont'd)
A hypothetical 10% uniform decrease in all foreign currency
exchange rates relative to the US dollar would decrease the fair
value of Sequa's financial instruments by approximately $11.8
million as of December 31, 1999 and $10.8 million as of December
31, 1998. The sensitivity analysis relates only to Sequa's
exchange rate-sensitive financial instruments, which include cash
and debt amounts denominated in foreign currencies and all open
foreign forward exchange contracts at December 31, 1999 and 1998.
The effect of this hypothetical change in exchange rates ignores
the effect this movement may have on the value of net assets,
other than financial instruments, denominated in foreign
currencies and does not consider the effect this movement may
have on anticipated foreign currency cash flows.
At December 31, 1999 and 1998, substantially all of Sequa's
debt was at fixed rates, and Sequa currently does not hold
interest rate derivative contracts. Accordingly, a change in
market interest rates would not impact Sequa's interest expense,
but would affect the fair value of Sequa's debt. Generally, the
fair market value of fixed-rate debt will increase as interest
rates fall and decrease as interest rates rise. The estimated
fair value of Sequa's total debt was approximately $559 million
at December 31, 1999 and $521 million at December 31, 1998. A
hypothetical 1% increase in interest rates would decrease the
fair value of Sequa's total debt by approximately $23.6 million
at December 31, 1999 and $12.4 million at December 31, 1998. A
hypothetical 1% decrease in interest rates would increase the
fair value of Sequa's total debt by approximately $26.0 million
at December 31, 1999 and $12.8 million at December 31, 1998. The
fair value of Sequa's total debt is based primarily upon quoted
market prices of Sequa's publicly traded securities. The
estimated changes in fair values of Sequa's debt are based upon
changes in the present value of future cash flows as derived from
the hypothetical changes in market interest rates.
YEAR 2000 COMPUTER ISSUE
Sequa did not encounter, and does not expect to encounter, any
significant problems related to year 2000 (Y2K) computer issues.
The total cost of hardware, software, training, testing and other
costs related to Y2K remediation issues was approximately $22.2
million, of which $7.0 million was expensed and $15.2 million was
capitalized. These costs were in line with Sequa's previous
estimates.
EURO CONVERSION
On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their own
currencies and the European Union's common currency (Euro). The
EURO CONVERSION (cont'd)
transition period for the introduction of the Euro will extend to
January 1, 2002. Sequa has identified Euro conversion compliance
issues and started work to avoid anticipated problems.
Based on its evaluation, management believes that the
introduction of the Euro, including the total costs for the
conversion, will not have a material adverse effect on Sequa's
financial position, results of operations or cash flows.
However, uncertainty exists as to the effects the Euro will have
on the marketplace, and there is no guarantee that all problems
will be foreseen and corrected or that third parties will address
the conversion successfully.
ENVIRONMENTAL MATTERS
Sequa's environmental department, under senior management's
direction, manages all activities related to Sequa's involvement
in environmental clean-up. This department establishes the
projected range of expenditures for individual sites with respect
to which Sequa may be considered a potentially responsible party
under applicable federal or state law. These projected
expenditures, which are reviewed periodically, include: remedial
investigation and feasibility studies; outside legal, consulting
and remediation project management fees; the projected cost of
remediation activities; and site closure and post-remediation
monitoring costs. The assessments take into account currently
available facts, existing technology, presently enacted laws,
past expenditures, and other potentially responsible parties and
their probable level of involvement. Outside technical,
scientific and legal consulting services are used to support
management's assessments of costs at significant individual
sites.
It is Sequa's policy to accrue environmental remediation
costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably
estimated. At December 31, 1999, the potential exposure for such
costs is estimated to range from $15 million to $27 million, and
Sequa's Consolidated Balance Sheet includes accruals for
remediation costs of $23.4 million. These accruals are at
undiscounted amounts and are included in accrued expenses and
other noncurrent liabilities. Actual costs to be incurred at
identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental
exposures.
ENVIRONMENTAL MATTERS (cont'd)
With respect to all known environmental liabilities, Sequa's
actual cash expenditures for remediation of previously
contaminated sites were $4.9 million in 1999, $8.2 million in
1998 and $9.7 million in 1997. Sequa anticipates that remedial
cash expenditures will be between $4 million and $7 million
during 2000 and between $4 million and $6 million during 2001.
Sequa's capital expenditures for projects to eliminate, control
or dispose of pollutants were $1.6 million, $2.3 million and $4.6
million in 1999, 1998 and 1997, respectively. Sequa anticipates
annual environmental-related capital expenditures to be
approximately $6 million during 2000 and $2 million during 2001.
Sequa's operating expenses to eliminate, control and dispose of
pollutants have averaged approximately $11 million per year
during the last three years. Sequa anticipates that
environmental operating expenses will be approximately $11
million per year during 2000 and 2001.
BACKLOG
The businesses of Sequa for which backlogs are significant are
the Turbine Airfoils, Caval Tool, Turbocombuster Technology and
Castings units of the Aerospace segment; the solid and liquid
rocket motor operations of the Propulsion segment; and the can
machinery, MEGTEC and Men's Apparel units of the Other Products
segment. The aggregate dollar amount of backlog in these units
at December 31, 1999 was $289.5 million ($305.4 million at
December 31, 1998). The decline is largely attributable to a 16%
backlog reduction at the Gas Turbine OEM units partially offset
by an increase in the Propulsion segment. Sales of the Men's
Apparel unit are seasonal, with stronger sales in the first six
months of the year; accordingly, this unit's backlog is normally
higher at December 31 than at any other time of the year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.2 million in
1999, compared with $47.4 million in 1998. The major reason for
the 1999 decline was a higher level of working capital
requirements at the Gas Turbine unit, where the increase was
largely related to increased inventory levels to support the
repair business, partially offset by an $11.0 million reduction
in income taxes paid. Net cash used for investing activities was
$138.4 million in 1999, compared with $6.5 million in 1998. The
major factors in the 1999 increase were the absence of $121.3
million of 1998 proceeds from the sale of two business units and
the $31.5 million increase in other investing activities, which
was primarily related to increased investments in joint ventures.
These factors were tempered by a $14.8 million reduction in
businesses purchased. Net cash provided by financing activities
was $121.4 million in 1999, compared with net cash used for
Liquidity and Capital Resources (cont'd)
financing activities of $51.9 million in 1998. In July 1999,
Sequa received net proceeds of $490.9 million from the issuance
of new public debt. At December 31, 1999, $70.0 million of
accounts receivable had been sold pursuant to a Receivables
Purchase Agreement. The agreement provides for the sale of
eligible receivables up to $120.0 million and expires in November
2003. Sequa used $439.4 million of the proceeds from these
transactions to retire principal amounts outstanding under public
debt issues. In 1998 Sequa retired $52.6 million of debt.
In May 2001, Sequa will be required to repay the remaining
$66.4 million principal balance of its medium-term notes, with a
weighted average interest rate of 10.1%. Sequa presently intends
to refinance this debt using its revolving credit agreement.
Sequa has had an issue with the Internal Revenue Service
(IRS) involving the 1989 restructuring of two subsidiaries.
While management believes its tax position in this matter was
appropriate, it has taken the conservative position of providing
reserves to cover an adverse outcome. At December 31, 1999, the
net amount involved was approximately $59 million, composed of
the potential liability associated with the restructuring and
related tax issues; interest expense, net of tax benefit, from
the date of the resulting tax refund; and deferred tax assets for
portions of tax loss and credit carryforwards which could be
utilized in a settlement. In October 1998, Sequa made a deposit
of $24.0 million with the IRS against the expected liability for
additional tax and interest that may be assessed against Sequa
related to certain of these tax matters. The deposit stopped the
running of interest with respect to the amounts deposited.
Management has been in discussions with the IRS on these matters
for several years and recently reached an informal agreement
settling this matter with the IRS. There are several steps
involved in finalizing this agreement, including approval by the
Joint Committee on Taxation of the US Congress. If the agreement
is approved, no significant additional tax or interest will be
paid or refunded. Management anticipates that the agreement with
the IRS will be finalized in the next 12 months, at which time
approximately $35 million, representing the reversal of reserves
no longer required, would be recorded as income through a
reduction of the income tax provision.
Capital expenditures amounted to $101.4 million in 1999,
with spending concentrated in the Aerospace and Propulsion
segments. These funds were primarily used to upgrade existing
facilities and equipment and to expand capacity. Sequa currently
anticipates that capital spending in 2000 will be approximately
$115 million and will again be concentrated in the same segments.
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
Management currently anticipates that cash flow from
operations, the $99.0 million of credit available at March 15,
2000 under the revolving credit agreement, the $21.0 million of
available financing under the Receivables Purchase Agreement at
March 15, 2000, and the $68.2 million of cash and cash
equivalents on hand at December 31, 1999 will be sufficient to
fund Sequa's operations, niche acquisitions and airline spare
parts inventory purchases for the next year.
OTHER INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. This statement requires companies to
record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Depending on the use of a
derivative and whether it has been designated and qualifies as a
hedge, gains or losses resulting from changes in the value of the
derivative would be recognized currently in earnings or reported
as a component of other comprehensive income. This statement is
not expected to have a material effect on Sequa's consolidated
financial statements. Recently, the effective date of this
statement was delayed to fiscal years beginning after June 15,
2000, with earlier adoption encouraged. Sequa will adopt this
accounting standard by January 1, 2001.
FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements made under the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based on management's
current expectations, estimates and projections that are subject
to risks and uncertainties, including, but not limited to:
political, currency, regulatory, competitive and technological
developments. Consequently, actual results could differ
materially from these forward-looking statements.
OPERATING RESULTS 1998 - 1997
SALES
Sales of the Aerospace segment increased 8% in 1998, with
advances in both the engine component repair aftermarket and the
original equipment market. The increase reflects strong demand
from the international airline industry, tempered by the ongoing
effect of intense competition from the jet engine manufacturers
for aftermarket repair.
In February 1999, the US Air Force awarded a seven-year,
$10.1 billion aircraft engine maintenance contract to a
consortium that includes Gas Turbine, related to the
privatization of facilities at Kelly Air Force Base in San
Antonio, Texas. Also in February, the Gas Turbine unit was
awarded a seven-year repair service and inventory management
contract to continue repair work with a major airline.
Sales of the Propulsion segment increased 51% in 1998, due
entirely to the inclusion of airbag inflator sales following the
January 28, 1998 purchase of the remaining 50% interest in a
domestic airbag inflator joint venture that was not previously
owned by Sequa. Military sales of solid propellant rocket motors
for tactical and strategic weapons increased 3% in 1998, while
sales of liquid propellant rocket motors used primarily for
satellite station keeping declined 42%, primarily due to reduced
demand from commercial customers and lower funding on a US
Government contract.
Sales of the Metal Coating segment decreased 3%, as declines
in the large building products line and the smaller container
coating product line more than offset an increase in other
manufactured products. In building products, the decline was due
entirely to reduced demand when two major customers brought work
in-house that was previously handled by Precoat - one due to the
late-1997 settlement of a strike, and the other due to the
acquisition of coating capacity in the second quarter of 1998.
Excluding the impact of the lower sales to these two customers,
sales for both the building products line and the entire segment
would have advanced in 1998.
Sales of the Specialty Chemicals segment advanced 17% in
1998, due primarily to the early 1998 acquisition of an Italian
specialty chemicals distribution business and to the strong
performance of existing specialty chemical distribution units.
Sales of the detergent additive TAED to the international market
recorded a small decline, as higher volumes were offset by
continued unfavorable currency movements.
SALES (cont'd)
Sales of the Other Products segment increased 13% in 1998.
On a pro forma basis -- excluding the results of the domestic
chemicals and Northern Can Systems (NCS) units, which were sold
in 1998 and 1997, respectively -- the sales of ongoing businesses
in the segment increased 36% in 1998. The advance was driven
primarily by a $79.2 million increase at the MEGTEC unit,
following the acquisition of TEC Systems in the third quarter of
1997 and its integration with Sequa's existing MEG operation.
The increase reflects overall strength in the combined unit's
graphic arts product line; strong performance of its European
emission control business and the addition of a zero-speed paster
product line acquired in 1998. Sales of the can machinery unit
increased 6% in 1998, primarily due to higher sales to the
domestic food can market. Sales of the automotive products unit
declined 1%, as increased European volume and sales from a
Brazilian operation added in the second quarter of 1998 largely
offset a decline in domestic volume. Sales of the Men's Apparel
unit increased 13% in 1998, with the improvement derived largely
from sales of tuxedos under the After Six label which was
acquired in 1997. For the ten months prior to its October 28,
1998 disposition, the domestic chemicals unit recorded $74.0
million in sales; 1997 sales were $82.3 million. The NCS unit
had sales of $32.9 million prior to its disposition in late 1997.
