Back to GetFilings.com
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, 1993
Commission file number 1-804
SEQUA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-188-5030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Park Avenue, New York, New York 10166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 986-5500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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
10-1/2% Senior Subordinated Notes
due 1998 New York Stock Exchange
9-5/8% Senior Notes, Due
October 15, 1999 New York Stock Exchange
8-3/4% Senior Notes, Due
December 15, 2001 New York Stock Exchange
9-3/8% Senior Subordinated Notes,
Due December 15, 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of registrant's voting stock (Common and
Preferred) held by nonaffiliates as of March 17, 1993 was
$247,005,565.
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock:
Class Outstanding at March 17, 1993
Class A Common Stock, no par value 6,223,629
Class B Common Stock, no par value 3,430,978
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its annual
meeting of stockholders scheduled to be held on May 12, 1994 are
incorporated herein by reference into Part III.
SEQUA CORPORATION
FORM 10-K
* * * * * *
PART I
ITEM 1. BUSINESS
(a) General development of business. Sequa Corporation is a
diversified industrial company that produces a broad range of
products and provides a broad range of services through operating
units in four industry segments: Aerospace, Machinery and Metal
Coatings, Specialty Chemicals, and Professional Services and Other
Products. Sequa Corporation, incorporated in 1929 and formerly
known as Sun Chemical Corporation, is hereinafter sometimes
referred to as the "Registrant" and, together with its consolidated
subsidiaries, is hereinafter sometimes referred to as the "Company"
or "Sequa."
Divestitures
During 1991, the Company adopted a formal plan to divest Sequa
Capital's investment portfolio and to sell the Valley Line and
Sabine Towing and Transportation operations in the Transportation
segment, as well as the engineered services and the men's apparel
units in the Professional Services and Other Products segment.
During 1992, the Company completed the asset sales of Valley Line,
Sabine Towing and Transportation and the Gemoco division of
engineered services and in 1993, the Sturm unit of engineered
services was sold. As of December 31, 1993, approximately
$329,000,000 of Sequa Capital's investment portfolio has been sold,
written down or otherwise disposed of since the Company adopted a
formal plan to divest the portfolio. Efforts continue to divest
the men's apparel unit and to liquidate the remaining Sequa Capital
investment portfolio.
On December 30, 1993, the Company sold the stock of ARC
Professional Services for gross cash proceeds of $59.9 million, and
the purchaser assumed $4.5 million of ARC Professional Services'
debt. The sale resulted in a pre-tax gain of $12.4 million. Also
during 1993, Northern Can Systems' two can making facilities were
sold for gross cash proceeds of $15.0 million.
(b) Financial information about industry segments. Segment
information is included in Note 18 to the Consolidated Financial
Statements on Page 55 of this Annual Report on Form 10-K and is
hereby incorporated by reference.
(c) Narrative description of business. The following is a
narrative description of the business segments of Sequa:
Aerospace
The Aerospace segment includes three operating units: Gas
Turbine, ARC Propulsion and the Kollsman division.
Gas Turbine. The largest individual operating unit of the
Company, Gas Turbine, is a leader in the development and use of
advanced metallurgical and other processes to manufacture, repair
and coat blades, vanes and other components of gas turbine engines.
The unit serves all major jet engine models used by the global
commercial airline market. The Company believes that the
leadership position of its Gas Turbine operations is largely
attributable to the effectiveness of its continuing development
efforts on new and improved metallurgical coating, manufacturing
and repair processes, and its responsiveness to customer service
requirements.
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, the Company has continued to invest
steadily 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 works in close cooperation with the manufacturers of jet
engines (including Pratt & Whitney, General Electric and Rolls
Royce) in connection with the design of new engines, the upgrading
of old designs and the development of repair processes and
procedures. 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.
ARC Propulsion. ARC Propulsion, a supplier of solid rocket
fuel propulsion systems since 1949, is a leading developer and
manufacturer of advanced rocket propulsion systems, gas generators
and auxiliary rockets, and engages in research and development
relating to new rocket propellants and advanced materials. For the
military contract market, ARC Propulsion produces propulsion
systems for tactical weapons, and for space applications, ARC
Propulsion produces small liquid fueled rocket engines designed to
provide attitude and orbit control for a number of satellite
systems worldwide.
ARC Propulsion's strategy is to pursue opportunities to develop
products for commercial markets in order to reduce its reliance on
defense-related business. While maintaining its traditional
position as a supplier of solid propellant rocket motors to the
military, ARC Propulsion has initiated several commercial market
ventures, including Bendix Atlantic Inflator Company (BAICO), a
fifty-fifty joint venture with AlliedSignal Inc. to produce airbag
inflator systems.
Kollsman. Kollsman consists of three units: the military
systems unit, a government contract supplier of electro-optical and
electronic systems for military weapons; the avionics products
unit, a designer and manufacturer of aircraft instruments and
related test equipment; and Kollsman Manufacturing Company, Inc.
(KMC), a separate subsidiary that produces medical diagnostic
instrumentation.
Machinery and Metal Coatings Segment
The Company's Machinery and Metal Coatings segment is composed
of Precoat Metals, Sequa Can Machinery and Materiels Equipements
Graphiques. The Company recently realigned its Rutherford
Machinery and Standun Canforming Systems operations into Sequa Can
Machinery as part of a strategy to improve the utilization of its
assets through increased efficiencies and the reduction of costs.
Precoat Metals. The largest individual unit of the segment,
Precoat Metals is a leader in the application of protective
coatings to continuous steel and aluminum coil. 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 and
agricultural 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 two-piece
metal cans and can lids. In addition, the division is establishing
a presence in the truck trailer and appliance markets as a supplier
of pre-painted steel for use in trailer panels and as an exterior
wrap on air conditioners and for office furniture. Precoat's
strategy is to expand its existing market share in building
products and to further its penetration of the container industry
and other growing markets.
Sequa Can Machinery. Rutherford and Standun design and
manufacture equipment for the two-piece can industry.
Rutherford is the world's leading manufacturer of equipment to
coat and decorate two-piece beverage cans. With an installed base
of approximately 700 machines, Rutherford has successfully
developed a retrofit business to upgrade older equipment to match
the technical standards of newer lines. At the same time, 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
2,000 cans per minute, applying an even base coat and printing
crisp, clear images in up to six colors.
The Standun line of can forming equipment includes cupping
presses, which punch the cup of a can from a coil of metal, and
bodymakers, which form the shallow cup into the shape of a two-
piece beer, soft drink or food can. The equipment operates at high
speed and within close tolerances.
Materiels Equipements Graphiques (MEG). MEG supplies equipment
for the web offset printing industry, including dryers, chill
rolls, paper guides, in-feeds and related equipment for high-speed
web presses. MEG's products include a line of advanced flying
pasters, devices that spin a fresh roll, or "web" of paper, to
press speed and splice it to an expiring roll without interrupting
press operation.
Specialty Chemicals Segment
The two operations that make up the Company's Specialty
Chemicals segment, Warwick and Sequa Chemicals, serve distinctly
different markets with performance-enhancing additives for a broad
range of end products.
Warwick. The larger of the two businesses in the Specialty
Chemicals segment, Warwick is a leading producer and supplier of
TAED, a bleach activator for powdered laundry detergent products.
TAED is used in perborate- or oxygen-based bleaching systems to
increase the cleaning power of detergent at low wash temperatures.
These bleaching systems, as opposed to the chlorine-based bleaches
traditionally used in the U.S., are used in international markets,
primarily in Europe.
Sequa Chemicals. Sequa Chemicals manufactures high-quality
performance-enhancing chemicals used by the textile and graphic
arts industries. Sequa Chemicals supplies the woven and knit
fabric market with permanent press resins, softeners, water
repellents, soil release agents and other chemicals to improve the
look, feel and durability of clothing and other textiles. The
Company also produces specialty emulsion polymers incorporated into
non-woven fabrics for a variety of end uses, including medical
drape, fiberfill and filters. For the paper industry, Sequa
Chemicals produces three key synthetic coating additives for coated
papers. In addition, Sequa Chemicals has developed and patented a
unique series of specialty polymers currently marketed to the
building products industry for use in roofing mat, ceiling tiles,
wall board and carpet tiles.
Professional Services and Other Products Segment
The Professional Services and Other Products segment -- which
includes the ARC Professional Services unit that was sold in
December 1993 -- also includes Casco Products, which manufactures
automotive cigarette lighters, power outlets and electronic sensing
devices; Northern Can Systems, which manufactures easy-open steel
lids for cans; and Centor, a real estate holding company which owns
and operates, among other properties, the Chromalloy Plaza
Building.
Casco Products (Casco). Casco, which has been serving the
automotive products market since 1921, is a major manufacturer of
automotive cigarette lighters and the leading supplier in North
America to Chrysler, Ford, General Motors and Honda. In addition,
the unit has begun operating in the United Kingdom to further its
penetration of the European automotive markets.
Casco offers a growing line of automotive accessories, led by
a series of electronic devices to monitor automotive fluid levels.
These products are presently used as gauges for engine oil and
engine coolant and may also be used to monitor brake, transmission
and power steering fluids. Casco's other products include
auxiliary power outlets and electronic control modules.
Northern Can Systems (NCS). NCS supplies the domestic and
international food processing market with easy-open lids for cans.
Fabricated from steel, easy-open ends are gaining market share for
use on packs for pet foods, snacks, fruits and vegetables. When
made as pour-spout lids, which incorporate a pull-tab, easy-open
ends are used for beverages, including nutritional drinks.
Principal Products
The percentage of Sequa's consolidated sales and revenues
contributed by each class of similar products and services, which
accounted for 10 percent or more of such consolidated sales and
revenues during the last three fiscal years, is as follows:
Year Ended December 31,
1993 1992 1991
Gas Turbine 42% 46% 46%
ARC Propulsion 9% 11% 12%
Markets and Methods of Distribution
Sequa markets its gas turbine engine component manufacturing
and repair services primarily to commercial and military aircraft
customers and to users of industrial gas turbines worldwide. These
and other products of Chromalloy Gas Turbine Corporation are
marketed directly and through sales representatives working on a
commission basis.
A portion of the sales of Gas Turbine's operations is made
pursuant to contracts with various agencies of the United States
Government, particularly the Department of the Air Force, with
which Chromalloy has had a long-term relationship.
Sequa markets its electronic and electro-optical systems and
its avionics products to both commercial and military customers.
The electro-optical systems, and related spares and repair work,
are sold primarily under government contracts to the U.S. military,
and to foreign governments. KMC products are sold directly to
medical equipment suppliers.
Sequa markets its rocket propulsion systems generally on a
subcontract basis under various defense programs of the United
States Government. Programs to which the Company contributes and
which are presently important to the rocket propulsion business
include the Multiple Launch Rocket System, the U.S. Army Tactical
Missile System, the booster rocket for the U.S. Navy's Tomahawk
cruise missile and gas generators for the Trident II missile's
post-boost control system. In addition, ARC Propulsion has a
number of advanced programs in various stages of development and
qualification, including ERINT, an anti-missile missile that is a
prime candidate for the next generation Patriot mission.
By their terms, government contracts are subject to
termination by the government either for its convenience or for
default by the contractor. Some government contracts are secured
through competitive bidding. The largest single government agency
contract accounted for 2% of Sequa's sales and revenues in 1993, 2%
in 1992 and 4% in 1991. Prime contracts and subcontracts with all
government agencies accounted for 22%, 23% and 27% of Sequa's sales
and revenues in 1993, 1992 and 1991, respectively. The anticipated
impact of defense spending levels on the Company's 1994 sales and
revenues and operating income is set forth in the Management's
discussion and analysis of financial condition and results of
operations on pages 18 and 20 of this Annual Report on Form 10-K
and is hereby incorporated by reference.
Sequa's Machinery and Metal Coatings Segment sells its
machinery products directly to the container and food industries,
as well as to the web printing industry. The metal coatings
business sells its coating services to regional steel and aluminum
producers, building product manufacturers, merchant can makers and
other participants in the food industry.
The Specialty Chemicals Segment sells textile chemicals and
emulsion polymers directly to manufacturers of fabric for clothing
and other products. Paper chemicals are sold directly to paper
mills and detergent chemicals are sold to detergent manufacturers.
The automotive products subsidiary sells cigarette lighters
and various electronic monitoring devices directly to the
automotive industry.
Competition
There is significant competition in the industries in which
Sequa operates, and, in several cases, it competes with 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 equipment, one of the
largest manufacturers of permanent-press textile finishing resins,
a leading supplier of aircraft barometric altitude reporting
instruments for military and commercial air transport aircraft, and
the largest domestic supplier of automotive cigarette lighters 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 manufacture, repair and coat blades, vanes and other components
of gas turbine engines used for military and commercial jet
aircraft and for industrial purposes. Gas Turbine's divisions
operate in highly competitive environments and compete for repair
service business with a number of other major companies, including
the major turbine engine manufacturers who often specify to their
customers that vendors such as Gas Turbine must be approved by such
manufacturers 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 the new generation of flight engines now coming into
widespread use.
The impact on Gas Turbine of the government investigations of
the Orangeburg, New York facility is set forth in the Management's
discussion and analysis of financial condition and results of
operations on pages 18, 20, 24 and 25 of this Annual Report on Form
10-K and is hereby incorporated by reference. The loss of approval
by one of the major jet engine manufacturers to manufacture or
repair components for such producer's engines could have an adverse
effect on Gas Turbine. In such event, however, Gas Turbine would
seek to replace any approvals lost by obtaining approvals with
respect to the same components directly from the Federal Aviation
Administration (FAA) or, alternatively, the customer.
Sequa's rocket propulsion systems 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. The
Company's ability to compete is enhanced by the needs of the U.S.
Government to have alternative sources of supply under these
contracts.
Sequa's Kollsman unit competes in each of its markets with a
number of other manufacturers, some of which are larger and have
greater resources than Kollsman. This unit competes on the basis
of technical competence, quality and price.
Sequa's Precoat Metals operation, a leader in coating coils of
steel for metal building panels, is also the most fully integrated
supplier of coated metal coil stock in the United States. Sequa's
cylindrical can printing and can forming equipment operations are
world leaders in their markets. MEG is Europe's leading supplier
of auxiliary press equipment.
Sequa's automotive products manufacturer is the nation's
leading producer of cigarette lighters and holds a commanding share
of both the domestic original equipment market and the auto
aftermarket. Sequa's easy-open can lid manufacturing business
competes with a number of larger and well established entities
which have substantially greater financial and other resources.
Raw Materials
The various segments of Sequa's business use a wide variety of
raw materials and supplies. Generally, these have been available
in sufficient quantities to meet requirements, although occasional
shortages have occurred.
Seasonal Factors
Overall, Sequa's business is not considered seasonal to any
significant extent.
Patents and Trademarks
The Company 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. The Company
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, trademark or any related group
thereof. It regards its technical and managerial knowledge and
experience as more important to its business.
