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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, 2000 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 5, 2001 was $304,747,309.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
Class Outstanding at March 5, 2001
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Class A Common Stock, no par value 7,047,803
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 10, 2001 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 16 to the Consolidated Financial
Statements on pages 66 and 67 of this Annual Report on Form 10-K
and is incorporated herein by reference.
(b) Financial information about business segments. Segment
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information is included in Note 21 to the Consolidated Financial
Statements on pages 71 through 74 of this Annual Report on Form
10-K and is incorporated herein by reference.
(c) Narrative description of business. The following is a
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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.
Recently, Gas Turbine's strategy has included the active
pursuit of joint venture opportunities aimed at strengthening its
ties to certain original equipment manufacturers (OEMs) and its
customers as well as ensuring close cooperation with respect to
the dissemination of technical specifications and requirements.
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 includes Sequa
Chemicals which was divested in 1998.
MEGTEC SYSTEMS. MEGTEC 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. 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. 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 plants 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 air
quality and fluid levels. These products are presently used for
measurement and control of certain gases and for monitoring
engine oil and engine coolant.
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.
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, the liquid propulsion unit
operates in the world-wide commercial satellite market selling
directly to the satellite manufacturers. ARC markets its
automotive airbag components to automotive customers in the US
and overseas. For 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. Breed announced its emergence from the Chapter 11
proceedings in December 2000. Sales of energetic components for
inflators have been dependent on BAG SpA, a 50% owned Italian
affiliate co-owned with Breed. Certain assets as well as the
ongoing automotive inflator business of BAG SpA were acquired in
February 2001 pursuant to an overall settlement with Breed in
conjunction with its emergence from Chapter 11 proceedings.
Further information with respect to Breed is included in the
discussion on pages 24 and 25 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 wholesalers and retailers principally servicing the rental
market, 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 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, certain 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.
The long-term contract was modified pursuant to a January 2001
settlement with Breed. Further information with respect to Breed
is included in the discussion on pages 24 and 25 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 believes its 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 believes its 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. Sequa
believes 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
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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. Precoat Metals uses natural gas to fire the
curing ovens used in the coating process as well as for emission
control devices. Increases in the price paid for natural gas
adversely affected operating income for this unit by
approximately $3.0 million in 2000.
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 12% of sales in 2000, 10% of sales in 1999 and 9%
of sales in 1998. One customer accounted for approximately 29%
of the Propulsion segment's 2000 sales. Further information with
respect to this customer is included in the discussion appearing
on pages 24 and 25 of this Annual Report on Form 10-K under the
heading "Risk/Concentration of Business," which is incorporated
herein by reference. In the Metal Coating segment, one customer
accounted for approximately 34% of the segment's 2000 sales. The
customer is a major steel manufacturer that uses Precoat Metals
as its toll coater to coat product prior to resale to its own end
use customers. In the Specialty Chemicals segment, one customer
accounted for approximately 25% of the segment's 2000 sales, and
the top three customers accounted for approximately 45% of the
segment's 2000 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 pages 28 and 29 of this Annual Report on Form 10-K
and is incorporated herein by reference.
Maintenance and Repairs
-----------------------
Expenditures for maintenance and repairs of $45.7 million in
2000, $47.8 million in 1999 and $50.7 million in 1998 were
expensed as incurred, while betterments and replacements were
capitalized.
Research and Development
------------------------
Research and development costs, charged to expense as
incurred, amounted to $22.2 million in 2000, $20.0 million in
1999 and $21.4 million in 1998.
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 which began 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, 2000, the potential exposure for such
future costs is estimated to range from $12 million to $24
million, and Sequa's balance sheet includes accruals for
remediation costs of $21.4 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 $3.3 million in 2000, $4.9 million in
1999 and $8.2 million in 1998. Sequa anticipates that remedial
cash expenditures will be between $6 million and $10 million
during 2001 and between $4 million and $6 million during 2002.
Sequa's capital expenditures for projects to eliminate, control
or dispose of pollutants were $2.2 million, $1.6 million and $2.3
million in 2000, 1999 and 1998, respectively. Sequa anticipates
annual environmental-related capital expenditures to be
approximately $5 million during 2001 and $2 million during 2002.
Sequa's operating expenses to eliminate, control and dispose of
pollutants have averaged approximately $10 million per year
during the last three years. Sequa anticipates that
environmental operating expenses will be approximately $11
million per year during 2001 and 2002.
Employment
----------
At December 31, 2000, Sequa employed approximately 11,550
people of whom approximately 3,400 were covered by union
contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 2000 was:
Approximate
Segment Number of Employees
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Aerospace 6,500
Propulsion 1,600
Metal Coating 750
Specialty Chemicals 350
Other Products 2,250
Corporate 100
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Total 11,550
======
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 and from February
1, 2001 an automotive airbag inflator business in Italy 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; the can machinery
operations in England and Brazil, 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 21 to the Consolidated Financial
Statements on page 74 of this Annual Report on Form 10-K and are
incorporated herein by reference.
ITEM 2. PROPERTIES
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Aerospace
- ---------
Gas Turbine operates over 40 plants in eleven states and six
foreign countries, which have aggregate floor space of 3,100,000
square feet, of which 1,900,000 square feet is owned and
1,200,000 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 to high level
of utilization.
Propulsion
- ----------
ARC operates twelve manufacturing and research facilities in
six states and one manufacturing facility in the United Kingdom
with aggregate floor space of 1,900,000 square feet. The segment
owns 200,000 square feet and leases 1,700,000 square feet. The
largest lease, expiring in 2002 with renewal options through
2014, is for a 943,000 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 63,000 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 two manufacturing plants and four sales
offices and owns a storage facility in Europe with a total of
200,000 square feet and leases a 3,200 square foot sales office
in Singapore.
The Sequa Can Machinery operation owns three plants in the
United States with aggregate floor space of 250,000 square feet
and leases manufacturing and office space of 32,000 square feet.
Sequa Can Machinery leases 10,000 square feet of manufacturing
and office space in England.
The automotive products subsidiary, Casco, leases a 168,000
square foot plant in Connecticut, a 2,300 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 approximately 1,250 square
feet of office space in Hackensack, New Jersey.
Facilities in this segment are adequate and suitable for the
business being conducted. MEGTEC, Casco and Men's Apparel
facilities operate at high utilization rates. Sequa Can
Machinery facilities currently operate at a low utilization rate
due to economic difficulties in key markets. In February 2001
Sequa Can Machinery announced the closing of its 88,000 square
foot manufacturing facility in California, with plans to move the
work to plants in Ohio and New Jersey.
Corporate
- ---------
Sequa leases 48,000 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 22 to the Consolidated Financial Statements on
pages 74 and 75 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 27 and 28 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 86 Chairman of the Board, Chief
Executive Officer, Director and
member of the Executive
Committee
John J. Quicke 51 President, Chief Operating
Officer, Director and member of
the Executive Committee
Stuart Z. Krinsly 83 Senior Executive Vice
President, General Counsel,
Director and member of the
Executive Committee
Martin Weinstein 65 Executive Vice President, Gas
Turbine Operations and Director
Howard M. Leitner 60 Senior Vice President, Finance
William P. Ksiazek 53 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
---- --- ---- ---
2000
First Quarter 52 13/16 30 9/16 60 47 1/4
Second Quarter 53 15/16 38 3/16 60 49
Third Quar ter 46 1/4 38 10/16 60 1/2 57
Fourth Quarter 48 3/4 34 61 1/2 55 3/4
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
Shares of Sequa Class A common stock and Sequa Class B
common stock are listed on the New York Stock Exchange. There
were approximately 2,150 holders of record of the Sequa Class A
common stock and approximately 450 holders of record of the Sequa
Class B common stock at March 5, 2001.
(c) Dividends.
During the years ended December 31, 2000 and 1999, no cash
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, 2000.
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, 2000 1999 1998* 1997 1996
- --------------------------- -------- -------- -------- -------- --------
OPERATING RESULTS
Sales $1,773.1 $1,711.2 $1,813.1 $1,603.3 $1,465.4
Operating income 103.2 94.5 105.5 84.7 65.2
Income before
extraordinary item 24.0 27.8 63.9 19.6 9.6
Extraordinary loss - (5.7) - - (0.4)
-------- -------- -------- -------- --------
Net income $ 24.0 $ 22.1 $ 63.9 $ 19.6 $ 9.2
======== ======== ======== ======== ========
BASIC EARNINGS PER SHARE
Income before
extraordinary item $ 2.12 $ 2.48 $ 6.01 $ 1.66 $ .65
Extraordinary loss - (.55) - - (.04)
-------- -------- -------- -------- --------
Net income $ 2.12 $ 1.93 $ 6.01 $ 1.66 $ .61
======== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE
Income before
extraordinary item $ 2.12 $ 2.48 $ 5.87 $ 1.66 $ .65
Extraordinary loss - (.55) - - (.04)
-------- -------- -------- -------- --------
Net income $ 2.12 $ 1.93 $ 5.87 $ 1.66 $ .61
======== ======= ======== ======= ========
CASH DIVIDENDS DECLARED
Preferred $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00
FINANCIAL POSITION
Current assets $ 723.3 $ 680.3 $ 715.9 $ 695.8 $ 612.2
Total assets 1,731.1 1,671.7 1,624.1 1,591.7 1,548.2
Current liabilities 337.4 300.7 337.9 366.7 302.7
Long-term debt 590.6 569.9 500.7 508.7 531.9
Shareholders' equity 669.8 668.9 665.5 594.4 590.8
* 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 2000-1999
SALES
Overall sales increased 4% in 2000, with advances in the
Aerospace and Metal Coating segments and at the MEGTEC Systems
unit of the Other Products segment. Sales were also bolstered by
an additional contribution of $27.5 million from businesses
acquired during the year. These favorable factors more than
offset the $47.6 million effect of unfavorable foreign exchange
translation on reported US dollar results and the $14.6 million
effect of deconsolidating the results of several Aerospace units
transferred to joint ventures during 2000. A detailed review of
sales for individual segments follows.
Sales of the Aerospace segment (Chromalloy Gas Turbine) rose
3% in 2000. Sales to the engine component repair market
(commercial and military) increased 9%, whereas sales to the
original equipment manufacturers (OEMs) declined. Sales recorded
for 2000 were tempered by two factors: the translation effect
created by a weakening Euro against the US dollar, which lowered
reported sales results of European entities by $20.5 million; and
the absence of sales (approximately $14.6 million in the
applicable 1999 periods) from operations contributed to joint
ventures with Siemens Westinghouse and Rolls-Royce during 2000.
(For further information, see the Equity in Unconsolidated Joint
Ventures section of this Management's Discussion and Analysis
(MD&A).) Strength in sales to the commercial repair aftermarket
reflects the benefit of long-term contracts with major airlines
to provide repair services and inventory management. The advance
in military repair sales reflects revenues from a contract to
provide component repairs at Kelly Air Force Base. The Kelly
business is a major contributor to the overall increase in repair
sales. The lower level of OEM sales primarily reflects the
continued effect of global outsourcing programs by the jet engine
OEMs.
