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UNITED STATES
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, 1997 Commission file number 1-804
SEQUA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1885030
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) dentification No.)
200 Park Avenue, New York, New York 10166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 986-5500
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ---------------------------
Class A Common Stock, no par value New York Stock Exchange
Class B Common Stock, no par value New York Stock Exchange
$5.00 Cumulative Convertible
Preferred Stock, $1.00 Par Value New York Stock Exchange
9-5/8% 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
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of registrant's voting stock (Common and Preferred)
held by nonaffiliates as of March 10, 1998 was $290,783,352
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
Class Outstanding at March 10, 1998
----- -----------------------------
Class A Common Stock, no par value 6,842,652
Class B Common Stock, no par value 3,329,780
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its annual meeting of
stockholders scheduled to be held on May 7, 1998 are incorporated herein by
reference into Part III.
SEQUA CORPORATION
FORM 10-K
* * * * * * *
PART I
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ITEM 1. BUSINESS
- -----------------
(a) General development of business. Sequa Corporation is a
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diversified industrial company that produces a broad range of
products through operating units in four industry segments:
Aerospace, Machinery and Metal Coatings, Specialty Chemicals, and
Other Products. Sequa Corporation, incorporated in 1929, is
hereinafter sometimes referred to as the "Registrant" and,
together with its consolidated subsidiaries, is hereinafter
sometimes referred to as the "Company" or "Sequa." Information
with respect to material acquisitions and dispositions is
included in Note 14 to the Consolidated Financial Statements on
pages 56 and 57 of this Annual Report on Form 10-K and is hereby
incorporated by reference.
(b) Financial information about industry segments. Segment
----------------------------------------------
information is included in Note 18 to the Consolidated Financial
Statements on page 60 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 two operating units:
Chromalloy Gas Turbine and ARC Propulsion.
Chromalloy Gas Turbine. Gas Turbine, the largest of Sequa's
operating units, repairs and manufactures components for jet
aircraft engines. A major independent supplier in the repair
market, Gas Turbine provides domestic and international airlines
with technologically advanced repairs and coatings for turbine
airfoils and other critical engine components. The unit also
supplies components to the manufacturers of jet engines and
serves both the general aviation and military markets.
Gas Turbine has built on its metallurgical process
technologies to develop procedures that permit the repair and
reuse of turbine engine components. Management believes
Gas Turbine has played a key role in the development of the
repair market for certain jet engine parts. Over the years, Gas
Turbine has continued to invest in research and development
projects that have led to ceramic coatings, vacuum plasma
coatings, advanced laser drilling and welding, and diffused
precious metal/aluminide coatings. Gas Turbine has introduced a
series of innovative and in some cases proprietary processes that
allow engines to perform at improved efficiency levels, at higher
operating temperatures and under severe environmental conditions.
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
engineered 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 has been to pursue opportunities
to develop products for commercial markets in order to reduce its
reliance on defense-related business. ARC has pioneered the
development of hybrid inflators for automotive airbags and
production of energetic materials for airbag deployment. In
early 1998, ARC moved to further its role in the automotive
market through the purchase of its partner's share of a venture
that produces airbag inflators.
Machinery and Metal Coatings Segment
- ------------------------------------
The Company's Machinery and Metal Coatings segment is
composed of Precoat Metals, Sequa Can Machinery and MEGTEC
Systems.
Precoat Metals. The largest individual unit of the segment,
Precoat Metals is a leader in the application of protective and
decorative 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, agricultural and residential sectors. Precoat also
serves the container industry, where the division has established
a position in the application of coatings to steel and aluminum
stock used to fabricate metal cans and can lids. In addition,
the division has established a presence in other product markets,
including heating, ventilating and air conditioning units, truck
trailer panels and office equipment.
Sequa Can Machinery. Sequa Can Machinery designs and
manufactures equipment for the two-piece can industry. At a
facility on the East Coast, Sequa Can Machinery manufactures
high-speed equipment to coat and decorate two-piece beverage
cans. With the largest installed base of equipment in the field,
Sequa Can Machinery also supplies upgrade kits and spare parts
and maintains an extensive support service program. The
division's product development team has improved the technology
of precision printing to achieve higher speeds without
compromising quality. The current generation of equipment runs
at a rate of 2,000 cans per minute, applying an even base coat
and printing crisp, clear images in up to eight colors. At its
West Coast plant, Sequa Can Machinery produces equipment used to
form the cup and body of two-piece metal cans. The latest
generation of cupping equipment supports two high speed can
lines, producing more than 4,500 shallow cups per minute. The
company's newest bodymaker operates at a rate up to 500 cans per
minute.
MEGTEC Systems. MEGTEC, which was formed in 1997 through
the combination of MEG with recently acquired TEC systems,
supplies equipment for the web offset printing industry,
including pasters and splicers, web guides, infeeds, chill stands
and related equipment for high-speed web presses. MEGTEC's
products also include air flotation dryers for paper and printing
uses and emission control systems for industrial applications.
Specialty Chemicals Segment
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The two operations that make up the Company's Specialty
Chemicals segment, Warwick International and Sequa Chemicals,
serve distinctly different markets with performance-enhancing
additives for a broad range of end products.
Warwick International. 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 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 US, are used in
international markets, primarily in Europe. The unit also
markets and distributes diverse chemical products in Europe
including plastics, resins, paints and cosmetics.
Sequa Chemicals. Sequa Chemicals manufactures high-quality
performance-enhancing chemicals for the paper, textile and other
industries. For the paper industry, Sequa Chemicals produces key
synthetic coating additives for coated papers including
Reactopaque, which increases the opacity of finished paper
primarily used by the newsprint industry. 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. In addition, Sequa Chemicals has
developed and patented a unique series of specialty emulsion
polymers for a broad range of commercial applications, including
roofing mat, industrial filtration systems and tape release
coatings.
Other Products Segment
- ----------------------
This segment includes three primary businesses: Casco
Products, the men's apparel unit and Northern Can Systems.
Casco Products. Casco, which has been serving the
automotive products market since 1921, is the world's leading
supplier of automotive cigarette lighters. Casco also offers a
growing line of automotive accessories, led by a series of
electronic devices to monitor automotive fluid levels. These
products are presently used as gauges for engine oil and engine
coolant and may also be used to monitor brake, transmission and
power steering fluids. Casco's other products include auxiliary
power outlets and daytime running lights.
Men's Apparel. The men's apparel unit designs and
manufactures men's formalwear and accessories marketed under the
labels Raffinati, Oscar de la Renta and After Six.
Northern Can Systems (NCS). NCS, which was sold in December
1997, supplied the domestic and international food processing
market with easy-open lids for cans.
Principal Products
------------------
The percentage of Sequa's consolidated sales contributed by
each class of similar products, which accounted for 10 percent or
more of such consolidated sales during the last three fiscal
years, is as follows:
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Gas Turbine 46% 44% 39%
Precoat Metals 13% 12% 12%
ARC Propulsion 11% 10% 10%
Markets and Methods of Distribution
-----------------------------------
Gas Turbine markets its gas turbine engine component
manufacturing and repair services primarily to the major airlines
of the world, manufacturers of commercial jet engines, and the
military. Gas Turbine's products and services 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 Gas Turbine has had a long-term relationship.
Sequa markets its rocket propulsion systems generally on a
subcontract basis under various defense programs of the United
States Government. Among the programs currently in production
are the Army Extended Range Multiple Launch Rocket System,
Extended Range Army Tactical Rocket System, Javelin, Stinger,
Tomahawk, Standard Missile, Sidewinder, and Patriot Advanced
Capability (PAC-3) missile system. In addition, ARC Propulsion
markets it automotive airbag components to the automotive
industry through its two joint ventures, BAICO and BAG SpA. In
January 1998, the Company increased its ownership in BAICO to
100%.
Sequa's Machinery and Metal Coatings Segment sells its
machinery products directly to the container industry, as well as
to the web printing and paper industries and other converting
customers. The metal coatings business sells its coating
services to regional steel and aluminum producers, building
product manufacturers, merchant can makers and manufacturers of
other diverse products.
The Specialty Chemicals Segment sells textile chemicals
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.
Specialty polymers are sold directly to the producers of roofing
mats, industrial filters, and tape and label products.
The automotive products subsidiary sells cigarette lighters,
power outlets and various electronic monitoring devices directly
to the automotive industry. The men's apparel unit sells its
formalwear to rental and retail customers, primarily through
independent sales representatives.
Competition
-----------
There is significant competition in the industries in which
Sequa operates, and, in several cases, 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 and can forming
equipment, the world's largest supplier of automotive cigarette
lighters, one of the largest manufacturers of permanent press
textile finishing resins and the largest supplier of men's
formalwear 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 commercial and
military jet aircraft. Gas Turbine's divisions compete for
turbine engine repair business with a number of other companies,
including the original equipment manufacturers (OEMs). Such OEMs
generally have obligations (contractual and otherwise) to approve
vendors to manufacture components for their engines and/or
perform repair services on their engines and components. Gas
Turbine has a number of such approvals, including licensing
agreements, which allow it to manufacture and repair certain
components of flight engines. The loss of approval by one of the
major OEMs to manufacture or repair components for such OEM's
engines could have an adverse effect on Chromalloy, although
management believes it has certain actions available to it to
mitigate the adverse effect.
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
US Government's need for alternative sources of supply under
these contracts.
Sequa's Precoat Metals operation is the leading independent
domestic coil coater of steel for metal building panels. Sequa's
cylindrical can decorating and can forming equipment operations
are world leaders in their markets. MEGTEC is a major
international supplier of auxiliary press equipment, air
flotation dryers and emission control equipment.
Sequa's Specialty Chemicals segment competes in each of its
markets with a number of other manufacturers, some of which are
larger and have greater resources than Sequa. The units in this
segment compete on the basis of product development, technical
service, quality and price.
Sequa's automotive products manufacturer is the world's
leading producer of cigarette lighters for both the original
equipment market and the auto aftermarket. The men's apparel
unit is the leading domestic producer of men's formalwear and
competes on the basis of design, quality of manufacturing and
price.
Raw Materials
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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
----------------
With the exception of the Company's men's apparel business,
which has stronger sales in the first six months of the year,
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
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Backlog information is included in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations on page 24 of this Annual Report on Form 10-K and is
hereby incorporated by reference.
Research and Development
------------------------
Research and development costs, charged to expense as
incurred, amounted to approximately $13.3 million in 1997, $12.9
million in 1996 and $15.2 million in 1995.
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 class
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. A settlement
was reached in the class action in which the Company paid $1.8
million in 1997. The Borough action has been settled in
principle, by which the Company has agreed to pay $1.8 million.
The Pennsylvania Department of Environmental Protection
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 US 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 approximately $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
Gas Turbine, to investigate and to take appropriate corrective
action in connection with alleged groundwater contamination in
Stuart, Florida. The contamination is alleged to have arisen
from a 1985 fire which occurred at TCT's former facility in
Stuart. The City of Stuart has subsequently constructed and is
operating a groundwater remediation system. The Company
negotiated a conditional settlement with the City of Stuart in
October 1994 whereby it would contribute its ratable share of the
capital and operating costs for the groundwater treatment system.
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
beginning when the Order is unconditionally entered.
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 (RI/FS) relating to the alleged contamination
in the vicinity of the former Gas Turbine site. The RI/FS is not
yet completed.
It is the Company's policy to accrue environmental
remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be
reasonably estimated. At December 31, 1997, the potential
exposure for such future costs is estimated to range from $16
million to $33 million, and the Company's balance sheet includes
accruals for remediation costs of $28.7 million. These accruals
are at undiscounted amounts and are included in accrued expenses
and other noncurrent liabilities. While the possibility of
further recovery of some of the costs from insurance companies
exists, the Company does not recognize these recoveries in its
financial statements until they are realized. Actual costs to be
incurred at identified sites in future periods may vary from the
estimates, given inherent uncertainties in evaluating
environmental exposures.
With respect to all known environmental liabilities, the
Company's actual cash expenditures for remediation of previously
contaminated sites were $9.7 million in 1997, $10.0 million in
1996 and $10.6 million in 1995. The Company anticipates that
remedial cash expenditures will be in the $8 million to $14
million range during 1998 and between $6 million and $8 million
during 1999. The Company's capital expenditures for projects to
eliminate, control or dispose of pollutants were $4.6 million,
$1.7 million and $1.6 million in 1997, 1996 and 1995,
respectively. The Company anticipates environmental-related
capital programs to be approximately $4 million during 1998 and
$2 million during 1999. The Company's operating expenses to
eliminate, control and dispose of pollutants have averaged
approximately $11 million per year during the last three years.
The Company anticipates that environmental operating expenses
will be approximately $12 million per year during 1998 and 1999.
Employment
----------
At December 31, 1997, Sequa employed approximately 11,000
persons of whom approximately 2,700 were covered by union
contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 1997 was:
Approximate
Segment Number of Employees
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Aerospace 7,400
Machinery and Metal Coatings 1,800
Specialty Chemicals 700
Other Products 1,000
Corporate 100
------
Total 11,000
======
The Company considers its relations with employees to be
generally satisfactory. Sequa maintains a number of employee
benefit programs, including life, medical and dental insurance,
pension and 401(K) plans.