Backlog
The businesses of Sequa for which backlogs are significant are
the Kollsman division, the Turbine Airfoil, Caval Tool and Castings
units of Gas Turbine, and the ARC propulsion operations of the
Aerospace segment; and the Can Machinery and MEG operations of the
Machinery and Metal Coatings segment. The aggregate dollar amount
of backlog in these units at December 31, 1993 was $369,700,000
($435,200,000 at December 31, 1992). The year-to-year decline is
a reflection of the overall weakness in the domestic defense and
the worldwide airline industries. At December 31, 1992, the
professional services unit of ARC had $120,500,000 of backlog which
is excluded from the above comparison.
Research and Development
Research and development costs, charged to expense as
incurred, amounted to approximately $17,166,000 in 1993,
$17,557,000 in 1992, and $19,482,000 in 1991.
The reduction in research and development costs reflects a
focusing of the Company's research and development effort with the
objective of realizing improved returns on those projects which are
undertaken and discontinuing expenditures in areas the Company
believes will not be profitable due to the lack of sufficient
future commercial opportunities. Reductions primarily occurred at
the units serving the domestic defense markets, while expenditures
increased at Sequa Can Machinery. It is not anticipated that this
approach will affect the Company's ability to be competitive.
Costs relating to customer-sponsored research and development
activities are not material.
Environmental Matters
The Company 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 the Company or to which the Company may have sent
hazardous wastes. The Company 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 the Company. 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 tort action was filed by
residents of Dublin against the Company 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. The Company expects that a trial date will
be scheduled in 1994.
The Pennsylvania Department of Environmental Regulation
entered into a Consent Decree with the Company in 1990 providing
for the performance of a remedial investigation and feasibility
study with respect to the same alleged groundwater contamination in
Dublin. The U.S. Environmental Protection Agency (EPA) also placed
the site on the Superfund List in 1990 and, in conjunction
therewith, entered into a Consent Agreement with the Company on
December 31, 1990. EPA estimates that the cost of the interim
remedy will be less than $4 million. The investigation for the
final remedy is still in progress.
The State of Florida issued an Administrative Order requiring
TurboCombustor Technology, Inc. (TCT), a subsidiary of Chromalloy
Gas Turbine Corporation, 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. The Company has
negotiated a settlement with the City of Stuart whereby it would
contribute its ratable share of the capital and operating costs for
the groundwater treatment system. The Company 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.
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 on
February 14, 1994, to undertake the remedial investigation and
feasibility study relating to the alleged contamination in the
vicinity of the former Gas Turbine site.
In connection with the sale of the Graphic Arts Materials
Segment, now known as Sun Chemical Corporation, to Dainippon Ink
and Chemicals, Inc. (DIC) in December 1986, the Company has
continuing contingent liability for all off-site environmental
claims which relate to activities prior to the sale. In connection
therewith, the Company provided a letter of credit in the original
amount of $25.0 million in favor of DIC as security for said
obligation for a period of ten years from date of sale. The amount
of this letter of credit is adjusted each year. It is increased by
an interest factor and decreased by the amount actually paid by the
Company for related off-site environmental claims. In late 1993,
the agreement was amended with the amount of the letter of credit
being reduced to $15.0 million, subject to annual adjustment, and
the obligation to provide said letter was extended three years to
December 1999.
On April 3, 1989, the Company and Gas Turbine instituted a law
suit in the Delaware Superior Court against forty-one of the
Company's comprehensive general liability insurance carriers (the
Defendants). The Company and Gas Turbine seek to enforce their
rights under insurance policies sold to them by the Defendants in
connection with various environmental actions that have been
brought against the Company and Gas Turbine and are seeking
indemnity and defense costs with respect to all Superfund actions
and third-party environmental litigation.
The Company has identified cost estimates for all sites it is
involved with and has established reserves as required by generally
accepted accounting principles. The Company anticipates that
actual cash expenditures related to these sites will be in the
range of $6 million to $12 million in 1994 and in the $5 million to
$7 million range for each of the following several years.
Anticipated expenditure levels for 1994 reflect clean-up costs on
sites where work will begin earlier than previously expected.
Actual cash expenditures were $7.7 million in 1993, $6.2 million in
1992, and $4.7 million in 1991.
Employment
At December 31, 1993, Sequa employed approximately 10,250
persons in its continuing operations of whom approximately 2,000
were covered by union contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 1993 was:
Approximate
Segment Number of Employees
Aerospace 8,100
Machinery and Metal Coatings 950
Specialty Chemicals 650
Professional Services and Other Products 450
Corporate 100
Total 10,250
The Company considers its relations with employees to be
generally satisfactory. Sequa maintains a number of employee
benefit programs, including life, hospitalization, surgical,
dental, and major medical insurance, and a number of 401(k) and
pension plans.
(d) Foreign Operations. Sequa's foreign operations, spread
primarily throughout Europe, include Gas Turbine operations within
its Aerospace Segment; detergent chemicals operations included in
the Specialty Chemicals Segment; the auxiliary press equipment
supplier in the Machinery and Metal Coatings Segment; and an
automotive products operation in the United Kingdom in the
Professional Services and Other Products Segment. These operations
consist primarily of wholly-owned foreign subsidiaries. Sales and
revenues, operating earnings and identifiable assets attributable
to foreign operations, and export sales, are set forth in Note 18
to the Consolidated Financial Statements on page 56 of this Annual
Report on Form 10-K and is incorporated herein by reference.
ITEM 2. PROPERTIES
Aerospace
The Chromalloy Gas Turbine Corporation operates over 50 plants
in fifteen states and eight foreign countries, primarily in Europe,
which have aggregate floor space of approximately 4,600,000 square
feet, of which approximately 2,300,000 square feet is owned and
approximately 2,300,000 square feet is leased. The leases covering
the leased facilities in this business have various expiration
dates and some have renewal or purchase options.
Rocket propulsion operations lease a 1,014-acre manufacturing
facility in Camden, Arkansas. The Camden lease, which has various
renewal options, expires in 1998. The Company owns 12 acres and an
89,000 square foot office and manufacturing complex in Gainsville,
Virginia. An additional 189,000 square feet (of which 120,000
square feet is sublet) is leased for administrative and
manufacturing purposes in Alabama, California and Virginia. The
liquid propulsion division leases a 101,000 square foot facility in
Niagara, New York. The Company also owns 2,430 acres of land in
Orange County, Virginia, which has been developed for use in the
propellant business. An additional 38,000 square feet is owned in
Alexandria and is used for administrative purposes.
The Kollsman operation owns two plants in New Hampshire with
aggregate floor space of 405,000 square feet and leases another
facility in New Hampshire with aggregate floor space of 91,000
square feet where various production, administrative, warehousing
and technical services are performed. This business also owns one
23,000 square foot manufacturing facility in Wichita, Kansas and
leases 6 domestic facilities aggregating approximately 55,000
square feet in which sales, repairs, and warehousing operations are
conducted.
Facilities in this segment are suitable and adequate for the
business. Gas Turbine facilities serving the commercial repair
market operate at a higher utilization rate than facilities serving
either the original jet engine manufacturers or the military.
Capital spending plans for the operations in this segment are
primarily designed to keep up with current technology or to meet
specific requirements for various government or commercial
contracts.
Machinery and Metal Coatings
The can forming and decorating operations own two plants in the
United States with aggregate floor space of 228,000 square feet and
lease one small warehouse facility of approximately 5,000 square
feet. In Europe, through the segment's auxiliary press equipment
supplier, MEG, the Company owns a plant with aggregate floor space
of approximately 57,000 square feet. MEG also leases two sales
offices and owns a storage facility in Europe with a total of
20,000 square feet and leases a 1,000 square foot sales office in
Singapore. The Precoat Metals operation owns four manufacturing
facilities in Missouri, Illinois and Texas, with a total of 500,000
square feet of manufacturing and office space. In June 1993, the
division broke ground for construction of a new 150,000 square foot
facility in Mississippi designed to increase capacity in the south,
to enhance customer service and to free capacity at existing
locations. An additional 56,000 square feet of warehouse space is
leased in Illinois and Texas.
The properties in this segment are suitable and adequate for
the business presently being conducted. Precoat Metals facilities
are functioning at a high level of utilization and the can forming
and decorating operations are functioning at a moderate level of
utilization. The 1994 capital spending plans call for the
finalization of the new metal coatings facility in Mississippi.
Specialty Chemicals
The Specialty Chemicals segment owns one plant situated on 86
acres in Chester, South Carolina with aggregate floor space of
160,000 square feet in addition to a 22,000 square foot leased
warehouse also in Chester. The segment owns two plants in the
United Kingdom with aggregate floor space of 223,000 square feet on
approximately 43 acres of land and leases 8,000 square feet of
office and warehouse space in five separate locations in France,
Spain, the United Kingdom and Italy.
Facilities in this segment are adequate and suitable for the
business being conducted. They operate at a high utilization rate.
Capital spending plans call for capacity increases and for
installation of equipment required to meet or exceed environmental
regulations.
Professional Services and Other Products
The automotive products subsidiary, Casco Products, owns a
205,000 square foot plant in Connecticut and leases a 1,600 square
foot sales office in Detroit, Michigan. In June 1994, Casco will
begin to relocate to a new 168,000 square foot leased facility also
located in Connecticut. In addition, Casco Ltd. leases 8,700
square feet of manufacturing, warehouse and office space in the
United Kingdom. NCS owns a manufacturing facility in Ohio with
floor space of 90,000 square feet.
The Centor Company, a wholly-owned subsidiary, owns and
operates the Chromalloy Plaza Building, a modern 18-story office
building in Clayton, Missouri with approximately 284,000 square
feet of rentable office and commercial space. Centor also owns and
rents a manufacturing facility and a warehouse in Wisconsin with
aggregate floor space of 185,000 square feet as well as owning 10
smaller properties that are either leased to third parties and/or
held for sale.
Facilities in this segment are adequate. At NCS, utilization
continues to be below 50%, but management anticipates that this
will improve.
Corporate
The Company leases 58,000 square feet of corporate office space
in New York, New York and Hackensack, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
Sequa is involved in a number of claims, lawsuits and
proceedings (environmental and otherwise) which arose in the
ordinary course of business. Additional information on
environmental matters is covered in the Environmental Matters
section on pages 10 through 12 of this Annual Report on Form 10-K
and is hereby incorporated by reference.
Other litigation is pending against the Company involving
allegations that are not routine and include, in certain cases,
compensatory and punitive damage claims. Included in this other
class of litigation is an arbitration proceeding that was formally
commenced in 1992 to resolve a dispute between the Egyptian Air
Force and Chromalloy Gas Turbine. In the damage portion of the
arbitration hearing in October 1993, Chromalloy Gas Turbine claimed
$29.6 million in damages (which includes $17.5 million of net
assets in the Company's Consolidated Balance Sheet) and the
Egyptian Air Force counterclaimed for $46.5 million in damages.
The ultimate legal and financial liability of the Company 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 such matters, its
experience to date and discussions with counsel, the ultimate
outcome of these contingencies, net of liabilities already accrued
in the Company's Consolidated Balance Sheet, is not expected to
have a material adverse effect on the results of operations or
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 closing 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
1993:
First Quarter....... 32 7/8 26 33 7/8 26 3/4
Second Quarter...... 30 18 32 1/2 18
Third Quarter....... 33 1/4 27 3/4 33 3/4 28 7/8
Fourth Quarter...... 34 3/8 30 1/2 34 1/2 30 1/4
1992:
First Quarter....... 51 41 3/8 57 3/4 45 1/2
Second Quarter...... 44 1/4 36 1/4 55 1/2 47 1/4
Third Quarter....... 42 36 3/4 50 1/2 45 3/8
Fourth Quarter...... 37 1/2 29 1/8 45 3/8 30 1/4
(b) Holders.
Shares of Sequa Class A common stock and Sequa Class B common
stock are listed on the New York Stock Exchange. There were
approximately 3,350 holders of record of the Sequa Class A common
stock (plus 360 holders of unexchanged shares) and approximately
780 holders of record of the Sequa Class B common stock (plus 110
holders of unexchanged shares) at March 17, 1994.
(c) Dividends.
During the year ended December 31, 1993, Sequa declared two
quarterly dividends of $.15 per share, or $.30 per share for the
year, on Sequa Class A common shares and two quarterly dividends of
$.125 per share, or $.25 per share for the year on Sequa Class B
common shares.
During the year ended December 31, 1992, Sequa declared four
quarterly dividends of $ .15 per share, or $ .60 per share for the
year, on the Sequa Class A common stock and four quarterly
dividends of $ .125 per share, or $ .50 per share for the year, on
the Sequa Class B common stock.
Commencing in the third quarter of 1993, under the terms of
the Company's senior subordinated notes due 1998, there was a
deficiency in consolidated retained earnings available for the
payment of cash dividends and the repurchase of the Company's
stock. As a result, common and preferred stock dividends were not
declared in the third and fourth quarters of 1993. At December 31,
1993, the deficiency in consolidated retained earnings
available for payments of cash dividends was $45.8 million. In the
future, net income will reduce this deficiency by seventy-five
cents on the dollar while net losses will increase this deficiency
on a dollar-for-dollar basis. In addition, as of December 31,
1993, the Company's earnings were not sufficient to maintain a
consolidated interest coverage ratio of 2.0 to 1.0 which, pursuant
to the terms of the Company's senior notes due 2001 and the senior
subordinated notes due 2003, precludes the Company from paying
dividends, among other restricted activities.
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, 1993. Such
information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, filed herewith.
(Amounts in millions, except per share)
YEAR ENDED DECEMBER 31, 1993 1992 1991 1990 1989
Summary of operations
Continuing operations:
Sales and revenues $1,697.0 $1,868.3 $1,878.8 $1,957.8 $1,701.2
Operating income 15.7 124.6 117.7 181.2 152.6
Income (loss) from
continuing operations (55.5) 17.9 15.0 59.4 34.7
Income (loss) from
discontinued operations - (21.7) (21.6) (26.7) 21.2
Extraordinary loss (8.5) - - - -
Cumulative effect of
accounting change - (7.3) - - -
Net income (loss) (64.0) (11.1) (6.6) 32.7 55.9
Earnings (loss) per share of
common stock
Continuing operations $ (6.07) $ 1.53 $ 1.24 $ 5.81 3.02
Discontinued operations - (2.26) (2.26) (2.78)
Extraordinary loss (.88) - - - -
Cumulative effect of
accounting change - (.76) - - -
Net income (loss) (6.95) (1.49) (1.02) 3.03 5.10
Cash dividends declared
Preferred $ 2.50 $ 5.00 $ 5.00 $ 5.00 5.00
Class A common .30 .60 .60 .60 .60
Class B common .25 .50 .50 .50 .50
Financial position
Current assets $ 661.6 $ 679.2 $ 778.5 $ 802.8 $ 810.2
Total assets 1,803.5 1,912.5 2,108.3 1,995.0 1,903.7
Current liabilities 376.5 350.1 383.2 370.4 388.6
Long-term debt 624.1 690.0 825.5 677.2 588.7
Shareholders' equity 575.8 651.7 696.6 716.4 705.0
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS 1993-1992
SALES AND REVENUES
Sales and revenues from continuing operations declined 9% in 1993,
primarily as a result of decreases at the Gas Turbine and Atlantic
Research (ARC) propulsion units of the Aerospace segment and the
overseas unit of the Specialty Chemicals segment.
