-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NojMuAqmRmCrn7PmXRcGK6rqjb4ORAMNbz5RVCA3LGRLmeHfM2Mg9Tczdlv6seoy 5LO+mmoUfUy9fxFJMLVwKw== 0000950152-97-002580.txt : 19970402 0000950152-97-002580.hdr.sgml : 19970402 ACCESSION NUMBER: 0000950152-97-002580 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970103 FILED AS OF DATE: 19970401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PRECISION INDUSTRIES INC CENTRAL INDEX KEY: 0000005657 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 161284388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05601 FILM NUMBER: 97572523 BUSINESS ADDRESS: STREET 1: 2777 WALDEN AVE CITY: BUFFALO STATE: NY ZIP: 14225 BUSINESS PHONE: 7166849700 MAIL ADDRESS: STREET 1: 2777 WALDEN AVENUE CITY: BUFFALO STATE: NY ZIP: 14225 10-K405 1 AMERICAN PRECISION 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 3, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----------- ----------- COMMISSION FILE NUMBER 1-5601 AMERICAN PRECISION INDUSTRIES INC. (Exact name of registrant as specified in its charter) DELAWARE 16-1284388 (State of incorporation) (I.R.S. Employer Identification No.) 2777 WALDEN AVENUE, BUFFALO, NEW YORK 14225 (Address of principal executive offices) (Zip Code) (716) 684-9700 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, $.66-2/3 PAR VALUE NEW YORK STOCK EXCHANGE (Title of each class) (Name of each exchange on which registered) Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant, at March 21, 1997 was approximately $108,000,000. The number of shares of Registrant's Common Stock outstanding on March 21, 1997 was 7,322,535. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III. Exhibit Index can be found on page 46 of this document. 1 2 AMERICAN PRECISION INDUSTRIES INC. FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED JANUARY 3, 1997 TABLE OF CONTENTS
PAGE ---- PART I. - ------ ITEM 1. BUSINESS Products and Marketing 3 Competition 6 Backlog 6 Suppliers 6 Patents and Licenses 7 Customers 7 Research and Development 7 Environmental Matters 7 Employees 7 Lines of Business and Industry Segment Information 7-8 Foreign Operations 8 ITEM 2. PROPERTIES 9 ITEM 3. LEGAL PROCEEDINGS 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 10 SECURITY HOLDERS PART II. - -------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 11 ITEM 6. SELECTED FINANCIAL DATA 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 38 PART III. - --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 39 ITEM 11. EXECUTIVE COMPENSATION 39 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 39 PART IV. - -------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 40-43 SIGNATURES 44-45
2 3 PART I ------ ITEM 1. BUSINESS -------- a. PRODUCTS AND MARKETING The registrant through its subsidiaries (the "Company" or "API") conducts operations in three major industrial classifications, namely, Heat Transfer Technology, Motion Technologies, and Electronic Components. The Company continues to direct its efforts towards major sales drives for current products in its served markets and target markets. In addition, the Company continues to seek profitable growth by enhancing and complementing its existing technology base. API HEAT TRANSFER INC. ---------------------- API Heat Transfer Inc., which is comprised of API BASCO, API AIRTECH, API KETEMA, and most recently API SCHMIDT-BRETTEN, engineers and manufactures a broad range of industrial heat transfer equipment. API Heat Transfer serves the heat transfer needs of a wide range of industries including power, chemical, petrochemical, HVAC, and food and dairy, and many of their support industries. Products range from small standard units to large custom-designed heat exchangers. API BASCO INC. manufactures a full line of standard and custom shell and tube heat exchangers, plate fin intercoolers and aftercoolers, and Centraflow steam surface condensers. API AIRTECH INC. manufactures a complete line of aluminum air to air, air to liquid, and liquid to liquid heat exchangers. The liquid to liquid heat exchanger provides the refrigeration market with a more advantageous evaporation and condenser combination through reduced piping, smaller footprint, and more efficient heat transfer surface. In December 1996, API Airtech moved into a new 82,000 square foot facility which will accommodate current and planned growth. Both API Basco and API Airtech achieved ISO 9001 certification during 1996, an important factor in the Company's plans for international growth. API KETEMA INC., which was acquired on April 1, 1996, has a strong position in both the general industrial and refrigeration heat transfer marketplace. This subsidiary manufactures shell and tube heat exchangers, chiller barrels, condensers, flooded evaporators and industrial packaged chillers. API SCHMIDT-BRETTEN GMBH, which was acquired on January 31, 1997, is a plate and frame heat exchanger manufacturer with a solid position in the chemical and food markets in Germany and the Netherlands. The addition of API Schmidt- 3 4 Bretten, which is located in Germany, not only adds a new dimension to the group's heat transfer capabilities, but also establishes a conduit