OPERATING INCOME
Operating income in the Aerospace segment increased 29% in 1998,
with units operating in both the repair and original equipment
manufacture (OEM) markets registering advances. The units
operating primarily in the repair market benefited from increased
volume, programs to reduce manufacturing costs, and controls over
operating expenses. The group of units operating primarily in
the OEM arena benefited from increased sales, tighter controls on
operating expenses, improved labor efficiencies and better
performance at the castings unit. The segment also benefited
from a lower level of legal expenses related to litigation with
the Pratt & Whitney division of United Technologies Corporation
(expense of $5.5 million in 1998 versus $9.9 million in 1997).
The positive movement in litigation expense was partially offset
by the absence in 1998 of $2.7 million in operating income
derived from the settlement of a dispute with the Egyptian
government in 1997.
Operating income advanced 18% in the Propulsion segment,
with the automotive airbag operation and the solid propellant
rocket motor product lines moving higher and the liquid rocket
motor business declining. The benefits of $96.5 million of sales
added in automotive airbags were largely offset by several
factors, including a $10.0 million increase in research and
development expense and costs related to the start-up of new
products and new production lines.
OPERATING INCOME (cont'd)
Operating income of the Metal Coating segment declined 27%
in 1998, primarily due to lower sales, an unfavorable sales mix
shift, lower margins brought about by increased manufacturing,
scrap and claims costs, and a weak market for non-prime metal.
Profits in the Specialty Chemicals segment increased 21% in
1998, reflecting a favorable pension comparison of the unit's
overfunded plan; the additional profits from the newly acquired
Italian specialty chemicals distribution business; and
improvements at the other European specialty chemicals
distribution units and in the TAED product line. The
improvements in the TAED product line reflect the benefits of
aggressive cost reduction efforts, which more than offset the
currency related effect on pricing.
Operating income in the Other Products segment advanced 65%
in 1998. On a pro forma basis --- excluding the results of
operations divested in 1998 and 1997 --- segment operating income
more than quadrupled, rising to $19.0 million in 1998. The
advance was driven by the significant turnaround at MEGTEC. This
unit, which had incurred a significant loss in 1997, posted a
profit in 1998 -- a swing of $15.0 million for the year. This
improvement was derived from higher sales; the realization of
acquisition synergies; lower warranty and bad debt costs; and the
absence of significant one-time charges incurred to effect the
combination of MEG and TEC. Profits at the can machinery
operation increased 27%, due to reduced warranty expense and cost
reduction measures instituted in late 1997 and to the benefits of
higher sales. These favorable factors were partially offset by
losses and shutdown costs at a Texas facility. The automotive
products unit recorded an 11% decline in operating income,
primarily due to start-up costs at new facilities in Kentucky and
Brazil; to lower margins resulting from continued pressure on
prices; and to the impact of the General Motors strike. The
Men's Apparel unit recorded a 7% increase in operating income in
1998 due to increased sales. Profits of the domestic chemicals
unit -- which was sold in October 1998 -- totaled $3.1 million in
the first ten months of the year (after a $3.0 million provision
to remediate ground water pollution) and $8.0 million for the
full year 1997. NCS recorded operating income of $1.8 million
prior to its disposal in 1997.
INTEREST EXPENSE
The increase in interest expense of approximately $1.5 million
was due to an increase in average borrowings outstanding under
Sequa's revolving credit agreement.
EQUITY IN LOSS/INCOME OF UNCONSOLIDATED JOINT VENTURES
Sequa's share of the losses of the airbag businesses was $3.7
million in 1998 and $1.8 million in 1997. Sequa's share of the
losses or earnings of its remaining joint ventures was an equity
loss of $1.2 million in 1998, including a $2.1 million impairment
write-down, and equity income of $2.0 million in 1997.
OTHER, NET
In 1998, Other, net included a $2.0 million provision related to
the loss of funds advanced to a vendor engaged to implement a
freight consolidation program; $1.2 million in charges for the
amortization of capitalized debt issuance costs; $1.0 million of
income on the cash surrender value of corporate-owned life
insurance; and letters of credit and commitment fees of $0.9
million.
In 1997, Other, net included gains on the sale of assets of
$2.5 million; letters of credit and commitment fees of $1.6
million; $1.4 million in charges for the amortization of
capitalized debt issuance costs; and $1.3 million of income on
the cash surrender value of corporate-owned life insurance.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $47.4 million in
1998, compared with $100.6 million in 1997. The major reasons
for the 1998 decline were the higher levels of working capital
requirements at existing businesses, and the $24.0 million
deposit paid to the Internal Revenue Service related to a tax
dispute involving the 1989 restructuring of two subsidiaries.
Net cash used for investing activities was $6.5 million in 1998,
compared with $94.6 million in 1997. The major factors in the
1998 decline were the significantly higher level of proceeds from
businesses and other assets sold, partially offset by the $34.6
million increase in capital expenditures. Net cash used for
financing activities increased $51.1 million in 1998, primarily
due to the higher level of debt repayment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- ------- -----------------------------------------------------
RISK
----
See discussion appearing on pages 23 and 24 of this Annual
Report on Form 10-K under the heading "Derivative and Other
Financial Instruments," which is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and
the Board of Directors of
Sequa Corporation:
We have audited the accompanying consolidated balance sheet
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1999 and 1998, and the related consolidated
statements of income, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1999.
These financial statements 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 in accordance with auditing standards
generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Sequa Corporation and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 17, 2000
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- ---------------------------- -------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 68,164 $ 84,889
Short-term investments (Note 2) - 11,475
Trade receivables, net (Note 3) 239,532 292,152
Unbilled receivables, net (Note 4) 32,130 38,795
Inventories (Note 5) 315,158 262,765
Other current assets 25,275 25,792
---------- ---------
Total current assets 680,259 715,868
========== =========
INVESTMENTS
Net assets of discontinued operations
(Note 6) 98,912 105,152
Investments and other receivables
(Note 7) 74,015 28,130
---------- ---------
172,927 133,282
========== =========
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 8) 474,558 451,443
---------- ---------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 314,257 307,051
Deferred charges and other assets 29,697 16,503
---------- ---------
343,954 323,554
---------- ---------
TOTAL ASSETS $1,671,698 $1,624,147
========== ==========
The accompanying notes are an integral part of the financial
statements.
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except share data)
AT DECEMBER 31, 1999 1998
- ----------------------------------------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 9) $ 5,297 $ 8,659
Accounts payable 129,214 137,981
Taxes on income (Note 10) - 16,499
Accrued expenses (Note 11) 166,192 174,800
---------- ----------
Total current liabilities 300,703 337,939
---------- ----------
NONCURRENT LIABILITIES
Long-term debt (Note 9) 569,917 500,685
Deferred taxes on income (Note 10) 43,462 40,422
Other noncurrent liabilities 88,719 79,649
---------- ----------
Total noncurrent liabilities 702,098 620,756
---------- ----------
SHAREHOLDERS' EQUITY (Notes 9, 14, 15 and 16)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 1999
and 1998 (involuntary liquidation
value--$17,181 at December 31, 1999) 797 797
Class A common stock--no par value,
50,000,000 shares authorized; 7,281,000
shares issued at December 31, 1999
and 7,273,000 shares issued at
December 31, 1998 7,281 7,273
Class B common stock--no par value,
10,000,000 shares authorized; 3,727,000
shares issued at December 31, 1999
and 1998 3,727 3,727
Capital in excess of par value 288,437 288,379
Retained earnings 464,672 444,669
Accumulated other comprehensive
loss (16,453) (1,016)
---------- ----------
748,461 743,829
Less: cost of treasury stock 79,564 78,377
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 668,897 665,452
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,671,698 $1,624,147
========== ==========
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------- -------- -------- --------
SALES $1,699,529 $1,802,393 $1,595,125
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 1,359,706 1,444,914 1,285,829
Selling, general and administrative 245,364 252,016 224,589
---------- ---------- ----------
1,605,070 1,696,930 1,510,418
---------- ---------- ----------
OPERATING INCOME 94,459 105,463 84,707
OTHER INCOME (EXPENSE)
Interest expense (60,770) (51,776) (50,298)
Interest income 9,252 5,868 6,052
Gain on sale of businesses (Note 17) - 56,542 -
Equity in (loss) income of
unconsolidated joint ventures (Note 7) (2,851) (4,876) 223
Other, net (Note 18) 9,309 (3,224) 1,143
---------- ---------- ----------
(45,060) 2,534 (42,880)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 49,399 107,997 41,827
Income tax provision (Note 10) (21,600) (44,100) (22,200)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 27,799 63,897 19,627
Extraordinary loss on early retirement
of debt, net of tax benefit of $3,087
(Note 9) (5,732) - -
---------- ---------- ----------
NET INCOME 22,067 63,897 19,627
Preferred dividends (2,064) (2,173) (3,051)
---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON
STOCK $ 20,003 $ 61,724 $ 16,576
========== ========== ==========
BASIC EARNINGS PER SHARE (Note 20)
Income before extraordinary item $ 2.48 $ 6.01 $ 1.66
Extraordinary loss (.55) - -
---------- ---------- ----------
Net income $ 1.93 $ 6.01 $ 1.66
========== ========== ==========
DILUTED EARNINGS PER SHARE (Note 20)
Income before extraordinary item $ 2.48 $ 5.87 $ 1.66
Extraordinary loss (.55) - -
---------- ---------- ----------
Net income $ 1.93 $ 5.87 $ 1.66
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------- ------ ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income taxes $ 49,399 $ 107,997 $ 41,827
Adjustments to reconcile income to
net cash provided by operating activities:
Depreciation and amortization 87,156 89,321 85,815
Provision for losses on receivables 6,413 4,276 8,316
Gain on sale of businesses - (56,542) -
Gain on sale of assets (3,898) (82) (2,465)
Equity in loss (income) of unconsolidated
joint ventures 2,851 4,876 (223)
Other items not providing cash (4,232) (2,521) (2,008)
Changes in operating assets and liabilities,
net of businesses acquired and sold:
Receivables (36,853) (12,512) (23,088)
Inventories (56,169) (12,998) (15,783)
Other current assets 4,900 (4,997) 156
Accounts payable and accrued expenses (17,462) (22,634) 25,836
Other noncurrent liabilities 4,890 (1,331) (8,404)
--------- --------- --------
Net cash provided by continuing operations
before income taxes 36,995 92,853 109,979
Net cash provided by discontinued operations
before income taxes 4,014 1,322 3,929
Income taxes paid, net (35,816) (46,793) (13,358)
--------- --------- --------
Net cash provided by operating activities 5,193 47,382 100,550
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (101,382) (103,524) (68,960)
Sale of property, plant and equipment 12,572 12,386 8,511
Sale of businesses, net of cash sold - 121,333 28,178
Businesses purchased, net of cash acquired (25,827) (40,662) (36,058)
Short-term investments 15,041 11,234 (25,000)
Other investing activities (38,799) (7,294) (1,228)
--------- --------- --------
Net cash used for investing activities (138,395) (6,527) (94,557)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt, net of issuance costs 490,903 - 2,275
Payments of debt (149,593) (52,576) (3,312)
Early retirement of debt (289,850) - -
Proceeds from sale of accounts receivable, net 70,000 - -
Other financing activities (88) 658 175
--------- --------- --------
Net cash provided by (used for)
financing activities 121,372 (51,918) (862)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents (4,895) 2,209 (3,467)
--------- --------- --------
Net (decrease) increase in cash and
cash equivalents (16,725) (8,854) 1,664
Cash and cash equivalents at beginning of year 84,889 93,743 92,079
--------- --------- --------
Cash and cash equivalents at end of year $ 68,164 $ 84,889 $ 93,743
========= ========= ========
The accompanying notes are an integral part of the financial statements.