Aerospace segment sales declined 16% in 1993, principally as a
result of a substantial fall-off in sales of Gas Turbine, the
largest individual operation in the segment and in the Company as
a whole. ARC propulsion sales, which represent a smaller portion
of overall revenues, declined approximately 20%, and the Kollsman
division, the smallest part of the segment, posted a 9% increase in
sales.
Gas Turbine sales declined 18% from 1992 levels. Over half the
decline occurred at the unit's largest facility in Orangeburg, New
York, which was severely affected by government investigations. In
addition, other Gas Turbine installations were affected by
sustained weakness in the jet engine component repair and new parts
market, as well as by the continuing decline in the domestic
defense market. Overall market sluggishness also affected
locations specializing in the overhaul and repair of both aircraft
engines and industrial turbines, as well as those serving the
auxiliary power equipment market. Management anticipates that the
commercial airline market will improve gradually, with only a
modest upturn in demand for component repair in 1994.
The investigations of the Orangeburg plant are discussed in
detail in the Government Investigations section of this management
discussion and analysis. From the standpoint of operations, the
Federal Aviation Administration's restoration of the Orangeburg
facility's repair station certificate in June 1993 was a first step
in restoring the facility to full operation. Since that time, each
individual repair process and procedure at the facility has been
subject to review. By March 1, 1994, approvals had been received
for the repair of parts representing approximately 85% of the
facility's ongoing repair revenues. While the approval process has
taken longer than originally anticipated, management expects that
all approvals will be received by July 1994. As a result, revenues
at the Orangeburg facility are expected to increase gradually in
1994.
The 20% reduction in sales of the ARC propulsion unit was in
line with management's previous estimates and primarily resulted
from reduced revenues on several major rocket motor programs
including Trident D-5, Stinger and MLRS, and the completion of two
other programs (MK104 Standard Missile and MK30). Barring
additional Defense Department spending cuts, management anticipates
that sales will decline a further 5%-10% in 1994. Kollsman's sales
increased 9% in 1993 principally as a result of higher sales of
military electro-optics products, including the new domestic
contract with the U.S. Marine Corps to upgrade the optical system
on the Cobra helicopter. Sales of avionics products also increased
in 1993, but the overall advance was partially offset by a
reduction in the sale of medical instrumentation.
Sales of the Machinery and Metal Coatings segment increased 7%
in 1993, paced by a sharp advance at the metal coatings unit. The
metal coating division posted a 15% increase in sales, primarily as
a result of strong demand from the building products industry and
improved market penetration of this key market. At the can
machinery division, sales advanced 4%, as gains in can forming
equipment were largely offset by reduced shipments of can
decorating equipment and lower sales of spare parts and
accessories. The European auxiliary press equipment supplier
posted a small sales increase measured in local currency. However,
after translation into U.S. dollars, reported sales were down 5%.
Sales of the Specialty Chemicals segment declined 6% in 1993
with fourth-quarter increases at both units mitigating the effect
of lower sales for the the first nine months of the year. At the
overseas unit, an increase in local currency sales of TAED, a
bleach activator, was more than offset by an unfavorable foreign
currency translation swing of 15%. At the domestic unit, sales
were down marginally, as continued weakness in the paper, textile
and graphic arts markets was offset by a solid advance in the
specialty polymer product line, and by the sales added through a
paper specialties product line acquired in late 1992. At the
domestic unit, 1993 sales trends are expected to continue in the
early part of 1994, and overseas sales are expected to remain at a
high level.
Sales and revenues of the Professional Services and Other
Products segment increased 5% in 1993, as two of the four units
posted increases. Revenues of the ARC professional services unit,
which was sold in December 1993, increased 3% to $162.6 million.
Sales of the automotive products unit advanced sharply, a
reflection of the overall health of the domestic automobile market,
and the resulting increase in demand for automotive cigarette
lighters and power outlets. The unit also improved its penetration
of the automotive lighter market in Europe. Sales of Northern Can
Systems (NCS) were on a par with 1992 levels, as a doubling of can
lid sales more than offset the absence of sales from two can making
plants which were sold in the first half of 1993. Revenues of
Centor, the real estate company, declined modestly in 1993
primarily due to a lower occupancy rate in its office building in
Clayton, Missouri.
OPERATING INCOME
Operating income declined 87% in 1993, primarily as a result of the
operating loss posted by Gas Turbine and the recording of
restructuring charges amounting to $26.6 million during the year.
The Aerospace segment posted a $40.9 million loss in 1993
compared to a profit of $75.5 million in 1992. This swing was
primarily due to losses at Gas Turbine. Gas Turbine was adversely
impacted by three major factors: the interruption of operations at
the Orangeburg facility; the charge to reflect implementation of a
restructuring plan; and the legal fees, payments to the government
and severance costs at the Orangeburg plant. Results of all other
Gas Turbine units, in total, declined modestly from a 1992 base
that was already severely affected by two years of turmoil in the
commercial airline market. Management anticipates that Gas Turbine
will return to profitability in the first quarter of 1994.
ARC propulsion profits declined 28%, a reflection of lower
sales and an unfavorable sales mix shift, partially offset by
reduced general and administrative, and bid and proposal costs.
Management of the unit anticipates that profits will decline
modestly in 1994 as the unit continues to adjust to the restrictive
market conditions. Kollsman's profits increased from a modest 1992
base, primarily as a result of improvements in electro optics, and
reduced selling, general and administrative expenses. Conditions
in the markets Kollsman serves are not expected to strengthen in
1994, nonetheless management expects Kollsman will be able to
maintain its profit level in 1994 and plans to further shrink its
asset base to improve returns.
Operating profit in the Machinery and Metal Coatings segment
decreased 3% in 1993, as strength at the metal coatings unit and a
turnaround at the auxiliary press equipment unit were more than
offset by a decline in the can machinery operation. Throughout
1993, the metal coating operation benefitted from increased sales
and improved capacity utilization. Although this unit will incur
start-up expenses when it brings a new facility on stream in mid-
1994, profits for the full year are currently expected to remain at
least on a par with 1993, due to continued strong demand from the
building products market. At the can machinery operation, reduced
factory utilization, competitive pricing pressures in the can
decorating market, a bad debt provision, and the recording of a
restructuring charge combined to cause a significant profit decline
in 1993. Based on year-end backlog, this operation is expected to
have a weak first quarter in 1994. The auxiliary press equipment
operation returned to profitability in 1993 due to a general
program of cost reduction and the absence of unusual warranty,
severance and bad debt provisions that had been recorded in 1992.
Based on the current level of firm backlog, losses are expected in
the first half of 1994.
Operating income in the Specialty Chemicals segment declined
11% in 1993, with both units down from the preceding year. At the
overseas unit, strong operating results were offset by the
combination of unfavorable foreign currency exchange movements and
the establishment of environmental clean-up and bad debt reserves
related to the non-detergent chemicals portion of the business.
The decline in operating income at the domestic unit resulted from
three principal factors: the start-up of a new paper specialties
product line; the cost to realign and expand the European sales and
marketing effort; and the reduced gross profit that resulted from
lower sales and an unfavorable sales mix shift.
Operating income in the Professional Services and Other
Products segment more than doubled in 1993. Both ARC professional
services and the automotive products units achieved solid profit
advances and NCS moved from a loss in 1992 to a modest profit in
1993. Profits of the automotive products unit advanced due to the
increased volume of automotive cigarette lighters. At NCS,
increased sales of can ends and the benefits of cost reductions and
manufacturing improvements implemented in both 1992 and 1993 fueled
a turnaround. In the second half, NCS recorded a small loss, as
the unit adjusted to the downsizing that resulted from the sale of
the can plants. Management anticipates that this unit will return
to profitability in the first quarter of 1994 and will post a
profit for the full year. At Centor, profit declined from a
relatively low 1992 base, primarily as a result of lower rental
income.
During 1993, the Company recorded restructuring charges
totaling $26.6 million primarily relating to plans adopted to
reduce Gas Turbine's investment in plants that are engaged in
activities other than the repair of components for flight engines,
and to sell excess machinery and permanently reduce the number of
employees in other Gas Turbine facilities. Included in the
restructuring charges are: severance costs, $7.5 million; write-
down of equipment to be sold, $4.1 million; write-down of inventory
to net realizable value, $3.2 million; relocation of equipment,
$1.8 million; write-down of other assets, $1.5 million; operating
losses through date of sale, $6.5 million; other costs, $2.0
million. As of December 31, 1993, $20.7 million of these amounts
remained in Accrued expenses.
INTEREST EXPENSE
In 1993, interest expense declined $6.6 million due to a lower
level of average borrowings related to the Company's cash
generation program.
OTHER, NET
In 1993, Other, net included a $6.6 million loss on interest rate
options sold, $3.1 million of discount expense related to the sale
of accounts receivable, a $3.1 million loss incurred on a sale and
leaseback transaction, a $7.6 million equity loss in the Company's
unconsolidated airbag business, amortization of capitalized debt
costs in the amount of $4.2 million, and $2.5 million in charges
for a minority shareholder's interest in the earnings of ARC.
Based upon market interest rates on March 15, 1994, adjustment of
the carrying value of interest rate options
sold would result in an additional loss of approximately $3.5
million to
be recorded in the first quarter of 1994. In 1992, Other, net
included $3.9 million of discount expense related to the sale of
accounts receivable, a $4.7 million equity loss in the Company's
unconsolidated airbag business, amortization of capitalized debt
costs in the amount of $3.1 million, and $1.7 million in charges
for a minority shareholder's interest in the earnings of ARC.
ENVIRONMENTAL MATTERS
The Company's engineering and environmental department, under
senior management direction, manages all activities related to the
Company's involvement in environmental clean-up. This department
establishes the projected range of expenditures for individual
sites with respect to which the Company may be considered a
potentially responsible party under applicable Federal or state
law. These projected expenditures, which are reviewed
periodically, include: remedial investigation and feasibility
studies; outside legal, consulting and remediation project
management fees; the projected cost of remediation activities; site
closure and post-remediation monitoring costs. The assessments
take into account known conditions, probable conditions, regulatory
requirements, 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.
The Company has identified cost estimates for all sites it is
involved with and has established reserves as required by generally
accepted accounting principles. The Company anticipates that
actual cash expenditures related to these sites will be in the $6
million to $12 million range in 1994 and in the $5 million to $7
million range during each of the following several years.
Anticipated expenditure levels for 1994 reflect clean-up costs on
sites where work will begin earlier than previously expected.
Actual cash expenditures were $7.7 million in 1993, $6.2 million in
1992, and $4.7 million in 1991.
AUTOMOTIVE AIRBAGS
In 1989, Atlantic Research and AlliedSignal formed a 50/50 joint
venture, called Bendix Atlantic Inflator Company (BAICO), to
develop, produce and market hybrid inflators for automotive airbag
systems. The joint venture has expended substantial sums on the
development and marketing of both passenger- and driver-side
inflators. As a result of these efforts, the joint venture has
orders from seven car companies covering 13 models beginning with
the 1994 model year. The first deliveries of production units were
made in 1993 with total shipments of 319,000 units. Shipments in
1994 are expected to reach nearly one million units.
In 1993, Atlantic Research, AlliedSignal and Gilardini (a unit
of the Fiat Group) formed an Italian company to produce and market
hybrid inflators for Fiat and other European car companies. Each
participant owns a one-third interest in this venture. Atlantic
Research expects to spend approximately $4 million over the next 12
months for its share of the cost to equip a leased facility in
Colleferro, Italy. First deliveries from this plant to fill an
order from a European customer are scheduled for June 1995.
The Company's equity loss in its airbag business was $7.6
million in 1993 and $4.7 million in 1992. Management currently
anticipates the airbag business will achieve profitability in late
1995 or early 1996.
BACKLOG
The businesses of Sequa for which backlogs are significant are the
Kollsman division, the Turbine Airfoil, Caval Tool and Castings
units of Gas Turbine, and the ARC propulsion operations of the
Aerospace segment; and the Can Machinery and MEG operations of the
Machinery and Metal Coatings segment. The aggregate dollar amount
of backlog in these units at December 31, 1993 was $369.7 million
($435.2 million at December 31, 1992). The year-to-year decline is
a reflection of the overall weakness in the domestic defense and
the worldwide airline industries. At December 31, 1992, the
professional services unit of ARC had $120.5 million of backlog
which is excluded from the above comparison.
CAPITAL SPENDING AND OTHER INVESTMENTS
Capital expenditures amounted to $76.9 million in 1993, with
spending concentrated in the Gas Turbine, metal coatings and
overseas chemicals operations. These funds were primarily used to
upgrade existing facilities and equipment and to expand capacity.
The two largest projects were the installation of an electron beam
physical vapor deposition coater in a United Kingdom Gas Turbine
plant and the start of construction for a new metal coatings
facility in Jackson, Mississippi. Both projects are expected to be
operational by the third quarter of 1994. In addition, the Company
invested $2.7 million for its share of capital costs in the airbag
business. The Company accounts for its airbag investment using the
equity method of accounting. Accordingly, these funds were
accounted for as an increase in the Company's investment and are
included in Non-current receivables and other investments in the
Consolidated Balance Sheet.
The Company anticipates that capital spending in 1994 will be
approximately $85 million and will again be concentrated in the Gas
Turbine, metal coatings and chemicals operations. The Company also
anticipates investing approximately $10.5 million in the airbag
business.
LIQUIDITY AND CAPITAL RESOURCES
Management anticipates that cash flow from operations, proceeds
from the divestiture of the remaining discontinued operations and
other assets, the $111 million of credit available at March 15,
1994 under the new revolving credit agreement, and dividends that
management expects to receive from the Company's European
subsidiaries will be more than sufficient to fund the Company's
operations for the foreseeable future.
During 1993, the Company lengthened debt maturities by
successfully restructuring its long-term debt, and dramatically
improved liquidity. In addition, the Company generated $127
million from its program to trim its asset base. The largest
portion of these proceeds was used to reduce debt, which declined
$96 million in 1993.
In 1994, the Company plans to continue its program of asset
disposals and debt reduction. As part of the restructuring plan at
Gas Turbine, which was announced in the third quarter, the Company
currently has signed letters of intent for the sale of two Gas
Turbine units which would generate approximately $50 million in
cash if the transactions are successfully completed. In addition,
the Company is actively pursuing additional asset disposals under
the Gas Turbine restructure program; marketing the remaining
discontinued business assets either through outright sale; or, in
the case of Sequa Capital's leveraged leases, a transaction
designed to monetize the portfolio.
At December 31, 1993, under the terms of the Company's senior
subordinated notes due 1998, there is a $45.8 million deficiency in
consolidated retained earnings available for the payment of cash
dividends and the repurchase of the Company's stock. As a result,
common and preferred stock dividends were not declared in the third
and fourth quarters of 1993. Under the terms of the Company's
preferred stock, upon the Company's failure to make six consecutive
quarterly dividend payments, the holders thereof, voting as a
class, will have the right to elect two members of the Board of
Directors of the Company at the next annual meeting of
shareholders. These special voting rights terminate when all
dividends in arrears have been paid. In addition, as of December
31, 1993, the Company's earnings were not sufficient to maintain a
consolidated interest coverage ratio of 2.0 to 1.0 which, pursuant
to the terms of the Company's senior notes due 2001 and the senior
subordinated notes due 2003, precludes the Company from paying
dividends among other restricted activities.