(d) Foreign Operations. Sequa's consolidated foreign operations
-------------------
include Gas Turbine's operations in England, France, Israel,
Japan, Mexico, Netherlands and Thailand within the Aerospace
Segment; detergent chemicals operations in Wales and chemical
distribution operations in France, Italy, Spain and Portugal
within the Specialty Chemicals Segment; the auxiliary press
equipment suppliers in France, Germany, Singapore, Sweden and the
United Kingdom within the Machinery and Metal Coatings Segment;
and an automotive products operation in Italy in the Other
Products Segment. Sales, operating income and identifiable
assets attributable to foreign operations, and export sales, are
set forth in Note 18 to the Consolidated Financial Statements on
page 61 of this Annual Report on Form 10-K and are incorporated
herein by reference.
ITEM 2. PROPERTIES
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Aerospace
- ---------
Gas Turbine operates over 40 plants in eleven states and
seven foreign countries, which have aggregate floor space of
approximately 3,350,000 square feet, of which approximately
1,750,000 square feet is owned and approximately 1,600,000 square
feet is leased. The leases covering facilities used in this
business have various expiration dates, and some have renewal or
purchase options.
Rocket propulsion operations lease two principal
manufacturing facilities, a 421-acre site in Gainesville,
Virginia, and a 955-acre manufacturing facility in Camden,
Arkansas. The Gainesville lease expires in 2012, and the Camden
lease, which has various renewal options to 2014, expires in
1998. Adjacent to the Gainesville leased facility, the Company
owns 12 acres and an 89,000 square foot office and manufacturing
complex. An additional 134,000 square feet is leased for
administrative, research and manufacturing purposes in Alabama,
California, Massachusetts and Virginia. The liquid propulsion
division leases a 96,000 square foot facility in Niagara, New
York. The Company also owns 2,454 acres of land in Orange
County, Virginia, which has been developed for use in the
propellant business.
Facilities in this segment are suitable and adequate for the
business and are operating at a moderate level of utilization.
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 Sequa Can Machinery operation owns two plants in the
United States with aggregate floor space of 228,000 square feet
and leases manufacturing and office space of approximately 16,000
square feet. MEGTEC owns manufacturing and office facilities in
De Pere, Wisconsin with aggregate floor space of 314,000 square
feet and a plant in France with aggregate floor space of
approximately 62,000 square feet. MEGTEC also leases a
manufacturing plant and four sales offices and owns a storage
facility in Europe with a total of 96,000 square feet and leases
a 2,500 square foot sales office in Singapore. The Precoat
Metals operation owns seven manufacturing facilities in six
states with a total of 1,140,000 square feet of manufacturing and
office space. An additional 142,000 square feet of office and
warehouse space is leased in Illinois and Missouri.
The properties in this segment are suitable and adequate for
the business presently being conducted. With the exception of
most coil coating lines, which have high utilization rates, the
facilities in this segment are functioning at a moderate level of
utilization.
Specialty Chemicals
- -------------------
Units within the Specialty Chemicals segment own a plant and
an office building situated on 88 acres in South Carolina with
aggregate floor space of 164,000 square feet, a plant and an
office building situated on 22 acres in North Carolina with
aggregate floor space of 142,000 square feet, and a plant in the
United Kingdom with aggregate floor space of 203,000 square feet
on approximately 55 acres of land. Units within the segment also
lease a 22,000 square foot warehouse in South Carolina and 8,000
square feet of office and warehouse space in six separate
locations in Europe.
Facilities in this segment are adequate and suitable for the
business being conducted. Except for the plant in North
Carolina, facilities within this segment operate at a high
utilization rate.
Other Products
- --------------
The automotive products subsidiary, Casco Products, leases a
168,000 square foot plant in Connecticut, a 1,600 square foot
sales office in Detroit, Michigan, and a 30,000 square foot
manufacturing facility in Italy. The men's apparel unit owns
manufacturing and office facilities in Athens, Georgia with
aggregate floor space of approximately 138,000 square feet. This
unit also leases 4,000 square feet of office space in Hackensack,
New Jersey and New York, New York of which 1,200 square feet is
sublet.
The Centor Company, a wholly-owned subsidiary, owns nine
small properties that are either leased to third parties and/or
held for sale.
Facilities in this segment are adequate and suitable for the
business being conducted. Casco Products' leased facilities and
the men's apparel unit's owned facilities operate at high
utilization rates.
Corporate
- ---------
The Company leases 56,000 square feet of corporate office
space in New York, New York and Hackensack, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Information with respect to the Company's legal proceedings
is included in Note 19 to the Consolidated Financial Statements
on pages 62 through 64 of this Annual Report on Form 10-K and is
hereby incorporated by reference. Additional information on
environmental matters is covered in the Environmental Matters
section on pages 9 through 11 of this Annual Report on Form 10-K
and is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K with respect to the executive officers of the
Company:
Name Age Position Held
---- --- -------------
Norman E. Alexander 83 Chairman of the Board, Chief
Executive Officer, Director and
member of the Executive Committee
John J. Quicke 48 President, Chief Operating Officer,
Director and member of the Executive
Committee
Stuart Z. Krinsly 80 Senior Executive Vice President -
General Counsel, Director and member
of the Executive Committee
Gerald S. Gutterman 69 Executive Vice President -
Finance and Administration
Martin Weinstein 62 Senior Vice President -
Chromalloy Gas Turbine Operations
Sequa is not aware of any family relationship among any of
the above-named executive officers. All of the above-named
executive officers have been employed by the Company in the same
or a similar capacity for at least five years. 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.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) Market Information.
The following table sets forth the high and low sales prices
of Sequa Class A common stock and Sequa Class B common stock for
the calendar periods indicated on the Exchange Composite Tape, as
reported by the National Quotation Bureau Incorporated:
Sequa Class A Sequa Class B
------------- -------------
High Low High Low
---- --- ---- ---
1997
First Quarter 46 7/8 36 1/4 52 46 1/2
Second Quarter 56 5/8 44 5/8 62 1/4 50
Third Quarter 57 3/4 50 3/4 63 57 1/4
Fourth Quarter 67 15/16 55 7/16 74 11/16 62 1/2
1996
First Quarter 35 5/8 29 1/2 41 5/8 39
Second Quarter 43 1/8 34 50 40 1/2
Third Quarter 46 1/2 38 3/8 53 5/8 47 1/4
Fourth Quarter 45 3/4 38 3/4 53 1/8 48 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 2,550 holders of record of the Sequa Class A
common stock and approximately 560 holders of record of the Sequa
Class B common stock at March 10, 1998.
(c) Dividends.
During the years ended December 31, 1997 and 1996, no
dividends were declared on Sequa Class A common shares or Class B
common shares. The Company has no present intent to pay cash
dividends on its common shares.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth selected financial information for, and as of
the end of, each of the five years in the period ended December 31, 1997. 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, 1997 1996 1995 1994 1993
- --------------------------- ------ ------ ------ ------ ------
OPERATING RESULTS
Sales $1,595.1 $1,459.0 $1,414.1 $1,419.6 $1,697.0
Operating income 84.7 65.2 67.9 39.8 15.7
Income (loss) before
extraordinary item 19.6 9.6 8.8 (24.7) (55.5)
Extraordinary loss - (0.4) - (1.1) (8.5)
-------- -------- -------- -------- --------
Net income (loss) $ 19.6 $ 9.2 $ 8.8 $ (25.8) $ (64.0)
======== ======== ======== ======== ========
BASIC AND DILUTED EARNINGS
(loss) per share
Income (loss) before
extraordinary item $ 1.66 $ .65 $ .57 $(2.87) $(6.07)
Extraordinary loss - (.04) - (.11) (.88)
------- ------- ------ ------ ------
Net income (loss) $ 1.66 $ .61 $ .57 $(2.98) $(6.95)
CASH DIVIDENDS DECLARED
Preferred $ 5.00 $ 5.00 $ 5.00 $ 7.50* $ 2.50
Class A common - - - - .30
Class B common - - - - .25
FINANCIAL POSITION
Current assets $ 695.8 $ 612.2 $ 621.2 $ 604.3 $ 661.6
Total assets 1,591.7 1,548.2 1,622.0 1,648.2 1,803.5
Current liabilities 366.7 302.7 324.7 321.3 376.5
Long-term debt 508.7 531.9 563.2 586.6 624.1
Shareholders' equity 594.4 590.8 576.6 566.5 575.8
* Includes $2.50 of dividends in arrears for the third and fourth quarters of
1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OPERATING RESULTS 1997 - 1996
SALES
Sales for 1997 were 9% higher than a year earlier, primarily due
to gains in the Aerospace segment, the impact of 1997 niche
acquisitions, the January 1997 recontinuance of the men's apparel
unit, and gains at the metal coatings unit. These advances were
tempered by declines at the auxiliary press equipment, can
machinery and overseas specialty chemicals units.
Sales in the Aerospace segment were ahead 14% in 1997,
with both operations in the segment posting solid gains. At the
Gas Turbine unit, sales to both the repair market and the
original equipment manufacturers (OEM) moved higher, a reflection
of the strong demand generated by the international airline
industry. Although management currently anticipates that the
rising sales pattern at Gas Turbine will continue in the first
half of 1998, competition from the engine manufacturers for
aftermarket repair business remains intense. Year-end backlog at
the major OEM facilities was up more than 35% from year-end 1996.
At the ARC Propulsion unit, sales advanced 18% in 1997,
with increases in each of the three main product areas: solid
rocket motors, automotive airbag components and liquid rocket
motors. Sales of the unit will undergo a significant change in
1998. Historically, ARC Propulsion has consolidated only sales
of airbag inflator components to Bendix Atlantic Inflator Company
(BAICO), a 50/50 joint venture with AlliedSignal. On January 27,
1998, ARC purchased AlliedSignal's 50% interest in BAICO and now
owns 100% of this operation. Beginning on January 28, 1998,
results of BAICO, renamed Atlantic Research Automotive Products
Group, will be reported on a consolidated basis, and the sale of
complete automotive airbag inflators to automotive industry
customers will be included in sales of ARC. As a result,
reported sales related to automotive airbag inflators are
projected to more than double in 1998.
Sales of the Machinery and Metal Coatings segment
declined 3% in 1997, as sharp declines at MEG, the French
auxiliary press equipment unit, and at the can machinery
operations were largely offset by a solid advance at the metal
coatings unit and by sales added by businesses acquired in 1997.
Without sales from the businesses acquired in 1997, the decline
would have been 11%. Sales of the metal coatings unit advanced
10% in 1997, with increases in each of its three product lines:
building products, containers and manufactured products. Sales
of the can machinery operation declined sharply in 1997,
reflecting a cyclical downturn in the worldwide container
SALES (con't)
industry. Despite the sharp drop in the number of can line
installations in 1997, the unit has improved its already strong
market position, particularly in can forming equipment. Based on
year-end backlog, and the uncertainties in Asian markets,
management currently anticipates that sales will remain sluggish
for at least the first half of 1998. Late in the third quarter,
the Company acquired the TEC Systems unit of W.R. Grace, combined
it with MEG, and named the combined operation MEGTEC Systems.
The TEC acquisition bolsters the auxiliary press equipment
product line, increases technical expertise, reduces the combined
cost structure and significantly expands product offerings beyond
MEG's traditional graphic arts market. This unit registered a
10% decline in 1997, as the sales generated by TEC in the final
four months of the year did not fully offset the substantial
decline in MEG sales for the year. Sales of MEGTEC Systems are
expected to be significantly higher in 1998.
Sales of the Specialty Chemicals segment declined 1% in
1997, as advances at the domestic unit largely offset declines at
the overseas unit. Local currency sales for the overseas unit
declined 12% in 1997 primarily because of the continued
strengthening of the British pound sterling against other
European currencies. The reported US dollar sales decline was
tempered by a 5% average increase in the dollar value of the
pound sterling in the same period. In 1998, the unit will
benefit from sales generated by an Italian chemical marketing and
distribution operation that was acquired in February 1998. At
the domestic chemicals unit, sales advanced 11% in 1997, due
largely to the May 1997 acquisition of Sedgefield Specialties, a
supplier to the textile market. Sales for the first quarter of
1998 at the unit are expected to compare favorably to the 1997
period due primarily to the addition of Sedgefield.
Sales of the Other Products segment advanced 39%, a
reflection of the recontinuance of the men's apparel unit in
January 1997 and advances at both the automotive products unit
and the can lid unit. The automotive products unit recorded a 6%
increase in sales, primarily due to strong demand in the domestic
market for cigarette lighters and power outlets. The 1998
outlook for this unit is largely dependent on the volume and mix
of North American car and light truck production. Sales of the
men's apparel unit were strong in 1997 and are expected to remain
strong in the first half of 1998. The unit began 1998 with a
solid backlog of orders for men's formalwear, which includes
orders related to its new After Six label. Sales of this unit
tend to be seasonal, with stronger sales in the first six months
of the year. Sales of the can lid unit advanced 26%, primarily a
reflection of a 53% gain in export sales. On December 17, 1997,
the Company divested the can lid business, a move that will
affect the 1998-1997 comparisons for this segment. In 1997,
revenues of the real estate unit declined sharply as a result of
SALES (con't)
the Company's program to sell excess real estate. Operating
income increased 30% in 1997, with advances in the Aerospace and
Other Products segments partially offset by declines in the
Machinery and Metal Coatings and the Specialty Chemicals
segments.