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Class A Class B Capital in Accum Other Total
(Amounts in thousands, Preferred Common Common Excess of Retained Comprehensive Treasury Shareholders'
except per share data) Stock Stock Stock Par Value Earnings Income (Loss) Stock Equity
-------- ------- ------- --------- -------- ------------- ------- --------
BALANCE AT DECEMBER 31, 1996 $797 $7,188 $3,727 $285,912 $366,369 $ 10,512 $(83,729) $590,776
Net income - - - - 19,627 - - 19,627
Foreign currency
translation adjustment - - - - - (17,306) - (17,306)
Comprehensive income 2,321
Amortization of
restricted stock grant - - - - - - 165 165
Stock grants forfeited - - - 46 - - (71) (25)
Stock options exercised - - - (3,601) - - 6,827 3,226
Tax benefits on stock
options and grants - - - 982 - - - 982
Cash dividends:
Preferred - $5.00 per share - - - - (3,051) - - (3,051)
----- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1997 797 7,188 3,727 283,339 382,945 (6,794) (76,808) 594,394
Net income - - - - 63,897 - - 63,897
Foreign currency
translation adjustment - - - - - 7,267 - 7,267
Unrealized loss on marketable
securities - - - - - (2,291) - (2,291)
Tax benefit for unrealized
loss on marketable
securities - - - - - 802 - 802
Comprehensive income 69,675
Stock options exercised - 85 - 2,023 - - 723 2,831
Stock grants - - - (10) - - 10 -
Exchange of common
stock for preferred - - - 2,302 - - (2,302) -
Tax benefits on stock options - - - 725 - - - 725
Cash dividends:
Preferred - $5.00 per share - - - - (2,173) - - (2,173)
----- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1998 797 7,273 3,727 288,379 444,669 (1,016) (78,377) 665,452
Net income - - - - 22,067 - - 22,067
Foreign currency
translation adjustment - - - - - (16,926) - (16,926)
Reversal of unrealized loss
on marketable securities - - - - - 2,291 - 2,291
Tax provision for reversal of
unrealized loss on marketable
securities - - - - - (802) - (802)
Comprehensive income 6,630
Stock options exercised - 8 - 31 - - 327 366
Stock grants - - - (52) - - 156 104
Repurchase of common
stock - - - - - - (1,670) (1,670)
Tax benefits on stock options - - - 79 - - - 79
Cash dividends:
Preferred - $5.00 per share - - - - (2,064) - - (2,064)
----- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1999 $ 797 $ 7,281 $3,727 $288,437 $464,672 $(16,453) $ (79,564)$668,897
===== ======= ====== ======== ======== ======== ========= ========
The accompanying notes are an integral part of the financial statements.
SEQUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Sequa Corporation
(Sequa) include the accounts of all majority-owned subsidiaries.
Investments in 20% to 50% owned joint ventures are accounted for
on the equity method. All material accounts and transactions
between the consolidated subsidiaries have been eliminated in
consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Sequa considers time deposits, certificates of deposit and
marketable securities with original maturities of three months or
less to be cash equivalents. Where the right of set-off exists,
Sequa has netted overdrafts with unrestricted cash and cash
equivalents.
MARKETABLE SECURITIES
Investments in common stock classified as available-for-sale
securities are carried at fair value as determined by the most
recently traded price of such securities, with the unrealized
gains and losses, net of tax, reported in Accumulated Other
Comprehensive Income (Loss), a separate component of
shareholders' equity.
INVENTORIES AND CONTRACT ACCOUNTING
Inventories are stated at the lower of cost or market. Sequa's
non-contract inventories are currently valued primarily on a
first-in, first-out (FIFO) basis. Inventoried costs relating to
long-term contracts are stated at actual or average costs,
including engineering and manufacturing labor and related
overhead incurred, reduced by amounts identified with sales. The
costs attributable to sales reflect the estimated costs of all
items to be produced under the related contract.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
PROPERTY, PLANT AND EQUIPMENT, NET
For financial reporting purposes, depreciation and amortization
are computed using the straight-line method to amortize the cost
of assets over their estimated useful lives. Accelerated
depreciation methods are used for income tax purposes.
Sequa reviews properties for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be fully recoverable. If the undiscounted future
cash flows expected to result from the use of an asset and its
eventual disposition are less than the carrying amount of the
asset, the property is written down to its fair market value.
EXCESS OF COST OVER NET ASSETS OF COMPANIES ACQUIRED
Excess of cost over net assets of companies acquired (goodwill)
is being amortized on a straight-line basis over periods not
exceeding forty years. The recoverability of goodwill is
evaluated at the operating unit level by an analysis of operating
results and consideration of other significant events or changes
in the business environment. If an operating unit has current
operating losses, and, based upon projections, there is a
likelihood that such operating losses will continue, Sequa
evaluates whether impairment exists over the remaining
amortization period on the basis of undiscounted expected future
cash flows from operations before interest. If impairment
exists, the carrying amount of the goodwill is reduced to market
value. Amortization charged against earnings in 1999, 1998 and
1997 was $12,617,000, $11,637,000 and $10,919,000, respectively.
Accumulated amortization at December 31, 1999 and 1998 was
$141,228,000 and $128,611,000, respectively.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Sequa's
foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of operations
denominated in foreign currencies are translated into US dollars
at exchange rates in effect at year-end, while revenues and
expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and
losses are charged or credited directly to Accumulated Other
Comprehensive Income (Loss), a separate component of
shareholders' equity, and are not included in net income until
realized through sale or liquidation of the investment. Foreign
exchange gains and losses incurred on foreign currency
transactions are included in net income.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized to manage foreign
exchange risks and, to a lesser extent, to manage natural gas
price risks. Sequa has established a control environment which
includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial
instrument activities. Sequa does not buy, hold or sell
derivative financial instruments for trading purposes.
Gains and losses on forward exchange contracts designated as
hedges of existing assets and liabilities and anticipated
transactions are recognized in income as exchange rates change.
Gains and losses on forward exchange contracts that hedge firm
commitments are deferred and included in the basis of the
transactions when they are completed. The cost of foreign
currency options purchased to hedge anticipated transactions is
amortized to expense on a straight-line basis over the life of
the option. Gains or losses on purchased options are deferred
and included in the basis of the anticipated transactions if, and
when, the options are exercised.
Unrealized changes in the market values of outstanding
natural gas swaps designated as hedges are deferred, and the
monthly payments received from, or paid to, the counterparties of
the swaps are included in earnings during the period in which
settlements are made.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
It is Sequa's policy to accrue environmental remediation costs
for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated.
Accrued environmental remediation and compliance costs include
remedial investigation and feasibility studies; outside legal,
consulting and remediation project management fees; projected
cost of remediation activities; and site closure and post-
remediation monitoring costs. At December 31, 1999, the
potential exposure for such costs is estimated to range from
$15,000,000 to $27,000,000, and Sequa's Consolidated Balance
Sheet includes accruals for remediation costs of $23,355,000.
These accruals are at undiscounted amounts and are included in
accrued expenses and other noncurrent liabilities. Actual costs
to be incurred at identified sites in future periods may vary
from the estimates, given inherent uncertainties in evaluating
environmental exposures.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped or when
services are rendered. Long-term contracts are accounted for
under the percentage-of-completion method, whereby sales are
primarily recognized based upon costs incurred as a percentage of
estimated total costs, and gross profits are recognized under a
more conservative "efforts-expended" method primarily based upon
direct labor costs incurred as a percentage of estimated total
direct labor costs. Changes in estimates for sales, costs and
gross profits are recognized in the period in which they are
determinable using the cumulative catch-up method. Any
anticipated losses on contracts are charged to current operations
as soon as they are determinable.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred
and amounted to approximately $20,005,000 in 1999, $21,353,000 in
1998 and $13,259,000 in 1997.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-
based employee compensation plans at fair value. Sequa has
chosen to continue to account for stock-based compensation under
Accounting Principles Board (APB) Opinion No. 25, which measures
compensation cost for stock options as the excess, if any, of the
quoted market price of a company's stock at the grant date over
the amount an employee must pay to acquire the stock. As Sequa's
stock option plans require the option price to be no less than
the fair market value of the stock at the date of grant, no
compensation expense is recognized for stock options granted.
INCOME TAXES
Income taxes are recognized during the year in which transactions
enter into the determination of financial statement income, with
deferred taxes provided for temporary differences between
amounts of assets and liabilities recorded for tax and financial
reporting purposes.
No provision has been made for US or additional foreign taxes
on $264,287,000 of undistributed earnings of foreign
subsidiaries, as those earnings are intended to be permanently
reinvested. Such earnings would become taxable upon the sale or
liquidation of these foreign subsidiaries or upon the remittance
of dividends.
NOTE 2. SHORT-TERM INVESTMENTS
At December 31, 1998, the $11,475,000 short-term investment
represents the market value of Sequa's investment in the common
stock of a publicly traded company, which was subsequently sold
in 1999 at a gain of $1,275,000.
NOTE 3. TRADE RECEIVABLES, NET
Sequa Receivables Corp. (SRC), a wholly owned special purpose
corporation, has a Receivables Purchase Agreement extending
through November 2003 under which it is able to sell without
recourse up to $120,000,000 of Sequa's eligible trade receivables
through a bank sponsored facility. Under the terms of the
agreement, SRC's assets will be available to satisfy its
obligations to its creditors, which have security interests in
certain of SRC's assets, prior to any distribution to Sequa. At
December 31, 1999, trade receivables are net of $70,000,000 of
receivables sold under the agreement. In 1999, Other, net in the
Consolidated Statement of Income includes discount expense of
$2,290,000 related to the sale of receivables.
Trade receivables at December 31, 1999 and 1998 are reduced
by allowances for doubtful accounts of $17,259,000 and
$15,635,000, respectively.
NOTE 4. UNBILLED RECEIVABLES, NET
Unbilled receivables, net consist of the following:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- -------------------------------- ---- ----
Fixed-price contracts $29,165 $33,923
Cost-reimbursement contracts 2,965 4,872
------- -------
$32,130 $38,795
======= =======
Unbilled receivables on fixed-price contracts arise as revenues
are recognized under the percentage-of-completion method. These
amounts are billable at specified dates, when deliveries are made
or at contract completion, which is expected to occur within one
year. All amounts included in unbilled receivables are related
to long-term contracts and are reduced by appropriate progress
billings.
Unbilled amounts on cost-reimbursement contracts represent
recoverable costs and accrued profits not yet billed. These
amounts are billable upon receipt of contract funding, final
settlement of indirect expense rates, or contract completion.
NOTE 4. UNBILLED RECEIVABLES, NET (cont'd)
Allowances for estimated nonrecoverable costs are primarily
to provide for losses which may be sustained on contract costs
awaiting funding and for the finalization of indirect expenses.
Unbilled amounts at December 31, 1999 and 1998 are reduced by
allowances for estimated nonrecoverable costs of $2,060,000 and
$879,000, respectively.
NOTE 5. INVENTORIES
The components of inventories are as follows:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- ------------------------------ ---- ----
Finished goods $ 82,010 $ 78,000
Work in process 88,255 78,728
Raw materials 150,921 105,430
Long-term contract costs 6,560 9,249
Customer deposits (12,588) (8,642)
-------- --------
$315,158 $262,765
======== ========
NOTE 6. NET ASSETS OF DISCONTINUED OPERATIONS
During 1991, Sequa adopted a formal plan to divest Sequa
Capital's investment portfolio and classified it as a
discontinued operation. As of December 31, 1999, approximately
$375,000,000 of Sequa Capital's investment portfolio had been
sold, written down or otherwise disposed of. During the same
period, Sequa repaid approximately $367,000,000 of Sequa
Capital's debt. Sequa Capital's investment in leveraged leases
will be liquidated over the next 15 years as rentals are received
and residual values are realized. Debt of discontinued
operations at December 31, 1999 represents the accreted principal
amount of the $25,000,000 in proceeds received from the non-
recourse securitization of Sequa Capital's leveraged lease
portfolio in 1994. The leveraged lease cash flow stream will
service the payment of principal and interest until the loan is
paid off.
NOTE 6. NET ASSETS OF DISCONTINUED OPERATIONS (cont'd)
Net assets of discontinued operations approximate net
realizable value and have been classified as noncurrent. The
amounts Sequa Capital will ultimately realize from the leveraged
lease portfolio and other investments could differ materially
from management's best estimates of their realizable value. A
summary of the net assets of discontinued operations follows:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- -------------------------------- ------ ------
Investment in leveraged leases and
other investments $130,377 $142,433
Other assets, net 1,336 970
Debt (32,801) (38,251)
-------- --------
Net assets of discontinued operations $ 98,912 $105,152
======== ========
NOTE 7. INVESTMENTS AND OTHER RECEIVABLES
Sequa's investments and other receivables consist of the
following items:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- -------------------------------- ------ ------
Investments in unconsolidated joint
ventures $42,445 $11,114
Breed pre-petition net accounts receivable 12,134 -
Cash surrender value of corporate-
owned life insurance 13,004 11,227
Other receivables 6,432 5,789
------- -------
$74,015 $28,130
======= =======
Sequa has investments in numerous unconsolidated joint ventures.