Sales of the Propulsion segment (Atlantic Research
Corporation or ARC) were down 1% from a year earlier, as an
advance at the liquid propulsion unit was offset by small
declines in the solid rocket and automotive airbag inflator
operations. The increase at the liquid propulsion unit was
primarily attributable to revenues under a military contract
awarded in late 1999 to refurbish the post boost control system
of the Minuteman III missile. The decline in sales of solid
propulsion defense products primarily reflects production
stretch-outs and lower overall production levels on several
programs. The decline in automotive airbag inflator sales is
attributable to a sharp fourth-quarter reduction in demand from a
SALES (cont'd)
major domestic OEM. The softening of demand evident in the
fourth quarter is expected to continue at least through the first
quarter of 2001, as the OEM moves to reduce the inventory of
unsold vehicles. Sales comparisons in 2001 will benefit from the
February 1, 2001 acquisition by an ARC affiliate of certain
assets and the ongoing automotive inflator business of BAG S.p.A.,
the Italian joint venture owned 50/50 by ARC and Breed
Technologies, Inc. (Breed) (See the Risk/Concentration of Business
section of this MD&A for further details regarding this
transaction.)
Sales in the Metal Coating segment (Precoat Metals) advanced
6% in 2000, with increases in each of its major market areas:
building products, containers and manufactured products. The
advance was tempered by softening customer demand in the fourth
quarter in all major markets. Management currently anticipates
that demand will trend lower at least through the first quarter
of 2001. In the fourth quarter of 2000, Sequa changed its
financial statement presentation of sales and cost of sales to be
in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 concerning revenue recognition
issues. The change affects only the Metal Coating segment and
increased both sales and cost of sales by $10.5 million in 2000
and $11.6 million in 1999. While the change does not affect
reported operating income; operating income as a percentage of
sales decreased by 0.4% in 2000 and 0.5% in 1999.
Sales of the Specialty Chemicals segment (Warwick
International) declined 10% (4% in local currency) in 2000, due
to two principal factors: demand for the detergent additive TAED
declined 4%, compared with unusually high levels of demand in
late 1999; and the unfavorable effects of currency movements --
particularly the strengthening of the British pound sterling
against the Euro and its decline against the US dollar. These
factors more than offset the inclusion of sales from a French
specialty chemical distribution business acquired in February
2000.
Sales of the Other Products segment increased 15% in 2000 (8%
excluding the impact of acquisitions), with each of the four
operating units contributing to the increase. MEGTEC sales rose
19% in 2000, and, while sales of all product lines were ahead,
the increase was driven by a 32% advance in the graphic arts
product line. MEGTEC's increase was achieved despite the
negative impact ($12.3 million) of the weakening Euro on reported
US dollar sales of MEGTEC's European operations. Demand in
MEGTEC's main markets remains strong in early 2001. Sales of the
can machinery unit advanced 33% (6% excluding a second-quarter
acquisition), reflecting higher sales of can forming equipment
and specialty can systems, including sales added through the
SALES (cont'd)
acquisition of the business and certain assets of Formatec Inc.
Sales of can decorating equipment declined, the result of the
continuing worldwide slump in demand. The overall sales of this
unit remain at a low level, and recovery of the worldwide market
is not anticipated in 2001. Sales of Casco Products, the
automotive products unit, advanced 6% in 2000, due entirely to
the sales added by Schoeller & Co. GmbH, a German automotive
products supplier acquired in June 1999. Excluding the Schoeller
contribution from the year-over-year comparison, sales registered
a small decline, reflecting two factors: the impact of the
weakening Euro on reported US dollar sales of the unit's Italian
operations ($2.5 million) and the slowdown in North American
demand, which began to affect sales in the fourth quarter of
2000. Management currently anticipates that sales in 2001 will
continue to be affected by domestic automotive OEM inventory
reduction programs. Sales of the Men's Apparel unit were up 2%
in 2000, reflecting slightly higher demand for formal attire from
improved market share. However, year-end backlog is 30% lower
than at the end of 1999, and management currently anticipates a
sales decline in the first half of 2001, due to a generally
reduced level of consumer confidence.
OPERATING INCOME
Overall operating income increased 9% in 2000. A turnaround in
performance at the MEGTEC unit of the Other Products segment and
advances by the Aerospace and Propulsion segments more than
offset the negative effects on individual business units of
several external factors (i.e., unfavorable foreign exchange
movements; sharp increases in the price of natural gas; and
developing softness in certain market areas during the fourth
quarter), as well as the costs to implement an early retirement
program at the specialty chemicals business and to settle all
outstanding issues with a customer for airbag inflators. A
detailed review of operating income for individual segments
follows.
Operating income in the Aerospace segment advanced 4% in
2000. Driven by increased sales, operating income at units that
primarily serve the repair aftermarket advanced 10%. This
advance was tempered by two principal factors: the weakness of
the Euro and the British pound on reported US dollar results of
European repair units, which lowered results by $2.6 million; and
the absence of profits from operations that were transferred to
joint ventures formed with Siemens Westinghouse and Rolls-Royce
in 2000 that had contributed operating income of $1.9 million in
the applicable 1999 periods. Profits at units primarily serving
the OEM market were down sharply on lower volume. In addition,
product development costs incurred at a component manufacturing
unit before Chromalloy Gas Turbine reduced its ownership interest
OPERATING INCOME (cont'd)
to 50% were $1.4 million higher in 2000 than in 1999. (See the
Equity in Unconsolidated Joint Ventures section of this MD&A for
more information on the Siemens Westinghouse and Rolls-Royce
joint ventures and the component manufacturing unit.)
Operating income in the Propulsion segment rebounded sharply
in 2000, registering a 59% increase over 1999. The solid rocket
motor business advanced 62%, primarily due to higher margins
achieved by improved performance on several major programs.
Automotive airbag inflator results were down 27% from a year
earlier, despite the benefits of extensive product cost reduction
programs. Among the factors that reduced results for this unit
were the cost to settle all outstanding issues with Breed
Technologies, Inc., a formerly bankrupt customer; an unfavorable
sales mix shift; increased spending on research and product
development; and lower fourth-quarter sales. (See the
Risk/Concentration of Business section of this MD&A for details
on Breed Technologies, Inc.) Profits at the liquid propulsion
unit advanced in 2000, primarily due to lower bid and proposal
costs and higher sales. Management currently anticipates that
the Propulsion segment will report a small operating loss for the
first quarter of 2001, due to lower domestic sales of automotive
airbag inflators.
Operating income in the Metal Coating segment increased 1% in
2000. The benefits derived from increased sales and continuing
quality improvement programs were largely offset by sharply
higher natural gas prices ($3.0 million) and by an unfavorable
sales mix shift. Management anticipates that a combination of
high natural gas costs (currently estimated to be $2 million
higher in the first quarter of 2001 than in the same period a
year ago) and further weakening in demand will result in a
significantly unfavorable earnings comparison for the first
quarter of 2001.
Operating income in the Specialty Chemicals segment declined
28% (19% in local currency) in 2000. Profits were adversely
affected by: a $3.2 million provision for an early retirement
program implemented in the second quarter; the impact on margins
and reported profits of changes in the value of the British pound
versus the Euro and US dollar; and slightly lower volume of sales
of the detergent additive TAED. These factors were partially
offset by ongoing savings from the early retirement program; the
benefit of other cost reduction efforts; and profits added by the
February 2000 acquisition of a French specialty chemicals
distribution business. The average exchange rate of the British
pound strengthened 8% against the Euro in 2000 and weakened 6%
against the US dollar.
OPERATING INCOME (cont'd)
Operating income in the Other Products segment advanced 63%,
driven by an $8.8 million improvement at the MEGTEC operation,
which had incurred a loss in 1999. The MEGTEC improvement was
driven by higher sales and improved margins. The unit benefited
from programs to improve quality and lower manufacturing costs;
from reduced research and selling and administrative expenses;
and from the acquisition of its French dryer manufacturing
subcontractor in 2000. Management currently anticipates a
significantly smaller loss in the first quarter of 2001 than in
the previous year. Operating income at the can machinery unit
declined sharply in 2000, as the benefits of higher sales were
more than offset by the significant effect on margins of an
unfavorable sales mix shift. During the first quarter of 2001,
management finalized and began to implement a restructuring
program at the can machinery unit that includes the closing of a
facility and a reduction in headcount. These actions will
require a restructuring charge of approximately $2.2 million in
the first quarter of 2001. Casco Products, the automotive
products supplier, registered a 3% increase in profits for 2000.
The benefit of a full year of profits from Schoeller & Co. GmbH
and improved performance at the Brazilian operation were
partially offset by the impact of lower sales and continued
margin pressure at the domestic operations, and by the
unfavorable effects of the weakening of the Euro on the reported
results of the European operations ($0.5 million). Profits were
down 3% at the Men's Apparel unit, due to lower margins.
Management currently anticipates results in the first quarter of
2001 for both Casco Products and Men's Apparel to be below 2000
levels, due to soft demand in their respective US markets.
INTEREST EXPENSE
Interest expense decreased $4.4 million from 1999, due to the
additional interest costs in the earlier year that resulted from
the issuance in July of $500 million of 9% Senior Notes and the
subsequent fourth-quarter 1999 retirement of $357.5 million of
principal amounts outstanding under public debt issues. The
decrease in interest expense for 2000 was partially offset by
higher debt levels required to support operations.
INTEREST INCOME
The decrease in interest income of $4.2 million was primarily due
to the absence of income earned on the temporary investment in
1999 of a portion of the proceeds of the $500 million of 9%
Senior Notes.
EQUITY IN LOSS OF UNCONSOLIDATED JOINT VENTURES
Sequa has investments in numerous unconsolidated joint ventures,
which amounted to $65.7 million and $42.4 million at December 31,
2000 and 1999, respectively. The combination of income and
losses of these joint ventures resulted in net equity losses of
$2.0 million in 2000 and $2.9 million in 1999. The largest of
these joint ventures are discussed in the following paragraphs.
Atlantic Research Corporation and Breed Technologies, Inc.
operated a 50/50 automotive airbag inflator joint venture in
Italy, called BAG S.p.A. Sequa's investment in BAG S.p.A. was
$15.2 million at December 31, 2000 and $18.5 million at December
31, 1999. Sequa's equity share in the losses of the BAG S.p.A.
joint venture was $2.0 million in 2000 and $1.9 million in 1999.
On February 1, 2001, ARC Automotive Italia, an affiliate of
ARC, acquired certain assets and the ongoing automotive airbag
inflator business of BAG S.p.A.. The results of operations of
ARC Automotive Italia will be fully consolidated with those of
Sequa from that date. (See the Risk/Concentration of Business
section of this MD&A for additional information.)