In the short term, the Company's objective is to return to
profitability, to continue to improve its capital structure and to
resume dividend payments. In the longer term, the Company's
objective is to regain an investment grade rating from the major
rating agencies.
OTHER INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 112,
"Employer's Accounting for Postemployment Benefits," was issued in
November 1992 and must be implemented by the first quarter of 1994.
This statement requires benefits to former employees after
employment, but before retirement, to be accrued when it is
probable that a liability has been incurred and the amount can be
reasonably estimated. The impact of adopting SFAS No. 112 will not
have a material effect on the Company's results of operations or
financial position.
GOVERNMENT INVESTIGATIONS
During the second quarter of 1993, the Company entered into
agreements with the U.S. Attorney's Office, Southern District of
New York (SDNY), and the Federal Aviation Administration (FAA) in
connection with investigations by these offices and other related
governmental agencies of the Company's Orangeburg facility and
certain of its then employees begun in November 1992. Management
believes that the investigations were in connection with
allegations that the Orangeburg facility had performed repairs on
certain parts in a defective manner and in violation of applicable
requirements. The investigations resulted in the Orangeburg
facility voluntarily surrendering its FAA repair station
certification and suspending FAA authorized repair operations in
April 1993. Gas Turbine's other operating facilities, as well as
work done for original equipment manufacturers at the Orangeburg
facility, were unaffected by the suspension.
Throughout the investigations, the Company and the Orangeburg
facility cooperated fully with federal authorities. In addition,
the Company instituted extensive changes in the management and
operations of the facility. As a result of the Company's
cooperation with the government and its good faith efforts to
comply with all applicable FAA standards, the FAA restored the
facility's FAA repair station certificate on June 10, 1993, ending
the suspension of repair operations and resolving all FAA civil
matters relating to the Orangeburg facility. Subsequently, the
U.S. Attorney's Office, SDNY, entered into an agreement with the
Company, under which it declined to prosecute the Company in
connection with its investigation.
In April 1993, the Company signed a consent order with the FAA
providing for a non-punitive remedial payment by the Company of
$5.0 million, representing the costs incurred by the FAA to
investigate the Orangeburg facility and enforce its consent decree.
In addition, under the terms of the agreement with the U.S.
Attorney's Office, SDNY, the Company agreed to deposit $2.5 million
into a fund (with up to an additional $2.5 million to be deposited,
if needed) to cover the cost of testing and analyzing jet engine
parts seized by federal authorities during an early stage of the
investigations.
Currently, the Company is in the process of obtaining
recertification on certain repair processes and procedures. By
March 1, 1994, approvals had been received for the repair of parts
that represent approximately 85% of the facility's ongoing repair
revenues. While it has taken longer than anticipated to obtain the
required approvals, the process is continuing and the Company
anticipates receiving the balance of the outstanding approvals
during the second quarter of 1994. As a result, revenues of the
Orangeburg facility are expected to increase gradually in 1994. At
the same time, overall airline industry conditions remain
depressed, affecting demand for new and repaired parts. Management
does not anticipate significant improvement in market conditions in
the near term, but believes the Orangeburg facility's repair
operations are recovering from the effects of the investigations,
and operating results are continuing to improve.
As a result of the investigations and the related suspension,
the Company incurred direct expenses in 1993 of $12.8 million.
Direct expenses included the remedial payment to the FAA, the
deposit of funds described above, severance payments and related
legal fees and expenses.
OPERATING RESULTS 1992-1991
Sales and Revenues
Sales and revenues from continuing operations declined slightly in
1992, as advances at three of the Company's four operating segments
largely offset a 4% decline in the Aerospace segment.
The reduction in Aerospace sales reflects declines at ARC
propulsion and Kollsman. Sales of Gas Turbine were unchanged from
1991, as increased activity in landbased turbines and flight engine
overhaul offset declines in the repair and manufacture of parts for
aircraft engines. ARC propulsion sales declined approximately 10%
in 1992, as a result of continued defense spending cuts. The
impact of reductions in four solid rocket motor programs and the
cancellation of a development program was partially offset by a
significant increase in the Trident D-5 program. Kollsman sales
declined 22% in 1992, primarily due to a substantial drop in
avionics products for the general aviation market, as well as the
completion of low-margin electro-optics contracts for the U.S.
Government. By contrast, sales of medical instrumentation
increased 12%.
Sales of the Machinery and Metal Coatings segment increased 9%
in 1992, with strong advances at the metal coatings and can
machinery units, partially offset by a decline in sales of
auxiliary press equipment. The metal coatings operation
experienced strong demand and increased its penetration of the
building products and container markets. The can machinery units
benefitted from a high level of demand from export markets and from
the successful introduction of new can forming equipment. Sales of
the overseas auxiliary press equipment operation declined in 1992
with a sharp decline in the first half of the year partially offset
by improved second-half results.
Sales of the Specialty Chemicals segment advanced 7% in 1992
with both the overseas and domestic units contributing to the
increase. At the overseas unit, TAED sales advanced modestly, with
strength concentrated in the first half of the year. Softness in
the second half reflected the economic recession in Europe, and a
slowdown in consumer demand for laundry detergents using TAED.
Other overseas sales of chemicals advanced sharply in 1992,
primarily due to a mid-1991 acquisition of a chemical sales
distribution company. At the domestic unit, the sales improvement
was primarily the result of increased penetration of the markets
for specialty polymers, with the successful introduction of new
roofing and filtration products. Sales of paper chemicals
increased due to overall improved demand.
Sales and revenues in the Professional Services and Other
Products segment increased 3%, with advances at three of the four
operating units in the segment. ARC professional services
registered a small revenue increase, primarily as the result of
efforts to increase foreign military consulting activities. In
1992, Casco's sales increased 9%, as both the original equipment
market and the aftermarket for automotive cigarette lighters
improved. The NCS unit experienced a small sales decline in 1992,
and the revenues of Centor, a real estate company, increased 7%.
OPERATING INCOME
Operating income from continuing operations improved 6% in 1992, as
improvements at Kollsman, Warwick, Precoat Metals and Casco
Products more than offset declines at Gas Turbine, MEG, the
domestic chemicals unit and the ARC propulsion and professional
services units.
Operating income of the Aerospace segment was down 1%, as a
turnaround at Kollsman substantially offset a sharp decline at Gas
Turbine and a more modest decline at ARC propulsion. Gas Turbine's
profits declined 41%, primarily due to the poor conditions and
severe pricing pressures in the markets it serves. The operation
also incurred significant severance costs, as it reduced its
workforce in response to the restrictive market conditions.
Profits were further affected for the last six weeks of the year by
a government investigation at the Gas Turbine Orangeburg facility,
which began on November 19, 1992. Profits at ARC propulsion
declined in 1992, although less than sales. Management has been
able to "manage down," aggressively cutting costs in anticipation
of lower government contract revenue. Kollsman recorded a modest
profit in 1992, a significant improvement from 1991, when the unit
recorded a large loss. The division benefitted from a downsizing
program initiated in 1991, which was designed to generate
profitability at a significantly lower sales level.
Operating income for the Machinery and Metal Coatings segment
was on a par with 1991 results. The effect of strong improvements
at the Precoat Metals division was tempered by a loss at the
auxiliary press equipment unit. Can machinery results were
consistent with the prior year. Profit increases at metal coatings
were due to higher sales and increased capacity utilization. The
1992 loss at the overseas auxiliary press equipment operation
resulted from lower sales, combined with warranty, severance and
bad debt provisions. At the can machinery operations, the benefits
of increased sales were largely offset by increased development
costs for new can forming equipment, and higher start-up and
warranty costs related to the introduction of new can decorating
equipment.
Operating income for the Specialty Chemicals segment increased
10% in 1992. The operating performance of both units was ahead of
the prior year, although a fourth-quarter environmental clean-up
provision of $2.5 million reduced the domestic unit's results below
1991. Higher profits at the overseas unit resulted from increased
sales and savings derived from improved manufacturing processes.
Profits at the domestic unit, before the environmental provision,
increased 16%, the result of improved sales and the continuing
shift to a higher value-added sales mix.
Operating income for the Professional Services and Other
Products segment increased $3.4 million in 1992, as three of the
four units registered improvement. A change in the method of
allocating self-insurance losses to other operating segments also
favorably affected this segment in 1992. The results of the ARC
professional services units declined primarily as a result of
higher development costs for imaging software products. Casco
Products profits were up, the result of increased sales, improved
manufacturing efficiencies and tight cost controls. Losses at NCS
narrowed in 1992, as costs were reduced and manufacturing
improvements were implemented. Centor profits were up 27% in 1992,
from a low 1991 base.
INTEREST EXPENSE
In 1992, interest expense declined $9.7 million due to both a lower
level of average borrowings and a reduction in the average cost of
funds. The reduction of debt was directly related to the Company's
cash generation program, while the average cost of borrowings
declined due to lower prevailing short-term interest rates.
OTHER, NET
Other, net registered a $4.7 million increase in expense in 1992,
primarily due to a $4.2 million increase in the Company's share of
start-up costs in the airbag joint venture and a $2.2 million
increase in the amortization of capitalized debt costs. A $2.5
million reduction in expenses related to the sale of accounts
receivable, which partially offset these increases, resulted
primarily from lower discount rates.
DISCONTINUED OPERATIONS
During 1992, the Company completed the sale of Valley Line, Sabine
Towing and Transportation and the Gemoco division of the engineered
services group for gross cash proceeds of $197.2 million. In
addition, $112.6 million of cash from asset sales and portfolio
run-off was generated by Sequa Capital.
In the fourth quarter of 1992, the Company recorded a $35.0
million pre-tax charge to recognize larger than expected losses
from Sequa Capital, a greater than expected loss on the fourth-
quarter sale of a discontinued business, higher projected
litigation expenses and recent adverse developments related to
contingent lease liabilities associated with an operation
discontinued and sold in an earlier year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
the Board of Directors,
Sequa Corporation:
We have audited the accompanying consolidated balance sheet
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1993. 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 generally accepted
auditing standards. 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, 1993 and
1992, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, effective January 1, 1992, the Company changed its
method of accounting for income taxes.
ARTHUR ANDERSEN & CO.
New York, New York
March 21, 1994
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,780 $ 14,807
Receivables, net (Note 7) 227,688 200,345
Unbilled receivables, net (Note 8) 55,451 110,941
Inventories (Note 9) 290,323 312,310
Other current assets 63,350 40,791
Total current assets 661,592 679,194
INVESTMENTS
Net assets of discontinued operations
(Note 2) 188,964 198,542
Non-current receivables and other
investments 17,179 21,321
206,143 219,863
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 10) 562,623 630,409
OTHER ASSETS
Excess of cost over net assets of
companies acquired 348,696 362,357
Deferred charges and other 24,467 20,645
373,163 383,002
TOTAL ASSETS $1,803,521 $1,912,468
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,
1993 1992
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 11) $ 23,998 $ 16,867
Accounts payable 114,529 116,525
Taxes on income (Note 12) 16,357 20,363
Accrued expenses (Note 15) 221,654 196,391
Total current liabilities 376,538 350,146
LONG-TERM DEBT, NET OF
CURRENT MATURITIES (Note 11) 624,092 689,970
DEFERRED TAXES AND OTHER LONG-TERM
LIABILITIES
Deferred taxes on income (Note 12) 27,039 41,437
Other long-term liabilities 200,068 179,249
227,107 220,686
SHAREHOLDERS' EQUITY (Notes 11, 13 and 16)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 1993
and 1992 (involuntary liquidation
value--$26,359 at December 31, 1993) 797 797
Class A common stock--no par value,
25,000,000 shares authorized; 7,054,000
shares issued at December 31, 1993 and
7,042,000 shares issued at
December 31, 1992 7,054 7,042
Class B common stock--no par value,
5,000,000 shares authorized; 3,861,000
shares issued at December 31, 1993
and 3,873,000 shares issued at
December 31, 1992 3,861 3,873
Capital in excess of par value 295,841 295,806
Cumulative translation adjustment (16,771) (10,583)
Retained earnings 383,617 453,486
674,399 750,421
Less: cost of treasury stock 98,615 98,755
TOTAL SHAREHOLDERS' EQUITY 575,784 651,666
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,803,521 $1,912,468
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share)
YEAR ENDED DECEMBER 31, 1993 1992 1991
SALES AND REVENUES $1,696,968 $1,868,341
COSTS AND EXPENSES
Cost of sales and revenues 1,382,509 1,480,412
Selling, general and administrative 272,145 263,325
Restructuring charges (Note 4) 26,640 -
1,681,294 1,743,737
OPERATING INCOME 15,674 124,604
OTHER INCOME (EXPENSE)
Interest expense (66,501) (73,125)
Interest income 2,679 4,137
Gain on sale of ARC Professional
Services (Note 5) 12,408 -
Other, net (Note 6) (28,275) (11,816)
(79,689) (80,804)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (64,015) 43,800
Income tax benefit (provision) (Note 12) 8,557 (25,900)
INCOME (LOSS) FROM CONTINUING OPERATIONS (55,458) 17,900
Loss from discontinued operations (Note 2) - (21,700)
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (55,458) (3,800)
Extraordinary loss on early retirement
of debt, net of applicable income
taxes (Note 11) (8,524) -
Cumulative effect on prior years of change
in accounting for income taxes
(Notes 1 and 12) - (7,337)
NET LOSS (63,982) (11,137)
Preferred dividend requirements (3,163) (3,168)
NET LOSS APPLICABLE TO COMMON STOCK $ (67,145) $ (14,305)
EARNINGS (LOSS) PER SHARE
Continuing operations $ (6.07) $ 1.53 $
Discontinued operations - (2.26)
Loss before extraordinary item and
cumulative effect of accounting change (6.07) (.73)
Extraordinary loss (.88) - -
Cumulative effect on prior years of
change in accounting for income taxes - (.76) -
Net loss $ (6.95) $ (1.49) $
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, 1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations
before income taxes $ (64,015) $ 43,800
Adjustments to reconcile income (loss) to
net cash provided by operating activities:
Depreciation and amortization 110,061 117,792
Provision for losses on receivables 7,051 6,528
Gain on sale of ARC Professional Services (12,408) -
Equity in losses of unconsolidated
subsidiaries 7,097 4,243
Other items not requiring (providing) cash 5,367 (3,350)
Changes in operating assets and liabilities,
net of businesses disposed and acquired:
Receivables 1,535 53,959
Inventories 16,158 25,027
Other current assets (17,895) 3,024
Accounts payable and accrued expenses 41,531 (8,560)
Other long-term liabilities 28,915 (574)
Net cash provided by continuing operations
before income taxes 123,397 241,889
Net cash provided by (used for) discontinued
operations before income taxes 2,750 (154,937)
Income taxes paid, net (5,111) (25,146)
Net cash provided by (used for) operating
activities 121,036 61,806
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (76,858) (92,685)
Sale of property, plant and equipment 29,628 4,801
Sale of businesses, net of cash sold 76,153 197,233
Other investing activities (53) (9,133)
Net cash provided by (used for) investing
activities 28,870 100,216
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt, net of issuance costs 292,320 -
Payments of debt (165,963) (140,340)
Early retirement of debt (222,661) -
Dividends paid (4,305) (8,628)
Proceeds from sale of accounts receivable - 84,006
Repurchase of accounts receivable (39,000) (90,000)
Proceeds from exercise of stock options - -
Net cash provided by (used for) financing
activities (139,609) (154,962)
Effect of exchange rate changes on cash
and cash equivalents (324) (5,163)
Net increase (decrease) in cash and cash
equivalents 9,973 1,897
Cash and cash equivalents at beginning of year 14,807 12,910
Cash and cash equivalents at end of year $ 24,780 $ 14,807
The accompanying notes are an integral part of the financial statements.