ARC's investment in BAG SpA, an Italian company which
manufactures and markets hybrid inflators for automotive airbags,
amounted to $18,498,000 at December 31, 1999 and $922,000 at
December 31, 1998. In 1998, Sequa owned one of three equal
interests in BAG SpA along with Breed Technologies, Inc. (Breed),
whose Italian subsidiary, Breed Italian Holdings S.r.l. is the
venture's only customer, and a subsidiary of Fiat Avio. In April
1999, Sequa and Breed purchased equal shares from the Fiat Avio
subsidiary, increasing their ownership to 50% each. In September
1999, Breed and certain of its US subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code. In December 1999, letters of credit
issued by Sequa and Breed to guarantee BAG SpA's bank debt
NOTE 7. INVESTMENTS AND OTHER RECEIVABLES (cont'd)
and other liabilities were drawn upon, in the case of Sequa, in
the amount of $10,369,000. In January 2000, Sequa (through its
ARC and ARC Automotive Italia subsidiaries), BAG SpA and Breed
signed a contract which provides for ARC Automotive Italia to
acquire certain of the assets, as well as the automotive inflator
business of BAG SpA. The closing of this transaction is subject
to several significant conditions including the approval of the
Bankruptcy Court overseeing Breed's reorganization and the
completion of several other key agreements.
Sequa's share of the losses of the airbag joint ventures was
$1,941,000 in 1999, $3,666,000 in 1998 and $1,799,000 in 1997.
One month of 1998 and all of 1997 included the losses of BAICO,
the former domestic inflator joint venture, wholly owned since
January 28, 1998.
Breed's domestic operations are supplied by ARC under the
terms of a long-term contract. Pursuant to an Agreed Order and
Stipulation that was entered with the Bankruptcy Court, ARC and
Breed have agreed to enter into negotiations to modify the long
term supply contract. If these negotiations are unsuccessful,
Breed must assume or reject the existing contract no later than
May 1, 2000, unless the deadline is extended by the mutual
consent of the two parties. Based on the current facts and
circumstances, Sequa's management believes that the long-term
supply contract will be accepted in either its current or
modified form and therefore believes that the opportunity to
recover the full amount of the Breed pre-petition net accounts
receivable remains. However, due to the uncertainty of the
ultimate resolution of the Chapter 11 proceedings, Sequa has
reclassified the receivable to long-term.
Chromalloy Gas Turbine has several 50/50 joint venture
partnerships, two of which are significant. The first is
Advanced Coatings Technologies (ACT), a joint venture with United
Technologies Corporation, which owns and operates an electron
beam ceramic coater for the application of Pratt & Whitney
coatings to jet engine parts. The second, Pacific Gas Turbine
(PGT), was formed in 1999 with Willis Lease Finance. PGT
overhauls and tests certain jet engines. Sequa's investment in
these two Gas Turbine partnerships at December 31, 1999 was
$13,373,000 and its investment in ACT at December 31, 1998 was
$1,780,000. Sequa's equity share of earnings was $167,000 in
1999, $1,843,000 in 1998 and $2,306,000 in 1997.
Sequa's remaining investments in unconsolidated joint ventures
contributed losses of $1,077,000 in 1999, $3,053,000 in 1998 and
$284,000 in 1997. The 1998 loss included a $2,058,000 impairment
write-down triggered by a partner's decision to withdraw from the
business of producing advanced titanium matrix composite fibers.
NOTE 8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- -------------------------------- ---- ----
Land and improvements $ 37,964 $ 41,588
Buildings and improvements 231,979 223,752
Machinery and equipment 832,952 790,481
Construction in progress 54,646 37,506
---------- ----------
1,157,541 1,093,327
Accumulated depreciation (682,983) (641,884)
---------- ----------
$ 474,558 $ 451,443
========== ==========
Depreciation expense was $71,690,000 in 1999, $74,891,000 in 1998
and $72,443,000 in 1997.
NOTE 9. INDEBTEDNESS
Long-term debt is as follows:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- ---------------------------------- ---- ----
Senior unsecured notes, at 9%, due 2009 $500,000 $ -
Senior unsecured notes, at 9 5/8%,
due 1999 - 138,519
Senior unsecured notes, at 8 3/4%, due 2001 - 109,948
Medium-term notes, at a weighted average
interest rate of 10.1%, due 2001 66,425 66,425
Senior subordinated notes, at 9 3/8%,
due 2003 - 174,000
Capital lease obligations, at weighted
average interest rates of 8.6% and 8.5%,
respectively, payable in varying amounts
through 2005 5,278 12,189
Other, at weighted average interest rates of
3.7% and 4.5%, respectively, payable in
varying amounts through 2004 3,511 8,263
-------- --------
575,214 509,344
Less current maturities (5,297) (8,659)
-------- --------
Total long-term debt $569,917 $500,685
======== ========
NOTE 9. INDEBTEDNESS (cont'd)
In July 1999, Sequa issued $500,000,000 of 9% Senior Notes due
August 1, 2009. Net proceeds of $490,903,000 from the offering
were initially used to repurchase $85,500,000 of accounts
receivable previously sold under SRC's Receivables Purchase
Agreement, to pay down the $48,500,000 outstanding under the
revolving credit agreement and to repurchase $29,310,000 and
$35,665,000 principal amounts of the 8 3/4% and 9 3/8% Senior
and Senior Subordinated Notes, respectively. The remainder of
the net proceeds was invested in short-term interest bearing
instruments.
On October 15, 1999, Sequa retired the $138,519,000
principal amount of 9 5/8% Senior Notes then due. On December
15, 1999, the date on which the call premiums decreased by a
total of $3,925,000, Sequa retired the entire $80,638,000
principal amount outstanding of its 8 3/4% Senior Notes and the
entire $138,335,000 principal amount outstanding of its 9 3/8%
Senior Subordinated Notes. An extraordinary loss of $5,732,000
was incurred as a result of the early retirement of debt,
consisting of $5,902,000 of retirement premiums and the
$2,917,000 write-off of associated debt issuance costs, net of a
tax benefit of $3,087,000.
In October 1997, Sequa entered into a $150,000,000 revolving
credit agreement with a group of banks that extends through
October 2002. The rate of interest payable under the agreement
is, at Sequa's option, a function of either the prime rate or the
Eurodollar rate. The agreement requires Sequa to pay a
commitment fee, which is subject to adjustment based upon the
ratio of debt to EBITDA (earnings before interest, taxes,
depreciation and amortization), at an initial annual rate of
.275% of the unutilized amount available under the credit line.
At December 31, 1999, there were no borrowings outstanding under
this facility, leaving the full $150,000,000 of unused credit
available.
The revolving credit agreement contains Sequa's most
restrictive covenants which, among other matters, limit its
ability to pay dividends, incur indebtedness, make capital
expenditures and repurchase common and preferred stock. Sequa
must also maintain a minimum net worth and certain ratios
regarding interest coverage and debt to EBITDA, among other
restrictions.
The aggregate maturities of total long-term debt during the
next five years are $5,297,000 in 2000, $66,574,000 in 2001,
$6,000 in 2002, $6,000 in 2003 and $6,306,000 in 2004.
NOTE 10. INCOME TAXES
The components of income before income taxes were:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------- ---- ---- ----
Domestic $ 2,707 $ 55,197 $ 17,863
Foreign 46,692 52,800 23,964
-------- -------- --------
$ 49,399 $107,997 $ 41,827
======== ======== ========
The income tax provision consisted of:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------- ---- ---- ----
United States Federal
Current $ 402 $ 865 $ 142
Deferred 3,972 20,281 9,283
State and local 363 5,155 1,569
Foreign 16,863 17,799 11,206
------- ------- -------
$21,600 $44,100 $22,200
======= ======= =======
The income tax provision is different from the amount computed by
applying the US Federal statutory income tax rate of 35% to
income before income taxes. The reasons for this difference are
as follows:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------- ---- ---- ----
Computed income taxes at statutory
rate $17,290 $ 37,799 $ 14,639
State and local taxes, net of
Federal income tax benefit 236 3,351 1,020
Goodwill amortization 3,464 3,584 3,424
Foreign subsidiaries at different
tax rates 514 (2,586) (1,370)
Foreign (earnings)/losses not
(provided)/benefited (210) 1,555 4,189
Other, net 306 397 298
------- -------- --------
$21,600 $ 44,100 $ 22,200
======= ======== ========
The deferred tax provision represents the change in deferred
tax assets and liabilities from the beginning of the year to the
end of the year resulting from changes in the temporary
differences between the financial reporting basis and the tax
basis of Sequa's assets and liabilities.
NOTE 10. INCOME TAXES (cont'd)
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities are as follows:
(Amounts in thousands)
AT DECEMBER 31, 1999
- ------------------------- --------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
Accounts receivable allowances $ 4,648 $ -
Inventory valuation differences 19,919 2,882
Recognition of income on
long-term contracts 2,368 5,065
Depreciation 7,945 40,784
Lease and finance transactions - 112,610
Accruals not currently deductible
for tax purposes 50,006 -
Tax net operating loss carryforward 50,471 -
Alternative minimum tax (AMT)
credit carryforward 21,353 -
Other tax credit carryforwards 9,222 -
All other 26,366 11,267
-------- --------
Subtotal 192,298 172,608
Valuation allowance (10,475) -
-------- --------
Total deferred taxes $181,823 $172,608
======== ========
(Amounts in thousands)
AT DECEMBER 31, 1998
- ------------------------- --------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
Accounts receivable allowances $ 3,472 $ -
Inventory valuation differences 23,916 4,002
Recognition of income on
long-term contracts 4,497 4,522
Depreciation 9,934 43,294
Lease and finance transactions - 120,634
Accruals not currently deductible
for tax purposes 68,378 -
Tax net operating loss carryforward 47,318 -
Alternative minimum tax (AMT)
credit carryforward 24,733 -
Other tax credit carryforwards 8,209 -
All other 22,421 12,588
-------- --------
Subtotal 212,878 185,040
Valuation allowance (9,999) -
-------- --------
Total deferred taxes $202,879 $185,040
======== ========
NOTE 10. INCOME TAXES (cont'd)
Sequa has had an issue with the Internal Revenue Service (IRS)
involving the 1989 restructuring of two subsidiaries. While
management believes its tax position in this matter was
appropriate, it has taken the conservative position of providing
reserves to cover an adverse outcome. At December 31, 1999, the
net amount involved was approximately $59,000,000, composed of
the potential liability associated with the restructuring and
related tax issues; interest expense, net of tax benefit, from
the date of the resulting tax refund; and deferred tax assets for
portions of tax loss and credit carryforwards which could be
utilized in a settlement. In October 1998, Sequa made a deposit
of $24,000,000 with the IRS against the expected liability for
additional tax and interest that may be assessed against Sequa
related to certain of these tax matters. The deposit stopped the
running of interest with respect to the amounts deposited.
Management has been in discussions with the IRS on these matters
for several years and recently reached an informal agreement
settling this matter with the IRS. There are several steps
involved in finalizing this agreement, including the approval by
the Joint Committee on Taxation of the US Congress. If the
agreement is approved, no significant additional tax or interest
will be paid or refunded. Management anticipates that the
agreement with the IRS will be finalized in the next 12 months,
at which time approximately $35,000,000, representing the
reversal of reserves no longer required, would be recorded as
income through a reduction of the income tax provision.
At December 31, 1999, current taxes payable of $49,078,000 are
netted against $52,677,000 of net current deferred tax assets
(included in other current assets in the accompanying
Consolidated Balance Sheet) and net noncurrent deferred tax
liabilities of $43,462,000 are presented as a single amount in
the Consolidated Balance Sheet. At December 31, 1998, net
current deferred tax assets of $58,261,000 are netted against
$74,760,000 of current taxes payable, and net noncurrent deferred
tax liabilities of $40,422,000 are presented as a single amount
in the Consolidated Balance Sheet.
A valuation allowance has been established to reduce the
deferred tax asset recorded for certain tax credits that may
expire unutilized in 2000 through 2018 and to reduce the tax
benefit recorded for a portion of the cumulative losses of
Sequa's French subsidiaries. The AMT credit carryforward does
not expire and can be carried forward indefinitely. Sequa has a
domestic tax net operating loss carryforward of $144,203,000 at
December 31, 1999 that expires in 2008 through 2019.
Although Sequa experienced book and tax domestic losses prior
to 1997, Sequa has been profitable domestically on a book basis
since 1997 and on a tax basis for 1997 and 1998, with an
NOTE 10. INCOME TAXES (cont'd)
estimated tax loss for 1999. Management believes that its
domestic net operating loss carryforwards will be utilized before
their expiration through future reversals of existing taxable
temporary differences and future earnings. The domestic losses
prior to 1997 were largely attributable to loss provisions
recorded during 1991 and 1992 for Sequa Capital, a discontinued
leasing unit, and operating losses incurred by Gas Turbine from
1993 through 1995. Sequa has divested itself of a significant
portion of Sequa Capital's assets and has decreased interest
expense by significantly reducing debt levels that existed during
the Sequa Capital loss years. In addition, Gas Turbine has been
profitable since 1996, due principally to decreased litigation
costs and rising demand from the commercial airline market for
jet engine component repair.
Sequa's ability to generate the expected amounts of domestic
taxable income from future operations is dependent upon general
economic conditions; the state of the airline industry and other
major markets; the resolution of the uncertainties in ARC's
airbag inflator business; competitive pressures on sales and
margins; and other factors beyond management's control. There
can be no assurance that Sequa will meet its expectations for
future domestic taxable income in the carryforward period.