to move plate products into the U.S. market and, at the same time, move heat transfer products manufactured at various domestic locations into European markets. API MOTION INC. --------------- API Motion Inc., comprised of API CONTROLS, API DELTRAN, API GETTYS and API HAROWE, is a designer and manufacturer of high performance motion control products and systems. API CONTROLS INC. offers complete lines of step and servo drives and packaged drive systems for a wide variety of motion control applications including factory automation, semiconductor equipment, printing, packaging, and winding equipment, positioning tables and electronics assembly applications. In 1996, API Controls developed and introduced three major new product lines and a new software development tool to assist customers in the installation of products so there is little or no start-up learning curve. The completely new Intelligent MicroStepper and Intelligent Servo drives and controllers and new line of Centennial all-digital drives, address the needs of original equipment manufacturers that require high-performance single- or multi-axis solutions. API DELTRAN INC. designs and manufactures high quality, precision electromagnetic clutches, brakes and clutch/brake assemblies used in sophisticated rotary motion control applications. During 1996, API Deltran developed a new line of servo motor brakes primarily to meet the needs of servo motor manufacturers and for use in factory automation applications. Furthermore, an adjunct to the API Harowe manufacturing facility in St. Kitts was started for API Deltran, providing the ability to produce volume clutches at competitive prices. API GETTYS INC. designs and manufactures precision servo and step motors for a broad range of industrial drive applications including DC brush and AC brushless servo motors and NEMA-standard step motors with linear actuating assemblies. API Gettys developed and introduced a new line of Turbo Stepper motors in 1996, offering a variety of sizes of high torque motors for use in semiconductor, factory automation, packaging and medical instrumentation markets. A new line of high torque Turbo Servo motors was also introduced for semiconductor, machine tool, factory automation, medical instrumentation, and packaging markets. During 1996 the electronics portion of API Gettys was consolidated within the API Controls operation, enabling API Gettys, as a motors-only facility, to focus better on its core products. API HAROWE INC. designs and manufactures high performance resolvers, encoders, brushless motors, gearmotors and other specialty rotating electromagnetic components for industrial, medical, military and commercial aerospace applications. In 1996, API Harowe developed a new line of small frame brushless DC motors that can be provided in over 4,500 different model variations. 4 5 The new line enables API to respond quickly to the needs of a wide variety of markets such as medical instrumentation. The digital resolver electronics package was also introduced in 1996. It was developed for applications that require the ruggedness of a resolver with a digital output signal. API ELECTRONIC COMPONENTS INC. ------------------------------ API Electronic Components Inc., which is comprised of API DELEVAN INC. and API SMD INC., designs, manufactures and markets an extensive line of quality inductors, chokes, and magnetics to satisfy various electrical and electronic filtering requirements. This group concentrates on producing high performance inductive devices to meet stringent government and customer specifications relating to product quality, reliability and dependability. Global competitive forces continue to push the market towards improved product quality with lower product costs. This competition from off-shore manufacturing is being neutralized through major improvements in the group's manufacturing capabilities. Productivity throughout the workplace also continues to improve through the success of Total Quality Management practices and the High Performance Work Team approach. With an open team culture, the group is able to be flexible and responsive to both the market place and specific customer needs. In 1996, API Delevan and API SMD completed automation and process improvement projects that enabled them to produce quality products at a lower cost than in any previous year. During the year, both subsidiaries introduced additional new products and expanded existing product designs to enhance further their presence in both the high frequency and the power markets, including various leaded and surface mountable magnetics that have been developed to grow product offerings in the broad power market. By expanding product offerings with competitively priced inductors, the group is able to serve existing customer needs better while attracting new customers. Along with cost reduction initiatives and new product introductions, both API Delevan and API SMD implemented a new MRP computer-based business system. The conversion from the prior system took a concentrated team effort of nine months, but the results of this effort are already apparent. Forward looking capacity planning and material management save valuable time so that the subsidiaries can provide for their customers improved on-time delivery performance. 