OPERATING INCOME
Operating income for the Aerospace segment nearly
quadrupled in 1997 primarily due to the substantially higher
results posted by Gas Turbine. In addition to the improved
operating performance of Gas Turbine units serving both OEM and
repair markets, Gas Turbine results for 1997 benefitted from two
factors: substantially lower costs in connection with litigation
involving the Pratt & Whitney division of United Technologies
Corporation ($9.9 million in 1997 versus $33.0 million in 1996)
and the favorable settlement of a dispute with the Egyptian
government, which added $2.7 million to operating income. Year-
to-year comparisons were also affected by the 1996 reversal of
workers' compensation insurance reserves, which were actuarially
determined to be in excess of requirements. The Gas Turbine
units serving the original equipment market operated at a profit
in 1997 versus a loss in 1996, as sales rose substantially in
response to overall vigor in the marketplace and the strong
position held by Gas Turbine. In addition, 1997 results for
these units benefitted from the late 1996 disposal of an under-
performing unit. Improvement at the Gas Turbine repair units
primarily reflects the higher sales to an expanding commercial
aviation market. Based on strong backlog at the OEM units and
continuing strength in repair sales, management currently
anticipates favorable operating income comparisons for at least
the first half of 1998. The ARC Propulsion unit also recorded a
profit advance, primarily a reflection of higher sales, tempered
by the impact of start-up costs on several new programs related
to automotive airbag inflators, and cost growth on certain
government programs. Results for the first quarter of 1998 will
include two months of the recently acquired automotive airbag
inflator business.
Operating income in the Machinery and Metal Coatings
segment declined 58% in 1997 due to a sharp decline in profits at
the can machinery unit and a larger loss at MEG, the French
auxiliary press equipment unit. Operating income at the metal
coatings unit was on a par with the prior year, as the benefits
of increased sales were offset by lower operating margins. The
decline at the can machinery operation was primarily related to
the sharp cyclical downturn in sales. Earnings comparisons in
early 1998 are expected to continue to be unfavorable as the
worldwide slowdown in can line installations is expected to
continue. The loss at the new MEGTEC Systems unit was double the
loss reported in 1996, due entirely to increased losses at MEG.
OPERATING INCOME (con't)
The increased loss was primarily due to: sharply lower sales to
the graphic arts market, increased warranty costs, increased bad
debt provisions, and significant one-time costs incurred to
effect the combination of MEG and TEC. The post-combination plan
includes a significant layoff at MEG, which, due to legal
requirements in France, was delayed until the first quarter of
1998; accordingly, the Company did not record a severance
provision in 1997. The affected employees were notified and the
reduction in the work force was completed in February 1998;
accordingly, the Company will record a severance provision in the
first quarter of 1998 that will reduce earnings by approximately
20 cents per share. Based on the MEGTEC backlog entering 1998
and the cost savings already achieved by a new management team at
MEGTEC, the Company anticipates a significant improvement in
performance for this unit in 1998.
Operating income in the Specialty Chemicals segment
declined 30%, with results of both units lower than in 1996. At
the overseas unit, the profit decline was attributable to the
strength of the British pound sterling against other European
currencies, a situation that began in the fourth quarter of 1996.
If the pound sterling maintains its strength against other
European currencies, 1998 operating results for the detergent
chemicals product line will remain under pressure. At the
domestic unit, profits registered a small decline as the benefits
of higher sales and the Company's 1997 change to the FIFO method
of inventory valuation, which primarily benefitted this unit,
cushioned the impact of the 1996 one-time favorable effect of a
legal settlement and lower margins.
Operating income in the Other Products segment advanced
22%, as the inclusion of the profits from the men's apparel unit
and an advance at the can lid unit offset declines at the
automotive products unit and the real estate unit. Profits of
the automotive products unit declined as the benefits of
increased sales were more than offset by lower margins. The can
lid unit primarily benefitted from higher sales levels. The real
estate unit declined primarily due to significantly lower
revenues, as the Company has largely disposed of excess real
estate held by this unit. The men's apparel unit is expected to
continue to report strong results in the first half of 1998.
INTEREST EXPENSE
The decrease in interest expense of approximately $1.5 million
was due to a decrease in average borrowings attributable to
scheduled principal payments and early retirement of debt in the
third quarter of 1996.
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES
During 1997 and 1996, the Company had investments in two
unconsolidated joint venture partnerships which were formed to
develop, produce and market hybrid inflators for automotive
airbags: BAICO, a 50/50 joint venture formed with AlliedSignal;
and BAG SpA, an Italian company formed with AlliedSignal and a
subsidiary of Fiat Avio, with each participant owning a one-third
interest in the venture. In the fourth quarter of 1997,
AlliedSignal sold its automotive safety restraints business and
its one-third interest in BAG SpA to Breed Technologies.
Following these transactions, Breed became the largest customer
of BAICO and BAG SpA. In January 1998, the Company increased its
ownership in BAICO to 100% with the purchase of AlliedSignal's
share of the joint venture.
The Company's share of the earnings or losses of the
unconsolidated airbag businesses was an equity loss of $1.8
million in 1997 and equity income of $1.4 million in 1996. The
Company guaranteed $25.0 million of BAICO's revolving credit
debt; accordingly, the Company continued applying the equity
method when the BAICO investment was reduced below zero. At
December 31, 1997 and 1996, the Company's equity in the losses of
its airbag businesses exceeded its investment by $17.6 million
and $15.8 million, respectively, and the negative investment is
included in Other noncurrent liabilities in the Consolidated
Balance Sheet.
The Company has other ownership interests in joint
ventures, the largest of which is a 50/50 partnership with United
Technologies Corporation in Advanced Coatings Technologies (ACT),
a joint venture which owns and operates an electron beam ceramic
coater for the application of Pratt & Whitney coatings. The
Company's equity share of the earnings of ACT was income of $2.3
million in 1997 and $3.2 million in 1996.
OTHER, NET
In 1997, Other, net included gains on the sale of property, plant
and equipment of $2.5 million; letters of credit and commitment
fees of $1.6 million; $1.4 million in charges for the
amortization of capitalized debt costs; and $1.3 million of
income on the cash surrender value of corporate-owned life
insurance.
In 1996, Other, net included gains on the sale of
property, plant and equipment of $8.3 million; letters of credit
and commitment fees of $2.0 million; and $2.1 million in charges
for the amortization of capitalized debt costs.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
manage foreign exchange risks. The Company has established a
control environment which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not
hold or issue derivative financial instruments for trading
purposes.
The Company's foreign operations utilize forward
exchange contracts to hedge existing assets and liabilities, firm
commitments and anticipated transactions denominated in
currencies other than the functional currency. Gains and losses
on forward exchange contracts designated as hedges of existing
assets and liabilities and anticipated transactions are
recognized in income as exchange rates change. Gains and losses
on hedges of firm sales and purchase commitments are deferred and
included in the basis of the transactions when they are
completed. The Company has also utilized forward foreign
exchange contracts to hedge foreign investments. Gains and
losses on these contracts are not included in income but are
recorded in cumulative translation adjustment, a component of
shareholders' equity.
The Company purchases foreign currency options to hedge
anticipated sales and purchases denominated in currencies other
than the functional currency. The cost of purchased foreign
currency options is amortized to expense on a straight-line basis
over the life of the option. Gains and losses on purchased
options are deferred and included in the basis of the anticipated
transactions if, and when, the options are exercised.
YEAR 2000 COMPUTER ISSUE
Certain of the Company's computer systems process transactions
based on storing two digits for the year of a transaction rather
than the full four digits. Such systems are not programmed to
consider the start of a new century and will encounter
significant processing difficulties in the year 2000, unless they
are fixed or replaced. During 1997, the Company began an
internal awareness program to ensure that all its operating units
are attuned to the millennium issue, and resources are being
devoted to identify critical business processes, to evaluate the
extent of the Company's year 2000 issues and to implement
required remedial actions.
The Company's operating units primarily utilize
purchased software. The related software maintenance agreements
provide for upgrades which have addressed, or will address the
year 2000 issue. The Company's estimate to become year 2000
compliant includes the entire cost of new software, even if such
YEAR 2000 COMPUTER ISSUE (con't)
software is to be purchased primarily for benefits other than to
address the year 2000 issue. Costs of data processing personnel
on staff are not included in the estimate, but outside
consultants are included. Management currently estimates that
the cost of hardware, software, training, testing and other costs
will be approximately $15 million to $20 million. Approximately
40% of these costs will be capitalized, with the balance expensed
in 1998 and 1999.
The Company anticipates that its year 2000 compliance
program will be completed by mid-1999. Progress toward this goal
will be monitored closely.
ENVIRONMENTAL MATTERS
The Company's 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;
and 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 legal, technical and scientific consulting
services are used to support management's assessments of costs at
significant individual sites.
It is the Company's policy to accrue environmental
remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be
reasonably estimated. At December 31, 1997, the potential
exposure for future costs is estimated to range from $16 million
to $33 million and the Company's balance sheet includes accruals
for remediation costs of $28.7 million. These accruals are at
undiscounted amounts and are included in accrued expenses and
other noncurrent liabilities. While the possibility of further
recovery of some of the costs from insurance companies exists,
the Company does not recognize these recoveries in its financial
statements until they are realized. Actual costs to be incurred
at identified sites in future periods may vary from the
estimates, given inherent uncertainties in evaluating
environmental exposures.
ENVIRONMENTAL MATTERS (con't)
With respect to all known environmental liabilities, the
Company's actual cash expenditures for remediation of previously
contaminated sites were $9.7 million in 1997, $10.0 million in
1996 and $10.6 million in 1995. The Company anticipates that
remedial cash expenditures will be between $8 million and $14
million during 1998 and between $6 million and $8 million during
1999. The Company's capital expenditures for projects to
eliminate, control or dispose of pollutants were $4.6 million,
$1.7 million and $1.6 million in 1997, 1996 and 1995,
respectively. The Company anticipates environmental-related
capital programs to be approximately $4 million during 1998 and
$2 million during 1999. The Company's operating expenses to
eliminate, control and dispose of pollutants have averaged
approximately $11 million per year during the last three years.
The Company anticipates that environmental operating expenses
will be approximately $12 million per year during 1998 and 1999.
BACKLOG
The businesses of Sequa for which backlogs are significant are
the Turbine Airfoils, Caval Tool, Turbocombustor Technology and
Castings units of Chromalloy Gas Turbine, and the ARC Propulsion
operations of the Aerospace segment; the Can Machinery and MEGTEC
operations of the Machinery and Metal Coatings segment; and in
1997, the men's apparel unit of the Other Products segment. The
aggregate dollar amount of backlog in these units at December 31,
1997 was $387.2 million ($293.5 million at December 31, 1996).
Sales of the men's apparel unit are seasonal, with stronger sales
in the first six months of the year; accordingly, this unit's
backlog is normally higher at December 31 than at any other time
of the year.
CAPITAL SPENDING
Capital expenditures amounted to $69.0 million in 1997, with
spending concentrated in the Aerospace segment and the metal
coatings unit. These funds were primarily used to upgrade
existing facilities and equipment and to expand capacity. The
Company anticipates that capital spending in 1998 will be
approximately $100 million and will again be concentrated in the
Aerospace segment and the metal coatings unit.
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, the Company entered into a new $150 million
revolving credit agreement with a group of banks that extends
through October 2002. This agreement replaced an existing
revolving credit agreement which was due to expire in March 1998.
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 commitment
fee, which is subject to adjustment based upon the ratio of debt
to EBITDA (earnings before interest, taxes, depreciation and
amortization), at an initial annual rate of .275% of the
unutilized amount available under the credit line.
LIQUIDITY AND CAPITAL RESOURCES (con't)
The Company's loan agreements and indentures contain
covenants which, among other matters, 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 a minimum net worth and certain ratios
regarding interest coverage and debt to EBITDA, among other
restrictions.
In October 1999, the Company will be required to repay
the remaining $138.5 million principal balance of its 9 5/8%
senior unsecured notes. The Company presently intends to
refinance this debt on a long-term basis in late 1998 or early
1999.
The Company has a potential issue with the Internal
Revenue Service involving the 1989 restructuring of two
subsidiaries. At December 31, 1997, the amount involved,
including interest from the date of the resulting tax refund, was
approximately $75 million. While management believes its tax
position in this matter is appropriate, it has taken the
conservative position of providing reserves to cover an adverse
outcome. Management does not currently anticipate a resolution
of this matter in 1998, and believes that in the event of an
unfavorable resolution, the Company will have sufficient
resources available to make any adjudicated payment.
Management anticipates that cash flow from operations,
proceeds from the divestiture of assets, the $144.7 million of
credit available under the new revolving credit agreement, the
$25.0 million of short-term investments and the $93.7 million of
cash and cash equivalents on hand at December 31, 1997 will be
more than sufficient to fund the Company's operations and niche
acquisitions for the foreseeable future.
OTHER INFORMATION
Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," was issued in February 1997 and
replaces Accounting Principles Board (APB) Opinion No. 15. The
new statement simplifies the computations of earnings per share
(EPS) by replacing the presentation of primary EPS with basic
EPS, which is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS under the new statement
is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. SFAS No. 128 was implemented by the Company in
the fourth quarter of 1997. With the exception of a one cent
increase in earnings per share for the quarter and nine months
ended September 30, 1997, the Company's basic EPS amounts
OTHER INFORMATION (con't)
calculated under the new statement and included in this annual
report are exactly the same as previously reported primary EPS
calculated under APB Opinion No. 15.