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Class A Class B Capital in C
Amounts in thousands, Preferred Common Common Excess of T
except per share data Stock Stock Stock Par Value A
Earnings Stock
BALANCE AT DECEMBER 31, 1990 $ 797 $ 7,042 $3,873 $299,971
Net loss - - - -
Exercise of stock options - - - (304)
Revaluation and amortization
of restricted stock grant - - - (216)
Foreign currency translation
adjustment - - - -
Cash dividends:
Class A - $.60 per share - - - -
Class B - $.50 per share - - - -
Preferred - $5.00 per share - - - -
BALANCE AT DECEMBER 31, 1991 $ 797 $ 7,042 $3,873 $299,451
Net loss - - - -
Revaluation and amortization
of restricted stock grant - - - (174)
Treasury stock contributed to
pension plan - - - (3,471)
Foreign currency translation
adjustment - - - -
Cash dividends:
Class A - $.60 per share - - - -
Class B - $.50 per share - - - -
Preferred - $5.00 per share - - - -
BALANCE AT DECEMBER 31, 1992 $ 797 $ 7,042 $3,873 $295,806
Net loss - - - -
Revaluation and amortization
of restricted stock grant - - - 35
Exchange of common stock - 12 (12) -
Foreign currency translation
adjustment - - - -
Sale of foreign subsidiary - - - -
Cash dividends:
Class A - $.30 per share - - - -
(1,854) -
Class B - $.25 per share - - - -
(870) -
Preferred - $2.50 per share - - - -
Preferred dividends in
arrears - $2.50 per share - - - -
BALANCE AT DECEMBER 31, 1993 $ 797 $ 7,054 $3,861 $295,841
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
Principles of Consolidation
The consolidated financial statements of Sequa Corporation (the
Company) include the accounts of all majority-owned subsidiaries,
including those of Sequa Receivables Corp. (SRC), a special purpose
corporation formed for the sale of eligible receivables. Under the
terms of the receivables purchase 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 the Company. All material accounts and
transactions between the consolidated subsidiaries have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statement of Cash Flows, the
Company 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 the
Company has netted overdrafts with unrestricted cash and cash
equivalents.
INVENTORIES AND CONTRACT ACCOUNTING
Inventories are stated at the lower of cost or market. The cost of
approximately 34% of inventories in 1993 and 36% in 1992 was
determined by the last-in, first-out (LIFO) method of inventory
valuation. The remaining non-contract related inventories are
valued principally on a first-in, first-out basis (FIFO).
Inventoried costs relating to long-term contracts are stated at
actual or average costs, including engineering and manufacturing
labor and related overhead incurred, reduced by amounts identified
with sales. The costs attributable to sales reflect the estimated
costs of all items to be produced under the related contract.
PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation and amortization are
computed using the straight-line method to amortize the cost of
assets over their estimated useful lives. Accelerated depreciation
methods are used for income tax purposes.
Upon sale or retirement of properties, the related cost and
accumulated depreciation is removed from the accounts, and any gain
or loss is reflected currently. Expenditures for maintenance and
repairs of $44,362,000 in 1993, $46,393,000 in 1992 and $43,130,000
in 1991 were expensed as incurred, while betterments and
replacements were capitalized.
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 Company periodically reviews goodwill to assess
recoverability, and impairments would be recognized in operating
results if a permanent diminution in value were to occur. The
amortization charged against earnings in 1993, 1992 and 1991 was
$10,821,000, $10,807,000 and $10,804,000, respectively.
Accumulated amortization at December 31, 1993 and 1992 was
$73,562,000 and $62,741,000, respectively.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of operations
denominated in foreign currencies are translated into U.S. dollars
at exchange rates in effect at year-end, while revenues and
expenses are translated at average exchange rates prevailing during
the year. The resulting translation gains and losses are charged
directly to cumulative translation adjustment, a 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.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
Statement of Financial Accounting Standards (SFAS) No. 106,
"Employer's Accounting for Postretirement Benefits Other Than
Pensions," was implemented by the Company in the first quarter of
1993. This statement requires the expected costs of providing
postretirement benefits to be accrued during the years an employee
provides services rather than the Company's past practice of
recognizing these costs on the pay-as-you-go (cash) basis. At
January 1, 1993, the Company's date of adoption, the actuarial
present value of the accumulated benefit obligation for
postretirement health care and other insurance benefits provided to
certain retirees was $3,074,000. The Company is recognizing this
transition obligation using the delayed recognition basis by
amortizing the obligation on a straight-line basis over 20 years.
The implementation of SFAS No. 106 in 1993 did not have a material
impact on the Company's results of operations and had no effect on
the Company's cash outlays for these retiree benefits.
SFAS No. 112, "Employer's Accounting for Postemployment
Benefits," was issued in November 1992 and must be implemented by
the first quarter of 1994. This statement requires benefits to
former employees after employment, but before retirement, to be
accrued when it is probable that a liability has been incurred and
the amount can be reasonably estimated. The impact of adopting
SFAS No. 112 will not have a material effect on the Company's
results of operations or financial position.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental remediation and compliance costs are accrued when
environmental assessments and/or remedial efforts are probable, and
the cost 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,
site closure and postremediation monitoring costs.
REVENUE RECOGNITION
Generally, sales and revenues are recorded when products are
shipped or services are rendered. Long-term contracts are
accounted for under the percentage-of-completion method whereby
sales and revenues 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 and revenues, costs and gross profits are
recognized in the period in which they are determinable using the
cumulative catch-up method. Any anticipated losses on contracts
are charged to current operations as soon as they are determinable.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred
and amounted to approximately $17,166,000 in 1993, $17,557,000 in
1992 and $19,482,000 in 1991.
INCOME TAXES
The Company adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes," as of January 1, 1992, and the cumulative effect of
this change is reported separately in the 1992 Consolidated
Statement of Income. Prior years' financial statements have not
been restated to apply the provisions of SFAS No. 109.
The adoption of SFAS No. 109 changed the Company's method of
accounting for income taxes from the deferred method as required by
Accounting Principles Board Opinion No. 11 (APB 11) to an asset and
liability approach. Under the deferred method, annual income tax
expense prior to 1992 was based on pre-tax financial accounting
income and deferred taxes were provided at current rates for timing
differences between financial accounting and taxable earnings.
Under the asset and liability method, deferred taxes are
established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled.
Under SFAS No. 109, assets and liabilities acquired in purchase
business combinations are assigned their fair values assuming equal
tax bases, and deferred taxes are provided for lower or higher tax
bases. Under APB 11, values assigned were net of tax. In adopting
SFAS No. 109, the Company adjusted the carrying amounts of assets
and liabilities acquired in purchase business combinations. As a
result, pre-tax income from continuing operations was reduced by
$1,520,000 for the year ended December 31, 1992 due to an increase
in depreciation expense resulting from the higher carrying amounts
of depreciable assets. The $7,337,000 charge recorded as of the
beginning of 1992 for the cumulative effect on prior years of the
change in the method of accounting for income taxes primarily
represents the impact of adjusting deferred taxes recorded for
assets and liabilities acquired in purchase business combinations.
In connection with the Company's periodic reevaluation of
foreign earnings estimated to be indefinitely reinvested, deferred
income taxes of $14,000,000 were provided in 1993 for the estimated
income tax liability that will be incurred upon the anticipated
future repatriation of approximately $65,000,000 of foreign
undistributed earnings in the form of dividends. Provision has not
been made for U.S. or additional foreign taxes on the remaining
$121,855,000 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. It is
not practicable to estimate the amount of deferred tax liability on
foreign undistributed earnings which are intended to be permanently
reinvested.
EARNINGS PER SHARE
Primary earnings per share for each of the respective years has
been computed by dividing the net earnings, after deducting
dividend requirements on cumulative convertible preferred stock, by
the weighted average number of common and common equivalent shares
outstanding during the year. The weighted average number of common
and common equivalent shares for 1993, 1992 and 1991 was 9,655,000
shares, 9,620,000 shares and 9,534,000 shares, respectively.
Fully diluted earnings per common share calculations for the
assumed conversion of the cumulative convertible preferred stock
were anti-dilutive in 1993, 1992 and 1991.
NOTE 2. DISCONTINUED OPERATIONS
During 1991, the Company adopted a formal plan to divest Sequa
Capital's investment portfolio and to sell the Valley Line and
Sabine Towing and Transportation operations in the Transportation
segment, as well as the engineered services and the men's apparel
units in the Professional Services and Other Products segment.
During 1992, the Company completed the asset sales of Valley
Line, Sabine Towing and Transportation and the Gemoco division of
engineered services and in 1993, the Sturm unit of engineered
services was sold. As of December 31, 1993, approximately
$329,000,000 of Sequa Capital's investment portfolio had been sold,
written down or otherwise disposed of since the Company adopted a
formal plan to divest the portfolio. During the same period, Sequa
Capital's debt was reduced from approximately $367,000,000 to zero.
Efforts continue to divest the men's apparel unit and to liquidate
the remaining Sequa Capital investment portfolio.
Operating results from discontinued operations were:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1992 1991
Loss from operations $ - $ (9,784)
Income tax benefit - 3,675
- (6,109)
Loss on disposal (35,000) (25,000)
Income tax benefit 13,300 9,500
(21,700) (15,500)
Total loss from discontinued
operations $(21,700) $(21,609)
Sales and revenues of discontinued operations prior to the
measurement date were $130,429,000 in 1991.
Net assets of discontinued operations approximate net realizable
value and have been classified as noncurrent. A summary of the net
assets of discontinued operations is as follows:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Funds designated for use by
Sequa Capital $ 571 $ 1,851
Receivables 6,380 11,760
Inventories 10,354 11,630
Sequa Capital investment portfolio,
net 176,363 220,309
Property, plant and equipment, net 3,519 5,747
Other assets 11,818 12,696
Total assets 209,005 263,993
Accounts payable 2,756 5,157
Accrued expenses 15,776 19,865
Debt - 37,432
Other long-term liabilities 1,509 2,997
Total liabilities 20,041 65,451
Net assets of discontinued operations $188,964 $198,542
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by (used for) discontinued operations:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
Loss from discontinued operations
before income taxes $ - $ (35,000)
Depreciation and amortization 506 2,412
Loss provisions 2,562 27,369
Changes in working capital (64) (4,476)
Decrease in debt (37,432) (264,331)
Decrease (increase) in funds designated for
use by Sequa Capital 1,280 4,409
Investment in leasing assets (1,323) (2,201)
Principal repayments on leasing assets 1,621 15,396
Sale of leasing assets 41,463 97,213
Purchase of property, plant and equipment (607) (724)
Other changes in net assets (5,256) 4,996
$ 2,750 $(154,937)
Non-cash investment activities:
In December 1993, the Company entered into two sale and
leaseback agreements related to various Chromalloy Gas Turbine and
Precoat Metals equipment. Aggregate cash proceeds from the sale of
$20,845,000 have been presented as an investing activity in the
accompanying Consolidated Statement of Cash Flows for the year
ended December 31, 1993. The sales resulted in a loss on one
transaction of $3,051,000, which is included in 1993 in Other, net
in the Consolidated Statement of Income, and a gain on the other
transaction of $5,738,000. The Company entered into agreements to
lease back the equipment and recorded fixed assets and capital
lease obligations in the amount of $20,845,000. The $5,738,000
gain on sale has been deferred and is being amortized to income
over the life of the related leaseback agreement.
In February 1991 and June 1991, the Company took title to
several food can and lid manufacturing businesses with a fair
market value of aproximately $25,400,000 from one of Sequa
Capital's borrowers in settlement of debt owed to Sequa Capital.
These transactions were accounted for as troubled debt
restructurings, as defined by SFAS No. 15. Based upon fair values
of the net assets received, Sequa Capital recorded pre-tax losses
of $46,200,000 in 1991 and $45,000,000 in 1990. These losses were
included in Loss from discontinued operations.
Other supplemental cash flow information:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
Interest paid $70,052 $74,379 $80,947
NOTE 4. RESTRUCTURING CHARGE
During 1993, the Company recorded restructuring charges totaling
$26,640,000 primarily relating to plans adopted to reduce Gas
Turbine's investment in plants that are engaged in activities other
than the repair of components for flight engines, and to sell
excess machinery and permanently reduce the number of employees in
other Gas Turbine facilities. Included in the restructuring
charges are: severance costs, $7,500,000; write-down of equipment
to be sold, $4,100,000; write-down of inventory to net realizable
value, $3,200,000; relocation of equipment, $1,800,000; write-down
of other assets, $1,500,000; operating losses through date of sale,
$6,500,000; other costs, $2,040,000. As of December 31, 1993,
$20,689,000 of these amounts remained in Accrued expenses.
NOTE 5. SALE OF ARC PROFESSIONAL SERVICES
On December 30, 1993, the Company sold the stock of ARC
Professional Services for gross cash proceeds of $59,926,000, and
the purchaser assumed $4,524,000 of ARC Professional Services'
debt. The sale resulted in a pre-tax gain of $12,408,000. ARC
Professional Services had revenues of $162,606,000, $157,979,000
and $153,943,000 in 1993, 1992 and 1991, respectively, and
operating income of $10,699,000, $9,278,000 and $10,805,000 in
1993, 1992 and 1991, respectively. The consolidated financial
statements and accompanying footnotes reflect the operating results
of ARC Professional Services as continuing operations.
In connection with the sale of ARC Professional Services, the
Company was contractually required to purchase the seven percent
minority interest in Atlantic Research Corporation. In January
1994, the Company purchased the minority interest at a cost of
$16,701,000. The excess of the book value of the minority interest
acquired over the cost was $13,709,000.
NOTE 6. OTHER, NET
In 1993, Other, net included a $6,557,000 loss on interest rate
options sold, $3,136,000 of discount expense related to the sale of
accounts receivable, a $3,051,000 loss incurred on a sale and
leaseback transaction, a $7,551,000 equity loss in the Company's
unconsolidated airbag business, amortization of capitalized debt
costs in the amount of $4,158,000, and $2,517,000 in charges for a
minority shareholder's interest in the earnings of ARC. In 1992,
Other, net included $3,912,000 of discount expense related to the
sale of accounts receivable, a $4,709,000 equity loss in the
Company's unconsolidated airbag business, amortization of
capitalized debt costs in the amount of $3,074,000, and $1,704,000
in charges for a minority shareholder's interest in the earnings of
ARC. In 1991, Other, net included several income items, offset by
the following: $6,440,000 of discount expense related to the sale
of accounts receivable, a $497,000 equity loss in the Company's
unconsolidated airbag business, amortization of capitalized debt
costs in the amount of $909,000, and $1,704,000 in charges for a
minority shareholder's interest in the earnings of ARC.