5 6 b. COMPETITION ----------- In each of its segments the Company faces substantial competition from a number of companies, some of which have off-shore manufacturing facilities, and many of which are larger and have greater resources. In the electronic components market, several of the Company's domestic competitors have become part of a single organization through a series of acquisitions. The inductor market continues to be faced with strong global competition and trends towards product miniaturization and lower costs. The Company relies primarily on the quality of its products and service to meet competition. Although the Company is not aware of definitive industry statistics by manufacturer for the products it makes, in the opinion of management, the Company is a significant competitive factor in the markets for high quality electronic-magnetic motion control components, industrial heat exchangers and micro-miniature electronic coils. c. BACKLOG ------- The Company's backlog of unfilled orders believed to be firm at January 3, 1997 was approximately $39,216,000. All backlog orders are expected to be completed in the current fiscal year. The following table shows the backlog of orders for products associated with the three business segments:
Heat Motion Electronic Transfer Technologies Components Total -------- ------------ ---------- ----- 1996 $20,639,000 $15,924,000 $2,653,000 $39,216,000 1995 $13,778,000 $14,229,000 $2,434,000 $30,441,000
Backlogs have increased for the Heat Transfer and Motion Technologies segments primarily due to a focused strategic account sales program and the general business climate, combined with the acquisition of API Ketema and API Gettys. While the Electronic Components segment sales have increased, the backlog has remained steady and is the result of reduced lead times for delivery required by customers. d. SUPPLIERS --------- The Company is not dependent upon any single supplier for any of the raw materials used in manufacturing its products and has not encountered significant difficulties in purchasing sufficient quantities of raw materials on the open market. 6 7 e. PATENTS AND LICENSES -------------------- The Company has patents covering the design and certain manufacturing processes for some of its surface mounted inductors which management believes may be material to the Electronic Components segment over the next several years. These patents have a remaining duration in excess of ten years. Otherwise, no single patent or group of patents is material to the operations of any industry segment or to the business as a whole. f. CUSTOMERS --------- During 1996, no single customer accounted for more than 10% of consolidated sales. g. RESEARCH AND PRODUCT DEVELOPMENT -------------------------------- The Company charges earnings directly for research and product development expenses. Costs for Company-sponsored programs, excluding capital expenditures, were approximately $1,759,000, $1,111,000, and $888,000 in 1996, 1995, and 1994, respectively. h. ENVIRONMENTAL MATTERS --------------------- In 1990, the U.S. Environmental Protection Agency (EPA) named the Company a potentially responsible party (PRP) with respect to hazardous substances disposed of at the Envirotek II Site (the Site) in Tonawanda, New York. The Company is a member of a steering committee which was formed to facilitate discussions with the EPA. The Company was named a de minimis participant with respect to the first phase of the clean-up action and was relieved of any potential liability for the first phase clean-up with the payment of a minor fee. The EPA has since advised the Company that its name had been removed from the PRP list. The State of New York has also indicated to the Envirotek II PRP Group its intention to pursue additional remedial measures at a site which surrounds the Site. Based upon the small percentage of costs incurred to date which were allocated to the Company, management expects the Company's share of the total costs of the remedial phase action at the Site and the potential clean-up of the surrounding area to be a small percentage of such costs and not material to its financial statements. i. EMPLOYEES --------- At January 3, 1997, 1,309 persons were employed by the Company. j. LINES OF BUSINESS AND INDUSTRY SEGMENT INFORMATION -------------------------------------------------- The Company's operations in 1996 were carried on through seven divisions and five subsidiaries. On January 3, 1997, the seven divisions were legally 7 8 restructured into operating subsidiaries. Operations are classified into three industry segments based upon the characteristics of manufacturing processes and the nature of markets served. The operating units which currently comprise the segments and their principal products are as follows: Segment -------