Chromalloy Gas Turbine continues to pursue joint venture
opportunities and formed five new joint ventures in 2000. In May
2000, Chromalloy Gas Turbine reduced its majority ownership
interest in a component manufacturing operation to 50%. Accounts
of this operation are included in the Consolidated Statement of
Income for the period of majority ownership. At December 31,
2000, Sequa's investment in this operation totaled $5.5 million.
Sequa's equity share of the net losses since the reduction of
ownership was $0.1 million.
In late May 2000, Chromalloy Gas Turbine entered a joint
venture agreement with Siemens Westinghouse whereby Chromalloy
Gas Turbine contributed certain assets and liabilities of two
industrial turbine repair units in return for a 49% ownership
interest in a new US company called Turbine Airfoil Coating &
Repair LLC (TACR). Siemens Westinghouse contributed to TACR the
stock of an existing operation in Germany. TACR coats new parts
and repairs components for Siemens Westinghouse land-based
industrial gas turbines. At December 31, 2000, Sequa's
investment in TACR totaled $14.6 million. The equity share of
net income from TACR was $0.8 million since inception.
EQUITY IN LOSS OF UNCONSOLIDATED JOINT VENTURES (cont'd)
In June 2000, Chromalloy Gas Turbine purchased a 49%
ownership interest in an existing operation that operates as
Masaood John Brown Ltd (MJB), with a facility in the United Arab
Emirates. MJB is a partnership with Mohammed Bin Masaood & Sons
and provides repair and maintenance services to industrial gas
turbine operators. At December 31, 2000, Sequa's investment in
MJB totaled $4.7 million. The equity share of net income from
MJB was $0.3 million since inception.
In August 2000, Chromalloy Gas Turbine signed agreements with
Rolls-Royce plc to form two 50/50 joint ventures: Turbine Surface
Technologies Ltd (TST), which will provide advanced technology
coatings for Rolls-Royce turbine components; and Turbine Repair
Technologies Ltd (TRT), which provides advanced aero engine
component repair services for certain Rolls-Royce engines. TST
is scheduled to begin operations in 2001, and the investment in
this joint venture was nominal as of December 31, 2000. The
formation of TRT was completed at the end of September, and, at
December 31, 2000, Sequa's investment in TRT totaled $2.4 million
and the equity share of net income from TRT was $0.1 million
since inception.
Chromalloy Gas Turbine has three other 50/50 joint venture
partnerships, two of which are significant. The first is
Advanced Coatings Technologies, 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 and overhauls
and tests certain jet engines. In November 2000, Willis Lease
Finance transferred its ownership interest in PGT to a unit of SR
Technics Group, the maintenance services subsidiary of SAir Group
(formerly SwissAir). Sequa's investment in these two Chromalloy
Gas Turbine partnerships was $13.3 million at December 31, 2000
and $13.4 million at December 31, 1999. Sequa's equity share in
these ventures was a net loss of $1.3 million in 2000 and net
income of $0.2 million in 1999.
The Metal Coating unit 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 was $9.0
million at December 31, 2000 and $9.5 million at December 31,
1999. Sequa's equity share was net income of $0.3 million in
2000 and a net loss of $0.5 million in 1999.
OTHER, NET
In 2000, Other, net included $7.5 million of discount expense
related to the sale of accounts receivable; $1.6 million of
expense on the cash surrender value of corporate-owned life
insurance; $1.1 million of charges for the amortization of
capitalized debt costs; $1.0 million of charges for letters of
credit and commitment fees; $1.0 million of income related to the
final resolution of matters associated with the sale of a
Chromalloy Gas Turbine business in the United Kingdom; $1.0
million of income related to a minority interest in the component
manufacturing operation for the period during which the operation
was majority owned; and a $0.9 million gain related to the sale
of a partial ownership interest in this operation.
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
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; $2.3 million of discount
expense related to the sale of accounts receivable; $1.5 million
of charges for the amortization of capitalized debt issuance
costs; and $1.1 million of charges for letters of credit and
commitment fees.
RISK/CONCENTRATION OF BUSINESS
Sequa is engaged in the automotive airbag inflator business
through ARC and until February 2001 through ARC's 50% equity
investment in BAG S.p.A. On February 1, 2001, ARC Automotive
Italia purchased certain assets and the ongoing inflator business
of BAG S.p.A. ARC's major customer for airbag inflators is
Breed, which is supplied under a long-term contract. ARC also
supplied inflator components to BAG S.p.A.
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. Subsequent to the Filing Date and through February 1,
2001, ARC shipped product to Breed on a prepaid basis.
On December 26, 2000, Breed emerged from bankruptcy, with its
secured creditors (the Banks) receiving a 94% ownership interest
in Breed. In addition, the reorganization plan provided for a
$125 million credit facility to meet Breed's ongoing credit
requirements.
RISK/CONCENTRATION OF BUSINESS (cont'd)
In late December 2000, ARC and Breed reached an agreement
resolving all the outstanding Breed and BAG S.p.A. issues. In
January 2001, ARC and Breed formalized their settlement agreement
calling for: ARC to continue to supply Breed with airbag
inflators through a modified long-term supply contract; ARC to
recover a portion of the $12.1 million pre-petition net accounts
receivable; and ARC, through an affiliate, to purchase certain
assets and the ongoing automotive inflator business of BAG S.p.A.
The settlement was approved by the Bankruptcy Court on January
25, 2001. As a result of the overall settlement, Sequa recorded
a fourth-quarter 2000 pre-tax charge of $3.0 million. The
amounts to be recovered on the pre-petition net accounts
receivable, which, due to the uncertainty of the ultimate
resolution of the Chapter 11 proceedings, had been classified as
long-term, have been reclassified to the appropriate captions
within the Consolidated Balance Sheet. A significant portion of
these amounts is included in current assets at December 31,
2000.
On February 1, 2001, the acquisition of certain assets and
the ongoing automotive inflator business of BAG S.p.A. was
completed. The results of operations as they relate to the
acquired assets and ongoing inflator business of BAG S.p.A. will
be fully consolidated with those of Sequa from the acquisition
date.
Breed accounted for $79.1 million of ARC's sales in 2000 and
$83.5 million in 1999. BAG S.p.A. accounted for $22.6 million of
ARC's sales in 2000 and $21.4 million in 1999. BIH accounted for
all of BAG S.p.A.'s sales in 2000 and 1999, which amounted to
$49.9 million and $51.9 million, respectively. In 2001, Breed
Italian Holdings S.r.l. (BIH), a Breed subsidiary will account
for only approximately 60% of ARC Automotive Italia's sales, primarily
due to a BIH customer now buying directly from ARC Automotive Italia.
Chromalloy Gas Turbine'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.
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,
Dutch 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 to hedge certain
existing assets and liabilities, firm commitments and anticipated
transactions denominated in currencies other than the functional
currency.
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and was subsequently amended by SFAS No.
138 issued in June 2000. These statements require 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. Sequa has reviewed
its use of derivative financial instruments in anticipation of
adopting SFAS No. 133 and No. 138. These statements are not
expected to have a material effect on Sequa's consolidated
financial statements. The effective date of SFAS No. 133 was
delayed to fiscal years beginning after June 15, 2000, with
earlier adoption encouraged. Sequa adopted this accounting
standard beginning January 1, 2001.
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 $10.7
million as of December 31, 2000 and $11.8 million as of December
31, 1999. 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, 2000 and 1999.
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.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS (cont'd)
At December 31, 2000 and 1999, 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 materially 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 $592 million at December 31, 2000 and $559 million
at December 31, 1999. A hypothetical 1% increase in interest
rates would decrease the fair value of Sequa's total debt by
approximately $28.4 million at December 31, 2000 and $23.6
million at December 31, 1999. A hypothetical 1% decrease in
interest rates would increase the fair value of Sequa's total
debt by approximately $30.7 million at December 31, 2000 and
$26.0 million at December 31, 1999. 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.
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
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 laws. These projected
expenditures, which are reviewed periodically, include: remedial
investigation and feasibility studies; outside legal, consulting
ENVIRONMENTAL MATTERS (cont'd)
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, 2000, the potential exposure for such
costs is estimated to range from $12 million to $24 million, and
Sequa's Consolidated Balance Sheet includes accruals for
remediation costs of $21.4 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 $3.3 million in 2000, $4.9 million in
1999 and $8.2 million in 1998. Sequa anticipates that remedial
cash expenditures will be between $6 million and $10 million
during 2001 and between $4 million and $6 million during 2002.
Sequa's capital expenditures for projects to eliminate, control
or dispose of pollutants were $2.2 million, $1.6 million and
$2.3 million in 2000, 1999 and 1998, respectively. Sequa
anticipates annual environmental-related capital expenditures to
be approximately $5 million during 2001 and $2 million during
2002. Sequa's operating expenses to eliminate, control and
dispose of pollutants have averaged approximately $10 million per
year during the last three years. Sequa anticipates that
environmental operating expenses will be approximately $11
million per year during 2001 and 2002.
BACKLOG
The businesses of Sequa for which backlogs are significant are
the Turbine Airfoils, 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, 2000 was $281.2 million ($256.1 million at
December 31, 1999). The increase is largely attributable to a
BACKLOG (cont'd)
56% increase at the MEGTEC unit. Backlog increased at the
Propulsion segment and decreased at the Gas Turbine OEM units and
the Men's Apparel unit. 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. Backlog values
in both years exclude the Aerospace segment's Caval Tool unit
which was divested in February 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $42.3 million in
2000, compared with $5.2 million in 1999. The major reason for
the 2000 increase was a $33.5 million decrease in income taxes
paid. Cash used for investing activities was $115.8 million,
compared with $138.4 million in 1999. The decrease was primarily
due to a $22.9 million decrease in cash invested in joint
ventures, as well as a $16.9 million reduction in businesses
purchased. These factors were tempered by the absence of
proceeds from the sale of short-term investments and a reduction
in sales of other assets. Net cash from financing activities was
$62.4 million in 2000, compared with $121.4 million in 1999. The
main reason for the decrease was the absence of $490.9 million in
proceeds from the 1999 issuance of debt, as well as the related
use of $439.4 million of the proceeds to retire amounts
outstanding under other debt issues. A $22.0 million decrease in
proceeds from accounts receivable sold also contributed to the
decrease.
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 has the
intent and ability to refinance this debt. Consequently, the
medium-term notes have been classified as long-term debt in the
Consolidated Balance Sheet.
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 had taken the conservative position of providing
reserves to cover an adverse outcome. At December 31, 2000, 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
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
running of interest with respect to the amounts deposited.
Management has been in discussions with the IRS on these matters
for several years and has 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 2001, 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 $104.9 million in 2000, 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 2001 will be approximately
$95 million and will again be concentrated in the same segments.