NOTE 7. RECEIVABLES
In June 1993, Sequa Receivables Corporation (SRC), a wholly owned
special purpose subsidiary of the Company, amended and restated its
Receivables Purchase Agreement (the Receivables Agreement) and the
receivables sales program agent thereunder assigned its interest in
the Receivables Agreement to the group of banks which were party to
the Company's revolving credit agreement. Under the Receivables
Agreement, SRC was able to sell up to $65,000,000 of Company
receivables without recourse. The Receivables Agreement, which was
to expire in January 1994, was amended in December 1993 to allow
SRC to sell up to $45,000,000 of receivables through March 1997.
At December 31, 1993 and 1992, receivables as shown in the
Consolidated Balance Sheet were net of $45,000,000 and $84,006,000,
respectively, of receivable interests sold under the current and
previous receivable sale agreements. Other, net, in the
Consolidated Statement of Income includes discount expenses of
$3,136,000 in 1993, $3,912,000 in 1992, and $6,440,000 in 1991,
related to the sale of receivables under these agreements.
Receivables at December 31, 1993 and 1992 have been reduced by
allowances for doubtful accounts of $10,892,000 and $11,419,000,
respectively.
NOTE 8. UNBILLED RECEIVABLES
Unbilled receivables consist of the following:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Fixed-price contracts $ 51,950 $ 83,240
Cost-reimbursement contracts 3,501 27,701
$ 55,451 $110,941
Unbilled receivables on fixed-price contracts arise as revenues are
recognized under the percentage of completion method. These
amounts are billable at specified dates, when deliveries are made
or at contract completion, which is expected to occur within one
year. All amounts included in unbilled receivables are related to
long-term contracts and are reduced by appropriate progress
billings.
Unbilled amounts on cost-reimbursement contracts represent
recoverable costs and accrued profits not yet billed. These
amounts are billable upon receipt of contract funding, final
settlement of indirect expense rates, or contract completion.
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, 1993 and 1992 are reduced by
allowances for estimated nonrecoverable costs of $13,165,000 and
$17,941,000, respectively.
NOTE 9. INVENTORIES
The components of inventories are as follows:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Finished goods $ 75,284 $ 65,040
Work in process 100,341 128,206
Raw materials 111,866 115,453
Long-term contract costs 9,097 20,227
Progress payments (4,441) (12,312)
292,147 316,614
Adjustment to reduce
carrying value to LIFO basis (1,824) (4,304)
$290,323 $312,310
NOTE 10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consists of the following:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Land and improvements $ 47,799 $ 48,411
Buildings and improvements 240,738 251,311
Machinery and equipment 691,412 698,942
Construction in process 49,815 56,182
1,029,764 1,054,846
Accumulated depreciation (467,141) (424,437)
$ 562,623 $ 630,409
/TABLE
NOTE 11. INDEBTEDNESS
Long-term debt is as follows:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Senior unsecured notes, at 9 5/8%,
due 1999 $150,000 $150,000
Senior unsecured notes, at 8 3/4%, due 2001 125,000 -
Medium-term notes, at weighted average
interest rate of 9.9%, payable in varying
amounts from 1996 through 2001 100,000 100,000
Private placement, at 10.27%, due 1994 15,000 50,000
Revolving credit agreement - 83,000
Senior subordinated notes, at 10 1/2%,
due 1998 33,450 247,450
Senior subordinated notes at 9 3/8%,
due 2003 175,000 -
Capital lease obligations, at weighted
average interest rates of 9.3% and 11.0%,
respectively, payable in varying amounts
through 2004 27,025 44,951
Other, at weighted average interest rates of
7.0% and 8.8%, respectively, payable in
varying amounts through 2003 22,615 31,436
648,090 706,837
Less current maturities (23,998) (16,867)
TOTAL LONG-TERM DEBT $624,092 $689,970
In December 1993, the Company entered into a new $150,000,000
revolving credit agreement with a group of banks that extends
through March 1997. This agreement replaced an existing revolving
credit agreement which was due to expire in January 1994. The rate
of interest payable under the new agreement is, at the Company's
option, a function of the prime rate or the Eurodollar rate. The
agreement requires the Company to pay a facility fee at an annual
rate of .5% of the maximum amount available under the credit line.
Under the new credit facility, borrowings up to approximately
$50,000,000 will be secured by the stock of certain of the
Company's subsidiaries. At December 31, 1993, there were no
borrowings outstanding under this facility; however, $18,500,000 of
the available credit line was used for the issuance of letters of
credit leaving $131,500,000 of unused credit available.
Revolving credit debt at December 31, 1992 was classified as
long-term, as the Company had the intent and the ability, supported
by the terms of its existing revolving credit agreement, to
maintain through January 1994 principal amounts outstanding under
the agreement.
In December 1993, the Company sold $125,000,000 of 8 3/4%
senior unsecured notes due 2001 and $175,000,000 of 9 3/8% senior
subordinated notes due 2003, pursuant to a public offering. The
net proceeds from the offering together with proceeds from the sale
of ARC Professional Services were used to repay $90,000,000 of
indebtedness under the Company's existing revolving credit
agreement, to repay $35,000,000 of the private placement due 1994
and to execute a partial in-substance defeasance of the Company's
senior subordinated notes due 1998. In December 1993, the Company
called $211,000,000 principal amount of the senior subordinated
notes for redemption in January and February of 1994 and deposited
$222,661,000 of U.S. government securities into an irrevocable
trust to cover the principal amount called, the call premium of
$9,847,000 and interest during the 30-day call period of
$1,814,000. For financial reporting purposes, the debt has been
considered extinguished; accordingly, the government securities,
$211,000,000 principal amount of senior subordinated notes due 1998
and related unamortized debt issuance costs were removed from the
Consolidated Balance Sheet at December 31, 1993 and the in-
substance defeasance transaction resulted in an extraordinary loss
of $8,524,000, net of tax benefits of $4,590,000.
Based on the borrowing rates available to the Company for debt
with similar terms and average maturities, the fair value of
current and long-term debt at December 31, 1993 is approximately
$669,000,000 compared with $648,090,000 included in the
Consolidated Balance Sheet. The estimate is based on the present
value of future debt and interest payments using specific discount
rates which take into account the Company's credit ratings and
maturity dates for each significant issue of debt.
The Company has a policy aimed at managing interest rate risk
associated with its current and future anticipated borrowings;
accordingly, the Company has entered into various interest rate
swaps, options, and similar arrangements. Any premiums paid or
received in connection with these arrangements are deferred and
amortized as yield adjustments over appropriate future periods.
During 1993, the Company received proceeds of $9,796,000 from the
early termination of interest rate swaps that were accounted for as
hedges and that effectively converted $75,000,000 of fixed-rate
debt into variable-rate borrowings. The resulting gains were
deferred and are being amortized to income over the remaining
original lives of the swaps terminated. At December 31, 1993, the
Company had outstanding interest rate swaps expiring in 1996 that
are accounted for as hedges and that effectively convert
$50,000,000 of variable-rate borrowings under short-term financing
facilities to fixed-rate borrowings with an average interest rate
of 8.7%. Based upon market interest rates at the balance sheet
date, the Company would have to pay approximately $5,200,000 to
terminate its interest rate swaps outstanding at December 31, 1993.
In addition, the Company adjusted to market value the carrying
amount of interest rate options sold which gave the buyer the
future right to enter into interest rate swaps. The resulting loss
of $6,557,000 is included in Other, net in the Consolidated
Statement of Income for 1993.
The aggregate maturities of total long-term debt during the
next five years are $23,998,000 in 1994, $10,874,000 in 1995,
$14,620,000 in 1996, $2,176,000 in 1997 and $55,818,000 in 1998.
The Company's loan agreements and indentures contain covenants
which, among other matters, restrict or limit the ability of the
Company to pay dividends, incur indebtedness, make capital
expenditures, repurchase common and preferred stock, and repurchase
the 9 3/8% senior subordinated notes due 2003. The Company must
also maintain certain ratios regarding interest coverage, leverage
and net worth, among other restrictions.
At December 31, 1993, under the terms of the Company's senior
subordinated notes due 1998, there is a $45,770,000 deficiency in
consolidated retained earnings available for the payment of cash
dividends and the repurchase of the Company's stock. As a result,
common and preferred stock dividends were not declared in the third
and fourth quarters of 1993. Under the terms of the Company's
preferred stock, upon the Company's failure to make six consecutive
quarterly dividend payments, the holders thereof, voting as a
class, will have the right to elect two members of the Board of
Directors of the Company at the next annual meeting of
shareholders. These special voting rights terminate when all
dividends in arrears have been paid. In addition, as of December
31, 1993, the Company's earnings were not sufficient to maintain a
consolidated interest coverage ratio of 2.0 to 1.0 which, pursuant
to the terms of the Company's senior notes due 2001 and the senior
subordinated notes due 2003, precludes the Company from paying
dividends among other restricted activities.
NOTE 12. INCOME TAXES
The components of income (loss) from continuing operations before
income taxes were:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
Domestic $(93,507) $ 13,371 $(15,373)
Foreign 29,492 30,429 49,392
$(64,015) $ 43,800 $ 34,019
The income tax provision (benefit) on income (loss) from continuing
operations consisted of the following:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
United States Federal
Current $ 2,084 $(20,327) $ 8,044
Deferred (19,776) 29,257 (4,154)
State and local (119) 8,280 3,916
Foreign 9,254 8,690 11,194
$ (8,557) $ 25,900 $ 19,000
The income tax provision (benefit) on income (loss) is different
from the amount computed by applying the U.S. Federal statutory
income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income
(loss) from continuing operations before income taxes. The reasons
for this difference are as follows:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
Computed income taxes at statutory
rate $(22,405) $14,892 $11,566
Foreign subsidiaries at different
tax rates 3,931 (656) (3,262)
State and local taxes, net of
Federal income tax benefit (1,164) 6,236 2,585
Investment and other tax credits - 9 3,040
Benefit from Foreign Sales Corporations (767) (1,273) (1,224)
Book basis of assets over (under)
tax basis (2,818) 6,365 7,248
Taxes on undistributed foreign
earnings 14,000 - -
Effect of tax rate change (2,012) - -
Other, net 2,678 327 (953)
$(8,557) $ 25,900 $ 19,000
As discussed in Note 1, Summary of Significant Accounting
Policies, the Company adopted SFAS No. 109 as of January 1, 1992
and the cumulative effect of this change is reported separately in
the 1992 Consolidated Statement of Income. Prior years' financial
statements have not been restated to apply the provisions of SFAS
No. 109.
The 1993 and 1992 deferred tax provision represents the change
in deferred tax liabilities and assets 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 the Company's assets and liabilities. These temporary
differences are determined in accordance with SFAS No. 109 and are
more inclusive in nature than timing differences as determined
under previously applicable accounting principles.
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities are as follows:
(Amounts in thousands)
AT DECEMBER 31, 1993
Deferred Deferred
Tax Tax
Assets Liabilities
Accounts receivable allowances $ 3,002 $ -
Inventory valuation differences 18,912 4,728
Recognition of income on
long-term contracts 646 1,286
Depreciation 12,125 59,879
Lease and finance transactions - 94,682
Accruals not currently deductible
for tax purposes 99,723 -
Taxes on undistributed foreign earnings - 14,000
Tax net operating loss carryforward 31,146 -
Tax capital loss carryforward 33,448 -
Alternative minimum tax (AMT)
credit carryforward 36,681 -
All other 26,367 16,637
Subtotal 262,050 191,212
Valuation allowance (33,448) -
Total deferred taxes 228,602 191,212
(Amounts in thousands)
AT DECEMBER 31, 1992
Deferred Deferred
Tax Tax
Assets Liabilities
Accounts receivable allowances $ 3,743 $ -
Inventory valuation differences 16,944 4,644
Recognition of income on
long-term contracts 228 7,400
Depreciation 2,652 53,446
Lease and finance transactions - 103,090
Accruals not currently deductible
for tax purposes 87,761 -
Tax net operating loss carryforward 25,602 -
Tax capital loss carryforward 32,025 -
Alternative minimum tax (AMT)
credit carryforward 48,101 -
All other 19,815 20,832
Subtotal 236,871 189,412
Valuation allowance (32,025) -
Total deferred taxes $204,846 $189,412
The Company has a tax net operating loss carryforward of
$88,989,000 at December 31, 1993 which expires in 2006 through
2008 and will be used in the periods that net deferred tax
liabilities mature. The tax capital loss carryforward of
$95,565,000 at December 31, 1993 may expire unutilized in 1994 and
1995; accordingly, a valuation allowance has been established to
reduce the deferred tax asset recorded for the capital loss
carryforward to zero. The AMT credit carryforward can be carried
forward indefinitely.
During 1991, deferred taxes were provided for timing differences
in the recognition of income and expense for tax and financial
reporting purposes. The sources of significant timing differences
generated by income from continuing operations which gave rise to
deferred taxes were as follows:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1991
Recognition of income on long-term
contracts $(2,879)
Depreciation 4,776
State and local tax provision 1,006
Inventory valuation differences (7,741)
Accruals not deductible for tax purposes (2,607)
Amortization of change from cash basis
to accrual basis 2,515
Other, net 776
$(4,154)
Note 13. Capital Stock
The Company'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 the Company, at $100 per share.
At December 31, 1993, 4,633,434 shares of Sequa Class A common
stock were reserved for conversion of preferred and Class B common
stock and stock options.
The following table summarizes shares held in treasury:
AT DECEMBER 31, 1993 1992 1991
Class A common stock 864,052 864,052 984,044
Class B common stock 396,283 396,283 396,283
Preferred stock 163,489 163,489 163,489
NOTE 14. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company sponsors various noncontributory defined benefit
pension plans covering certain hourly and most salaried employees.
The defined benefit plans provide benefits based primarily on the
participant's years of service and compensation. It has been the
Company's policy to fund domestic plans to meet the minimum funding
requirements of the Employee Retirement Income Security Act
(ERISA). Plan assets consist primarily of equity and fixed income
securities.
The status of all the Company's significant funded domestic and
foreign defined benefit plans was as follows:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Overfunded Underfunded Overfunded
Plans Plans Plans
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 64,381 $93,324 $129,911
Accumulated benefit obligation 65,451 95,865 133,659
Projected benefit obligation 72,148 105,452 151,208
Plan assets at fair value 70,966 92,144 144,872
Projected benefit obligation in
excess of plan assets 1,182 13,308 6,336
Unrecognized net transition asset
(obligation) (1,440) 7,487 6,794
Unrecognized prior service cost (1,935) 909 (760)
Unrecognized net gain (loss) 5,922 (11,105) (2,518)
Adjustment needed to recognize
minimum liability - 699 -
Total pension liability $ 3,729 $11,298 $ 9,852
Included in:
Accrued expenses 1,825 5,109 -
Other long-term liabilities 1,904 6,189 9,852
Total pension liability $ 3,729 $11,298 $ 9,852
Assumptions used in the accounting for all the Company's significant
funded domestic and foreign defined benefit plans were:
AT DECEMBER 31, 1993 1992 1991
Discount rate for obligations 7.5% 8.5% 8.5%
Rate of increase in compensation levels 4.5% 5.5% 6.0%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
The periodic net pension cost of all the Company's significant funded
domestic and foreign defined benefit plans includes the following
components:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
Service cost for benefits earned $ 7,255 $ 8,408 $ 7,699
Interest cost on projected benefit
obligation 12,532 12,170 11,502
Actual return on plan assets (25,108) (9,175) (20,690)
Net amortization and deferral 11,623 (4,838) 9,168
$ 6,302 $ 6,565 $ 7,679
The net amortization and deferral component of pension cost
includes $12,379,000 of deferred asset gains in 1993, $3,615,000 of
deferred asset losses in 1992, and $9,703,000 of deferred asset
gains in 1991. These unrecognized gains and losses resulted from
actual returns on plan assets differing from the expected returns
on plan assets. Such deferred gains and losses are subject to
amortization in future periods. Pension expense includes a
curtailment gain of $568,000 in 1992 and approximately $550,000 of
costs in 1991 attributable to employees of discontinued operations
who were participants in the Sequa Retirement Plan.