However, management has considered the above factors in reaching
the conclusion that it is more likely than not that future
domestic taxable income will be sufficient to fully realize the
net domestic deferred tax assets at December 31, 1999. The
amount of the deferred tax assets considered realizable, however,
could be reduced in the near term if estimates of future domestic
taxable income during the carryforward period are reduced.
NOTE 11. ACCRUED EXPENSES
Sequa's accrued expenses consist of the following items:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- ------------------------------- ---- ----
Salaries and wages $ 41,430 $ 47,825
Interest 20,574 5,171
Current portion of environmental
liabilities 6,000 10,000
Current portion of self-insurance
liabilities 4,800 4,800
Current portion of pension liabilities 938 1,040
Warranty 14,561 18,806
Customer rebates 12,188 10,224
Legal fees 2,302 3,314
Royalties 7,757 9,474
Insurance 5,766 6,075
Taxes other than income 4,360 5,046
Other 45,516 53,025
-------- --------
$166,192 $174,800
======== ========
NOTE 12. FINANCIAL INSTRUMENTS
Sequa utilizes forward foreign exchange contracts and purchased
foreign currency options to reduce exposure to foreign currency
fluctuations on certain existing assets and liabilities, firm
commitments and anticipated transactions. To a lesser extent,
Sequa also utilizes natural gas swap agreements to convert a
portion of certain operations' estimated natural gas requirements
to fixed rates. Sequa's accounting policies with respect to
these financial instruments are described in Note 1. At December
31, 1999, Sequa had forward foreign exchange contracts
outstanding with notional amounts of $105,539,000 and natural gas
swaps outstanding with notional amounts of $516,000. At December
31, 1998, Sequa had forward foreign exchange contracts
outstanding with notional amounts of $56,605,000 and natural gas
swaps outstanding with notional amounts of $3,779,000.
The following table presents the carrying amounts and fair
values of Sequa's derivative and non-derivative financial
instruments:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- ----------------------- ------------- -------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Assets
Cash and cash equivalents $ 68,164 $ 68,164 $ 84,889 $ 84,889
Short-term investments - - 11,475 11,475
Forward foreign exchange
contracts 2,007 2,007 35 35
Natural gas swaps - 44 - -
Liabilities
Current and long-term
debt 575,214 558,710 509,344 521,120
Forward foreign exchange
contracts 590 590 815 815
Natural gas swaps - - - 175
The fair value of cash and cash equivalents approximates the
carrying amount due to the short maturity of those instruments.
The fair value of short-term investments and Sequa's debt is
primarily based upon quoted market prices of publicly traded
securities. The fair value of forward foreign exchange contracts
is based on year-end exchange rates. The fair value of Sequa's
natural gas swap agreements is based upon the amounts that Sequa
could settle with the counterparties to terminate the natural gas
swaps outstanding at December 31, 1999 and 1998.
At December 31, 1999, Sequa was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
$27,642,000. Sequa is not currently aware of any existing
conditions that would cause risk of loss relative to outstanding
letters of credit.
NOTE 13. PENSION PLANS AND POSTRETIREMENT BENEFITS
Sequa sponsors various defined benefit pension plans covering
certain hourly and most salaried employees. The defined benefit
plans provide benefits based primarily on the participants' years
of service and compensation. Sequa's pension plans are funded to
accumulate sufficient assets to provide for accrued benefits.
Sequa also has several unfunded supplemental executive retirement
plans for certain key executives. These plans provide for
benefits that supplement those provided by Sequa's other
retirement plans.
The status of all of Sequa's significant domestic and foreign
defined benefit plans was as follows:
Unfunded
Funded Defined Supplemental
Benefit Pension Retirement
(Amounts in thousands) Plans Plans
-------------- ------------
AT DECEMBER 31, 1999 1998 1999 1998
- ------------------------- ---- ---- ---- ----
Change in Benefit Obligation
- ----------------------------
Benefit obligation at beginning
of year $315,055 $265,442 $ 17,947 $15,050
Service cost 12,320 10,005 (47) (76)
Interest cost 20,056 19,208 1,263 1,121
Actuarial (gain) loss (32,152) 34,255 (320) 1,716
Plan amendments 361 2,767 - 186
Curtailments (214) (1,401) 126 245
Participant contributions 802 707 - -
Benefits paid (16,716) (16,136) (428) (295)
Translation adjustment (1,260) 208 - -
-------- -------- -------- -------
Benefit obligation at end of year $298,252 $315,055 $ 18,541 $17,947
-------- -------- -------- -------
Change in Plan Assets
- ---------------------
Fair value of plan assets at
beginning of year $305,179 $292,085 $ - $ -
Actual return on plan assets 50,077 24,825 - -
Contributions 3,598 4,160 428 295
Benefits paid (16,716) (16,136) (428) (295)
Translation adjustment (1,493) 245 - -
-------- -------- -------- -------
Fair value of plan assets at end
of year $340,645 $305,179 $ - $ -
-------- -------- -------- -------
Reconciliation of Funded Status
- -------------------------------
Funded status $ 42,393 $ (9,876) $(18,541)$(17,947)
Unrecognized net actuarial
(gain) loss (43,572) 12,032 (66) 258
Unrecognized prior service cost 4,834 5,475 1,438 1,649
Unrecognized transition obligation (1,009) (1,745) - -
Translation adjustment - (21) - -
-------- -------- -------- --------
Net amount recognized $ 2,646 $ 5,865 $(17,169)$(16,040)
======== ======== ======== ========
Included in:
- ------------
Deferred charges $ 10,759 $ 10,626 $ - $ -
Accrued expenses (938) (1,040) - -
Other noncurrent liabilities (7,175) (3,721) (17,169) (16,040)
-------- -------- -------- --------
Net amount recognized $ 2,646 $ 5,865 $(17,169)$(16,040)
======== ======== ======== ========
NOTE 13. PENSION PLANS AND POSTRETIREMENT BENEFITS (cont'd)
The funded plans' assets consist primarily of listed common
stock, pooled equity funds, index funds, debt instruments and
real estate funds. At December 31, 1999 and 1998, the plans'
assets included Sequa stock with market values of $28,926,000 and
$32,109,000, respectively.
Assumptions used in accounting for all of Sequa's significant
domestic and foreign defined benefit plans are:
At December 31, 1999 1998 1997
- --------------- ---- ---- ----
Discount rate for obligations 7.5% 6.5% 7.25%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
The periodic net pension cost of all of Sequa's significant
domestic and foreign defined benefit plans includes the following
components:
Funded Defined
(Amounts in thousands) Benefit Pension Plans
---------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------- ---- ---- ----
Service cost $ 12,320 $10,005 $ 7,886
Interest cost 20,056 19,208 17,966
Expected return on assets (26,718) (25,847) (21,588)
Amortization of net transition amount (770) (730) (734)
Amortization of prior service cost 763 929 733
Recognized net (gain) loss - (353) 3
------- ------- -------
Net periodic pension cost 5,651 3,212 4,266
Loss (gain) due to curtailments 240 (961) 402
------- ------- -------
Total amount reflected in earnings $ 5,891 $ 2,251 $ 4,668
======= ======= =======
Unfunded Supplemental
(Amounts in thousands) Retirement Plans
--------------------
Year ended December 31, 1999 1998 1997
- ---------------------------- ---- ---- ----
Service cost $ (47) $ (76) $ 79
Interest cost 1,263 1,121 989
Amortization of prior service cost 210 211 302
Recognized net loss (gain) 5 - (49)
------- ------- -------
Net periodic pension cost 1,431 1,256 1,321
Loss due to curtailments 126 245 -
------- ------- -------
Total amount reflected in earnings $ 1,557 $ 1,501 $ 1,321
======= ======= =======
NOTE 13. PENSION PLANS AND POSTRETIREMENT BENEFITS (cont'd)
Employees not covered by the defined benefit plans discussed
above generally are covered by multiemployer plans as part of
collective bargaining agreements or by small local plans.
Pension expense for these multiemployer plans and small local
plans was not significant in the aggregate.
Sequa's domestic non-union employees are eligible to
participate in Sequa's 401(k) plans. Expenses recorded for
Sequa's matching contributions under these plans were $5,805,000
in 1999, $5,335,000 in 1998 and $4,991,000 in 1997.
Postretirement health care and other insurance benefits are
provided to certain retirees. The actuarial and recorded
liabilities for these postretirement benefits, none of which have
been funded, are as follows:
Other
(Amounts in thousands) Postretirement Benefits
----------------------
AT DECEMBER 31, 1999 1998
- --------------------------- ---- ----
Change in Benefit Obligation
- ----------------------------
Benefit obligation at beginning
of year $3,027 $2,306
Service cost 223 184
Interest cost 176 157
Actuarial (gain) loss (702) 685
Plan amendments 304 -
Participant contributions 192 174
Benefits paid (560) (479)
------ ------
Benefit obligation at end of year $2,660 $3,027
====== ======
Net periodic postretirement benefit cost includes the following
components:
Other
(Amounts in thousands) Postretirement Benefits
-----------------------
Year ended December 31, 1999 1998 1997
- -------------------------------- ---- ---- ----
Service cost $ 223 $ 184 $ 142
Interest cost 176 157 189
Amortization of net loss 145 123 159
Amortization of unrecognized prior
service cost (127) (164) (151)
Amortization of transition obligation 77 77 77
----- ----- -----
Net periodic postretirement benefit cost $ 494 $ 377 $ 416
===== ===== =====
NOTE 13. PENSION PLANS AND POSTRETIREMENT BENEFITS (cont'd)
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.5% at December 31, 1999,
6.5% at December 31, 1998 and 7.25% at December 31, 1997 and an
average health care cost trend rate of approximately 8.25%,
progressively decreasing to approximately 5.5% in the year 2007
and thereafter.
A one percentage point change in the assumed health care cost
trend rate would not have a material effect on the postretirement
benefit obligation or on the aggregate service cost and interest
cost components.
NOTE 14. CAPITAL STOCK
Sequa's capital stock consists of Class A and Class B common
stock and $5.00 cumulative convertible preferred stock. Holders
of Class A common stock have one vote per share; holders of Class
B common stock have ten votes per share; and preferred
stockholders have one vote per share. Holders of Class B common
stock are entitled to convert their shares into Class A common
stock at any time on a share-for-share basis. Each share of
$5.00 cumulative convertible preferred stock is convertible into
1.322 shares of Class A common stock. The preferred stock is
redeemable, at the option of Sequa, at $100 per share.
On May 6, 1999, stockholders voted affirmatively to amend the
Sequa Corporation Restated Certificate of Incorporation, as
amended, to increase the number of shares of Class A common stock
that Sequa is authorized to issue to 50,000,000 from 25,000,000
and to increase the number of shares of Class B common stock that
Sequa is authorized to issue to 10,000,000 from 5,000,000. The
additional authorized shares improve Sequa's flexibility in
responding to future business needs and opportunities, including
possible future acquisitions, financings, stock dividends and
other corporate purposes. However, Sequa has no present plans to
issue the additional authorized shares, except pursuant to the
its benefit plans and for its convertible securities.
At December 31, 1999, 4,325,497 shares of Sequa Class A
common stock were reserved for the conversion of preferred and
Class B common stock, and for the exercise of outstanding stock
options.
The following table summarizes shares held in treasury:
At December 31, 1999 1998 1997
- -------------------- ---- ---- ----
Class A common stock 240,032 215,104 512,643
Class B common stock 397,283 397,283 397,283
Preferred stock 383,990 383,990 186,690
NOTE 14. CAPITAL STOCK (cont'd)
During 1999, 34,800 shares of Class A common stock were purchased
for treasury at a cost of $1,670,000. During 1998, 286,199
shares of Class A common stock were issued out of treasury in
exchange for 197,300 shares of cumulative convertible preferred
stock. The average exchange ratio was 1.45 shares of Class A
common stock for each share of preferred.
During the years ended December 31, 1999 and 1998, no
dividends were declared on Sequa Class A common shares or Class B
common shares.