Management currently anticipates that cash flow from
operations, the $79.0 million of credit available at March 9,
2001 under the revolving credit agreement and the $50.0 million
of cash and cash equivalents on hand at December 31, 2000 will be
sufficient to repay the remaining $66.4 million principal balance
of the medium-term notes and to fund Sequa's operations, niche
acquisitions and airline spare parts inventory purchases for the
next year. In addition, Sequa is actively considering additional
sources available to increase its liquidity.
OTHER INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was issued in September 2000 and
replaces SFAS No. 125 which was similarly titled. SFAS No. 140
revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires
certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001.
Management is currently reviewing the criteria of SFAS No. 140 as
they may relate to Sequa's Receivables Purchase Agreement in
2001.
FIRST QUARTER FORECAST/OUTLOOK FOR 2001
For the first-quarter ending March 31, 2001, Sequa expects that
sales will be lower and operating income will be down sharply
from the same quarter of 2000. The decreases reflect shortfalls
FIRST QUARTER FORECAST/OUTLOOK FOR 2001 (cont'd)
in operating units most severely affected by the current slowdown
in the US economy - principally those serving the building
products industry and the domestic automobile industry - as well
as the high cost of energy compared with a year ago. Operating
income for the quarter will also be reduced by a restructuring
charge of approximately $2.2 million related to Sequa's can machinery
operation. Operating income, plus depreciation and amortization (EBITDA),
exclusive of the restructuring charge, is expected to be in the range of $32
million to $36 million for the first quarter. Sequa expects that it will
record a net loss for the first quarter in the range of $2 million to $3
million, or approximately 25 cents to 35 cents per share. These expected net
results are after accounting for a pre-tax gain of approximately
$4 million on the previously announced divestiture of Chromalloy
Gas Turbine's Caval Tool division.
Sequa's businesses hold strong leadership positions in their
markets and are well positioned to capitalize on improving
industry trends. In view of current conditions in the building
products and domestic automobile markets, as well as the
generally favorable outlook for jet engine component repair,
Sequa expects that sales and operating income will begin to
improve in the second quarter of 2001. Moreover, barring further
deterioration in the industrial economy, operations should gain
momentum over the balance of the year. It should be noted,
nonetheless, that, given the operating results for the first
quarter, the company is likely to record lower operating income
for the full year 2001 than for 2000.
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 1999-1998
SALES
Sales of the Aerospace segment 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
SALES (cont'd)
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 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.
Sales of the Propulsion segment 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
S.p.A., 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. 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 refurbish the
post boost control system on the US Government Minuteman III
missile.
Sales of the Metal Coating segment 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 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.
SALES (cont'd)
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. 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. 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.
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 UK 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. 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 (cont'd)
Operating income in the Metal Coating segment advanced 29%.
Despite 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.
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 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 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.
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 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 $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 the
subsequent fourth-quarter retirement of $357.5 million of
principal amounts outstanding under public debt issues as well as
to support Sequa's working capital needs.
INTEREST INCOME
The increase in interest income of $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 OF UNCONSOLIDATED JOINT VENTURES
Sequa's equity share in the losses and income of its numerous
joint ventures amounted to net losses of $2.9 million in 1999 and
EQUITY IN LOSS OF UNCONSOLIDATED JOINT VENTURES (cont'd)
$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.
In 1999 and 1998, Sequa had an investment in BAG S.p.A., 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 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 S.p.A.'s bank debt and other liabilities were drawn upon, in
the case of Sequa in the amount of $10.4 million. In January
2000, ARC, ARC Automotive Italia, BAG S.p.A. and Breed signed a
contract which provided for ARC Automotive Italia to acquire
certain of the assets and the ongoing automotive inflator
business of BAG S.p.A. This transaction was completed in
February 2001 as part of an overall settlement with Breed.
Sequa's equity share of the net 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. Sequa's equity share of net income in these joint
ventures 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). Sequa's equity
share of net 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
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; $2.3 million of discount
OTHER, Net (cont'd)
expense related to the sale of accounts receivable; $1.5 million
of charges for the amortization of capitalized debt issuance
costs; and $1.1 million of charges for letters of credit and
commitment fees.
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 $0.9 million of charges for letters of credit and
commitment fees.
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
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. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- -------- -----------------------------------------------------
RISK
----
See discussion appearing on pages 26 and 27 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 sheets
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 2000 and 1999, and the related consolidated
statements of income, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2000.
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, 2000 and
1999, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 6, 2001
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- ---------------------------- -------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 49,977 $ 68,164
Trade receivables, net (Note 2) 225,955 239,532
Unbilled receivables, net (Note 3) 40,882 32,130
Inventories (Note 4) 373,696 315,158
Other current assets 32,824 25,275
---------- ---------
Total current assets 723,334 680,259
---------- ---------
INVESTMENTS
Investments and other receivables
(Note 5) 84,921 74,015
Net assets of discontinued operations
(Note 6) 97,545 98,912
---------- ---------
182,466 172,927
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 7) 482,821 474,558
---------- ---------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 305,570 314,257
Deferred charges and other assets 36,873 29,697
---------- ---------
342,443 343,954
---------- ---------
TOTAL ASSETS $1,731,064 $1,671,698
========== ==========
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, 2000 1999
- ------------------------------------------ -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 8) $ 1,439 $ 5,297
Accounts payable 145,841 129,214
Taxes on income (Note 9) 9,853 -
Accrued expenses (Note 10) 180,230 166,192
---------- ----------
Total current liabilities 337,363 300,703
---------- ----------
NONCURRENT LIABILITIES
Long-term debt (Note 8) 590,607 569,917
Deferred taxes on income (Note 9) 45,396 43,462
Other noncurrent liabilities 87,891 88,719
---------- ----------
Total noncurrent liabilities 723,894 702,098
---------- ----------
SHAREHOLDERS' EQUITY (Notes 8, 13, 14 and 15)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 2000
and 1999 (involuntary liquidation
value--$17,181 at December 31, 2000) 797 797
Class A common stock--no par value,
50,000,000 shares authorized; 7,281,000
shares issued at December 31, 2000
and 1999 7,281 7,281
Class B common stock--no par value,
10,000,000 shares authorized; 3,727,000
shares issued at December 31, 2000
and 1999 3,727 3,727
Capital in excess of par value 288,325 288,437
Retained earnings 486,655 464,672
Accumulated other comprehensive
loss (37,763) (16,453)
---------- ----------
749,022 748,461
Less: cost of treasury stock 79,215 79,564
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 669,807 668,897
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,731,064 $1,671,698
========== ==========
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------- -------- -------- --------
SALES $1,773,138 $1,711,170 $1,813,055
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 1,423,342 1,371,347 1,455,576
Selling, general and administrative 246,608 245,364 252,016
---------- ---------- ----------
1,669,950 1,616,711 1,707,592
---------- ---------- ----------
OPERATING INCOME 103,188 94,459 105,463
OTHER INCOME (EXPENSE)
Interest expense (56,396) (60,770) (51,776)
Interest income 5,074 9,252 5,868
Gain on sale of businesses (Note 16) - - 56,542
Equity in loss of unconsolidated
joint ventures (Note 5) (1,951) (2,851) (4,876)
Other, net (Note 17) (7,868) 9,309 (3,224)
---------- ---------- ----------
(61,141) (45,060) 2,534
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 42,047 49,399 107,997
Income tax provision (Note 9) (18,000) (21,600) (44,100)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 24,047 27,799 63,897
Extraordinary loss on early retirement
of debt, net of tax benefit of $3,087 - (5,732) -
---------- ---------- ----------
NET INCOME 24,047 22,067 63,897
Preferred dividends (2,064) (2,064) (2,173)
---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON
STOCK $ 21,983 $ 20,003 $ 61,724
========== ========== ==========
BASIC EARNINGS PER SHARE (Note 19)
Income before extraordinary item $ 2.12 $ 2.48 $ 6.01
Extraordinary loss - (.55) -
---------- ---------- ----------
Net income $ 2.12 $ 1.93 $ 6.01
========== ========== ==========
DILUTED EARNINGS PER SHARE (Note 19)
Income before extraordinary item $ 2.12 $ 2.48 $ 5.87
Extraordinary loss - (.55) -
---------- ---------- ----------
Net income $ 2.12 $ 1.93 $ 5.87
========== ========== ==========
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, 2000 1999 1998
- -------------------------------------------- ------ ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income taxes $ 42,047 $ 49,399 $107,997
Adjustments to reconcile income to
net cash provided by operating activities:
Depreciation and amortization 88,617 87,156 89,321
Provision for losses on receivables 5,228 6,413 4,276
Gain on sale of businesses - - (56,542)
Gain on sale of assets (80) (3,898) (82)
Equity in loss of unconsolidated
joint ventures 1,951 2,851 4,876
Other items not providing cash (1,861) (4,232) (2,521)
Changes in operating assets and liabilities,
net of businesses acquired and sold:
Receivables (45,069) (36,853) (12,512)
Inventories (67,646) (56,169) (12,998)
Other current assets (4,738) 4,900 (4,997)
Accounts payable and accrued expenses 28,594 (17,462) (22,634)
Other noncurrent liabilities (4,948) 4,890 (1,331)
--------- --------- --------
Net cash provided by continuing operations
before income taxes 42,095 36,995 92,853
Net cash provided by discontinued operations
before income taxes 2,609 4,014 1,322
Income taxes paid, net (2,363) (35,816) (46,793)
--------- --------- --------
Net cash provided by operating activities 42,341 5,193 47,382
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (104,911) (101,382) (103,524)
Sale of property, plant and equipment 4,897 12,572 12,386
Sale of businesses, net of cash sold - - 121,333
Businesses purchased, net of cash acquired (8,977) (25,827) (40,662)
Short-term investments - 15,041 11,234
Other investing activities (6,815) (38,799) (7,294)
--------- --------- --------
Net cash used for investing activities (115,806) (138,395) (6,527)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt, net of issuance costs 25,515 490,903 -
Payments of debt (9,068) (149,593) (52,576)
Early retirement of debt - (289,850) -
Proceeds from sale of accounts receivable, net 48,000 70,000 -
Other financing activities (2,053) (88) 658
--------- --------- --------
Net cash provided by (used for)
financing activities 62,394 121,372 (51,918)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents (7,116) (4,895) 2,209
--------- --------- --------
Net decrease in cash and cash equivalents (18,187) (16,725) (8,854)
Cash and cash equivalents at beginning of year 68,164 84,889 93,743
--------- --------- --------
Cash and cash equivalents at end of year $ 49,977 $ 68,164 $ 84,889
========= ========= ========
The accompanying notes are an integral part of the financial statements.