Employees not covered by the defined benefit plans discussed
above generally are covered by multiemployer plans as part of
collective bargaining agreements or small local plans. Pension
expense for these multiemployer plans and small local plans was not
significant in the aggregate.
The Company also has several nonfunded supplemental executive
retirement plans for certain key executives. These plans provide
for benefits that supplement those provided by the Company's other
retirement plans. At December 31, 1993, the accumulated benefit
obligation for these plans of $10,317,000 is included in Other
long-term liabilities in the accompanying Consolidated Balance
Sheet. The projected benefit obligation at December 31, 1993
totaled $10,904,000 and the expense for these plans was $1,919,000
in 1993, $2,221,000 in 1992, and $2,497,000 in 1991.
Most of the Company's domestic non-union employees are
eligible to participate in the Company's 401(k) plans. Expenses
recorded for the Company's matching contributions under these plans
were $7,146,000 in 1993, $8,602,000 in 1992, and $8,092,000 in
1991.
SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions," was implemented by the Company in
the first quarter of 1993. This statement requires the expected
costs of providing postretirement benefits to be accrued during the
years an employee provides services rather than the Company's past
practice of recognizing these costs on the pay-as-you-go (cash)
basis. At January 1, 1993, the Company's date of adoption, the
actuarial present value of the accumulated benefit obligation for
postretirement health care and other insurance benefits provided to
certain retirees was $3,074,000. The Company is recognizing this
transition obligation using the delayed recognition basis by
amortizing the obligation on a straight-line basis over 20 years.
The actuarial and recorded liabilities for these post-
retirement benefits, none of which have been funded, are as
follows:
(Amounts in thousands)
AT DECEMBER 31, 1993
Accumulated postretirement benefit
obligation:
Retirees $2,056
Employees fully eligible 282
Other active participants 650
Total 2,988
Unrecognized net gain 51
Unrecognized transition obligation (2,921)
Postretirement benefit liability $ 118
Net periodic postretirement benefit cost includes the following
components:
(Amounts in thousands)
YEAR END DECEMBER 31, 1993
Service cost for benefits earned $130
Interest cost on accumulated
postretirement benefit obligation 248
Amortization of the transition
obligation 153
Net periodic postretirement benefit
cost $531
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.5%, and an average health
care cost trend rate of approximately 14% progressively decreasing
to approximately 6% in the year 2008 and thereafter.
Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions
constant would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by approximately $163,000 and
increase the aggregate of the service and interest cost components
of the net periodic postretirement benefit cost for 1993 by
approximately $24,000.
NOTE 15. ACCRUED EXPENSES
The Company's accrued expenses consisted of the following items:
(Amounts in thousands)
AT DECEMBER 31, 1993 1992
Salaries and wages $ 34,052 $ 46,690
Restructuring costs 20,689 -
Current portion of environmental
liabilities 9,500 7,500
Current portion of self-insurance
liabilities 9,000 9,000
Current portion of pension liabilities 6,934 -
Warranty 9,848 5,714
Legal 6,884 6,537
Royalties 5,100 5,418
Interest 8,031 11,582
Insurance 6,402 10,459
Loss on interest rate options sold 6,557 -
Billings in excess of revenue recognized 3,037 7,580
Taxes other than income 4,962 4,906
Other 90,658 81,005
$221,654 $196,391
NOTE 16. STOCK OPTIONS
The Company has incentive and nonqualified stock option plans in
effect. As of December 31, 1993, only options on Class A common
stock remained outstanding and exercisable. At December 31, 1993,
26,722 shares of Class A common stock were available for future
grant. Summarized data relating to stock options are as follows:
Year ended Number of Average option
Options December 31, Common Shares price per share
Outstanding 1993 331,600 $32.68
Granted 1993 326,300 32.50
1992 - -
1991 4,500 53.60
Exercised 1993 - -
1992 - -
1991 9,948 36.41
Cancelled or expired 1993 157,647 63.19
1992 38,193 58.20
1991 34,224 63.24
Exercisable 1993 4,133 61.51
Available for future
grant 1993 26,722 -
1992 195,375 -
NOTE 17. OPERATING LEASES
Certain businesses of the Company utilize leased premises or
equipment under noncancelable agreements having initial or
remaining terms of more than one year. The majority of the real
property leases require the Company to pay maintenance, insurance
and real estate taxes. Rental expense totaled $24,780,000,
$25,708,000, and $28,136,000 in 1993, 1992 and 1991, respectively.
At December 31, 1993, future minimum lease payments under
noncancelable operating leases are as follows:
(Amounts in thousands)
1994 $10,585
1995 9,258
1996 7,609
1997 6,754
1998 4,464
After 1998 11,851
$50,521
NOTE 18. SEGMENT INFORMATION
Operations by business segment is presented below:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
AEROSPACE
Sales $ 983,113 $1,167,496 $1,220,617
Operating income (loss) (40,892) 75,506 76,331
Identifiable assets 1,200,782 1,257,870 1,379,561
Capital expenditures 45,418 61,991 89,265
Depreciation and amortization 79,623 84,733 75,716
MACHINERY AND METAL COATINGS
Sales $ 254,680 $ 237,998 $ 218,330
Operating income 25,919 26,596 26,835
Identifiable assets 146,231 128,960 137,977
Capital expenditures 14,984 3,961 4,557
Depreciation and amortization 6,045 6,112 5,570
SPECIALTY CHEMICALS
Sales $ 214,866 $ 229,386 $ 213,165
Operating income 35,781 40,270 36,686
Identifiable assets 128,904 126,893 126,828
Capital expenditures 11,457 19,627 22,354
Depreciation and amortization 10,819 12,079 10,383
PROFESSIONAL SERVICES AND
OTHER PRODUCTS
Sales and revenues $ 244,309 $ 233,461 $ 226,675
Operating income 18,950 8,703 5,296
Identifiable assets 78,499 175,569 188,630
Capital expenditures 4,794 6,972 6,486
Depreciation and amortization 9,779 11,356 10,731
CORPORATE
Expenses $ (24,084) $ (26,471) $ (27,458)
Identifiable assets (a) 249,105 223,176 275,261
Capital expenditures 205 134 1,164
Depreciation and amortization 3,795 3,512 1,803
TOTALS
Sales and revenues $1,696,968 $1,868,341 $1,878,787
Operating income 15,674 124,604 117,690
Identifiable assets 1,803,521 1,912,468 2,108,257
Capital expenditures 76,858 92,685 123,826
Depreciation and amortization 110,061 117,792 104,203
(a) Includes net assets of discontinued operations.
Geographic data is presented below.
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
SALES AND REVENUES
United States $1,307,559 $1,457,650 $1,472,939
Europe 389,409 410,691 405,848
Total $1,696,968 $1,868,341 $1,878,787
OPERATING INCOME
United States $ 6,160 $ 116,988 $ 93,091
Europe 33,598 34,087 52,057
Corporate expenses (24,084) (26,471) (27,458)
Total $ 15,674 $ 124,604 $ 117,690
AT DECEMBER 31, 1993 1992 1991
IDENTIFIABLE ASSETS
United States $1,237,066 $1,375,946 $1,481,196
Europe 317,350 313,346 351,800
Corporate and discontinued
operations 249,105 223,176 275,261
Total $1,803,521 $1,912,468 $2,108,257
Operating income includes all costs and expenses directly related
to the segment or geographic area. Identifiable assets are those
used in each segment's operation.
No single commercial customer accounted for more than 5% of
sales and revenues in any year.
Export sales were as follows:
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1993 1992 1991
Europe $118,666 $144,155 $137,981
Far East 69,917 85,867 90,482
Middle East 32,377 21,463 24,132
Canada 16,758 19,358 24,877
Central and South America 30,771 63,296 21,711
Other 11,474 17,242 21,683
$279,963 $351,381 $320,866
The largest single contract with any one U.S. Government agency
accounted for 2% of sales in 1993, 2% in 1992 and 4% in 1991.
Prime and subcontracts with all government agencies accounted for
22%, 23% and 27% of sales and revenues in 1993, 1992 and 1991,
respectively.
NOTE 19. GOVERNMENT INVESTIGATIONS
During the second quarter of 1993, the Company entered into
agreements with the U.S. Attorney's Office, Southern District of
New York (SDNY), and the Federal Aviation Administration (FAA) in
connection with investigations by these offices and other related
governmental agencies of the Company's Orangeburg facility and
certain of its then employees begun in November 1992. Management
believes that the investigations were in connection with
allegations that the Orangeburg facility has performed repairs on
certain parts in a defective manner and in violation of applicable
requirements. The investigations resulted in the Orangeburg
facility voluntarily surrendering its FAA repair operations in
April 1993. Gas Turbine's other operating facilities, as well as
work done for original equipment manufacturers at the Orangeburg
facility, were unaffected by the suspension.
The FAA restored the Orangeburg facility's FAA repair
station certificate on June 10, 1993, ending the suspension of
repair operations and resolving all FAA civil matters relating to
the Orangeburg facility. Subsequently, the U.S. Attorney's Office,
SDNY, entered into an agreement with the Company, under which it
declined to prosecute the Company in connection with its
investigation.
In April 1993, the Company signed a consent order with
the FAA providing for a non-punitive remedial payment by the
Company of $5,000,000, representing the costs incurred by the FAA
to investigate the Orangeburg facility and enforce its consent
decree. In addition, under the terms of the agreement with the
U.S. Attorney's Office, SDNY, the Company agreed to deposit
$2,500,000 into a fund (with up to an additional $2,500,000 to be
deposited, if needed) to cover the cost of testing and analyzing
jet engine parts seized by federal authorities during an early
stage of the investigations.
As a result of the investigations and the related
suspension, the Company incurred direct expenses in 1993 of
$12,800,000. Direct expenses included the remedial payment to the
FAA, the deposit of funds described above, severance payments and
related legal fees and expenses.
NOTE 20. CONTINGENCIES
At December 31, 1993, the Company was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
approximately $66,271,000. In addition, the Company is involved in
a number of claims, lawsuits and proceedings (environmental and
otherwise) which arose in the ordinary course of business. Other
litigation is pending against the Company involving allegations
that are not routine and include, in certain cases, compensatory
and punitive damage claims. Included in this other class of
litigation is an arbitration
proceeding that was formally commenced in 1992 to resolve a dispute
between the Egyptian Air Force and Chromalloy Gas Turbine. In the
damage portion of the arbitration hearing in October 1993,
Chromalloy Gas Turbine claimed $29,600,000 in damages (which
includes $17,500,000 of net assets in the accompanying Consolidated
Balance Sheet) and the Egyptian Air Force counterclaimed for
$46,500,000 in damages.
The ultimate legal and financial liability of the
Company 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 such matters,
its experience to date and discussions with counsel, the ultimate
outcome of these contingencies, net of liabilities already accrued
in the Company's Consolidated Balance Sheet, is not expected to
have a material adverse effect on the results of operations or
financial position of the Company.
NOTE 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Amounts in thousands except per share)
1993 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
Sales and revenues $427,221 $412,402
Cost of sales and revenues 342,954 349,316
Restructuring charges - 7,640
Operating income (loss) 16,463 (4,223)
Gain on sale of ARC Professional Services - -
Loss from continuing operations (3,495) (18,547)
Extraordinary loss - -
Net loss $ (3,495) $(18,547)
Loss per share:
Continuing operations $ (.44) $ (2.00) $
Extraordinary loss - - - (.88)
Net loss $ (.44) $ (2.00) $
1992 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
Sales and revenues $460,867 $474,396
Cost of sales and revenues 365,308 373,682
Operating income 31,153 34,976
Income from continuing operations 3,352 5,136
Loss from discontinued operations - -
Income (loss) before cumulative effect
of accounting change 3,352 5,136
(17,724) (3,800)
Cumulative effect of accounting change (7,337) -
Net income (loss) $ (3,985) $ 5,136
Earnings (loss) per share:
Continuing operations $ .27 $ .45 $
Discontinued operations - - -
Income (loss) before cumulative
effect of accounting change .27 .45
Cumulative effect of accounting change (.76) - - -
Net income (loss) $ (.49) $ .45 $
Net loss in the fourth quarter of 1993 includes a deferred tax provision of $14,000,000 for the estimated
income tax liability that will be incurred upon the anticipated repatriation of approximately $65,000,000
of foreign undistributed earnings in the form of dividends. Loss from discontinued operations for the
fourth quarter of 1992 includes a pre-tax charge of $35,000,000, or a reduction of earnings per share of
$2.26, to provide for additional losses on the disposal of operations discontinued during 1991.
/TABLE
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. 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
Registrant:
Name Age Position Held
Norman E. Alexander (1) 79 Chairman of the Board, Chief
Executive Officer and Director
John J. Quicke (2) 44 President, Chief Operating
Officer and Director
Stuart Z. Krinsly (1) 76 Senior Executive Vice President-
General Counsel and Director
Gerald S. Gutterman (1) 65 Executive Vice President -
Finance and Administration
Antonio L. Savoca (3) 70 Senior Vice President -
Atlantic Research Operations
Martin Weinstein (4) 58 Senior Vice President -
Gas Turbine Operations
Ronald H. Wright (5) 60 Senior Vice President - Kollsman
(1) Has served in the same or similar capacity for more than the
past ten years.
(2) President and Chief Operating Officer - Sequa Corporation
since March 1993; Senior Executive Vice President, Operations,
- Sequa Corporation from June 1992 to March 1993; from
February 1991 to June 1992, served as Vice President,
Financial Services, of the Company; from 1987 to February
1991, served as Vice President, Financial Projects, of the
Company. Served as Vice President and Controller of
Chromalloy American Corporation (which became a subsidiary of
the Company in 1987) from 1983 to 1987, and held various other
positions in Chromalloy American Corporation from 1979 to
1983. Has also served as President of Sequa Capital
Corporation (a subsidiary of the Company) since February 1991.
Has been a director of the Company since March 1993 and is a
member of the Executive Committee.