NOTE 15. STOCK OPTIONS
Sequa has two incentive and nonqualified stock option plans in
effect: the 1988 Stock Option Plan and the 1998 Stock Option
Plan. These plans provide for the granting of options of Sequa's
Class A common stock to key employees. The option price per
share may not be less than the fair market value of the Class A
common stock on the date the option is granted, and the maximum
term of an option may not exceed ten years. Options primarily
vest in three equal annual installments, commencing on the first
anniversary of the grant date. Under the terms of the 1998 Stock
Option Plan, Sequa is authorized to grant to officers and other
key employees options to purchase up to a total of 500,000 shares
of Class A common stock. Authority to grant options under the
1988 Stock Option Plan expired during 1998. The following table
summarizes the activity related to Sequa's stock options for the
three years ended December 31, 1999:
Weighted
Average
Options Price
------- -----
OUTSTANDING AT DECEMBER 31, 1996 232,345 $32.02
Granted 16,000 $50.38
Expired or Cancelled (3,010) $32.25
Exercised (104,237) $32.31
--------
OUTSTANDING AT DECEMBER 31, 1997 141,098 $33.91
Granted 428,000 $58.07
Expired or Cancelled (13,200) $40.05
Exercised (103,531) $32.36
--------
OUTSTANDING AT DECEMBER 31, 1998 452,367 $56.95
Granted 25,750 $58.02
Expired or Cancelled (12,833) $55.72
Exercised (15,300) $32.43
--------
OUTSTANDING AT DECEMBER 31, 1999 449,984 $57.88
========
EXERCISABLE AT
December 31, 1997 120,631 $31.88
December 31, 1998 17,000 $33.54
December 31, 1999 143,134 $57.68
AVAILABLE FOR FUTURE GRANT 65,083 -
NOTE 15. STOCK OPTIONS (cont'd)
Under the provisions of APB Opinion No. 25, Sequa has
recognized no compensation expense for stock options granted.
Under SFAS No. 123, compensation cost is measured at the grant
date based on the value of the award and is recognized over the
vesting period. Had compensation cost for Sequa's stock option
plans been determined under SFAS No. 123, Sequa's net earnings
and earnings per share would have been affected as shown in the
following pro forma presentation:
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------ ---- ---- ----
NET INCOME
As reported $22,067 $63,897 $19,627
Pro forma 20,722 63,518 19,572
BASIC EARNINGS PER SHARE
As reported $1.93 $6.01 $1.66
Pro forma 1.80 5.97 1.66
DILUTED EARNINGS PER SHARE
As reported $1.93 $5.87 $1.66
Pro forma 1.80 5.83 1.65
The fair value of each option is estimated on the date of grant
using the Black-Scholes option pricing model. The model's
weighted average assumptions for 1999 were: risk free interest
rate of 6.5%, expected life of 4 years, expected volatility of
29.2% and expected dividend yield of 0%. The model's assumptions
for prior years were: risk free interest rate of 4.55%, expected
life of 4 years, expected volatility of 22.2% and expected
dividend yield of 0%.
NOTE 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances for each classification of other
comprehensive income (loss) are as follows:
(Amounts in thousands)
AT DECEMBER 31, 1999 1998
- ---------------------------------- ---- ----
Cumulative translation adjustment $(16,453) $ 473
Unrealized loss on marketable
securities, net of tax benefits - (1,489)
-------- -------
$(16,453) $(1,016)
======== =======
NOTE 17. ACQUISITIONS AND DISPOSITIONS
In February 1999, Sequa purchased Thermo Wisconsin, a supplier to
the US printing and process industries of continuous process
dryers, emission control equipment, web and air handling systems
and other specialty products, for $13,593,000. The operations of
Thermo Wisconsin have been combined with Sequa's
MEGTEC subsidiary. In June 1999, Sequa purchased Germany-based
Schoeller & Co. GmbH, a supplier of automotive cigarette
lighters, power outlets and other automotive products for
$10,352,000. In 1999, Sequa also made a small niche acquisition
of a product line in the amount of $1,882,000 and combined it
with MEGTEC. These acquisitions have been accounted for as
purchases; accordingly, operating results are included in the
Consolidated Statement of Income from the dates of purchase. Pro
forma combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
In October 1998, Sequa sold substantially all of the
business and operating assets of Sequa Chemicals, its US-based
chemicals operation, for net cash proceeds of $107,275,000. The
sale resulted in a pre-tax gain of $49,867,000. In 1999, Sequa
recorded income of $2,225,000 related to the adjustment of the
gain on the sale of Sequa Chemicals upon final settlement with
the purchaser. Sequa Chemicals had sales of $74,004,000 in 1998
and $82,293,000 in 1997 and operating income of $3,082,000 in
1998 and $8,004,000 in 1997. The consolidated financial
statements and accompanying notes reflect the operating results
of Sequa Chemicals as a continuing operation in the Other
Products segment. Also during 1998, Sequa sold a Gas Turbine
manufacturing facility in the United Kingdom for net cash
proceeds of $14,058,000. The sale resulted in a pre-tax gain of
$6,675,000.
In January 1998, Sequa purchased the remaining 50% interest
in a domestic airbag inflator joint venture (BAICO) that was not
previously owned for $22,736,000. Sequa assumed $25,000,000 of
BAICO's debt and repaid it during 1998. In 1998, Sequa also
purchased an Italian specialty chemicals distribution unit, the
liquid propellant rocket motor product line of Royal Ordnance and
made other small niche acquisitions for purchase prices
aggregating $17,926,000. These acquisitions have been accounted
for as purchases; accordingly, operating results are included in
the Consolidated Statement of Income from the dates of purchase.
Pro forma combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
In December 1997, Sequa sold Northern Can Systems, a
supplier of metal lids, for cash proceeds of $28,178,000. No
pre-tax gain or loss resulted from the sale. In 1997, Northern
Can Systems had sales of $32,904,000 and operating income of
$1,781,000. The consolidated financial statements and
NOTE 17. ACQUISITIONS AND DISPOSITIONS (cont'd)
accompanying notes reflect the operating results of Northern Can
Systems as a continuing operation in the Other Products segment.
In August 1997, Sequa purchased TEC Systems, a manufacturer
of dryers and environmental equipment for paper, printing and
other industrial applications, for $18,839,000. In May 1997,
Sequa purchased Sedgefield Specialties, a chemicals supplier to
the textile industry, for $13,853,000 and merged it into Sequa
Chemicals. These acquisitions have been accounted for as
purchases; accordingly, operating results are included in the
Consolidated Statement of Income from the dates of purchase. Pro
forma combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
NOTE 18. OTHER, NET
Other, net includes the following income (expense) items:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------- ---- ---- ----
Gain on sale of assets, net $ 3,898 $ 82 $ 2,465
Demutualization of an issuer of
corporate-owned life insurance 2,723 - -
Adjustment to gain on sale of
Sequa Chemicals 2,225 - -
Collection of note receivable
previously written off 1,600 - -
Gain on sale of short-term
investments 1,275 - -
Income on cash surrender value of
corporate-owned life insurance 1,047 986 1,321
Discount expense on sale of
receivables (2,290) - -
Amortization of capitalized
debt issuance costs (1,487) (1,220) (1,381)
Letters of credit and commitment
fees (1,104) (901) (1,596)
Uninsured loss - (2,000) -
Other 1,422 (171) 334
------- ------- --------
$ 9,309 $(3,224) $ 1,143
======= ======= ========
NOTE 19. OPERATING LEASES
Certain businesses of Sequa utilize leased premises or equipment
under noncancelable agreements having initial or remaining terms
of more than one year. The majority of the real property leases
require Sequa to pay maintenance, insurance and real estate
taxes. Rental expense totaled $20,239,000, $17,260,000 and
$17,083,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999, future minimum lease payments under
noncancelable operating leases are as follows:
(Amounts in thousands)
2000 $20,173
2001 16,440
2002 11,673
2003 8,213
2004 4,694
After 2004 15,591
-------
$76,784
=======
NOTE 20. EARNINGS PER SHARE
Basic earnings per share (EPS) for each of the respective years
have been computed by dividing the net earnings, after deducting
dividends on cumulative convertible preferred stock, by the
weighted average number of common shares outstanding during the
year.
Diluted EPS reflects the potential dilution that could occur
if each share of the cumulative convertible preferred stock
outstanding were converted into 1.322 shares of Class A common
stock and the outstanding options to purchase shares of Class A
common stock were exercised.
NOTE 20. EARNINGS PER SHARE (cont'd)
The computation of basic and diluted EPS is as follows:
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------- ---- ---- ----
Income from continuing operations $27,799 $63,897 $19,627
Less: Preferred dividends (2,064) (2,173) (3,051)
------- ------- ------
Income available to common
stock--basic 25,735 61,724 16,576
Extraordinary loss (5,732) - -
------- ------- -------
Net income available to common
stock--basic 20,003 61,724 16,576
Convertible preferred stock
dividend requirements - 2,173 -
------- ------- ------
Net income available to common
stock--diluted $20,003 $63,897 $16,576
======= ======= =======
Weighted average number of common
shares outstanding--basic 10,367 10,275 9,967
Conversion of convertible
preferred stock - 599 -
Exercise of stock options 4 20 47
------- ------- -------
Weighted average number of common
shares outstanding--diluted 10,371 10,894 10,014
======= ======= =======
Basic earnings per share
Income before extraordinary item $ 2.48 $ 6.01 $ 1.66
Extraordinary loss (.55) - -
------- ------- -------
Net income $ 1.93 $ 6.01 $ 1.66
======= ======= =======
Diluted earnings per share
Income before extraordinary item $ 2.48 $ 5.87 $ 1.66
Extraordinary loss (.55) - -
------- ------- -------
Net income $ 1.93 $ 5.87 $ 1.66
======= ======= =======
The conversion of each share of preferred stock into 1.322
shares of common stock was not included in the computation of
diluted earnings per share for 1999 and 1997 because inclusion
would have had an anti-dilutive effect on EPS.
NOTE 21. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by discontinued operations primarily represents
the net proceeds from the divestiture and run-off of Sequa
Capital's investment portfolio.
Selected noncash activities and cash payments were as follows:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------- ---- ---- ----
Noncash activities:
Acquisitions of businesses:
Fair value of assets acquired $37,474 $85,572 $58,804
Cash paid 25,827 40,662 36,058
------- ------- -------
Liabilities assumed 11,647 44,910 22,746
Interest paid 45,367 52,195 50,350
NOTE 22. SEGMENT INFORMATION AND GEOGRAPHIC DATA
Sequa is a diversified industrial company that produces a broad
range of products in five operating segments: Aerospace,
Propulsion, Metal Coating, Specialty Chemicals and Other
Products.
The Aerospace segment consists solely of Sequa's largest
operating unit, Chromalloy Gas Turbine Corporation. Gas Turbine
repairs and manufactures gas turbine engine components,
principally for domestic and international airlines, original
equipment manufacturers and the US military.
The Propulsion segment consists solely of ARC, which
manufactures solid rocket propulsion systems for use primarily in
tactical military weapons sold to the US Government, automotive
airbag inflators and inflator components and liquid propellant
motors for use on commercial satellites.
The Metal Coating segment consists solely of Precoat Metals,
which applies polymer coatings to continuous steel and aluminum
coil for the nationwide building products market, the container
market and diverse markets for manufactured products.
The Specialty Chemicals segment consists solely of Warwick
International, which produces bleach activators for powdered
laundry detergent products sold principally in European markets
and distributes specialty chemicals in Europe and South Africa
through a network of distribution companies.
NOTE 22. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
The Other Products segment is composed of four ongoing
businesses: MEGTEC Systems, Sequa Can Machinery, Casco Products,
and the Men's Apparel unit. MEGTEC Systems provides auxiliary
press equipment for web offset printing as well as dryers and
emission control equipment for the international industrial,
paper and printing markets. Sequa Can Machinery produces high
speed equipment to form and decorate two-piece metal cans for the
worldwide container industry. Casco Products manufactures
cigarette lighters, power outlets and electronic monitoring
devices primarily for North American and European automobile
manufacturers. The Men's Apparel unit designs and manufactures
men's formalwear and accessories for the North American market.
This segment also includes the results of two operations which
have been divested. Sequa Chemicals, which produces a broad
range of chemicals primarily for domestic textile, paper, graphic
arts and building products markets, was sold in October 1998.
Northern Can Systems, which produces easy-open steel lids for the
domestic and international food processing industry, was sold in
December 1997.
The accounting policies of the reportable segments are the
same as those described in Note 1. Segment information amounts
presented are the same measures reported internally to management
for purposes of making decisions about allocating resources to
the segments and assessing their performance. Operating profit,
the measure of profit reported in the segment information,
represents income before income taxes, interest, equity in
unconsolidated joint ventures and other income (expense). The
expenses and assets attributable to corporate activities are not
allocated to the operating segments. Assets of corporate
activities include cash and cash equivalents, investments and net
assets of discontinued operations.