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Accumulated
Class A Class B Capital in 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, 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
--------
Net income - - - - 24,047 - - 24,047
Foreign currency
translation adjustment - - - - - (21,092) - (21,092)
Unrealized loss on marketable
securities - - - - - (335) - (335)
Tax benefit for unrealized loss
on marketable securities - - - - - 117 - 117
--------
Comprehensive income 2,737
--------
Stock options exercised - - - 9 - - - 9
Stock grants - - - (122) - - 349 227
Tax benefits on stock options - - - 1 - - - 1
Cash dividends:
Preferred - $5.00 per share - - - - (2,064) - - (2,064)
---- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 2000 $ 797 $ 7,281 $3,727 $288,325 $486,655 $(37,763) $ (79,215)$669,807
===== ======= ====== ======== ======== ======== ========= ========
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
under the equity method. All material accounts and transactions
between the consolidated subsidiaries have been eliminated in
consolidation.
In the fourth quarter of 2000, Sequa changed its financial
statement presentation of sales and cost of sales to be in
accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 concerning revenue recognition
issues. The change does not impact Sequa's reported operating
income, but sales and cost of sales have been reclassified in the
Consolidated Statement of Income and the related disclosures for
prior interim periods and fiscal years. The change affects only
the Metal Coating segment and increased both sales and cost of
sales by $10,470,000 in 2000, $11,641,000 in 1999 and $10,662,000
in 1998.
The preparation of financial statements in conformity with
generally accepted accounting principles 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
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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.
PROPERTY, PLANT AND EQUIPMENT, NET
In the fourth quarter of 2000, Sequa changed, for financial
reporting purposes, its method of computing depreciation for new
automotive airbag inflator component production lines.
Management believes that the accounting change from a straight-
line to a units of production methodology serves to match expense
more closely to the period in which the related revenue is
recognized. The effect of the change was immaterial to the 2000
consolidated results of operations including prior interim
reporting periods. Sequa uses the straight-line method to
amortize the cost of its remaining assets, including airbag
inflator component lines placed in service prior to 2000, over
their remaining useful lives.
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 net realizable value using
a discounted cash-flow methodology.
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 net
realizable value using a discounted cash-flow methodology.
Amortization charged against earnings in 2000, 1999 and 1998 was
$13,166,000, $12,617,000 and $11,637,000, respectively.
Accumulated amortization at December 31, 2000 and 1999 was
$154,394,000 and $141,228,000, respectively.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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.
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.
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.
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and was subsequently amended by SFAS No.
138 issued in June 2000. These statements require 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. These statements
are not expected to have a material effect on Sequa's
consolidated financial statements. The effective date of SFAS
No. 133 was delayed to fiscal years beginning after June 15,
2000, with earlier adoption encouraged. Sequa adopted this
accounting standard beginning January 1, 2001.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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, 2000, the
potential exposure for such costs is estimated to range from
$12,000,000 to $24,000,000, and Sequa's Consolidated Balance
Sheet includes accruals for remediation costs of $21,386,000.
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.
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped and risk
of loss has transferred to the customer 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 $22,157,000 in 2000, $20,005,000 in 1999 and
$21,353,000 in 1998.
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.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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 $274,166,000 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. 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 up to
$120,000,000 of an undivided percentage ownership interest in
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. Trade receivables at December 31, 2000
and 1999 are net of receivables sold under the agreement of
$118,000,000 and $70,000,000, respectively. Other, net in the
Consolidated Statement of Income includes discount expense
related to the sale of receivables of $7,493,000 in 2000 and
$2,290,000 in 1999.
Trade receivables at December 31, 2000 and 1999 are reduced
by allowances for doubtful accounts of $14,121,000 and
$17,259,000, respectively.
NOTE 3. UNBILLED RECEIVABLES, NET
Unbilled receivables, net consist of the following:
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- -------------------------------- ---- ----
Fixed-price contracts $34,513 $29,165
Cost-reimbursement contracts 6,369 2,965
------- -------
$40,882 $32,130
======= =======
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
NOTE 3. UNBILLED RECEIVABLES, NET (cont'd)
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.
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, 2000 and 1999 are reduced by
allowances for estimated nonrecoverable costs of $2,661,000 and
$2,060,000, respectively.
NOTE 4. INVENTORIES
The components of inventories are as follows:
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- ------------------------------ ---- ----
Finished goods $127,908 $ 82,010
Work in process 106,536 88,255
Raw materials 148,550 150,921
Long-term contract costs 5,255 6,560
Customer deposits (14,553) (12,588)
-------- --------
$373,696 $315,158
======== ========
NOTE 5. INVESTMENTS AND OTHER RECEIVABLES
Sequa's investments and other receivables consist of the
following items:
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- ------------------------------------- ------ ------
Investments in unconsolidated joint
ventures $65,740 $42,445
Breed pre-petition net accounts receivable - 12,134
Cash surrender value of corporate-
owned life insurance 12,021 13,004
Other receivables 7,160 6,432
------- -------
$84,921 $74,015
======= =======
NOTE 5. INVESTMENTS AND OTHER RECEIVABLES (cont'd)
Sequa has investments in numerous unconsolidated joint ventures.
ARC's investment in BAG S.p.A., a 50/50 joint venture with Breed
Technologies, Inc. (Breed) to produce automotive airbag inflators
in Italy, amounted to $15,212,000 at December 31, 2000 and
$18,498,000 at December 31, 1999. 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 January 2000, Sequa (through its ARC and ARC Automotive
Italia subsidiaries) signed a contract with BAG S.p.A. and Breed
which provided for ARC Automotive Italia to acquire certain of
the assets, as well as the ongoing automotive inflator business,
of BAG S.p.A.. This transaction was completed in February 2001
as part of an overall settlement with Breed. The results of
operations as they relate to the acquired assets and the ongoing
inflator business of BAG S.p.A. will be fully consolidated with
those of Sequa from the acquisition date.
Sequa's share of the losses of the airbag joint ventures was
$1,984,000 in 2000, $1,941,000 in 1999 and $3,666,000 in 1998.
One month of 1998 included the losses of BAICO, the former
domestic inflator joint venture, which has been wholly owned
since January 28, 1998.
At December 31, 1999, the Breed pre-petition net accounts
receivable was classified as long-term due to the uncertainty of
the ultimate resolution of the Chapter 11 proceedings. Under an
Agreed Order and Stipulation that was entered with the Bankruptcy
Court on February 26, 2000, and subsequently amended on March 7,
2000, ARC and Breed entered into negotiations to modify the long-
term contract under which ARC supplies Breed's domestic
operations. Sequa's management believed that the long-term
supply contract would be accepted in either its original or
modified form and therefore that an opportunity existed to
recover the full amount of the Breed pre-petition net accounts
receivable.
On December 26, 2000, Breed's Plan of Reorganization became
effective. Breed will continue as a private corporation with a
new capital structure and new ownership. In January 2001, ARC
and Breed formalized the overall settlement reached in December
2000 which calls for: ARC to continue to supply Breed with airbag
inflators through a modified long-term supply agreement; ARC to
recover a portion of the pre-petition net accounts receivable;
and ARC, through an affiliate, to purchase certain assets and the
ongoing automotive inflator business of BAG S.p.A. The overall
settlement was approved by the Bankruptcy Court on January 25,
2001. As a result of the settlement, Sequa recorded
NOTE 5. INVESTMENTS AND OTHER RECEIVABLES (cont'd)
a fourth-quarter 2000 pre-tax charge of $2,987,000. The amounts
to be recovered on the pre-petition net accounts receivable have
been reclassified to the appropriate captions within the
Consolidated Balance Sheet. A significant portion of these
amounts is included in current assets at December 31, 2000.
Chromalloy Gas Turbine continues to pursue joint venture
opportunities and formed five new joint ventures in 2000. In May
2000, Chromalloy Gas Turbine reduced its majority ownership
interest in a component manufacturing operation to 50%. Accounts
of this operation are included in the Consolidated Statement of
Income for the period of majority ownership. Sequa's equity
share of the net losses since the reduction of ownership was
$100,000. At December 31, 2000, Sequa's investment in this
operation totaled $5,480,000.
In late May 2000, Chromalloy Gas Turbine entered a joint
venture agreement with Siemens Westinghouse whereby Chromalloy
Gas Turbine contributed certain assets and liabilities of two
industrial turbine repair units in return for a 49% ownership
interest in a new US company called Turbine Airfoil Coating &
Repair LLC (TACR). Siemens Westinghouse contributed to TACR the
stock of an existing operation in Germany. TACR coats new parts
and repairs components for Siemens Westinghouse land-based
industrial gas turbines. The equity share of net income for TACR
was $786,000 since inception. At December 31, 2000, Sequa's
investment in TACR totaled $14,607,000.
In June 2000, Chromalloy Gas Turbine purchased a 49% ownership
interest in an existing operation that operates as Masaood John
Brown Ltd (MJB), with a facility in the United Arab Emirates.
MJB is a partnership with Mohammed Bin Masaood & Sons and
provides repair and maintenance services to industrial gas
turbine operators. The equity share of net income for MJB was
$269,000 since inception. At December 31, 2000, Sequa's
investment in MJB totaled $4,681,000.
In August 2000, Chromalloy Gas Turbine signed agreements with
Rolls-Royce plc to form two 50/50 joint ventures. Turbine
Surface Technologies Ltd (TST) will provide advanced technology
coatings for Rolls-Royce turbine components and Turbine Repair
Technologies Ltd (TRT) provides advanced aero engine component
repair services for certain Rolls-Royce engines. TST is
scheduled to begin operations in 2001, and the investment in this
joint venture is nominal as of December 31, 2000. The formation
of TRT was completed at the end of September and the equity share
of net income since inception was $75,000. At December 31, 2000,
Sequa's investment in TRT totaled $2,353,000.
NOTE 5. INVESTMENTS AND OTHER RECEIVABLES (cont'd)
Chromalloy Gas Turbine has three other 50/50 joint venture
partnerships, two of which are significant. The first is
Advanced Coatings Technologies, 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 with Willis Lease Finance in 1999 and overhauls
and tests certain jet engines. In November 2000, Willis Lease
Finance transferred its ownership interest in PGT to a unit of SR
Technics Group, the maintenance services subsidiary of SAir Group
(formerly SwissAir). Sequa's equity share in these ventures was
a net loss of $1,306,000 in 2000 and net income of $167,000 in
1999 and $1,843,000 in 1998. Sequa's investment in these two
Chromalloy Gas Turbine partnerships was $13,268,000 at December
31, 2000 and $13,373,000 at December 31, 1999.
The Metal Coating unit 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
buildings products market. Sequa's equity share was net income
of $277,000 in 2000 and net losses of $544,000 in 1999 and
$142,000 in 1998. Sequa's investment in MMC was $9,035,000 at
December 31, 2000 and $9,538,000 at December 31, 1999.