(3) Senior Vice President - Atlantic Research Operations since
February 1991; Vice President - Atlantic Research Operations
from April 1990 to February 1991. Also serves as President
and Chief Executive Officer of Atlantic Research Corporation
and has held those positions since October 1989. From
September 1985 to October 1989, Mr. Savoca served as a
consultant to a number of companies, including Atlantic
Research Corporation. From 1983 to September 1985, he was
Chief Executive Officer of Transpace Carriers, Inc. From 1963
to 1983, he held planning and management positions with
Thiokol Corporation, including, most recently, senior vice
president and general manager of its solid rocket motor
division.
(4) Vice President - Gas Turbine Operations since May 1987 and
Senior Vice President since February 1988. Also serves as
Chairman and Chief Executive Officer of Chromalloy Gas Turbine
Corporation (since January 1987) and previously was President
of the CompTech Group of Chromalloy American Corporation.
(5) Vice President and General Manager of Kollsman since August
1985 and Senior Vice President since February 1988.
Previously, he was employed by Sperry Corporation where he
served as Vice President of Sperry Defense Group from 1978 to
1983; Vice President of Operations for defense electronics
products/northwest at Sperry from 1983 to July 1985.
Sequa is not aware of any family relationship among any of the
above-named executive officers. Each of such officers holds his
office for a term expiring on the date of the annual organization
meeting of the Board of Directors, subject to the provisions of
Section 5 of Article IV of the Company's By-Laws relative to
removal of officers.
ITEMS 10 (IN PART) THROUGH 13
The Company intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A
involving the election of directors not later than 120 days after
the end of its fiscal year ended December 31, 1993. Accordingly,
the information required by Part III (Items 10 (concerning Sequa's
directors and disclosure pursuant to Item 405 of Regulation S-K),
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. 29
Consolidated Balance Sheet as of December 31,
1993 and 1992. 30-31
Consolidated Statement of Income for the three
years ended December 31, 1993. 32
Consolidated Statement of Cash Flows for the three
years ended December 31, 1993. 33
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1993. 34
Notes to Consolidated Financial Statements. 35-59
2. Financial Statement Schedules:
The following financial statement schedules are
included in Part IV of this report:
Report of Independent Public Accountants on
Supplemental Schedules. 68
Schedule II Amounts Receivable from Related
Parties, Underwriters, Promoters
and Employees other than Related
Parties 69
Schedule V Property, Plant and Equipment 70
Schedule VI Accumulated Depreciation of
Property, Plant and Equipment 71
Schedule VIII Valuation and Qualifying Accounts 72
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is given in the financial statements or notes thereto.
3. Exhibits
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
3.1 - Restated Certificate of Incorporation of Sequa and two
Certificates of Amendment of the Restated Certificate
of Incorporation of Sequa (incorporated by reference
to Exhibit 4(a) of Sequa's Registration Statement No.
33-12420 on Form S-8 filed on March 6, 1987).
3.2 - Certificate of Amendment of Certificate of
Incorporation of Sequa, dated May 7, 1987
(incorporated by reference to Exhibit 3(b) of Sequa's
Annual Report on Form 10-K for the year ended December
31, 1988, filed on March 28, 1989).
3.3 - Restated and amended (as of August 26, 1993) By-laws
of Sequa, (incorporated by reference to Exhibit 3.3 of
Sequa's Registration Statement No. 33-50843 on Form S-
1, filed on October 29, 1993).
4.1 - Indenture, dated as of December 15, 1993, by and
between Sequa and Bankers Trust Company, as Trustee,
and Form of 9 3/8% Senior Subordinated Note due
December 15, 2003 (incorporated by reference to
Exhibits 4.7 and 4.3, respectively, of Sequa's
Registration Statement on Form 8-A, File No. 1-804,
filed on January 25, 1994).
4.2 - Indenture, dated as of December 15, 1993, by and
between Sequa and IBJ Schroder Bank & Trust Company,
as Trustee, and Form of 8 3/4% Senior Note due
December 15, 2001 (incorporated by reference to
Exhibits 4.6 and 4.2, respectively, of Sequa's
Registration Statement on Form 8-A, File No. 1-804,
filed on January 25, 1994).
4.3 - Indenture with respect to $250,000,000 of Sequa
10-1/2% senior subordinated notes due 1998
(incorporated by reference to Amendment No. 1 to Form
S-3 Registration Statement No. 33-21047 filed on April
17, 1988).
4.4 - 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).
4.5 - 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).
4.6 - Prospectus Supplement, dated October 19, 1989, for
$150 million of senior unsecured 9 5/8% Notes due
October 15, 1999 (incorporated by reference to Sequa's
filing under Rule 424 (b)(2) on October 20, 1989).
4.7 - Purchase Agreement, dated October 19, 1989, by and
between Sequa and certain Underwriters, and Form of
Supplemental Indenture, dated as of October 15, 1989,
both with respect to $150 million of senior unsecured
9 5/8% Notes due October 15, 1999 (incorporated by
reference to Sequa's Report on Form 8-K, File No. 1-
804, filed on October 25, 1989) and Form of 9 5/8%
Note (incorporated by reference to Exhibit 4.1 of
Sequa's Registration Statement on Form 8-A, File No.
1-804, filed on January 25, 1994).
4.8 - Prospectus and Prospectus Supplement, both dated April
22, 1991, with respect to $100 million of medium-term
notes (incorporated by reference to Sequa's filing
under Rule 424 (b)(5) on April 23, 1991).
4.9 - Sales Agency and Distribution Agreement, executed as
of April 22, 1991, by and among Sequa and Bear,
Stearns & Co., Inc. and Merrill Lynch & Co., with
respect to $100 million of medium-term notes, and
Forms of Notes thereunder (incorporated by reference
to Exhibits 4.1 and 12.1 of Sequa's Report on Form
8-K, File No. 1-804, filed on April 25, 1991).
4.10 - Instruments with respect to other long-term debt of
Sequa and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K
since the amount of debt authorized under each such
omitted instrument does not exceed 10 percent of the
total assets of Sequa and its subsidiaries on a
consolidated basis. Sequa hereby agrees to furnish a
copy of any such instrument to the Securities and
Exchange Commission upon request.
10.1 - Amended and Restated Receivables Purchase Agreement,
dated as of June 24, 1993, among Sequa, Sequa
Receivables Corp., Chemical Bank, Barton Capital
Corporation and Westpac Banking Corporation
(incorporated by reference to Exhibit 10.1 of Sequa's
Report on Form 8-K, File No. 1-804, filed on July 12,
1993) and Amendments No. 1 (dated as of September 30,
1993), No. 2 (dated as of December 1, 1993) and No. 3
(dated as of December 14, 1993) thereto (filed
herewith).
10.2 - $150 Million Amended and Restated Credit Agreement,
dated as of December 14, 1993, among Sequa
Corporation, The Bank of New York, The Bank of Nova
Scotia, Chemical Bank, Bank of America NT & SA, Chase
Manhattan Bank, N.A. and The Nippon Credit Bank, Ltd.
and certain other lenders (filed herewith).
10.3 Stock Purchase Agreement, dated December 30, 1993, by
and among Sequa and various of its affiliates and
Computer Sciences Corporation and its affiliates, in
connection with the sale of ARC Professional Services
Group, Inc., and certain related entities
(incorporated by reference to Exhibit 10.1 of Sequa's
Report on Form 8-K, File no. 1-804, filed on January
15, 1994).
COMPENSATORY PLANS OR ARRANGEMENTS
10.4 - 1986 Key Employees Stock Option Plan (incorporated by
reference to Annex B of Sequa's Registration Statement
No. 33-12420 on Form S-8 filed March 6, 1987).
10.5 - 1988 Key Employees Stock Option Plan (incorporated by
reference to Annex A of Sequa's Registration Statement
No. 33-30711 on Form S-8 filed August 25, 1989).
10.6 - 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,
for the year ended December 31, 1991, filed on March
30, 1992).
10.7 - Management Incentive Bonus Program of Sequa for
Corporate Executive Officers and Corporate Staff
(filed herewith).
10.8 - Management Incentive Bonus Programs of Atlantic
Research Corporation for Corporate Staff (filed
herewith).
10.9 - 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).
10.10 - 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).
10.11 - 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).
10.12 - Employment Agreement, dated May 6, 1991, by and
between Antonio L. Savoca and Sequa, (incorporated by
reference to Exhibit 10(1) of Sequa's Annual Report on
Form 10-K for the year ended December 31, 1991, filed
on March 30, 1992). Amendment thereto, dated August
18, 1992 (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, 1992, filed on March
31, 1993); and Amendment thereto, dated June 10, 1993
(filed herewith).
10.13 - 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) and Amendment thereto, dated
as of June 1, 1993 by and between Chromalloy Gas
Turbine Corporation and Martin Weinstein (incorporated
by reference to Exhibit 10.14 of Sequa's Registration
Statement No. 33-50843 on Form S-1 filed on October
29, 1993).
10.14 - 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).
10.15 - 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).
10.16 - Exec-U-Care Medical Reimbursement Insurance Trust of
Atlantic Research Corporation, (incorporated by
reference to Exhibit 10(q) 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).
10.17 - Cafeteria Plan of Atlantic Research Corporation,
(incorporated by reference to Exhibit 10(r) 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 Retirement Program of Atlantic Research
Corporation, (incorporated by reference to Exhibit
10(s) 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).
11.1 - Computation of earnings per share, filed herewith.
21.1 - List of subsidiaries of Sequa, filed herewith.
24.1 - Consent of Independent Public Accountants, filed
herewith.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the last quarter of
1993.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES
To Sequa Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Sequa
Corporation's Annual Report on Form 10-K, and have issued our
report thereon dated March 21, 1994. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
The schedules listed in Item 14(a)2 are the responsibility of the
Company's management and are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
New York, New York
March 21, 1994
SCHEDULE II
SEQUA CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
(Thousands of Dollars)
Balance,
Beginning Balance
Name of Debtor of year Additions Deductions End of Year
Year Ended December 31, 1993:
[1] J. Quicke $ - $300 $ - $300
[2] M. Weinstein $ - $300 $ - $300
[1] President, Chief Operating Officer and Director. In connection with Mr.
Quicke's relocation to New York, the Company made a $300 interest-free
loan, payable on demand, and secured by a second mortgage on his new
home.
[2] Senior Vice President, Gas Turbine operations. In connection with Mr.
Weinstein's relocation to New York, the Company has made a $300
interest-free loan payable in 1997.
SEQUA CORPORATION AND SUBSIDIARIES SCHEDULE V
PROPERTY, PLANT, AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Thousands of Dollars)
Balance Other Balance
at Additions changes at
beginning at Translation add (deduct) end
Classification of year cost (1) Retirements adjustment (2) of year
YEAR ENDED
DECEMBER 31, 1993
Land and improvements $ 48,411 $ 1,613 $ (268)
Building and improvements 251,311 5,191 (5,881)
Machinery and equipment 698,942 48,653 (47,826)
Construction in progress 56,182 42,246 -
$1,054,846 $ 97,703 $(53,975)
YEAR ENDED
DECEMBER 31, 1992
Land and improvements $ 48,021 $ 913 $ (4)
Building and improvements 237,554 4,595 (6,173)
Machinery and equipment 655,160 42,873 (17,258)
Construction in progress 79,238 44,304 -
$1,019,973 $ 92,685 $(23,435)
YEAR ENDED
DECEMBER 31, 1991
Land and improvements $ 39,850 $ 5,241 $ (1,088)
Building and improvements 211,617 14,574 (3,986)
Machinery and equipment 544,094 56,030 (20,002)
Construction in progress 50,771 47,981 -
$846,332 $123,826 $(25,076)
NOTE:
(1) 1993 includes $20,845 of machinery and equipment reacquired under sale and leaseback transactions.
(2) 1993 includes $58,112 of property, plant and equipment of businesses sold. 1992 includes a $9,123
write-down of excess equipment to net realizable value and a $6,863 increase in fixed assets acquired
in purchase business combinations which resulted from the adoption of SFAS 109, "Accounting for
Income Taxes." 1991 includes $73,460 of property, plant and equipment of companies acquired during
the year. This column also includes transfers from construction in progress to the other various
classes of fixed assets for all three years.
SEQUA CORPORATION AND SUBSIDIARIES SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT, AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Thousands of Dollars)
Balance Additions Other Balance
at charged to changes at
beginning cost and Translation add (deduct) end
Classification of year expenses(1) Retirements adjustment (2) of year
YEAR ENDED
DECEMBER 31, 1993
Land and improvements $ 1,383 $ 531 $ - $
Building and improvements 73,183 15,440 (1,888)
Machinery and equipment 349,871 77,259 (15,157)
$424,437 $93,230 $ (17,045) $
YEAR ENDED
DECEMBER 31, 1992
Land and improvements $ 893 $ 504 $ (1) $
Building and improvements 65,275 15,254 (5,943)
Machinery and equipment 288,013 83,546 (9,454) (
$354,181 $99,304 $(15,398) $(
YEAR ENDED
DECEMBER 31, 1991
Land and improvements $ 724 $ 172 $ (3) $
$ - $ 893
Building and improvements 53,716 13,773 (2,491)
Machinery and equipment 231,073 75,861 (18,269)
$285,513 $89,806 $(20,763) $
NOTE:
(1) Depreciation is generally provided on the straight-line method based upon the estimated useful
lives of the various classes of assets.
(2) In 1993, Other changes primarily represents the accumulated depreciation on the property, plant and
equipment of businesses sold.
SEQUA CORPORATION AND SUBSIDIARIES SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
Additions Other
Balance Charged to Deductions Changes Balance
Beginning Costs and from Additions End of
Description of Year Expenses Reserves (Deductions) Year
Year Ended December 31, 1993:
Reserves deducted from balance sheet
captions to which they apply-
Allowance for billed receivables $11,419 $ 4,178
Allowance for unbilled receivables 17,941 2,873
Reserve for losses of
discontinued operations 43,321 -
Year Ended December 31, 1992:
Reserves deducted from balance sheet
captions to which they apply-
Allowance for billed receivables $17,758 $ 2,706
Allowance for unbilled receivables 14,788 3,822
Reserve for losses of
discontinued operations 23,444 35,000
Year Ended December 31, 1991:
Reserves deducted from balance sheet
captions to which they apply-
Allowance for billed receivables $11,003 $ 7,690
Allowance for unbilled receivables 13,832 6,496
- 14,788
Reserve for losses of
discontinued operations 25,314 25,000
Note:
(1) Allowance for billed receivables of business sold.
(2) Allowance for unbilled receivables of business sold.
(3) EPA liabilities reclassified to other long-term liabilities.
(4) Allowance for billed receivables of businesses acquired.
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 24, 1994 By: /S/ GERALD S. GUTTERMAN
Gerald S. Gutterman
Executive Vice President,
Finance and Administration
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
24, 1994.
By: /S/ NORMAN E. ALEXANDER Chairman of the Board, Chief Executive
Norman E. Alexander 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/ GERALD S. GUTTERMAN Executive Vice President, Finance and
Gerald S. Gutterman Administration
By: /S/ WILLIAM P. KSIAZEK Vice President and Controller
William P. Ksiazek
By: Director
Alvin Dworman
By: /S/ A. LEON FERGENSON Director
A. Leon Fergenson
By: /S/ RAYMOND FRANKEL Director
Raymond Frankel
By: /S/ DAVID 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: Director
Gerald Tsai, Jr.