Effective with the first quarter of 1998, SFAS No. 130,
"Reporting Comprehensive Income," will require certain changes in
assets and liabilities which were previously included within a
separate component of equity in the balance sheet to be reported
in the income statement as components of comprehensive income or
within a separate statement of comprehensive income that begins
with net income. Examples include foreign currency translation
adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain securities. Other than previously
reported net income, the only other item that the Company will
present as a component of comprehensive income will be currency
translation adjustments which have been previously reported by
the Company in the Consolidated Statement of Shareholders'
Equity.
SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued in June 1997 and
supersedes SFAS No. 14. The new statement will change the way
segment information is to be reported in annual financial
statements and will require selected segment information to be
reported in quarterly reports. In addition to the requirement
that companies disclose business segment data based on how
management makes decisions about allocating resources to segments
and measuring their performance, SFAS No. 131 will also require
entity-wide disclosures about the products and services an entity
provides, the countries in which it holds assets and reports
revenues, and its major customers. The Company must implement
this new standard in its 1998 annual report and in its quarterly
reports thereafter. The Company anticipates that the annual and
quarterly business segment disclosure required by SFAS No. 131
will not be significantly different in form or content from that
previously disclosed by the Company in its annual and quarterly
reports issued to stockholders.
FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements made under the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based on management's
current expectations, estimates and projections that are subject
to risks and uncertainties, including, but not limited to:
political, currency, regulatory, competitive and technological
developments. Consequently, actual results could differ
materially from these forward-looking statements.
OPERATING RESULTS 1996 - 1995
SALES
Reported sales increased 3% in 1996. On a pro forma basis,
excluding the sales of units divested in 1995, sales increased
11% to $1.5 billion. Approximately 20% of the pro forma increase
was attributable to sales generated by metal coatings and
automotive products operations acquired in the second half of
1995.
Sales of the Aerospace segment were 1% ahead of 1995.
Sales for the earlier year included $97.3 million from Kollsman,
a division divested in December 1995. The two operations
continuing in the segment recorded solid sales gains in 1996.
Gas Turbine posted a 16% sales increase in 1996, with units
serving both repair and OEM customers contributing to the
advance. At the repair units, commercial airline and US
Government military repair business was significantly ahead of
prior year levels, due to the continuing recovery in the domestic
and international airline industry, as well as increased market
penetration. Pricing to the OEM market improved, as capacity
utilization rates in the industry increased substantially. ARC
Propulsion registered an 11% increase in sales for 1996, driven
by improvements in airbag components and liquid propellant motors
for use on commercial satellites as the unit's sales mix shifted
toward commercial applications.
Sales in the Machinery and Metal Coatings segment
increased 12% in 1996, with each of the three units recording
advances. Sales of the metal coatings unit reflected the
addition of three coil coating lines acquired in 1995, as well as
strong demand from the building products market and continued
expansion into other markets. The favorable impact of these
factors was tempered by the effect of a major container
customer's late-1995 decision to bring a large portion of its
metal coating work in house. The can machinery unit achieved a
solid advance in 1996, with increased sales of both equipment and
spare parts. Sales of the auxiliary press equipment unit
advanced 6% in 1996, with sharply higher sales of flying pasters
partially offset by lower sales of dryers and other auxiliary
equipment.
Sales of the Specialty Chemicals segment decreased 10%
in 1996, as a small increase at the domestic unit was more than
offset by a decline at the overseas unit. The decline at the
overseas unit reflected lower sales to the international
detergent sector; the absence of sales from a unit that was
divested in mid-1995; and reduced sales at the chemical
distribution units. The domestic unit recorded a small sales
increase, derived from advances in specialty polymers and graphic
arts chemicals, partially offset by a decline in exports.
SALES (con't)
Sales of the Other Products segment increased 33% in
1996, with the automotive products unit and the can lid operation
recording strong gains, and the real estate operation recording
lower revenues. The automotive products unit benefitted from the
December 1995 addition of an Italian cigarette lighter line
serving European OEMs and from increases in all domestic OEM
products and strong aftermarket sales. Sales of the can lid unit
increased sharply, as exports more than tripled from 1995, and
domestic sales recorded a strong advance. The real estate unit
recorded lower revenues, primarily due to the July 1996
disposition of its largest property, an office building in
Clayton, Missouri.
OPERATING INCOME
Operating income declined 4% in 1996, due to the following
principal factors: the high level of expense related to the
Company's litigation with the Pratt & Whitney unit of United
Technologies Corporation (UTC); the absence of profits from the
Kollsman division, which was divested in December 1995; and lower
profits at the overseas specialty chemicals unit and the metal
coatings unit. These factors were partially offset by the return
to profitability of the gas turbine unit and improvement in the
Other Products segment.
Operating income in the Aerospace segment advanced 54%
in 1996, despite the December 1995 sale of the Kollsman unit,
which had contributed $12.9 million to the 1995 reported profits.
Gas Turbine, which had incurred a loss in 1995, posted a profit
on higher sales in 1996. The turnaround at Gas Turbine reflected
significant improvement at repair units, reduced losses at OEM
units, the absence of the downsizing provisions recorded in 1995,
and the effect of earlier efforts to reduce the overall cost
structure. These improvements were partially offset by $33.0
million of costs related to the UTC litigation. Both years
benefitted from the reversal of workers' compensation insurance
reserves, which were actuarially determined to be in excess of
requirements. The propulsion unit registered a small decline in
profits in 1996, due entirely to a fourth-quarter restructuring
provision related to the advanced materials product line.
Without this provision, profits would have advanced, due to the
benefit of increased sales and lower bid and proposal costs.
Operating income in the Machinery and Metal Coatings
segment declined 16% in 1996, as the advance at the can machinery
unit was more than offset by declines at the metal coatings and
auxiliary press equipment units. The decline in operating income
OPERATING INCOME (con't)
at the metal coatings unit primarily reflected lower average
coating line utilization; increased costs related to the three
coating lines acquired in 1995; and substantially higher prices
for the natural gas used in the curing ovens. Can machinery
profits advanced in 1996, driven primarily by the increased level
of sales. The auxiliary press equipment unit incurred a larger
loss in 1996, due to restructuring expense of more than $2.5
million and the write-off of the remaining goodwill related to
this operation. On an operating basis, excluding these costs,
the benefit of increased sales and reduced costs more than offset
the impact of a significant increase in the allowance for
doubtful accounts, continuing pricing pressures, and higher
warranty expense.
Operating income of the Specialty Chemicals segment
declined 14% in 1996, as a decline at the overseas unit was
partially offset by a solid gain at the domestic unit. The
decline at the overseas unit reflected lower sales of detergent
chemicals, reduced margins, and reduced profits from the chemical
distribution units. The domestic unit recorded a solid profit
advance, due to a favorable sales mix shift, improved margins,
and the favorable settlement of a lawsuit.
Operating income in the Other Products segment increased
53% in 1996, as improvements at the automotive products and can
lid operations more than offset a decline at the real estate
unit. The improvement at the automotive products unit was the
result of increased worldwide sales. The can lid unit recorded a
loss in 1995 and a profit in 1996, with the improvement primarily
attributable to a sharply higher level of sales. Profits at the
real estate operation declined in 1996 due to reduced revenues.
INTEREST EXPENSE
The decrease in interest expense of approximately $1.5 million
was due to a decrease in average borrowings attributable to
scheduled principal payments and early retirement of debt.
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES
The Company's share of the earnings or losses of the
unconsolidated airbag businesses was equity income of $1.4
million in 1996 and an equity loss of $2.2 million in 1995. The
Company's equity share of the earnings of ACT was income of $3.2
million in 1996 and $0.8 million in 1995.
OTHER, NET
In 1996, Other, net included gains on the sale of property, plant
and equipment of $8.3 million; letters of credit and commitment
fees of $2.0 million; and $2.1 million in charges for the
amortization of capitalized debt costs.
In 1995, Other, net included a $6.5 million gain on the
sale of Kollsman; $7.3 million of gains on the sale of assets;
$2.1 million of dividend income on an investment; letters of
credit and commitment fees of $2.7 million; and $2.1 million of
charges for the amortization of capitalized debt costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- -------- -----------------------------------------------------
RISK
----
See discussion appearing on page 22 of this Annual
Report on Form 10-K under the heading "Derivative Financial
Instruments, "which is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and
the Board of Directors of
Sequa Corporation:
We have audited the accompanying consolidated balance sheet
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated
statements of income, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1997.
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, 1997 and
1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
February 23, 1998
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
At December 31, 1997 1996
- ------------------------ ---------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 93,743 $ 92,079
Short-term investments (Note 2) 25,000 -
Trade receivables (less allowances
of $15,816 and $12,992) 282,602 248,835
Unbilled receivables, net (Note 3) 27,777 26,771
Inventories (Note 4) 246,449 223,498
Other current assets 20,272 20,994
--------- ---------
Total current assets 695,843 612,177
--------- ---------
INVESTMENTS
Net assets of discontinued operations
(Note 5) 109,723 130,193
Other investments 24,217 20,492
--------- ---------
133,940 150,685
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 6) 435,480 457,511
--------- ---------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 305,540 307,952
Deferred charges and other 20,872 19,837
--------- ---------
326,412 327,789
--------- ---------
TOTAL ASSETS $1,591,675 $1,548,162
========== ==========
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, 1997 1996
- ----------------------------------------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 7) $ 24,510 $ 2,859
Accounts payable 136,003 109,115
Taxes on income (Note 8) 42,370 40,391
Accrued expenses (Note 9) 163,845 150,381
---------- ----------
Total current liabilities 366,728 302,746
---------- ----------
NONCURRENT LIABILITIES
Long-term debt (Note 7) 508,735 531,868
Deferred taxes on income (Note 8) 19,078 13,652
Other noncurrent liabilities 102,740 109,120
---------- ----------
630,553 654,640
---------- ----------
SHAREHOLDERS' EQUITY (Notes 7, 12 and 13)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 1997
and 1996 (involuntary liquidation
value--$25,393 at December 31, 1997) 797 797
Class A common stock--no par value,
25,000,000 shares authorized; 7,188,000
shares issued at December 31, 1997 and
1996 7,188 7,188
Class B common stock--no par value,
5,000,000 shares authorized; 3,727,000
shares issued at December 31, 1997
and 1996 3,727 3,727
Capital in excess of par value 283,339 285,912
Cumulative translation adjustment (6,794) 10,512
Retained earnings 382,945 366,369
---------- ----------
671,202 674,505
Less: cost of treasury stock 76,808 83,729
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 594,394 590,776
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,591,675 $1,548,162
========== ==========
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share)
Year ended December 31, 1997 1996 1995
---- ---- ----
SALES $1,595,125 $1,459,029 $1,414,139
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 1,285,829 1,160,192 1,129,955
Selling, general and administrative 224,589 233,679 216,257
---------- ---------- ----------
1,510,418 1,393,871 1,346,212
---------- ---------- ----------
OPERATING INCOME 84,707 65,158 67,927
OTHER INCOME (EXPENSE)
Interest expense (50,298) (51,794) (53,302)
Interest income 6,052 4,271 3,870
Equity in income (loss) of
unconsolidated joint ventures 223 4,038 (1,774)
Other, net (Note 15) 1,143 4,283 10,758
---------- ---------- ----------
(42,880) (39,202) (40,448)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 41,827 25,956 27,479
Income tax provision (Note 8) (22,200) (16,400) (18,700)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 19,627 9,556 8,779
Extraordinary loss on early retirement
of debt, net of applicable income
taxes (Note 7) - (369) -
---------- ---------- ----------
NET INCOME 19,627 9,187 8,779
Preferred dividends (3,051) (3,108) (3,165)
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON
STOCK $ 16,576 $ 6,079 $ 5,614
========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE
Income before extraordinary item $ 1.66 $ .65 $ .57
Extraordinary loss - (.04) -
---------- ---------- ----------
Net income $ 1.66 $ .61 $ .57
========== ========== ==========
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, 1997 1996 1995
- ----------------------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income taxes $ 41,827 $ 25,956 $ 27,479
Adjustments to reconcile income to
net cash provided by operating activities:
Depreciation and amortization 85,815 91,587 96,485
Provision for losses on receivables 8,316 5,927 4,694
Gain on sale of assets (2,465) (8,268) (13,771)
Equity in (income) loss of unconsolidated
joint ventures (223) (4,038) 1,774
Other items not requiring (providing) cash (2,008) 129 809
Changes in operating assets and liabilities,
net of businesses acquired and sold:
Receivables (23,088) (3,208) (5,272)
Inventories (15,783) 15,788 (11,408)
Other current assets 156 14,808 (5,878)
Accounts payable and accrued expenses 25,836 (4,984) (2,691)
Other noncurrent liabilities (8,404) (28,802) (9,017)
--------- --------- --------
Net cash provided by continuing operations
before income taxes 109,979 104,895 83,204
Net cash provided by discontinued operations
before income taxes 3,929 6,970 5,621
Income taxes paid, net (13,358) (6,057) (6,565)
--------- --------- --------
Net cash provided by operating activities 100,550 105,808 82,260
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (68,960) (50,228) (56,899)
Sale of property, plant and equipment 8,511 15,475 9,122
Sale of businesses, net of cash sold 28,178 1,558 57,580
Businesses purchased, net of cash acquired (36,058) - (42,659)
Short-term investments (25,000) - -
Other investing activities (1,228) (806) (2,254)
--------- --------- --------
Net cash used for investing activities (94,557) (34,001) (35,110)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 2,275 512 3,392
Payments of debt (3,312) (16,833) (8,979)
Early retirement of debt - (27,900) -
Dividends paid (3,051) (3,108) (3,165)
Proceeds from exercise of stock options 3,226 1,474 -
Purchase of treasury stock - (1,680) -
Proceeds from joint venture financing
arrangement - - 7,500
--------- --------- --------
Net cash used for financing activities (862) (47,535) (1,252)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents (3,467) 5,140 (1,886)
--------- --------- --------
Net increase in cash and cash equivalents 1,664 29,412 44,012
Cash and cash equivalents at beginning of year 92,079 62,667 18,655
--------- --------- --------
Cash and cash equivalents at end of year $ 93,743 $ 92,079 $ 62,667
========= ========= ========
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 Cumulative
(Amounts in thousands, Preferred Common Common Excess of Translation Retained Treasury
except per share data) Stock Stock Stock Par Value Adjustment Earnings Stock
- --------------------- -------- ------- ------- --------- ---------- -------- -------
BALANCE AT DECEMBER 31, 1994 $ 797 $ 7,188 $3,727 $287,204 $ (1,899) $354,676 $ (85,202)
Net income - - - - - 8,779 -
Foreign currency translation
adjustment - - - - 4,906 - -
Amortization of restricted
stock grant - - - - - - 258
Sale of foreign subsidiary - - - - (674) - -
Cash dividends:
Preferred - $5.00 per share - - - - - (3,165) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995 797 7,188 3,727 287,204 2,333 360,290 (84,944)
Net income - - - - - 9,187 -
Foreign currency translation
adjustment - - - - 8,179 - -
Amortization of restricted
stock grant - - - - - - 223
Stock grants forfeited - - - 307 - - (401)
Stock options exercised - - - (1,599) - - 3,073
Purchase of treasury stock - - - - - - (1,680)
Cash dividends:
Preferred - $5.00 per share - - - - - (3,108) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996 797 7,188 3,727 285,912 10,512 366,369 (83,729)
Net income - - - - - 19,627 -
Foreign currency translation
adjustment - - - - (17,306) - -
Amortization of restricted
stock grant - - - - - - 165
Stock grants forfeited - - - 46 - - (71)
Stock options exercised - - - (3,601) - - 6,827
Tax benefits on stock
options and grants - - - 982 - - -
Cash dividends:
Preferred - $5.00 per share - - - - - (3,051) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997 $ 797 $ 7,188 $3,727 $283,339 $ (6,794) $382,945 $ (76,808)
======= ======= ====== ======== ======== ======== =========
The accompanying notes are an integral part of the financial statements.
SEQUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Sequa Corporation (the
Company) include the accounts of all majority-owned subsidiaries.
Investments in 20% to 50% owned joint ventures are accounted for
on the equity method. All material accounts and transactions
between the consolidated subsidiaries have been eliminated in
consolidation. Certain prior year amounts have been reclassified
to conform to 1997 presentation.
The Company made a decision not to sell the men's apparel
unit. Accordingly, as of January 1, 1997, this unit has been
reclassified from discontinued operations to continuing
operations in the Consolidated Balance Sheet and Statements of
Income and Cash Flows. Prior years' results of operations were
not restated due to immateriality.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
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. As of
December 31, 1996, the Company's non-contract inventories were
valued primarily on a first-in, first-out (FIFO) basis. During
1997, the Company changed its basis of those inventories formerly
valued using the LIFO method to the FIFO method to conform all
non-contract inventories to the same method of valuation. The
effect of the accounting change, which was immaterial, was
recorded as a reduction of cost of sales in the third quarter of
1997 and previously reported results of operations were not
restated. 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
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
INVENTORIES AND CONTRACT ACCOUNTING (con't)
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.
The Company reviews properties for impairment whenever events
or changes in circumstances indicate that the carrying value of
an asset may not be fully recoverable. If the estimated future
cash flows expected to result from the use of an asset and its
eventual disposition are less than the carrying amount of the
asset, then the property is written down to its fair market
value.
Upon sale or retirement of properties, the related cost and
accumulated depreciation are removed from the accounts, and any
gain or loss is reflected currently. Expenditures for
maintenance and repairs of $50,862,000 in 1997, $45,030,000 in
1996 and $42,534,000 in 1995 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 recoverability of goodwill is
evaluated at the operating unit level by an analysis of operating
results and consideration of other significant events or changes
in the business environment. If an operating unit has current
operating losses, and based upon projections there is a
likelihood that such operating losses will continue, the Company
evaluates whether impairment exists on the basis of undiscounted
expected future cash flows from operations before interest during
the remaining amortization period. If impairment exists, the
carrying amount of the goodwill is reduced to market value. In
connection with the Company's impairment review, goodwill was
written down by $830,000 during 1996. Amortization and
writedowns charged against earnings in 1997, 1996 and 1995 were
$10,919,000, $11,337,000 and $10,716,000, respectively.
Accumulated amortization at December 31, 1997 and 1996 was
$116,974,000 and $106,055,000, respectively.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
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 US dollars
at exchange rates in effect at year-end, while revenues and
expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and
losses are charged or credited directly to 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.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
manage foreign exchange risks. The Company has established a
control environment which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not
hold or issue derivative financial instruments for trading
purposes.
Gains and losses on forward exchange contracts designated as
hedges of existing assets and liabilities and anticipated
transactions are recognized in income as exchange rates change.
Gains and losses on forward exchange contracts that hedge firm
commitments are deferred and included in the basis of the
transactions when they are completed. Gains or losses on forward
foreign exchange contracts that hedge foreign investments are not
included in income but are recorded in cumulative translation
adjustment, a component of shareholders' equity.
The cost of foreign currency options purchased to hedge
anticipated transactions are amortized to expense on a straight-
line basis over the life of the option. Gains or losses on
purchased options are deferred and included in the basis of the
anticipated transactions if, and when, the options are exercised.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
It is the Company's policy to accrue environmental remediation
costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably
estimated. Accrued environmental remediation and compliance
costs include remedial investigation and feasibility studies,
outside legal, consulting and remediation project management
fees, projected cost of remediation activities, site closure and
post-remediation monitoring costs. At December 31, 1997, the
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
ENVIRONMENTAL REMEDIATION AND COMPLIANCE (con't)
potential exposure for such costs is estimated to range from
$16,000,000 to $33,000,000 and the Company's balance sheet
includes accruals for remediation costs of $28,651,000. These
accruals are at undiscounted amounts and are included in accrued
expenses and other noncurrent liabilities. While the possibility
of further recovery of some of the costs from insurance companies
exists, the Company does not recognize these recoveries in its
financial statements until they are realized. Actual costs to be
incurred at identified sites in future periods may vary from the
estimates, given inherent uncertainties in evaluating
environmental exposures.
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped or
services are rendered. Long-term contracts are accounted for
under the percentage-of-completion method whereby sales are
primarily recognized based upon costs incurred as a percentage of
estimated total costs, and gross profits are recognized under a
more conservative "efforts-expended" method primarily based upon
direct labor costs incurred as a percentage of estimated total
direct labor costs. Changes in estimates for sales, costs and
gross profits are recognized in the period in which they are
determinable using the cumulative catch-up method. Any
anticipated losses on contracts are charged to current operations
as soon as they are determinable.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred
and amounted to approximately $13,259,000 in 1997, $12,856,000 in
1996 and $15,176,000 in 1995.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-
based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation under
Accounting Principles Board (APB) Opinion No. 25, which measures
compensation cost for stock options as the excess, if any, of the
quoted market price of the Company's stock at the grant date over
the amount an employee must pay to acquire the stock. As the
Company's stock option plans require the option price to be no
less than the fair market value of the stock at the date of
grant, no compensation expense is recognized by the Company for
stock options granted.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
INCOME TAXES
Income taxes are recognized during the year in which transactions
enter into the determination of financial statement income, with
deferred taxes being provided for temporary differences between
amounts of assets and liabilities recorded for tax and financial
reporting purposes.
No provision has been made for US or additional foreign taxes
on $216,378,000 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.
EARNINGS PER SHARE
The Company implemented SFAS No. 128, "Earnings per Share," in
the fourth quarter of 1997; accordingly, the earnings per share
amounts for all periods presented have been calculated in
accordance with the new standard.
Basic earnings per share (EPS) for each of the respective
years have been computed by dividing the net earnings, after
deducting dividends on cumulative convertible preferred stock, by
the weighted average number of common shares outstanding during
the year. The weighted average number of common shares for 1997,
1996 and 1995 was 9,967,000 shares, 9,880,000 shares and
9,867,000 shares, respectively.
The computation of diluted EPS is the same as the basic EPS
calculation except that the denominator was increased by 47,000
shares in 1997 and 41,000 shares in 1996 for the dilutive effect
of stock options calculated using the treasury stock method.
Diluted EPS amounts are the same as basic EPS amounts for all
periods; accordingly, dual presentation in the income statement
is not required. Each share of the Company's preferred stock is
convertible into 1.322 shares of common stock; however,
conversion of such shares is antidilutive in all periods
presented when the preferred stock dividends are added back to
the income applicable to common stock.
NOTE 2. SHORT-TERM INVESTMENTS
At December 31, 1997, the $25,000,000 short-term investment
represents the Company's participation in loans made by a group
of banks for the benefit of one of the Company's joint ventures.
This is a vehicle for improving the yield on temporarily
available funds, and does not impact the total amount loaned to
the joint venture.
Note 3. Unbilled Receivables, Net
Unbilled receivables, net consist of the following:
(Amounts in thousands)
At December 31, 1997 1996
- -------------------------------- ---- ----
Fixed-price contracts $24,128 $22,640
Cost-reimbursement contracts 3,649 4,131
------- -------
$27,777 $26,771
======= =======
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, 1997 and 1996 are reduced by
allowances for estimated nonrecoverable costs of $2,073,000 and
$2,587,000, respectively.
NOTE 4. INVENTORIES
The components of inventories are as follows:
(Amounts in thousands)
At December 31, 1997 1996
- --------------------- ---- ----
Finished goods $ 68,570 $ 61,276
Work in process 89,442 71,583
Raw materials 89,579 89,254
Long-term contract costs 11,599 8,275
Customer deposits (12,741) (6,890)
-------- --------
$246,449 $223,498
======== ========
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS
During 1991, the Company adopted a formal plan to divest Sequa
Capital's investment portfolio and to sell a group of businesses
which it classified as discontinued operations. As of December
31, 1997, approximately $361,000,000 of Sequa Capital's
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS (con't)
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, the Company repaid
approximately $367,000,000 of Sequa Capital's debt. Debt of
discontinued operations at December 31, 1997 represents the
accreted principal amount of the $25,000,000 in proceeds received
from the non-recourse securitization of Sequa Capital's leveraged
lease portfolio in 1994. The leveraged lease cash flow stream
will service the payment of principal and interest until the loan
is paid off. To the extent that the leveraged lease cash flow
stream during the next several years is less than the amount
necessary to service the debt, the loan will increase.
Subsequent to the payment of the secured indebtedness, the
remaining investment in leveraged leases will be liquidated over
time as rentals are received and residual values are realized.
Disposal activities are ongoing for Sequa Capital's other
investments.
Net assets of discontinued operations approximate net
realizable value and have been classified as noncurrent. The
amounts the Company will ultimately realize from the leveraged
lease portfolio and other investments could differ materially
from management's best estimates of their realizable value. A
summary of the net assets of discontinued operations follows:
(Amounts in thousands)
At December 31, 1997 1996
- ----------------------------- ------ ------
Investment in leveraged leases and
other investments $144,292 $148,778
Other assets, net 445 13,374
Debt (35,014) (31,959)
-------- --------
Net assets of discontinued operations $109,723 $130,193
======== ========
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
(Amounts in thousands)
At December 31, 1997 1996
- ----------------------------- ------ ------
Land and improvements $ 43,580 $ 48,185
Buildings and improvements 225,161 216,146
Machinery and equipment 751,364 756,673
Construction in progress 30,097 29,900
---------- ----------
1,050,202 1,050,904
Accumulated depreciation (614,722) (593,393)
---------- ----------
$ 435,480 $ 457,511
========== ==========
NOTE 7. INDEBTEDNESS
Long-term debt is as follows:
(Amounts in thousands)
At December 31, 1997 1996
- ------------------------------- ---- ----
Senior unsecured notes, at 9 5/8%,
due 1999 $138,519 $138,519
Senior unsecured notes, at 8 3/4%, due 2001 109,948 109,948
Medium-term notes, at a weighted average
interest rate of 10.0%, payable in varying
amounts through 2001 86,275 86,275
Senior subordinated notes, at 9 3/8%,
due 2003 175,000 175,000
Capital lease obligations, at weighted
average interest rates of 8.6% and 9.3%,
respectively, payable in varying amounts
through 2000 14,438 17,818
Other, at weighted average interest rates of
6.3% and 5.4%, respectively, payable in
varying amounts through 2004 9,065 7,167
-------- --------
533,245 534,727
Less current maturities (24,510) (2,859)
-------- --------
Total long-term debt $508,735 $531,868
======== ========
In October 1997, the Company entered into a new $150,000,000
revolving credit agreement with a group of banks that extends
through October 2002. This agreement replaced an existing
revolving credit agreement, which was due to expire in March
1998. 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
commitment fee, which is subject to adjustment based upon the
ratio of debt to EBITDA (earnings before interest, taxes,
depreciation and amortization), at an initial annual rate of
.275% of the unutilized amount available under the credit line.