Sequa's remaining investments in unconsolidated joint ventures
contributed income of $32,000 in 2000, and losses of $533,000 in
1999 and $2,911,000 in 1998. 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 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, 2000, 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 14 years as rentals are received
and residual values are realized. Debt of discontinued
operations at December 31, 2000 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, 2000 1999
- -------------------------------- ------ ------
Investment in leveraged leases and
other investments $131,324 $130,377
Other assets, net 1,664 1,336
Debt (35,443) (32,801)
-------- --------
Net assets of discontinued operations $ 97,545 $ 98,912
======== ========
NOTE 7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- -------------------------------- ---- ----
Land and improvements $ 37,123 $ 37,964
Buildings and improvements 235,403 231,979
Machinery and equipment 862,238 832,952
Construction in progress 45,741 54,646
---------- ----------
1,180,505 1,157,541
Accumulated depreciation (697,684) (682,983)
---------- ----------
$ 482,821 $ 474,558
========== ==========
Depreciation expense was $72,293,000 in 2000, $71,690,000 in 1999
and $74,891,000 in 1998.
NOTE 8. INDEBTEDNESS
Long-term debt is as follows:
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- ---------------------------------- ---- ----
Senior unsecured notes, at 9%, due 2009 $500,000 $500,000
Medium-term notes, at a weighted average
interest rate of 10.1%, due 2001 66,425 66,425
Revolving credit agreement, maturing in
2002, at a weighted average interest
rate of 7.6% 20,500 -
Capital lease obligations, at weighted
average interest rates of 11.0% and 8.6%,
respectively, payable through 2004 156 5,278
Other, at weighted average interest rates of
4.7% and 3.7%, respectively, payable in
varying amounts through 2004 4,965 3,511
-------- --------
592,046 575,214
Less current maturities (1,439) (5,297)
-------- --------
Total long-term debt $590,607 $569,917
======== ========
In May 2001, Sequa will be required to repay the remaining
$66,425,000 principal balance of medium-term notes. Sequa has
the intent and ability to refinance this debt. Consequently, the
medium-term notes have been classified as long-term debt in the
Consolidated Balance Sheet.
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, to pay down $48,500,000
outstanding under the revolving credit agreement and to
repurchase $64,975,000 of principal amounts outstanding under
public debt issues. The remainder of the net proceeds was
temporarily invested in short-term interest bearing instruments.
In the fourth quarter of 1999, Sequa retired $357,492,000 of
principal amounts outstanding under public debt issues. 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.
NOTE 8. INDEBTEDNESS (cont'd)
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, 2000, there was $20,500,000 outstanding under
this facility, leaving $129,500,000 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 $1,439,000 in 2001, $86,577,000 in 2002,
$0 in 2003, $5,958,000 in 2004 and $0 in 2005.
NOTE 9. INCOME TAXES
The components of income before income taxes were:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 2000 1999 1998
- --------------------------------- ---- ---- ----
Domestic $ (907) $ 2,707 $ 55,197
Foreign 42,954 46,692 52,800
-------- -------- --------
$ 42,047 $ 49,399 $107,997
======== ======== ========
The income tax provision consisted of:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 2000 1999 1998
- --------------------------------- ---- ---- ----
United States Federal
Current $(1,759) $ 402 $ 865
Deferred 2,242 3,972 20,281
State and local 1,915 363 5,155
Foreign 15,602 16,863 17,799
------- ------- -------
$18,000 $21,600 $44,100
======= ======= =======
NOTE 9. INCOME TAXES (cont'd)
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, 2000 1999 1998
- -------------------------------- ---- ---- ----
Computed income taxes at statutory
rate $14,716 $ 17,290 $ 37,799
State and local taxes, net of
Federal income tax benefit 1,245 236 3,351
Goodwill amortization 3,464 3,464 3,584
Foreign subsidiaries at different
tax rates (279) 514 (2,586)
Foreign losses/(earnings) not
benefited/(provided) 630 (210) 1,555
Reversal of reserves due to
completion of foreign tax audit (2,294) - -
Other, net 518 306 397
------- -------- --------
$18,000 $ 21,600 $ 44,100
======= ======== ========
In the fourth quarter of 2000, $2,294,000 of reserves no longer
required due to the completion of a tax audit at a foreign unit
at that time were reversed and recorded as a reduction of the tax
provision.
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 9. 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, 2000
- ------------------------- --------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
Accounts receivable allowances $ 3,981 $ -
Inventory valuation differences 20,206 1,568
Recognition of income on
long-term contracts 2,479 4,515
Depreciation 7,477 42,952
Lease and finance transactions - 106,836
Accruals not currently deductible
for tax purposes 47,811 -
Tax net operating loss carryforward 44,178 -
Alternative minimum tax (AMT)
credit carryforward 22,363 -
Other tax credit carryforwards 9,829 -
All other 30,184 13,777
-------- --------
Subtotal 188,508 169,648
Valuation allowance (11,490) -
-------- --------
Total deferred taxes $177,018 $169,648
======== ========
(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
======== ========
NOTE 9. 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 had taken the conservative position of providing
reserves to cover an adverse outcome. At December 31, 2000, 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 has 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 2001, 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, 2000, net current deferred tax assets of
$52,766,000 are netted against $62,619,000 of current taxes
payable, and net noncurrent deferred tax liabilities of
$45,396,000 are presented as a single amount in the Consolidated
Balance Sheet. 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.
A valuation allowance has been established to reduce the
deferred tax asset recorded for certain tax credits that may
expire unutilized in 2001 through 2019 and to reduce the tax
benefit recorded for a portion of the cumulative losses of
a French subsidiary. The AMT credit carryforward does not
expire and can be carried forward indefinitely. Sequa has a
domestic tax net operating loss carryforward of $125,922,000 at
December 31, 2000 that expires in 2009 through 2019.
Although Sequa experienced book and tax domestic losses prior
to 1997, Sequa has been profitable domestically on a book basis
for 1998 and 1999, with a loss in 2000, and profitable on a
NOTE 9. INCOME TAXES (cont'd)
tax basis for 2000 and 1998, with a 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 rising demand from the commercial airline
market for jet engine component repair, and to decreased litigation
costs.
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; 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, 2000. 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 10. ACCRUED EXPENSES
Sequa's accrued expenses consist of the following items:
(Amounts in thousands)
AT DECEMBER 31, 2000 1999
- ------------------------------- ---- ----
Salaries and wages $ 48,529 $ 41,430
Interest 20,385 20,574
Current portion of environmental
liabilities 8,000 6,000
Current portion of self-insurance
liabilities 5,800 4,800
Current portion of pension liabilities - 938
Warranty 12,304 14,561
Customer rebates 11,367 12,188
Legal fees 715 2,302
Royalties 7,125 7,757
Insurance 6,889 5,766
Rent 4,738 1,132
Taxes other than income 4,895 4,360
Other 49,483 44,384
-------- --------
$180,230 $166,192
======== ========
NOTE 11. FINANCIAL INSTRUMENTS
Sequa utilizes forward foreign exchange contracts to reduce
exposure to foreign currency fluctuations on certain existing
assets and liabilities, firm commitments and anticipated
transactions. Sequa has also utilized 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, 2000, Sequa had forward
foreign exchange contracts outstanding with notional amounts of
$166,205,000. 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.
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, 2000 1999
- ---------------------- ------------- -------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Assets
Cash and cash equivalents $ 49,977 $ 49,977 $ 68,164 $ 68,164
Marketable securities 1,198 1,198 - -
Forward foreign exchange
contracts 1,450 1,646 2,007 2,007
Natural gas swaps - - - 44
Liabilities
Current and long-term
debt 592,046 592,046 575,214 558,710
Forward foreign exchange
contracts 1,841 1,848 590 590
The fair value of cash and cash equivalents approximates the
carrying amount due to the short maturity of those instruments.
The fair value of marketable securities 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 have settled with the counterparties to terminate the
natural gas swaps outstanding at December 31, 1999.
At December 31, 2000, Sequa was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
$25,876,000. Sequa is not currently aware of any existing
conditions that would cause risk of loss relative to outstanding
letters of credit.
NOTE 12. 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, 2000 1999 2000 1999
- ------------------------- ---- ---- ---- ----
Change in Benefit Obligation
- ----------------------------
Benefit obligation at beginning
of year $298,252 $315,055 $ 18,541 $17,947
Service cost 10,536 12,320 437 (47)
Interest cost 22,007 20,056 1,646 1,263
Actuarial (gain) loss (4,590) (32,152) 2,483 (320)
Plan amendments 2,515 361 772 -
Curtailments 1,419 (214) - 126
Participant contributions 712 802 - -
Benefits paid (18,086) (16,716) (571) (428)
Translation adjustment (3,618) (1,260) - -
-------- -------- -------- -------
Benefit obligation at end of year $309,147 $298,252 $ 23,308 $18,541
-------- -------- -------- -------
Change in Plan Assets
- ---------------------
Fair value of plan assets at
beginning of year $340,645 $305,179 $ - $ -
Actual return on plan assets (23,058) 50,077 - -
Contributions 3,487 3,598 571 428
Benefits paid (18,086) (16,716) (571) (428)
Translation adjustment (4,616) (1,493) - -
-------- -------- -------- -------
Fair value of plan assets at end
of year $298,372 $340,645 $ - $ -
-------- -------- -------- -------
Reconciliation of Funded Status
- -------------------------------
Funded status $(10,775)$ 42,393 $(23,308)$(18,541)
Unrecognized net actuarial
(gain) loss 5,897 (43,572) 2,362 (66)
Unrecognized prior service cost 6,487 4,834 1,942 1,438
Unrecognized transition asset (279) (1,009) - -
-------- -------- -------- --------
Net amount recognized $ 1,330 $ 2,646 $(19,004)$(17,169)
======== ======== ======== ========
Included in:
- ------------
Deferred charges $ 10,318 $ 10,759 $ - $ -
Accrued expenses - (938) - -
Intangible assets 1,250 - 1,492 -
Other noncurrent liabilities (10,238) (7,175) (20,496) (17,169)
-------- -------- -------- --------
Net amount recognized $ 1,330 $ 2,646 $(19,004)$(17,169)
======== ======== ======== ========
NOTE 12. 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, 2000 and 1999, the plans'
assets included Sequa stock with market values of $19,512,000 and
$28,926,000, respectively.
Assumptions used in accounting for all of Sequa's significant
domestic and foreign defined benefit plans are:
AT DECEMBER 31, 2000 1999 1998
- --------------- ---- ---- ----
Discount rate for obligations 7.75% 7.5% 6.5%
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, 2000 1999 1998
- ---------------------------- ---- ---- ----
Service cost $10,536 $12,320 $10,005
Interest cost 22,007 20,056 19,208
Expected return on assets (29,704) (26,718) (25,847)
Amortization of net transition amount (808) (770) (730)
Amortization of prior service cost 701 763 929
Recognized net gain (607) - (353)
------- ------- -------
Net periodic pension cost 2,125 5,651 3,212
Loss (gain) due to curtailments 1,419 240 (961)
------- ------- -------
Total amount reflected in earnings $ 3,544 $ 5,891 $ 2,251
======= ======= =======
Unfunded Supplemental
(Amounts in thousands) Retirement Plans
--------------------
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ---------------------------- ---- ---- ----
Service cost $ 437 $ (47) $ (76)
Interest cost 1,646 1,263 1,121
Amortization of prior service cost 269 210 211
Recognized net loss 55 5 -
------- ------- -------
Net periodic pension cost 2,407 1,431 1,256
Loss due to curtailments - 126 245
------- ------- -------
Total amount reflected in earnings $ 2,407 $ 1,557 $ 1,501
======= ======= =======
At December 31, 2000, the accumulated benefit obligation and fair
value of plan assets for the sole funded defined benefit plan
with accumulated benefit obligations in excess of plan assets
were $24,797,000 and $23,736,000, respectively. The accumulated
benefit obligation for the unfunded supplemental retirement plans
at December 31, 2000 was $20,496,000.