NOTE 22. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
Operations by Business Segment
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------- ---------- ---------- ----------
AEROSPACE
Sales $ 745,786 $ 782,339 $ 727,346
Operating income 65,571 65,154 50,341
Total assets 704,037 612,543 582,374
Capital expenditures 49,603 50,007 30,143
Depreciation and amortization 38,811 37,982 39,879
PROPULSION
Sales $ 276,561 $ 268,615 $ 177,653
Operating income 6,293 13,415 11,389
Total assets 355,141 355,955 282,092
Capital expenditures 29,564 19,949 10,909
Depreciation and amortization 22,245 20,146 14,172
METAL COATING
Sales $ 201,747 $ 193,652 $ 200,037
Operating income 19,122 14,859 20,334
Total assets 135,654 132,953 125,296
Capital expenditures 8,779 15,416 9,236
Depreciation and amortization 7,714 7,919 7,411
SPECIALTY CHEMICALS
Sales $ 160,621 $ 155,301 $ 132,828
Operating income 23,359 22,565 18,662
Total assets 102,926 104,772 89,693
Capital expenditures 5,276 3,090 4,171
Depreciation and amortization 6,215 9,114 9,841
OTHER PRODUCTS
Sales $ 314,814 $ 402,486 $ 357,261
Operating income 11,808 22,103 13,387
Total assets 193,294 173,984 236,099
Capital expenditures 7,856 14,795 12,698
Depreciation and amortization 10,142 12,418 12,631
CORPORATE
Expenses $ (31,694) $ (32,633) $ (29,406)
Total assets (a) 180,646 243,940 276,121
Capital expenditures 304 267 1,803
Depreciation and amortization 2,029 1,742 1,881
TOTALS
Sales $1,699,529 $1,802,393 $1,595,125
Operating income 94,459 105,463 84,707
Total assets 1,671,698 1,624,147 1,591,675
Capital expenditures 101,382 103,524 68,960
Depreciation and amortization 87,156 89,321 85,815
(a) Includes cash, investments and net assets of discontinued
operations.
NOTE 22. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
GEOGRAPHIC DATA
Sales are attributable to countries based on location of the
customer. Long-lived assets, which include property, plant and
equipment and goodwill, are based on physical location.
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------- ---- ---- ----
SALES
- -----
United States $ 933,479 $1,027,774 $ 916,796
United Kingdom 92,758 106,526 103,956
Italy 88,048 95,335 54,185
France 83,380 82,577 79,718
Japan 56,340 50,651 24,095
Germany 55,658 52,087 50,041
Spain 42,518 36,383 34,538
Canada 39,950 31,595 39,465
Other countries 307,398 319,465 292,331
---------- ---------- ----------
Total $1,699,529 $1,802,393 $1,595,125
========== ========== ==========
AT DECEMBER 31, 1999 1998 1997
- ----------------------- ---- ---- ----
LONG-LIVED ASSETS
- -----------------
United States $ 661,516 $ 640,103 $ 628,531
United Kingdom 73,641 77,336 75,723
Other countries 53,658 41,055 36,766
---------- ---------- ----------
Total $ 788,815 $ 758,494 $ 741,020
========== ========== ==========
No single commercial customer accounted for more than 10% of
sales in any year. The largest single contract with any one US
Government agency accounted for approximately 1% of sales in
1999, 1998 and 1997. Prime and subcontracts with all government
agencies accounted for approximately 10% of sales in 1999, 9% of
sales in 1998 and 10% of sales in 1997.
NOTE 23. CONTINGENCIES
Sequa is involved in a number of claims, lawsuits and proceedings
(environmental and otherwise) that arose in the ordinary course
of business. Other litigation pending against Sequa involves
allegations that are not routine and include, in certain cases,
compensatory and punitive damage claims. Included in this class
of litigation is an action commenced in July 1995 by United
Technologies Corporation (UTC), the parent of Pratt & Whitney
(PW), against Chromalloy Gas Turbine Corporation (Chromalloy) in
federal district court in Delaware (the District Court). UTC
sought damages and injunctive relief based on alleged breaches of
certain license agreements, infringement of patents and misuse of
NOTE 23. CONTINGENCIES (cont'd)
PW intellectual property. Chromalloy answered the complaint
denying UTC's claims, and Chromalloy filed counterclaims against
UTC seeking damages and injunctive relief based on UTC's breaches
of license agreements and other related matters. The District
Court decided to try the case in several different proceedings
because of the number and complexity of the claims. For a
detailed report on earlier developments in this matter, see
Sequa's Report on Form 10-K for the years ended December 31, 1998
and December 31, 1997, and its Report on Form 10-Q for the
quarter ended September 30, 1999.
The most recent significant events and the current status
follow. On August 14, 1998, the District Court issued a
Memorandum Opinion and Order finding that UTC breached the
parties' 1985 Repair Agreement (the Repair Approval Claim). The
District Court ordered UTC to provide Chromalloy with updated
technical data and to approve Chromalloy to repair components for
the most advanced models of several PW large engine families. On
a separate claim relating to the Most Favored Nations clause (the
MFN Claim), the District Court held that UTC had violated the
same agreement by failing to notify Chromalloy of the more
favorable licensing terms, including lower royalty rates, that PW
negotiated with other component repair suppliers. The District
Court did not rule on the damages and other remedies being sought
on that claim. No trial date has been set for the remainder of
the MFN Claim.
UTC appealed the District Court's August 14, 1998 Order to
the Court of Appeals for the Federal Circuit (the Court of
Appeals). On August 25, 1999, the Court of Appeals held that the
District Court had erred in holding that res judicata (or what
--- --------
may be referred to as claim preclusion) does not apply to
Chromalloy's Repair Approval Claim. (UTC earlier had moved for
summary judgment on that basis.) Based on its res judicata
--- --------
ruling, the Court of Appeals vacated the District Court's August
14, 1998 Order. Chromalloy's Petition for Rehearing was denied
by the Court of Appeals on November 4, 1999. Because it is not
clear what part of Chromalloy's Repair Approval Claim is impacted
by the Court of Appeals' August 25, 1999 decision, the precise
effect of that decision will not be known until further
proceedings are held in the District Court.
All other claims in this case have been dismissed by the
District Court or resolved by the parties, except for
Chromalloy's claim under a ceramic coating license agreement that
was tried in July 1998 (the Ceramic Approval Claim). The
District Court has not yet ruled on that claim. On December 3,
1999, UTC renewed its motion for summary judgment on the MFN
Claim and the Ceramic Approval Claim. Those motions are pending.
It would be premature at this stage for management to make an
evaluation of the likely outcome of Chromalloy's remaining
claims.
NOTE 23. CONTINGENCIES (cont'd)
On August 29, 1995, Chromalloy filed suit in Texas state
court against UTC seeking damages and injunctive relief for
violations of the Texas Free Enterprise and Antitrust Act. UTC
filed counterclaims against Chromalloy for alleged breach of
contract and unfair competition. For a detailed report on
earlier developments in this matter, see Sequa's
Reports listed in the first paragraph of this Note. The only
remaining issue in this case is Chromalloy's appeal of the Texas
court's denial of injunctive relief. On October 14, 1998, the
San Antonio Court of Appeals issued its decision affirming the
trial court's denial of injunctive relief. On Chromalloy's
request for reconsideration, the Court of Appeals reaffirmed its
decision in an opinion dated November 17, 1999, which was later
withdrawn because of an error in the opinion, and replaced with
an opinion dated November 24, 1999. Chromalloy disagrees with
the decision and on March 10, 2000, filed a Petition for Review
to the Texas Supreme Court.
Chromalloy's divisions compete for turbine engine repair
business with a number of other companies, including the
manufacturers of jet engines (OEMs). The OEMs generally have
obligations (contractual and otherwise) to approve vendors to
manufacture components for their engines and/or perform repair
services on their engines and components. Chromalloy has a
number of such approvals, including licensing agreements, which
allow it to manufacture and repair certain components of flight
engines. The loss of a major OEM's approval to manufacture or
repair components for the OEM's engines could have an adverse
effect on Chromalloy, although management believes it has certain
actions available to it to mitigate this effect.
The ultimate legal and financial liability of Sequa in
respect to all claims, lawsuits and proceedings referred to above
cannot be estimated with any certainty. However, in the opinion
of management, based on its examination of these matters, its
experience to date and discussions with counsel, the ultimate
outcome of these legal proceedings, net of liabilities already
accrued in Sequa's Consolidated Balance Sheet, is not expected to
have a material adverse effect on Sequa's consolidated financial
position, although the resolution in any reporting period of one
or more of these matters could have a significant impact on
Sequa's results of operations for that period.
NOTE 24. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(Amounts in thousands, except per share data)
1999 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- -------- -------- ------- ---------
Sales $407,266 $433,180 $416,371 $442,712 $1,699,529
Cost of sales 327,679 345,689 331,138 355,200 1,359,706
Operating income 20,291 26,624 25,824 21,720 94,459
Income before extraordinary
item 5,986 10,903 6,449 4,461 27,799
Extraordinary loss - - (1,483) (4,249) (5,732)
Net income $ 5,986 $ 10,903 $ 4,966 $ 212 $ 22,067
======== ======== ======== ======== ==========
Basic and diluted earnings per share:
Income before extraordinary item $ 0.53 $ 1.00 $ 0.57 $ 0.38 $ 2.48
Extraordinary loss - - (0.14) (0.41) (0.55)
------- ------- -------- -------- ----------
Net income (loss) $ 0.53 $ 1.00 $ 0.43 $ (0.03) $ 1.93
======== ======== ======== ======== ==========
1998 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ---------
Sales $439,853 $457,666 $458,954 $445,920 $1,802,393
Cost of sales 352,839 363,387 366,750 361,938 1,444,914
Operating income 24,767 29,510 28,263 22,923 105,463
Net income $ 4,818 $ 11,914 $ 10,556 $ 36,609 $ 63,897
======== ======== ======== ======== ==========
Basic earnings per share $ 0.42 $ 1.11 $ 0.97 $ 3.48 $ 6.01
======= ======== ======== ======== =========
Diluted earnings per share $ 0.41 $ 1.10 $ 0.97 $ 3.35 $ 5.87
======= ======== ======== ======== =========
The following unusual items are included in the quarterly financial information:
Operating income for the fourth quarters of 1999 and 1998, respectively, includes $1,500,000 and
$5,000,000 provisions for environmental expenses to raise accruals to an appropriate level relative to
revised estimates of likely future remediation costs. The after-tax effect of the charges is to reduce
basic earnings per share by $.09 in 1999 and $0.30 in 1998.
Net income for the fourth quarter of 1998 includes an after-tax gain on the sale of Sequa Chemicals of
$30,917,000 or $2.97 per basic share. As a result of the large gain recorded in the fourth quarter of
1998 and increased common shares outstanding attributable to the exercise of stock options and the
issuance of common shares in exchange for preferred shares, quarterly earnings per share are not
additive for 1998.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
None.
PART III
--------
ITEMS 10. THROUGH 13.
- ---------------------
The information required by Item 10 with respect to
executive officers is contained on page 14 of this Annual Report
on Form 10-K under ITEM 4A and is incorporated herein by
reference.
Sequa intends to file a definitive proxy statement with the
Securities and Exchange Commission pursuant to Regulation 14A
involving the election of directors not later than 120 days after
the end of its fiscal year ended December 31, 1999. Accordingly,
the information required by Part III (Items 10, concerning
Sequa's directors and disclosure pursuant to Item 405 of
Regulation S-K, and items 11, 12 and 13) is incorporated herein
by reference to such definitive proxy statement in accordance
with General Instruction G(3) to Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
- -------- --------------------------------------------------------
FORM 8-K.
---------
(a) 1. Financial Statements:
---------------------
The following consolidated financial statements are included
in Part II of this Annual Report on Form 10-K:
Page Numbers
in this Annual
Report on Form
10-K
----------
Report of Independent Public Accountants. 33
Consolidated Balance Sheet as of December 31,
1999 and 1998. 34-35
Consolidated Statement of Income for the three
years ended December 31, 1999. 36
Consolidated Statement of Cash Flows for the three
years ended December 31, 1999. 37
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1999. 38
Notes to Consolidated Financial Statements. 39-70
2. Financial Statement Schedules:
------------------------------
Financial statement schedules are omitted due to the absence of
conditions under which they are required.
3. Exhibits
--------
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
- -----------
3.1 - Restated Certificate of Incorporation of Sequa and two
Certificates of Amendment of the Restated Certificate of
Incorporation of Sequa (incorporated by reference to
Exhibit 4(a) of Sequa's Registration Statement No.
33-12420 on Form S-8 filed on March 6, 1987).
3.2 - Certificate of Amendment of Certificate of Incorporation
of Sequa, dated May 7, 1987 (incorporated by reference
to Exhibit 3(b) of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1988,
filed on March 28, 1989).
3.3 - Certificate of Amendment of Certificate of Incorporation
of Sequa, dated June 4, 1999 (incorporated by reference
to Exhibit 3(i)(c) of Registration Statement No. 333-
82211 on Form S-8, filed on July 2, 1999).
3.4 - Restated and amended (as of August 26, 1993) By-laws of
Sequa, (incorporated by reference to Exhibit 3.3 of
Sequa's Registration Statement No. 33-50843 on Form S-1,
filed on October 29, 1993).