At December 31, 1997, there were no borrowings outstanding under
this facility; however, $5,259,000 of the available credit line
was designated for the issuance of letters of credit leaving
$144,741,000 of unused credit available.
NOTE 7. INDEBTEDNESS (con't)
In 1996, the Company recognized a $369,000 extraordinary loss as
a result of the early redemption of debt in the principal amount
of $27,608,000. The extraordinary loss consisted of the write-
off of the associated debt issue costs plus premiums associated
with the redemption, net of income tax benefits of $199,000.
The aggregate maturities of total long-term debt during the
next five years are $24,510,000 in 1998, $146,178,000 in 1999,
$4,960,000 in 2000, $176,298,000 in 2001 and $0 in 2002.
The Company's loan agreements and indentures contain
covenants which, among other matters, 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 a minimum net worth and certain ratios
regarding interest coverage and debt to EBITDA, among other
restrictions.
NOTE 8. INCOME TAXES
The components of income (loss) before income taxes were:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------------- ---- ---- ----
Domestic $ 17,863 $ (5,097) $(12,600)
Foreign 23,964 31,053 40,079
-------- -------- --------
$ 41,827 $ 25,956 $ 27,479
======== ======== ========
The income tax provision (benefit) consisted of:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---- ---- ----
United States Federal
Current $ 142 $ (374) $ 144
Deferred 9,283 3,087 (3,251)
State and local 1,569 1,128 5,508
Foreign 11,206 12,559 16,299
-------- -------- --------
$ 22,200 $ 16,400 $ 18,700
======== ======== ========
NOTE 8. INCOME TAXES (con't)
The income tax provision is different from the amount computed by
applying the US Federal statutory income tax rate of 35% to
income before income taxes. The reasons for this difference are
as follows:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ---------------------------- ---- ---- ----
Computed income taxes at statutory
rate $ 14,639 $ 9,085 $ 9,618
State and local taxes, net of
Federal income tax benefit 1,020 733 3,580
Goodwill amortization 3,424 3,691 4,741
Benefit from Foreign Sales
Corporations - - (1,296)
Foreign subsidiaries at different
tax rates (1,370) (410) (835)
Foreign losses not benefitted 4,189 2,100 3,106
Other, net 298 1,201 (214)
------- -------- --------
$22,200 $ 16,400 $ 18,700
======= ======== ========
The 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.
NOTE 8. INCOME TAXES (con't)
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities are as follows:
(Amounts in thousands)
At December 31, 1997
- ------------------------- ---------------------
Deferred Deferred
Tax Tax
Assets Liabilities
---------- -----------
Accounts receivable allowances $ 3,184 $ -
Inventory valuation differences 21,975 6,408
Recognition of income on
long-term contracts 3,754 5,697
Depreciation 11,181 49,909
Lease and finance transactions - 124,639
Accruals not currently deductible
for tax purposes 78,755 -
Tax net operating loss carryforward 74,275 -
Alternative minimum tax (AMT)
credit carryforward 20,680 -
Other tax credit carryforwards 10,681 -
All other 19,573 15,065
-------- --------
Subtotal 244,058 201,718
Valuation allowance (9,409) -
-------- --------
Total deferred taxes $234,649 $201,718
======== ========
(Amounts in thousands)
At December 31, 1996
- ------------------------ ---------------------
Deferred Deferred
Tax Tax
Assets Liabilities
Accounts receivable allowances $ 2,990 $ -
Inventory valuation differences 21,083 6,330
Recognition of income on
long-term contracts 4,196 6,285
Depreciation 11,982 54,909
Lease and finance transactions - 125,503
Accruals not currently deductible
for tax purposes 88,171 -
Tax net operating loss carryforward 81,433 -
Tax capital loss carryforward 319 -
Alternative minimum tax (AMT)
credit carryforward 23,094 -
Other tax credit carryforwards 11,667 -
All other 18,011 16,126
-------- --------
Subtotal 262,946 209,153
Valuation allowance (11,476) -
-------- --------
Total deferred taxes $251,470 $209,153
======== ========
NOTE 8. INCOME TAXES (con't)
The Company has a potential issue with the Internal Revenue
Service involving the 1989 restructuring of two subsidiaries. At
December 31, 1997, the amount involved, including interest from
the date of the resulting tax refund, was approximately
$75,000,000. While management believes its tax position in this
matter is appropriate, it has taken the conservative position of
providing reserves to cover an adverse outcome.
At December 31, 1997, net current deferred tax assets of
$52,009,000 are netted against $94,379,000 of current taxes
payable and net noncurrent deferred tax liabilities of
$19,078,000 are presented as a single amount in the Consolidated
Balance Sheet. At December 31, 1996, net current deferred tax
assets of $55,969,000 are netted against $96,360,000 of current
taxes payable and net noncurrent deferred tax liabilities of
$13,652,000 are presented as a single amount in the Consolidated
Balance Sheet.
A valuation allowance has been established to reduce the
deferred tax asset recorded for certain tax credits which may
expire unutilized in 1998 through 2011 and to reduce the tax
benefit recorded for a portion of the cumulative losses of the
Company's French subsidiaries. The AMT credit carryforward does
not expire and can be carried forward indefinitely. The Company
has a domestic tax net operating loss carryforward of
$212,215,000 at December 31, 1997 that expires in 2006 through
2011.
Although the Company has experienced book and tax domestic
losses prior to 1997, the Company has returned to domestic
profitability and management believes that domestic net operating
loss carryforwards will be utilized before their expiration
through future reversals of existing taxable temporary
differences and future earnings. The domestic losses were
largely attributable to loss provisions recorded during 1991 and
1992 for the Company's discontinued leasing unit and operating
losses incurred by Gas Turbine from 1993 through 1995. The
Company has divested itself of a significant portion of Sequa
Capital's assets and has decreased interest expense by
significantly reducing debt levels. In addition, despite costs
related to litigation with United Technologies Corporation, Gas
Turbine was profitable during 1996 and 1997 due to rising demand
from the commercial airline markets for jet engine component
repair and increased demand from the manufacturers of jet
engines.
The Company's ability to generate the expected amounts of
domestic taxable income from future operations is dependent upon
general economic conditions, the state of the airline industry
and other major markets, competitive pressures on sales and
NOTE 8. INCOME TAXES (con't)
margins, and other factors beyond management's control. There
can be no assurance that the Company will meet its expectations
for future domestic taxable income in the carryforward period;
however, management has considered the above factors in reaching
the conclusion that it is more likely than not that future
domestic taxable income will be sufficient to fully realize the
net domestic deferred tax assets at December 31, 1997. The
amount of the deferred tax assets considered realizable, however,
could be reduced in the near term if estimates of future domestic
taxable income during the carryforward period are reduced.
NOTE 9. ACCRUED EXPENSES
The Company's accrued expenses consist of the following items:
(Amounts in thousands)
At December 31, 1997 1996
- ------------------------------ ---- ----
Salaries and wages $ 42,997 $ 38,179
Current portion of environmental
liabilities 10,000 10,000
Current portion of self-insurance
liabilities 5,500 5,100
Current portion of pension liabilities 1,625 1,633
Warranty 14,315 6,371
Customer rebates 10,036 8,470
Legal fees 4,508 8,413
Royalties 7,964 5,704
Interest 5,590 5,642
Insurance 5,435 5,912
Taxes other than income 4,164 4,133
Other 51,711 50,824
-------- --------
$163,845 $150,381
======== ========
NOTE 10. FINANCIAL INSTRUMENTS
The Company utilizes forward foreign exchange contracts and
purchased foreign currency options to reduce exposure to foreign
currency fluctuations on existing assets and liabilities, firm
commitments and anticipated transactions. The Company's
accounting policies with respect to these financial instruments
are described in Note 1. At December 31, 1997 and 1996, the
Company had forward foreign exchange contracts outstanding with
notional amounts of $22,511,000 and $30,644,000, respectively.
NOTE 10. FINANCIAL INSTRUMENTS (con't)
The following table presents the carrying amounts and fair
values of the Company's financial instruments:
(Amounts in thousands)
At December 31, 1997 1996
------------ ------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
Forward foreign exchange
contracts $ 309 $ 309 $ 1,129 $ 2,795
Liabilities
Current and long-term
debt 533,245 552,664 534,727 544,424
Forward foreign exchange
contracts 192 192 - -
The fair value of the Company's debt is primarily based upon
quoted market prices of the Company's publicly traded debt
securities. The fair value of forward foreign exchange contracts
is based on year-end exchange rates.
At December 31, 1997, the Company was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
$45,831,000. The Company is not currently aware of any existing
conditions which would cause risk of loss relative to outstanding
letters of credit. The Company was also contingently liable at
December 31, 1997 for $25,000,000 in guarantees of debt owed by
BAICO, one of the Company's unconsolidated joint ventures. In
January 1998, the Company increased its ownership in BAICO to
100% and BAICO's debt was repaid.
NOTE 11. 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.
The Company's pension plans are funded to accumulate sufficient
assets to provide for accrued benefits.
The status of all the Company's significant funded domestic
and foreign defined benefit plans was as follows:
(Amounts in thousands)
At December 31,
1997 1996
Actuarial present value of benefit
obligations:
Vested benefit obligation $243,323 $217,738
Accumulated benefit obligation 248,252 221,543
Projected benefit obligation 265,442 235,851
Plan assets at fair value 292,085 239,633
-------- -------
Excess of assets over projected
benefit obligation 26,643 3,782
Unrecognized net transition asset (2,469) (3,147)
Unrecognized prior service cost 4,063 3,750
Unrecognized net (gain) loss (23,572) 1,306
-------- -------
Prepaid pension cost $ 4,665 $ 5,691
======== =======
Included in:
Deferred charges $ 8,846 $ 7,433
Accrued expenses ( 1,625) (1,633)
Other noncurrent liabilities (2,556) (109)
-------- -------
Prepaid pension cost $ 4,665 $ 5,691
======== =======
At December 31, 1997 and 1996, plan assets exceeded the
accumulated benefit obligation for each and every funded defined
benefit plan aggregated above. The plans' assets consist
primarily of listed common stock, pooled equity funds, index
funds, debt instruments and real estate funds. At December 31,
1997 and 1996, the plans' assets included Company stock with
market values of $34,889,000 and $21,051,000, respectively.
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
Assumptions used in accounting for all the Company's significant
funded domestic and foreign defined benefit plans were:
At December 31, 1997 1996 1995
- ----------------- ---- ---- ----
Discount rate for obligations 7.25% 7.5% 7.5%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
The periodic net pension cost of all the Company's significant
funded domestic and foreign defined benefit plans includes the
following components:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---- ---- ----
Service cost for benefits earned $ 7,886 $ 6,886 $ 7,096
Interest cost on projected benefit
obligation 17,966 16,147 14,908
Actual return on plan assets (56,878) (34,918) (22,308)
Net amortization and deferral 35,694 16,739 6,443
------- ------- -------
$ 4,668 $ 4,854 $ 6,139
======= ======= =======
The net amortization and deferral component of pension cost
includes deferred asset gains of $25,906,000 in 1997, $11,945,000
in 1996 and $7,453,000 in 1995. These unrecognized gains
resulted from actual returns on plan assets exceeding the
expected returns on plan assets. Such deferred gains are subject
to amortization in future periods. Pension expense includes a
curtailment loss of $402,000 in 1997 and a curtailment gain of
$612,000 in 1995.
Employees not covered by the defined benefit plans discussed
above generally are covered by multiemployer plans as part of
collective bargaining agreements or by small local plans.
Pension expense for these multiemployer plans and small local
plans was not significant in the aggregate.
The Company also has several unfunded 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, 1997 and 1996, the
projected benefit obligation for these plans was $15,050,000 and
$11,426,000, respectively, and is included in Other noncurrent
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
liabilities in the accompanying Consolidated Balance Sheet. The
expense for these plans was $1,321,000 in 1997, $1,948,000 in
1996 and $1,755,000 in 1995.
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
$4,991,000 in 1997, $4,314,000 in 1996 and $3,542,000 in 1995.
Postretirement health care and other insurance benefits are
provided to certain retirees. The actuarial and recorded
liabilities for these postretirement benefits, none of which have
been funded, are as follows:
(Amounts in thousands)
At December 31, 1997 1996
- --------------------- ------ ------
Accumulated postretirement benefit
obligation
Retirees $1,345 $ 1,420
Employees fully eligible 447 377
Other active participants 514 734
------ -----
Total 2,306 2,531
Unrecognized prior service cost 1,192 1,288
Unrecognized net loss (1,234) (1,728)
Unrecognized transition obligation (1,162) (1,240)
------ -------
Postretirement benefit liability $1,102 $ 851
====== =======
Net periodic postretirement benefit cost includes the following
components:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- -------------------------- ---- ---- ----
Service cost for benefits earned $142 $139 $124
Interest cost on accumulated
postretirement benefit obligation 189 223 228
Amortization of net (gain) loss 159 (22) (15)
Amortization of unrecognized prior
service cost (151) 28 -
Amortization of transition obligation 77 154 154
---- ---- ----
Net periodic postretirement benefit
cost $416 $522 $491
==== ==== ====
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.25% at December 31, 1997
and 7.5% at December 31, 1996 and 1995, and an average health
care cost trend rate of approximately 9% progressively decreasing
to approximately 6% in the year 2006 and thereafter.