NOTE 12. 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 $6,297,000
in 2000, $5,805,000 in 1999 and $5,335,000 in 1998.
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, 2000 1999
- -------------------------------- ---- ----
Change in Benefit Obligation
- ----------------------------
Benefit obligation at beginning
of year $2,660 $3,027
Service cost 184 223
Interest cost 190 176
Actuarial gain (382) (702)
Plan amendments - 304
Participant contributions 245 192
Benefits paid (459) (560)
------ ------
Benefit obligation at end of year $2,438 $2,660
====== ======
Net periodic postretirement benefit cost includes the following
components:
Other
(Amounts in thousands) Postretirement Benefits
-----------------------
Year ended December 31, 2000 1999 1998
- -------------------------------- ---- ---- ----
Service cost $ 184 $ 223 $ 184
Interest cost 190 176 157
Amortization of net loss 92 145 123
Amortization of unrecognized prior
service cost (100) (127) (164)
Amortization of transition obligation 77 77 77
----- ----- -----
Net periodic postretirement benefit cost $ 443 $ 494 $ 377
===== ===== =====
NOTE 12. PENSION PLANS AND POSTRETIREMENT BENEFITS (cont'd)
The accumulated postretirement benefit obligation was determined
using a discount rate of 7.75% at December 31, 2000, 7.5% at
December 31, 1999 and 6.5% at December 31, 1998 and an average
health care cost trend rate of approximately 7.75%, 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 13. 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 October 30, 2000, the Board of Directors declared a
dividend distribution, pursuant to the adoption on that day of a
Rights Agreement, of one Right for each outstanding share of
Class A and Class B common stock. The distribution was payable
to holders of record on December 1, 2000. Each Right entitles
the registered holder to purchase from Sequa one one-thousandth
of a share of Series A Junior Participating Preferred Stock at an
exercise price of $200, subject to adjustment. The Rights become
exercisable on the "Distribution Date," which is the earlier of
(i) ten days after public announcement that a person or group
(subject to certain exceptions) acquires, has the right to
acquire or has commenced a tender offer for the beneficial
ownership of Class A and Class B common stock, and other voting
securities, that have one-third or more of the aggregate voting
power of all outstanding shares of voting stock or (ii) ten days
(or such later date determined by the Board of Directors in
certain circumstances) following the commencement or announcement
of an intention to make a tender or exchange offer which would
result in the acquisition of (or the right to acquire) one-third
or more of the aggregate voting power of all outstanding shares
of voting stock. The Rights are nonvoting, pay no dividends,
expire on October 31, 2010 and may be redeemed by the Company for
$.001 per Right at any time on or before the Distribution Date.
The Rights have no effect on earnings per share until they become
exercisable.
NOTE 13. CAPITAL STOCK (cont'd)
Once the Junior Preferred Stock is issued, in the event of
any merger, consolidation, combination or other transaction in
which shares of Class A and Class B common stock are exchanged
for or changed into other stock, securities, cash and/or other
property; each share of Junior Preferred Stock will be entitled
to receive 1,000 times the aggregate amount of stock, securities,
cash and/or other property into which or for which each share of
Class A and Class B common stock is changed or exchanged, subject
to certain adjustments.
At December 31, 2000, 4,321,430 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, 2000 1999 1998
- -------------------- ---- ---- ----
Class A common stock 233,739 240,032 215,104
Class B common stock 397,283 397,283 397,283
Preferred stock 383,990 383,990 383,990
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, 2000 and 1999, no cash
dividends were declared on Sequa Class A common shares or Class B
common shares.
NOTE 14. STOCK OPTIONS
Sequa has two incentive and nonqualified stock option plans in
effect: the 1988 Key Employees Stock Option Plan and the 1998 Key
Employees 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 Key Employees Stock Option
Plan, Sequa is authorized to grant to officers and other key
employees options to purchase up to a total of 950,000 shares of
Class A common stock. Authority to grant options under the 1988
Key Employees Stock Option Plan expired during 1998. The
NOTE 14. STOCK OPTIONS (cont'd)
following table summarizes the activity related to Sequa's stock
options for the three years ended December 31, 2000:
Weighted
Average
Options Price
------- -----
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
Granted 15,000 $37.00
Expired or Cancelled (18,700) $57.91
Exercised (367) $24.75
--------
OUTSTANDING AT DECEMBER 31, 2000 445,917 $57.20
========
EXERCISABLE AT
December 31, 1998 17,000 $33.54
December 31, 1999 143,134 $57.68
December 31, 2000 283,400 $57.79
AVAILABLE FOR FUTURE GRANT 520,950 -
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, 2000 1999 1998
- ----------------------------------- ---- ---- ----
NET INCOME
As reported $24,047 $22,067 $63,897
Pro forma 22,699 20,722 63,518
BASIC EARNINGS PER SHARE
As reported $2.12 $1.93 $6.01
Pro forma 1.99 1.80 5.97
DILUTED EARNINGS PER SHARE
As reported $2.12 $1.93 $5.87
Pro forma 1.99 1.80 5.83
NOTE 14. STOCK OPTIONS (cont'd)
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 are as follows:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------- ---- ---- ----
Expected life of option 4 years 4 years 4 years
Risk-free interest rate 6.25% 6.50% 4.55%
Expected volatility 35.40% 29.20% 22.20%
Expected dividend yield 0% 0% 0%
NOTE 15. 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, 2000 1999
- ---------------------------------- ---- ----
Cumulative translation adjustment $(37,545) $(16,453)
Unrealized loss on marketable
securities, net of tax benefits (218) -
-------- --------
$(37,763) $(16,453)
======== ========
NOTE 16. ACQUISITIONS AND DISPOSITIONS
In February 2001, Sequa completed the sale of the Caval Tool
Division of its Chromalloy Gas Turbine subsidiary for cash
proceeds of $36,000,000, subject to post-closing adjustments.
The sale resulted in a pre-tax gain of approximately $4,000,000.
In 2000, Sequa made four small niche acquisitions comprising
a specialty can forming manufacturer, a specialty chemical
distributor, a monopropellant rocket engine business and a
subcontractor of dryer equipment for the MEGTEC unit. The
purchase prices of these acquisitions totaled $8,977,000. 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 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
NOTE 16. ACQUISITIONS AND DISPOSITIONS (cont'd)
$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 and
operating income of $3,082,000 in 1998. 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 2000, Sequa recorded income of $1,013,000 related
to the final resolution of matters associated with the UK sale.
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.
NOTE 17. OTHER, NET
Other, net includes the following income (expense) items:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ---------------------------- ---- ---- ----
Discount expense on sale of
receivables $(7,493) $(2,290) $ -
Income (loss) on cash surrender
value of corporate-owned life
insurance (1,609) 1,047 986
Amortization of capitalized
debt issuance costs (1,087) (1,487) (1,220)
Letters of credit and commitment
fees (975) (1,104) (901)
Minority interest in a component
manufacturing operation 1,033 524 -
Adjustment to gain on sale of
a UK operation 1,013 - -
Gain on sale of a partial interest
in a component manufacturing
operation 862 - -
Gain on sale of assets, net 80 3,898 82
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 -
Uninsured loss - - (2,000)
Other 308 898 (171)
------- ------- --------
$(7,868) $ 9,309 $ (3,224)
======= ======= ========
NOTE 18. OPERATING LEASES
Certain businesses of Sequa utilize leased premises or equipment
under noncancellable 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 $23,534,000, $20,239,000 and
$17,260,000 in 2000, 1999 and 1998, respectively.
At December 31, 2000, future minimum lease payments under
noncancellable operating leases are as follows:
(Amounts in thousands)
2001 $15,271
2002 11,174
2003 8,412
2004 5,610
2005 4,160
After 2005 13,922
-------
$58,549
=======
NOTE 19. 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 19. 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, 2000 1999 1998
- ------------------------------ ---- ---- ----
Income before extraordinary item $24,047 $27,799 $63,897
Less: Preferred dividends (2,064) (2,064) (2,173)
------- ------- ------
Income available to common
stock--basic 21,983 25,735 61,724
Extraordinary loss - (5,732) -
------- ------- -------
Net income available to common
stock--basic 21,983 20,003 61,724
Convertible preferred stock
dividend requirements - - 2,173
------- ------- -------
Net income available to common
stock--diluted $21,983 $20,003 $63,897
======= ======= =======
Weighted average number of common
shares outstanding--basic 10,373 10,367 10,275
Conversion of convertible
preferred stock - - 599
Exercise of stock options 1 4 20
------- ------- -------
Weighted average number of common
shares outstanding--diluted 10,374 10,371 10,894
======= ======= =======
Basic earnings per share
Income before extraordinary item $ 2.12 $ 2.48 $ 6.01
Extraordinary loss - (.55) -
------- ------- -------
Net income $ 2.12 $ 1.93 $ 6.01
======= ======= =======
Diluted earnings per share
Income before extraordinary item $ 2.12 $ 2.48 $ 5.87
Extraordinary loss - (.55) -
------- ------- -------
Net income $ 2.12 $ 1.93 $ 5.87
======= ======= =======
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 2000 and 1999 because inclusion
would have had an anti-dilutive effect on EPS.
NOTE 20. 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, 2000 1999 1998
- --------------------------- ---- ---- ----
Noncash activities:
Acquisitions of businesses:
Fair value of assets acquired $13,210 $37,474 $85,572
Cash paid 8,977 25,827 40,662
------- ------- -------
Liabilities assumed $ 4,233 $11,647 $44,910
======= ======= =======
Contributions to joint ventures:
Total contributions $25,243 $33,834 $ 7,535
Cash paid 5,148 28,064 7,535
------- ------- -------
Noncash contributions $20,095 $ 5,770 $ -
======= ======= =======
Interest paid $56,585 $45,367 $52,195
NOTE 21. 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 21. 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 Sequa Chemicals, which
was sold in October 1998 and which produced a broad range of
chemicals primarily for domestic textile, paper, graphic arts and
building products markets.