4.1 - Indenture, dated as of December 15, 1993, by and between
Sequa and Bankers Trust Company, as Trustee, and Form of
9 3/8% Senior Subordinated Notes due December 15, 2003
(incorporated by reference to Exhibits 4.7 and 4.3,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.2 - Indenture, dated as of December 15, 1993, by and between
Sequa and IBJ Schroder Bank & Trust Company, as Trustee,
and Form of 8 3/4% Senior Notes due December 15, 2001
(incorporated by reference to Exhibits 4.6 and 4.2,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.3 - Indenture, dated as of September 1, 1989, by and between
Sequa and The First National Bank of Chicago, as
Trustee, with respect to an aggregate of $250 million of
senior debt (incorporated by reference to Exhibit 4.1 of
Sequa's Form S-3 Registration Statement No. 33-30959,
filed on September 12, 1989).
4.4 - First Supplemental Indenture, dated as of October 15,
1989, by and between Sequa and The First National Bank
of Chicago, as Trustee (incorporated by reference to
Exhibit 4.5 of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.5 - Indenture, dated as of July 29, 1999, between Sequa and
Harris Trust Company of New York (incorporated by
reference to Exhibit 1 of Sequa's Registration Statement
on Form 8-A, File No. 1-804, filed on November 8, 1999).
4.6 - Prospectus Supplement, dated October 19, 1989, for $150
million of senior unsecured 9 5/8% Notes due October 15,
1999 (incorporated by reference to Sequa's filing under
Rule 424 (b)(2) on October 20, 1989).
4.7 - Purchase Agreement, dated October 19, 1989, by and
between Sequa and certain Underwriters, and Form of
Supplemental Indenture, dated as of October 15, 1989,
both with respect to $150 million of senior unsecured
9 5/8% Notes due October 15, 1999 (incorporated by
reference to Sequa's Report on Form 8-K, File No. 1-804,
filed on October 25, 1989) and Form of 9 5/8% Note
(incorporated by reference to Exhibit 4.1 of Sequa's
Registration Statement on Form 8-A, File No. 1-804,
filed on January 25, 1994).
4.8 - Prospectus and Prospectus Supplement, both dated April
22, 1991, with respect to $100 million of medium-term
notes (incorporated by reference to Sequa's filing under
Rule 424 (b)(5) on April 23, 1991).
4.9 - Sales Agency and Distribution Agreement, executed as of
April 22, 1991, by and among Sequa and Bear, Stearns &
Co., Inc. and Merrill Lynch & Co., with respect to $100
million of medium-term notes, and Forms of Notes
thereunder (incorporated by reference to Exhibits 4.1
and 12.1 of Sequa's Report on Form 8-K, File No. 1-804,
filed on April 25, 1991).
4.10 - Instruments with respect to other long-term debt of
Sequa and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the amount of debt authorized under each such omitted
instrument does not exceed 10 percent of the total
assets of Sequa and its subsidiaries on a consolidated
basis. Sequa hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10.1 - $150 Million Credit Agreement, dated as of October 10,
1997, among Sequa, certain Subsidiary Guarantors of
Sequa, certain Lenders, The Chase Manhattan Bank as
Swingline Lender, Issuing Bank and Administrative Agent
and The Bank of New York, as Issuing Bank (incorporated
by reference to Exhibit 10.1 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1997, filed on March 20, 1998).
10.2 - Amendment No. 1 to Credit Agreement constituting Exhibit
10.1 hereto dated as of April 13, 1998 among Sequa,
certain Subsidiary Guarantors of Sequa, certain Lenders
and The Chase Manhattan Bank, as Administrative Agent
(incorporated by reference to Exhibit 10.2 of Sequa's
Annual Report on Form 10-K, File No. 1-804, for the year
ended December 31, 1998, filed on March 23, 1999).
10.3 - Consent and Second Amendment Agreement to Credit
Agreement constituting Exhibit 10.1 hereto dated as of
September 28, 1998 among Sequa, certain Lenders and The
Chase Manhattan Bank, as Administrative Agent
(incorporated by reference to Exhibit 10.3 of Sequa's
Annual Report on Form 10-K, File No. 1-804, for the year
ended December 31, 1998, filed on March 23, 1999).
10.4 - Waiver and Third Amendment to the $150 Million Credit
Agreement constituting Exhibit 10.1 hereto dated as of
February 19, 1999 (incorporated by reference to Sequa's
Quarterly Report on Form 10-Q, File No. 1-804, for the
quarter ended September 30, 1999, filed on November 15,
1999).
10.5 - Receivables Purchase Agreement dated as of November 13,
1998 among Sequa Receivables Corp., Sequa, Liberty
Street Funding Corp. and The Bank of Nova Scotia, as
administrator (incorporated by reference to Exhibit 10.4
of Sequa's Annual Report on Form 10-K, File No. 1-804,
for the year ended December 31, 1998, filed on March 23,
1999).
10.6 - Amendment No. 1 dated as of May 28, 1999 to Receivables
Purchase Agreement constituting Exhibit 10.5 hereto
(incorporated by reference to Exhibit 10.4 of Sequa's
Quarterly Report on Form 10-Q, File No. 1-804, for the
quarter ended June 30, 1999, filed August 4, 1999).
10.7 - Second Amendment to the Receivables Purchase Agreement
constituting Exhibit 10.5 hereto dated as of July 12,
1999 (filed herewith).
10.8 - Purchase and Sale Agreement dated as of November 13,
1998 among the Originators named therein, Sequa and
Sequa Receivables Corp. (incorporated by reference to
Exhibit 10.5 of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1998, filed
on March 23, 1999).
10.9 - Asset and Share Purchase Agreement dated October 29,
1998 by and among Sequa, Sequa Chemicals, Inc. and
GenCorp Inc. pursuant to which Sequa sold substantially
all of the business and operating assets of Sequa
Chemicals, Inc. and Sequa Chemicals S.A. (incorporated
by reference to Exhibit 2.1 of Sequa's Current Report on
Form 8-K, File No. 1-804, filed on November 6, 1998).
COMPENSATORY PLANS OR ARRANGEMENTS
10.10 - 1998 Key Employees Stock Option Plan (incorporated by
reference to Exhibit 10.2 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1997, filed on March 20, 1998).
10.11 - Sequa Corporation Management Incentive Bonus Program for
Corporate Executive Officers (Revised for 1998)
(incorporated by reference to Exhibit 10.3 of Sequa's
Annual Report on Form 10-K, File No. 1-804, for the year
ended December 31, 1997, filed on March 20, 1998).
10.12 - Sequa's Supplemental Executive Retirement Plans I, II,
and III, effective as of January 1, 1990 (incorporated
by reference to Exhibit 10(c) of Sequa's Annual Report
on Form 10-K, File No. 1-804, for the year ended
December 31, 1990, filed on April 1, 1991) and
amendments thereto (incorporated by reference to Exhibit
10(c) of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1991, filed
on March 30, 1992).
10.13 - Sequa Corporation Management Incentive Bonus Program for
Corporate Non-Executive Officers and Corporate Staff
(Revised for 1998) (incorporated by reference to Exhibit
10.5 of Sequa's Annual Report on Form 10-K for the year
ended December 31, 1997, filed on March 20, 1998).
10.14 - Letter Agreements, dated May 24, 1984, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10(h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1989, filed on March 30,
1990).
10.15 - Letter Agreements, dated April 30, 1990, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10 (h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1990, filed on April 1,
1991).
COMPENSATORY PLANS OR ARRANGEMENTS (cont'd)
10.16 - Employment Agreement, dated April 1, 1993, by and
between John J. Quicke and Sequa, (incorporated by
reference to Exhibit 10(k) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1992, filed on March 31, 1993); Amendment thereto,
dated March 1, 1995 (incorporated by reference to
Exhibit 10.11 of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1994,
filed on March 30, 1995); Amendment thereto, dated
September 26, 1996 (incorporated by reference to Exhibit
10.9 of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1996, filed
on March 24, 1997); and Amendment thereto, dated as of
March 1, 1999 (incorporated by reference to Exhibit
10.18 of Sequa's Quarterly Report on Form 10-Q, File No.
1-804, for the quarter ended March 31, 1999, filed on
May 14, 1999).
10.17 - Employment Agreement, dated as of October 1, 1991, by
and between Martin Weinstein and Chromalloy Gas Turbine
Corporation, (incorporated by reference to Exhibit 10(n)
of Sequa's Annual Report on Form 10-K, File No. 1-804
for the year ended December 31, 1991, filed on March 30,
1992); Amendment thereto, dated as of June 1, 1993
(incorporated by reference to Exhibit 10.14 of Sequa's
Registration Statement No. 33-50843 on Form S-1 filed on
October 29, 1993); Amendment thereto, dated as of
February 23, 1995 (incorporated by reference to Exhibit
10.12 of Sequa's Annual Report on Form 10-K, File No. 1-
804, for the year ended December 31, 1995, filed on
March 28, 1996); and Amendment thereto, dated as of June
1, 1996 (incorporated by reference to Exhibit 10.11 of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1996, filed on March 24,
1997); and Amendment thereto, dated as of March 1, 1999
(incorporated by reference to Exhibit 10.19 of Sequa's
Quarterly Report on Form 10-Q, File No. 1-804, for the
quarter ended March 31, 1999, filed on May 14, 1999).
10.18 - Executive Life Insurance Plan of Sequa, (incorporated by
reference to Exhibit 10(o) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1991, filed on March 30, 1992).
10.19 - Key Employee Medical Insurance Plan of Sequa,
(incorporated by reference to Exhibit 10(p) of Sequa's
Annual Report on Form 10-K, File No. 1-804 for the year
ended December 31, 1991, filed on March 30, 1992).
COMPENSATORY PLANS OR ARRANGEMENTS (cont'd)
10.20 - Sequa Corporation Management Incentive Bonus Program for
Operating Divisions (Revised 1997) (incorporated by
reference to Exhibit 10.18 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1996, filed on March 24, 1997).
10.21 - Employment Agreement, dated as of March 1, 1999, by and
between William P. Ksiazek and Sequa (filed herewith).
10.22 - Agreement, dated February 3, 1999, by and between Gerald
S. Gutterman and Sequa (filed herewith).
10.23 - Employment Agreement, dated as of December 16, 1999, by
and between Howard Leitner and Sequa (filed herewith).
End of Compensatory Plans or Arrangements
21.1 - List of subsidiaries of Sequa, filed herewith.
23.1 - Consent of Independent Public Accountants, filed
herewith.
27.1 - Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
-------------------
None.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SEQUA CORPORATION
Date: March 28, 2000 By: /S/ HOWARD M. LEITNER
---------------- -------------------------
Howard M. Leitner
Senior Vice President, Finance
(Chief Financial Officer)
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 indicated on March 28, 2000.
By: /S/ NORMAN E. ALEXANDER Chairman of the Board, Chief
- -----------------------------
Norman E. Alexander Executive Officer and Director
By: /S/ JOHN J. QUICKE President, Chief Operating Officer
- -----------------------------
John J. Quicke and Director
By: /S/ STUART Z. KRINSLY Senior Executive Vice President,
- -----------------------------
Stuart Z. Krinsly General Counsel and Director
By: /S/ MARTIN WEINSTEIN Executive Vice President, Gas
- -----------------------------
Martin Weinstein Turbine Operations and Director
By: /S/ HOWARD M. LEITNER Senior Vice President, Finance
- -----------------------------
Howard M. Leitner (Chief Financial Officer)
By: /S/ WILLIAM P. KSIAZEK Vice President and Controller
- -----------------------------
William P. Ksiazek (Chief Accounting Officer)
By: Director
- -----------------------------
Leon D. Black
By: /S/ALVIN DWORMAN Director
- -----------------------------
Alvin Dworman
By: /S/ DAVID S. GOTTESMAN Director
- -----------------------------
David S. Gottesman
By: /S/ DONALD D. KUMMERFELD Director
- -----------------------------
Donald D. Kummerfeld
By: Director
- -----------------------------
Richard S. LeFrak
By: /S/ MICHAEL I. SOVERN Director
- -----------------------------
Michael I. Sovern
By: /S/ FRED R. SULLIVAN Director
- -----------------------------
Fred R. Sullivan
By: /S/ GERALD TSAI Director
- -----------------------------
Gerald Tsai, Jr.
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
10.7 Second Amendment to Receivables Purchase
Agreement.
10.21 Employment Agreement, dated as of
March 1, 1999, by and between William
P. Ksiazek and Sequa.
10.22 Agreement, dated February 3, 1999, by
and between Gerald S. Gutterman and
Sequa.
10.23 Employment Agreement, dated as of
December 16, 1999, by and between
Howard Leitner and Sequa.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.