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
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, 1997 by approximately $123,000 and
increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for
1997 by approximately $21,000.
NOTE 12. 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, 1997, 4,277,442 shares of Sequa Class A
common stock were reserved for the conversion of preferred and
Class B common stock, and for the exercise of outstanding stock
options.
The following table summarizes shares held in treasury:
At December 31, 1997 1996 1995
- -------------------- ---- ---- ----
Class A common stock 512,643 614,100 652,000
Class B common stock 397,283 396,283 396,283
Preferred stock 186,690 186,690 163,489
NOTE 13. STOCK OPTIONS AND GRANTS
The Company has two incentive and nonqualified stock option plans
in effect: the 1986 Stock Option Plan and the 1988 Stock Option
Plan. These plans provide for the granting of options of the
Company's Class A common stock to key employees. The option
price per share may not be less than the fair market value of a
share on the date the option is granted, and the maximum term of
an option may not exceed ten years. Options vest in three equal
annual installments, commencing on the first anniversary of the
grant date. Authority to grant options under the 1986 Stock
Option Plan expired during 1996 and authority to grant options
under the 1988 Stock Option Plan expired January 25, 1998. The
following table summarizes the activity related to the Company's
stock options for the three years ended December 31, 1997:
Weighted
Average
Options Price
------- -----
OUTSTANDING AT DECEMBER 31, 1994 305,800 $32.60
Granted 12,200 $25.48
Expired or Cancelled (25,000) $33.89
Exercised - -
-------
OUTSTANDING AT DECEMBER 31, 1995 293,000 $32.18
Granted 1,800 $43.40
Expired or Cancelled (16,334) $35.28
Exercised (46,121) $32.33
-------
OUTSTANDING AT DECEMBER 31, 1996 232,345 $32.02
Granted 16,000 $50.38
Expired or Cancelled (3,010) $32.25
Exercised (104,237) $32.31
-------
OUTSTANDING AT DECEMBER 31, 1997 141,098 $33.91
=======
EXERCISABLE AT
December 31, 1995 183,534 $32.62
December 31, 1996 221,578 $32.15
December 31, 1997 120,631 $31.88
In February 1998, the Board of Directors approved the 1998
Stock Option Plan pursuant to which options for up to 500,000
shares of the Company's Class A common stock may be granted to
key employees. This plan is subject to stockholders' approval at
the Company's annual meeting to be held in May 1998.
Under the provisions of APB Opinion No. 25, the Company has
recognized no compensation expense for stock options granted.
Pro forma compensation expense determined under the fair-value
provisions of SFAS No. 123 is not material due to the
insignificant number of options granted.
Note 13. Stock Options and Grants (con't)
During 1994, 32,052 shares of the Company's Class A common
stock held in treasury were granted to certain key employees.
Such stock was subject to restrictions which prohibited sale or
transfer by the grantee for periods of three to five years and
required forfeiture by the employee in the event of employment
termination within the restricted periods. The market value of
the shares granted was $831,000 and has been amortized to expense
over the respective periods in which the restrictions lapse. The
charge to operations was $165,000 in 1997, $223,000 in 1996 and
$258,000 in 1995. As of December 31, 1997, the entire original
value of the grant has been reduced to zero through amortization
and employee forfeitures.
NOTE 14. ACQUISITIONS AND DISPOSITIONS
In December 1997, the Company sold Northern Can Systems, a
supplier of metal lids, for cash proceeds of $28,178,000. No
pre-tax gain or loss resulted from the sale. Northern Can
Systems had revenues of $32,904,000, $26,179,000 and $16,664,000
in 1997, 1996 and 1995, respectively, and operating income of
$1,781,000 and $1,005,000 in 1997 and 1996, respectively, and an
operating loss of $720,000 in 1995. The consolidated financial
statements and accompanying notes reflect the operating results
of Northern Can Systems as a continuing operation.
In May 1997, the Company purchased Sedgefield Specialties, a
specialty chemicals supplier to the textile industry, for
$13,853,000. In August 1997, the Company purchased TEC Systems,
a manufacturer of dryers and environmental equipment for paper,
printing and other industrial applications, for $18,839,000.
These acquisitions have been accounted for as purchases;
accordingly, operating results are included in the Consolidated
Statement of Income from the dates of purchase. Pro forma
combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
In December 1995, the Company sold substantially all of the
business and operating assets, excluding billed receivables, of
Kollsman for cash proceeds of $49,612,000. The sale resulted in
a pre-tax gain of $6,461,000 included in Other, net. Kollsman
had revenues of $97,271,000 and operating income of $12,857,000
in 1995. The consolidated financial statements and accompanying
notes reflect the operating results of Kollsman as a continuing
operation in 1995.
In July 1995, the Company purchased two coil coating
operations from Enamel Products and Plating Co. (EP&P) for
$38,258,000. In connection with the acquisition, the Company
entered into an operating lease with a financial institution for
the rental of a metal coating line located at one of the EP&P
NOTE 14. ACQUISITIONS AND DISPOSITIONS (con't)
facilities. This acquisition has been accounted for as a
purchase; accordingly, operating results are included in the
Consolidated Statement of Income from the date of purchase.
Pro forma combined results of operations giving effect to this
purchase would not vary materially from historical results.
NOTE 15. OTHER, NET
Other, net includes the following income (expense) items:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
Gain on sale of property, plant
and equipment $ 2,465 $ 8,268 $ 4,646
Amortization of capitalized
debt costs (1,381) (2,145) (2,145)
Letters of credit and commitment
fees (1,596) (2,019) (2,741)
Gain on sale of Kollsman - - 6,461
Gain on sale of investment - - 2,664
Dividend income - - 2,080
Income (loss) on cash surrender
value of corporate-owned
life insurance 1,321 (150) -
Other 334 329 (207)
------- ------- --------
$ 1,143 $ 4,283 $ 10,758
======= ======= ========
NOTE 16. 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 $17,083,000,
$18,065,000 and $17,826,000 in 1997, 1996 and 1995, respectively.
At December 31, 1997, future minimum lease payments under
noncancelable operating leases are as follows:
(Amounts in thousands)
1998 $11,565
1999 9,314
2000 7,879
2001 6,531
2002 5,999
After 2002 20,186
-------
$61,474
=======
NOTE 17. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by discontinued operations primarily represents
the net proceeds from the divestiture and run off of Sequa
Capital's investment portfolio.
Selected noncash activities and cash payments were as follows:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------
Noncash activities:
Acquisitions of businesses:
Fair value of assets acquired $58,804 $ - $44,868
Cash paid 36,058 - 42,659
------- ------- -------
Liabilities assumed 22,746 - 2,209
Tax benefits related to stock
options and stock grants 982 - -
Interest paid 50,350 52,417 53,436
NOTE 18. SEGMENT INFORMATION
Sequa Corporation is a diversified industrial company that
produces a broad range of products in four industry segments:
Aerospace, Machinery and Metal Coatings, Specialty Chemicals and
Other Products.
The Aerospace segment includes two operating units: Chromalloy
Gas Turbine and ARC Propulsion. Gas Turbine, the largest of the
Company's operating units, manufactures and repairs gas turbine
engine components, principally for domestic and international
airlines, original equipment manufacturers and the US military.
ARC Propulsion manufactures solid rocket propulsion systems for
use primarily in tactical military weapons sold to the US
Government, automotive airbag components and liquid propellant
motors for use on commercial satellites.
The Machinery and Metal Coatings segment is composed of Precoat
Metals, Sequa Can Machinery and MEGTEC. Precoat Metals applies
polymer coatings to continuous steel and aluminum coil for the
nationwide building products market, the diverse markets for
manufactured products, and the container market. Sequa Can
Machinery produces high speed equipment to form and decorate two-
piece metal cans for the worldwide container industry. MEGTEC
provides auxiliary press equipment for web offset printing, and
dryers and environmental control equipment for the international
industrial, paper and printing markets.
The Specialty Chemicals segment is composed of Warwick
International and Sequa Chemicals. Warwick produces bleach
activators for powdered laundry detergent products sold
principally in European markets. Sequa Chemicals produces a
broad range of specialty chemicals primarily for domestic
textile, paper, graphic arts and building products markets.
The Other Products segment is composed of three primary
businesses: Casco Products, the men's apparel unit and Northern
Can Systems. Casco manufactures cigarette lighters, power
outlets and electronic monitoring devices primarily for North
American automobile manufacturers. The men's apparel unit
designs and manufactures men's formalwear and accessories for the
North American market. Northern Can Systems, which produces
easy-open steel lids for the domestic and international food
processing industry, was sold in December 1997.
NOTE 18. SEGMENT INFORMATION (con't)
Operations by business segment is presented below:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---------- ---------- ----------
AEROSPACE
Sales $ 904,999 $ 793,617 $ 785,627
Operating income 61,730 15,658 10,179
Identifiable assets 899,576 889,000 956,120
Capital expenditures 41,053 26,519 27,312
Depreciation and amortization 54,051 60,512 67,740
MACHINERY AND METAL COATINGS
Sales $ 340,649 $ 350,991 $ 312,891
Operating income 11,477 27,216 32,287
Identifiable assets 242,852 214,916 210,850
Capital expenditures 10,815 10,877 10,062
Depreciation and amortization 10,436 10,524 8,528
SPECIALTY CHEMICALS
Sales $ 215,121 $ 217,996 $ 243,030
Operating income 26,666 38,026 44,394
Identifiable assets 207,312 177,282 163,112
Capital expenditures 7,804 8,016 14,523
Depreciation and amortization 13,494 12,314 12,123
OTHER PRODUCTS
Sales $ 134,356 $ 96,425 $ 72,591
Operating income 14,240 11,697 7,671
Identifiable assets 61,903 64,118 74,706
Capital expenditures 7,485 4,242 4,393
Depreciation and amortization 5,953 5,665 5,592
CORPORATE
Expenses $ (29,406) $ (27,439) $ (26,604)
Identifiable assets (a) 180,032 202,846 217,190
Capital expenditures 1,803 574 609
Depreciation and amortization 1,881 2,572 2,502
TOTALS
Sales $1,595,125 $1,459,029 $1,414,139
Operating income 84,707 65,158 67,927
Identifiable assets 1,591,675 1,548,162 1,621,978
Capital expenditures 68,960 50,228 56,899
Depreciation and amortization 85,815 91,587 96,485
(a) Includes net assets of discontinued operations.
NOTE 18. SEGMENT INFORMATION (con't)
Geographic data is presented below:
GEOGRAPHIC DATA
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
SALES
United States $1,231,509 $1,078,940 $1,027,390
Europe 363,616 380,089 386,749
---------- ---------- ----------
Total $1,595,125 $1,459,029 $1,414,139
========== ========== ==========
OPERATING INCOME
United States $ 87,431 $ 56,601 $ 57,335
Europe 26,682 35,996 37,196
Corporate expenses (29,406) (27,439) (26,604)
---------- ---------- ----------
Total $ 84,707 $ 65,158 $ 67,927
========= ========= =========
At December 31, 1997 1996 1995
- ------------------ ---- ---- ----
IDENTIFIABLE ASSETS
- -------------------
United States $1,088,281 $1,030,260 $1,089,438
Europe 323,362 315,056 315,350
Corporate and discontinued
operations 180,032 202,846 217,190
---------- ---------- ----------
Total $1,591,675 $1,548,162 $1,621,978
========== ========== ==========
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 10% of
sales in any year.
Export sales were as follows:
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---- ---- ----
Europe $142,067 $117,873 $121,918
Asia Pacific 82,003 76,830 74,830
Middle East 15,231 19,330 15,737
Canada 31,248 28,253 27,241
Central and South America 41,060 33,637 31,725
Other 14,580 21,089 15,680
-------- -------- --------
$326,189 $297,012 $287,131
======== ======== ========
NOTE 18. SEGMENT INFORMATION (con't)
The largest single contract with any one US Government agency
accounted for approximately 1% of sales in 1997 and 1996, and 2%
in 1995. Prime and subcontracts with all government agencies
accounted for approximately 10% of sales in 1997 and 1996, and
approximately 11% of sales in 1995.
NOTE 19. CONTINGENCIES
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 action
commenced on July 11, 1995 by United Technologies Corporation
(UTC) through its Pratt & Whitney division against Chromalloy Gas
Turbine Corporation (Chromalloy) in the United States District
Court for the District of Delaware. The complaint seeks
unspecified monetary damages and injunctive relief based upon
alleged breaches of certain license agreements, alleged
infringement of patents and misuse of Pratt & Whitney
intellectual property. Chromalloy's answer denies UTC's claims,
and Chromalloy's counterclaims against UTC seek monetary,
declaratory and injunctive relief based on UTC's breaches of
license agreements, failure to return royalty overpayments,
patent invalidity, and patent misuse. On May 1, 1997, the Court
granted summary judgment in favor of Chromalloy dismissing two of
the more substantial UTC royalty claims, and also granted summary
judgment in favor of Chromalloy on one of its counterclaims.