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 21. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
Operations by Business Segment
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 2000 1999 1998
- --------------------------- ---------- ---------- ----------
AEROSPACE
Sales $ 764,730 $ 745,786 $ 782,339
Operating income 68,195 65,571 65,154
Total assets 761,967 704,037 612,543
Capital expenditures 52,428 49,603 50,007
Depreciation and amortization 38,092 38,811 37,982
PROPULSION
Sales $ 273,933 $ 276,561 $ 268,615
Operating income 10,012 6,293 13,415
Total assets 372,206 355,141 355,955
Capital expenditures 29,190 29,564 19,949
Depreciation and amortization 23,003 22,245 20,146
METAL COATING
Sales $ 226,628 $ 213,388 $ 204,314
Operating income 19,220 19,122 14,859
Total assets 137,672 135,654 132,953
Capital expenditures 6,139 8,779 15,416
Depreciation and amortization 7,957 7,714 7,919
SPECIALTY CHEMICALS
Sales $ 145,044 $ 160,621 $ 155,301
Operating income 16,780 23,359 22,565
Total assets 103,145 102,926 104,772
Capital expenditures 7,971 5,276 3,090
Depreciation and amortization 6,608 6,215 9,114
OTHER PRODUCTS
Sales $ 362,803 $ 314,814 $ 402,486
Operating income 19,239 11,808 22,103
Total assets 221,569 193,294 173,984
Capital expenditures 8,868 7,856 14,795
Depreciation and amortization 11,028 10,142 12,418
CORPORATE
Expenses $ (30,258) $ (31,694) $ (32,633)
Total assets (a) 134,505 180,646 243,940
Capital expenditures 315 304 267
Depreciation and amortization 1,929 2,029 1,742
TOTALS
Sales $1,773,138 $1,711,170 $1,813,055
Operating income 103,188 94,459 105,463
Total assets 1,731,064 1,671,698 1,624,147
Capital expenditures 104,911 101,382 103,524
Depreciation and amortization 88,617 87,156 89,321
(a) Includes cash, investments and net assets of discontinued
operations.
NOTE 21. 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, 2000 1999 1998
- ----------------------- ---- ---- ----
SALES
- -----
United States $ 992,271 $ 945,120 $1,038,436
United Kingdom 96,129 92,758 106,526
Italy 86,644 88,048 95,335
France 81,218 83,380 82,577
Germany 69,220 55,658 52,087
Japan 51,166 56,340 50,651
Canada 47,543 39,950 31,595
Spain 45,189 42,518 36,383
Other countries 303,758 307,398 319,465
---------- ---------- ----------
Total $1,773,138 $1,711,170 $1,813,055
========== ========== ==========
AT DECEMBER 31, 2000 1999 1998
- ------------------- ---- ---- ----
LONG-LIVED ASSETS
- -----------------
United States $ 658,770 $ 661,516 $ 640,103
United Kingdom 68,782 73,641 77,336
Other countries 60,839 53,658 41,055
---------- ---------- ----------
Total $ 788,391 $ 788,815 $ 758,494
========== ========== ==========
No single commercial customer accounted for more than 10% of
consolidated sales in any year. The largest single contract with
any one US Government agency accounted for approximately 2% of
sales in 2000 and 1% of sales in 1999 and 1998. Prime and
subcontracts with all government agencies accounted for
approximately 12% of sales in 2000, 10% of sales in 1999 and 9%
of sales in 1998.
NOTE 22. 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. Previously included in
this class of litigation was an action commenced in July 1995 by
United Technologies Corporation (UTC), the parent of Pratt &
Whitney, against Chromalloy Gas Turbine Corporation (Chromalloy)
in federal district court in Delaware (the District Court). On
February 20, 2001, Chromalloy and UTC entered into
NOTE 22. CONTINGENCIES (cont'd)
stipulations which resolved completely all remaining issues in
this matter in the District Court. The effect of these
stipulations is that all claims against Chromalloy have either
been dismissed or resolved and will not be appealed by UTC
(although Chromalloy has retained its appellate rights on its
claims against UTC).
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 23. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Amounts in thousands, except per share data)
2000 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- -------- --------
Sales $430,642 $449,689 $432,986 $459,821 $1,773,138
Cost of sales 346,313 358,500 350,009 368,520 1,423,342
Operating income 22,581 25,676 27,546 27,385 103,188
Net income $ 4,222 $ 5,442 $ 5,100 $ 9,283 $ 24,047
======== ======== ======== ======== ==========
Basic and diluted earnings per share $ 0.36 $ 0.47 $ 0.44 $ 0.85 $ 2.12
======== ======== ======== ======== ==========
1999 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- --------
Sales $410,050 $436,058 $419,482 $445,580 $1,711,170
Cost of sales 330,464 348,567 334,249 358,067 1,371,347
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
======== ======== ======== ======== ==========
The following unusual items are included in the quarterly financial information:
Operating income for the fourth quarter of 2000 includes a $2,987,000 charge related to the Breed
settlement. The after-tax effect of the charge ($1,942,000) is to reduce basic earnings per share by
$0.19.
Net income for the fourth quarter of 2000 benefited from a significantly lower tax rate largely driven
by the following three factors and their related impact on basic earnings per share: the reversal of
income tax reserves no longer required due to the completion of a tax audit at a foreign unit ($0.22);
higher than previously forecasted pre-tax income ($0.09); and a lower than expected valuation allowance
at a French subsidiary ($0.05).
Operating income for the fourth quarter of 1999 includes a $1,500,000 provision 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 charge is to reduce basic earnings per share by $0.09.
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 pages 14 and 15 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, 2000. Accordingly,
the information required by Part III (Item 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. 37
Consolidated Balance Sheet as of December 31,
2000 and 1999. 38-39
Consolidated Statement of Income for the three
years ended December 31, 2000. 40
Consolidated Statement of Cash Flows for the three
years ended December 31, 2000. 41
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 2000. 42
Notes to Consolidated Financial Statements. 43-76
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 the Registrant
dated as of February 15, 1985, as amended by the
Certificate of Amendment of Restated Certificate of
Incorporation dated as of April 24, 1986, as amended by
two Certificates of Amendment of Restated Certificate of
Incorporation each dated as of December 19, 1986, as
amended by the Certificate of Amendment of Certificate
of Incorporation dated May 7, 1987, as amended by the
Certificate of Change of Registered Agent and Registered
Office dated October 6, 1989, as amended by the
Certificate of Amendment of Certificate of Incorporation
dated June 4, 1999, and the Certificate of Designation
dated December 22, 1986 (with respect to the $5.00
Cumulative Convertible Preferred Stock of the
Registrant) and the Certificate of Designation,
Preferences and Rights of Series A Junior Participating
Preferred Stock of the Registrant dated November 13,
2000, filed herewith.
3.2 - Restated and Amended (as of August 26, 1993) By-laws of
Sequa, filed herewith.
3.3 - Amendment to By-laws of Sequa effective as of October
26, 2000, filed herewith.
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 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).
4.3 - 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).
4.4 - 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).
4.5 - 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).
4.6 - 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).
4.7 - 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 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 (incorporated by reference to Exhibit 10.7 of
Sequa's Annual Report on Form 10-K, File No. 1-804) for
the year ended December 31, 1999, filed on March
28,2000).
10.8 - Third Amendment to the Receivables Purchase Agreement
constituting Exhibit 10.5 hereto dated as of May 15,
2000 (incorporated by reference to Exhibit 10.3 of
Sequa's Quarterly Report on Form 10-Q, File No. 1-804,
for the quarter ended June 30, 2000, filed on August 14,
2000).
10.9 - Fourth Amendment to the Receivables Purchase Agreement
constituting Exhibit 10.5 hereto dated as of November 8,
2000, filed herewith.
10.10 - 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).
10.11 - 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).
10.12 - Rights Agreement, dated as of October 30, 2000, between
Sequa and The Bank of New York, as Rights Agent, filed
herewith.
COMPENSATORY PLANS OR ARRANGEMENTS
10.13 - 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).
10.14 - Amendment No. 1 dated as of May 1, 1998 to 1998 Key
Employees Stock Option Plan (incorporated by reference
to Exhibit 10.1 of Sequa's Quarterly Report on Form 10-
Q, File No. 1-804, for the quarter ended March 31, 2000,
filed on May 12, 2000).
10.15 - Amendment No. 12 dated as of March 30, 2000 to 1998 Key
Employees Stock Option Plan (incorporated by reference
to Exhibit 10.2 of Sequa's Quarterly Report on Form 10-
Q, File No. 1-804, for the quarter ended March 31, 2000,
filed on May 12, 2000).
10.16 - 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).
10.17 - 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).
10.18 - Supplemental Executive Retirement Plan II, as Amended
and Restated Effective January 1, 2000 (incorporated by
reference to Exhibit 10.4 of Sequa's Quarterly Report on
Form 10-Q, File No. 1-804, for the quarter ended
September 30, 2000, filed on November 14, 2000).
10.19 - Supplemental Executive Retirement Plan III, as Amended
and Restated Effective January 1, 2000 (incorporated by
reference to Exhibit 10.5 of Sequa's Quarterly Report on
Form 10-Q, File No. 1-804, for the quarter ended
September 30, 2000, filed on November 14, 2000).
COMPENSATORY PLANS OR ARRANGEMENTS (cont'd)
10.20 - 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).
10.21 - 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).
10.22 - 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).
10.23 - 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).
10.24 - 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
COMPENSATORY PLANS OR ARRANGEMENTS (cont'd)
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).
10.25 - 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).
10.26 - 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).
10.27 - 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).
10.28 - Employment Agreement, dated as of March 1, 1999, by and
between William P. Ksiazek and Sequa (incorporated by
reference to Exhibit 10.21 of Sequa's Annual Report on
Form 10-K, File No. 1-804), for the year ended December
31, 1999, filed on March 28, 2000).
10.29 - Agreement, dated February 3, 1999, by and between Gerald
S. Gutterman and Sequa (incorporated by reference to
Exhibit 10.22 of Sequa's Annual Report on Form 10-K,
File No. 1-804), for the year ended December 31, 1999,
filed on March 28, 2000).
10.30 - Employment Agreement, dated as of December 16, 1999, by
and between Howard Leitner and Sequa (incorporated by
reference to Exhibit 10.23 of Sequa's Annual Report on
Form 10-K, File No. 1-804), for the year ended December
31, 1999, filed on March 28, 2000).
End of Compensatory Plans or Arrangements
21.1 - List of subsidiaries of Sequa, filed herewith.
23.1 - Consent of Independent Public Accountants, filed
herewith.
(b) Reports on Form 8-K
-------------------
Registrant filed a Current Report on Form 8-K dated
October 30, 2000 with respect to the dividend
distribution of rights to the outstanding shares of
Class A and Class B Common Stock of Sequa. (Items 5 and
7(c)).
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 16, 2001 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 16, 2001.
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: /S/ LEON D. BLACK 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: /S/ RICHARD S. LeFRAK Director
- -----------------------------
Richard S. LeFrak
By: /S/ FRED R. SULLIVAN Director
- -----------------------------
Fred R. Sullivan
By: /S/ GERALD TSAI Director
- -----------------------------
Gerald Tsai, Jr.