Chromalloy and UTC settled several of UTC's other claims,
including all of the claims scheduled for trial in May and
November 1997. As part of the agreement to settle, certain of
UTC's claims were dismissed with prejudice, and UTC recognized
Chromalloy's license to perform certain repairs. In return,
Chromalloy agreed to pay UTC royalties, which resulted in a July
3, 1997 payment to UTC in the amount of $1,200,000, after taking
into account offsetting credits that UTC owed to Chromalloy.
This payment was charged to accruals previously set up for this
purpose.
On December 10, 1997, the Court issued a series of rulings
relating to nine separate motions. As part of these rulings, the
Court granted Chromalloy's motion for summary judgment dismissing
UTC's claims that Chromalloy had breached one of the license
agreements between the parties. The Court also granted
Chromalloy's motion for leave to file a fourth amended pleading,
which contains additional breach of contract claims against UTC,
affirmed previous rulings dismissing certain UTC claims, and
denied a number of partial summary judgment motions. On December
19, 1997, the parties concluded a six-day bench trial on
Chromalloy's counterclaim for certain breaches of one of the
NOTE 19. CONTINGENCIES (con't)
license agreements between the parties. The parties are awaiting
the Court's decision on those claims. A July 1998 trial date has
been set for additional claims by both UTC and Chromalloy, and
other remaining claims have not yet been scheduled for trial.
Discovery on these claims is ongoing. It would be premature at
this stage for management to make an evaluation of the likely
outcome of either UTC's remaining claims or Chromalloy's
remaining counterclaims.
On August 29, 1995, Chromalloy filed suit against UTC in the
131st District Court of Bexar County, Texas. This suit sought
unspecified damages and injunctive relief for alleged violations
by UTC of the Texas Free Enterprise and Antitrust Act.
Chromalloy's claims focused on allegedly illegal, exclusionary
and monopolistic activities with respect to the aftermarket for
Pratt & Whitney commercial jet engine components. UTC filed
counterclaims against Chromalloy for alleged breach of contract
and unfair competition. After a three-month trial, which
commenced on August 26, 1996, the jury unanimously found UTC had
attempted to monopolize the relevant market in a way which
materially harmed Chromalloy, and found UTC's conduct to be
"willful" or "flagrant." However, the jury awarded no monetary
damages. The jury awarded no relief on any of UTC's
counterclaims. On May 19, 1997, the Court denied Chromalloy's
request for injunctive relief and refused to award UTC any relief
on its counterclaims. Chromalloy is appealing the denial of
injunctive relief to the Fourth Court of Appeals in Bexar County,
Texas and believes there are ample grounds for appeal. The Court
has set the oral argument for April 8, 1998 in San Antonio,
Texas. The parties currently are in the process of briefing the
issues raised by that appeal.
On October 17, 1996, Chromalloy filed suit against UTC in
the United States District Court for the District of Delaware.
The suit seeks unspecified damages for and injunctive relief
against alleged infringement of Chromalloy patents. On December
6, 1996, UTC filed its answer asserting several affirmative
defenses and four counterclaims. On January 21, 1997, Chromalloy
filed a reply to UTC's counterclaims and also filed a motion to
dismiss two of those four counterclaims. In response to that
motion, UTC agreed to dismiss one of the counterclaims. The
motion to dismiss the other counterclaim was granted on September
29, 1997. The Court has set the trial date for September 2,
1998. Discovery is ongoing. It would be premature at this stage
for management to make an evaluation of the likely outcome of
this matter.
During 1997 and 1996, the Company incurred $9,907,000 and
$33,040,000, respectively, in costs related to litigation with
UTC.
NOTE 19. CONTINGENCIES (con't)
Chromalloy competes for turbine engine repair business with
a number of other companies, including the original equipment
manufacturers (OEMs). Such OEMs generally have obligations
(contractual and otherwise) to approve vendors to manufacture
components for their engines and/or perform repair services on
their engines and components. Chromalloy has a number of such
approvals, including licensing agreements, which allow it to
manufacture and repair certain components of flight engines. The
loss of a major OEM's approval to manufacture or repair
components for such OEM's engines could have an adverse effect on
Chromalloy, although management believes it has certain actions
available to it to mitigate the adverse effect.
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 Company's
consolidated financial position, although the resolution in any
reporting period of one or more of these matters could have a
significant impact on the Company's results of operations for
that period.
NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Amounts in thousands, except per share)
1997 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
Sales $373,328 $393,458 $391,333 $437,006 $1,595,125
Cost of sales 303,609 317,319 313,738 351,163 1,285,829
Operating income 14,389 23,895 23,359 23,064 84,707
Net income $ 1,525 $ 4,555 $ 6,649 $ 6,898 $ 19,627
======== ======== ======== ======== ==========
Basic and diluted earnings per share:
Net income $ 0.08 $ 0.38 $ 0.59 $ 0.61 $ 1.66
======== ======== ======== ======== ==========
1996 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
Sales $349,126 $361,436 $367,723 $380,744 $1,459,029
Cost of sales 283,872 288,565 297,734 290,021 1,160,192
Operating income 10,122 13,021 7,182 34,833 65,158
Income (loss) before extraordinary item (3,753) (1,385) 2,849 11,845 9,556
Extraordinary loss - - (369) - (369)
Net income (loss) $ (3,753) $ (1,385) $ 2,480 $ 11,845 $ 9,187
======== ======== ======== ======== ==========
Basic and diluted earnings (loss) per share:
Net income (loss) before extraordinary
item $ (0.46) $ (0.22) $ 0.21 $ 1.12 $ 0.65
Extraordinary loss - - (.04) - (.04)
-------- -------- -------- -------- ----------
Net income (loss) $ (0.46) $ (0.22) $ 0.17 $ 1.12 $ 0.61
======== ======== ======== ======== ==========
The following unusual item is included in the quarterly financial information:
Operating income for the fourth quarter of 1996 includes the reversal of $7,859,000 of workers'
compensation insurance reserves, which were actuarially determined to be in excess of requirements.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------- -----------------------------------------------------
None.
PART III
--------
ITEMS 10. THROUGH 13.
- --------- -----------
The information required by Item 10 with respect to
executive officers is contained on page 14 of this Annual Report
on Form 10-K and is hereby incorporated by reference.
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, 1997.
Accordingly, the information required by Part III (Items 10,
concerning Sequa's directors and disclosure pursuant to Item 405
of Regulation S-K, and items 11, 12 and 13) is incorporated
herein by reference to such definitive proxy statement in
accordance with General Instruction G(3) to Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
- -------- --------------------------------------------------------
FORM 8-K.
---------
(a) 1. Financial Statements:
---------------------
The following consolidated financial statements are included
in Part II of this Annual Report on Form 10-K:
Page Numbers
in this Annual
Report on Form
10-K
Report of Independent Public Accountants. 31
Consolidated Balance Sheet as of December 31,
1997 and 1996. 32-33
Consolidated Statement of Income for the three
years ended December 31, 1997. 34
Consolidated Statement of Cash Flows for the three
years ended December 31, 1997. 35
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1997. 36
Notes to Consolidated Financial Statements. 37-65
2. Financial Statement Schedules:
------------------------------
Financial statement schedules are omitted due to the absence of
conditions under which they are required.
3. Exhibits
--------
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
- -----------
3.1 - Restated Certificate of Incorporation of Sequa and two
Certificates of Amendment of the Restated Certificate of
Incorporation of Sequa (incorporated by reference to
Exhibit 4(a) of Sequa's Registration Statement No.
33-12420 on Form S-8 filed on March 6, 1987).
3.2 - Certificate of Amendment of Certificate of Incorporation
of Sequa, dated May 7, 1987 (incorporated by reference
to Exhibit 3(b) of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1988,
filed on March 28, 1989).
3.3 - 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, dated as of September 1, 1989, by and between
Sequa and The First National Bank of Chicago, as
Trustee, with respect to an aggregate of $250 million of
senior debt (incorporated by reference to Exhibit 4.1 of
Sequa's Form S-3 Registration Statement No. 33-30959,
filed on September 12, 1989).
4.4 - First Supplemental Indenture, dated as of October 15,
1989, by and between Sequa and The First National Bank
of Chicago, as Trustee (incorporated by reference to
Exhibit 4.5 of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.5 - 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).
4.6 - 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).
4.7 - 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).
4.8 - 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).
4.9 - Instruments with respect to other long-term debt of
Sequa and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the amount of debt authorized under each such omitted
instrument does not exceed 10 percent of the total
assets of Sequa and its subsidiaries on a consolidated
basis. Sequa hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10.1 - $150 Million Credit Agreement, dated as of October 10,
1997, among Sequa, certain Subsidiary Guarantors of
Sequa, certain Lenders, The Chase Manhattan Bank as
Swingline Lender, Issuing Bank and Administrative Agent
and The Bank of New York, as Issuing Bank (filed
herewith).
COMPENSATORY PLANS OR ARRANGEMENTS
10.2 - 1998 Key Employees Stock Option Plan (filed herewith).
10.3 - Sequa Corporation Management Incentive Bonus Program for
Corporate Executive Officers (Revised for 1998) (filed
herewith).
COMPENSATORY PLANS OR ARRANGEMENTS (con't)
10.4 - Sequa's Supplemental Executive Retirement Plans I, II,
and III, effective as of January 1, 1990 (incorporated
by reference to Exhibit 10(c) of Sequa's Annual Report
on Form 10-K, File No. 1-804, for the year ended
December 31, 1990, filed on April 1, 1991) and
amendments thereto (incorporated by reference to Exhibit
10(c) of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1991, filed
on March 30, 1992).
10.5 - Sequa Corporation Management Incentive Bonus Program for
Corporate Non-Executive Officers and Corporate Staff
(Revised for 1998) (filed herewith).
10.6 - 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).
10.7 - 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).
10.8 - Employment Agreement, dated April 1, 1993, by and
between John J. Quicke and Sequa, (incorporated by
reference to Exhibit 10(k) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1992, filed on March 31, 1993); Amendment thereto,
dated March 1, 1995 (incorporated by reference to
Exhibit 10.11 of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1994,
filed on March 30, 1995); and Amendment thereto, dated
September 26, 1996 (incorporated by reference to Exhibit
10.9 of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1996, filed
on March 24, 1997).
10.9 - Employment Agreement, dated as of October 1, 1991, by
and between Martin Weinstein and Chromalloy Gas Turbine
Corporation, (incorporated by reference to Exhibit 10(n)
of Sequa's Annual Report on Form 10-K, File No. 1-804
for the year ended December 31, 1991, filed on March 30,
1992); Amendment thereto, dated as of June 1, 1993
(incorporated by reference to Exhibit 10.14 of Sequa's
Registration Statement No. 33-50843 on Form S-1 filed on
COMPENSATORY PLANS OR ARRANGEMENTS (con't)
10.9 - (con't)
October 29, 1993); Amendment thereto, dated as of
February 23, 1995 (incorporated by reference to Exhibit
10.12 of Sequa's Annual Report on Form 10-K, File No. 1-
804, for the year ended December 31, 1995, filed on
March 28, 1996); and Amendment thereto, dated as of June
1, 1996 (incorporated by reference to Exhibit 10.11 of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1996, filed on March 24,
1997).
10.10 - 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).
10.11 - 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).
10.12 - Sequa Corporation Management Incentive Bonus Program for
Operating Divisions (Revised 1997) (incorporated by
reference to Exhibit 10.18 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1996, filed on March 24, 1997).
11.1 - Computations of basic and diluted earnings per share,
filed herewith.
18.1 - Accountants letter regarding change in accounting
principle (incorporated by reference to Exhibit 18.1 of
Sequa's Quarterly Report on Form 10-Q, File No. 1-804,
for the quarterly period ended September 30, 1997, filed
on November 14, 1997).
21.1 - List of subsidiaries of Sequa, filed herewith.
23.1 - Consent of Independent Public Accountants, filed
herewith.
27.1 - Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the last quarter of
1997.
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 20, 1998 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 20, 1998.
By: /S/ NORMAN E. ALEXANDER Chairman of the Board, Chief
- -----------------------------
Norman E. Alexander Executive Officer and Director
By: /S/ JOHN J. QUICKE President, Chief Operating Officer
- -----------------------------
John J. Quicke and Director
By: /S/ STUART Z. KRINSLY Senior Executive Vice President,
- -----------------------------
Stuart Z. Krinsly General Counsel and Director
By: /S/ GERALD S. GUTTERMAN Executive Vice President, Finance
- -----------------------------
Gerald S. Gutterman and Administration
By: /S/ WILLIAM P. KSIAZEK Vice President and Controller
- -----------------------------
William P. Ksiazek
By: Director
- -----------------------------
Leon Black
By: /S/ALVIN DWORMAN Director
- -----------------------------
Alvin Dworman
By: Director
- -----------------------------
A. Leon Fergenson
By: /S/ DAVID S. GOTTESMAN Director
- -----------------------------
David S. Gottesman
By: /S/ DONALD D. KUMMERFELD Director
- -----------------------------
Donald D. Kummerfeld
By: /S/ RICHARD S. LEFRAK Director
- -----------------------------
Richard S. LeFrak
By: /S/ MICHAEL I. SOVERN Director
- -------------------------
Michael I. Sovern
By: Director
- -----------------------------
Fred R. Sullivan
By: /S/ GERALD TSAI Director
- -----------------------------
Gerald Tsai, Jr.