API Heat Transfer: ------------------ API Airtech Air-to-air aluminum heat exchangers API Basco Shell and tube heat exchangers API Ketema Packaged chillers, refrigeration condensers, and shell and tube heat exchangers API Schmidt-Bretten Plate heat exchangers API Motion: ----------- API Controls Servo and stepper motor drives, power supplies, and motion controllers API Deltran Electro-magnetic clutches and brakes API Deltran (St. Kitts) Electro-magnetic clutches and brakes API Gettys AC and DC servo motors and stepper motors API Harowe Resolvers and DC Motors API Harowe (St. Kitts) Resolvers and DC Motors API Electronic Components: -------------------------- API Delevan Axial-leaded inductors API SMD Surface mounted inductors
Amounts of revenue from sales to unaffiliated customers, operating profit or loss, and identifiable assets for the three years ended January 3, 1997, are included in Note N of the notes to consolidated financial statements. k. FOREIGN OPERATIONS ------------------ Export sales, principally to Europe, Canada, Mexico, and Asia, were approximately 15%, 14%, and 17% of consolidated sales for 1996, 1995, and 1994, respectively. The foreign sales are not believed to be subject to any risks other than those normally associated with the conduct of business in friendly nations having stable governments. 8 9 ITEM 2. PROPERTIES ---------- The location of the Company's facilities and their approximate size in terms of floor area are as follows:
Floor Area Location (Sq. Ft.) ---------------------------------------------------- ----------------- API HEAT TRANSFER API Basco Inc. Buffalo 115,600 New York (Walden Avenue) API Airtech Inc. Arcade 82,000 New York (North Street) API Ketema Inc. Grand Prairie 150,000 Texas (West Marshall Drive) API MOTION API Harowe Inc. West Chester 34,500 Pennsylvania (Westtown Road) API Controls Inc. and API Deltran Inc. Amherst 43,652 New York (Hazelwood Drive) API Gettys Inc. Racine 88,000 Wisconsin (North Green Bay Road) API Harowe (St. Kitts) Ltd. and API Deltran (St. Kitts) Ltd. St. Kitts 8,500 West Indies (Bourkes Road) API ELECTRONIC COMPONENTS API Delevan Inc. East Aurora 50,000 New York (Quaker Road) API SMD Inc. Arcade 23,500 New York (North Street)
9 10 The Walden Avenue (API Basco Inc.), Quaker Road (API Delevan Inc.), North Street (API Airtech Inc. and API SMD Inc.), West Marshall Drive (API Ketema Inc.) and North Green Bay Road (API Gettys Inc.) facilities are owned by the Company. The facilities leased by the Company are as follows:
Approx. Annual Leased Facility Location Rental Until ----------------------------------------------------------------------- Bourkes Road (API Harowe (St. Kitts) Ltd. and API Deltran (St. Kitts) Ltd.) $ 24,000 2003 Hazelwood Drive (API Controls Inc. and $130,000 2002 API Deltran Inc.) Westtown Road (API Harowe Inc.) $168,000 2001
The Company believes all of its existing properties are well maintained, are suitable for the operation of its business, and are capable of handling production for the coming year. ITEM 3. LEGAL PROCEEDINGS ----------------- See Item 1(h). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- There were no matters submitted to a vote of security holders during the fourth quarter of 1996. 10 11 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY ------------------------------------- AND RELATED STOCKHOLDER MATTERS ------------------------------- COMMON STOCK PRICES American Precision Industries Inc. common stock is listed on the New York Stock Exchange under the symbol APR and is traded principally in that market. The following table shows the Company's high and low prices on the New York Stock Exchange, as reported in the Wall Street Journal.
QUARTER 1 2 3 4 --------------------------------------------------------------- 1996 High $ 13.13 $13.75 $13.13 $20.25 Low $ 10.75 $11.50 $11.38 $12.25 1995 High $ 9.63 $11.13 $14.75 $13.88 Low $ 7.63 $ 8.50 $10.13 $10.75
As of January 3, 1997, there were 1,015 shareholders of record. During 1995 and 1996 the Company declared cash dividends on its common stock of $.2575 and $.26 per share, respectively. The Company has decided to eliminate its quarterly cash dividend, effective in the first quarter of 1997, and to retain the cash for corporate expansion and acquisitions. 11 12
ITEM 6. SELECTED FINANCIAL DATA ----------------------- FIVE YEAR SELECTED FINANCIAL DATA OPERATIONS 1996 1995 1994 1993 1992 --------------------------------------------------------------------------------------------------------------- Revenues $117,110,000 $82,660,000 $65,265,000 $51,334,000 $51,295,000 Interest and debt expense $ 1,295,000 $ 238,000 $ 220,000 $ 244,000 $ 293,000 Depreciation and amortization $ 3,785,000 $ 2,594,000 $ 2,275,000 $ 1,712,000 $ 1,531,000 Net earnings $ 6,525,000 $ 4,731,000 $ 3,431,000 $ 2,050,000 $ 2,387,000 Net earnings per common share $.91 $.67 $.49 $.29 $.34 Net earnings per common share - fully diluted* $.86 $.65 -- -- -- Cash dividends declared per share $.26 $.2575 $.2475 $.235 $.215 FINANCIAL CONDITION -------------------------------------------------------------------------------------------------------------- Current assets $ 40,986,000 $31,615,000 $25,113,000 $21,347,000 $20,447,000 Current liabilities $ 16,794,000 $13,152,000 $10,916,000 $ 5,362,000 $ 4,896,000 Working capital $ 24,192,000 $18,463,000 $14,197,000 $15,985,000 $15,551,000 Current ratio 2.4 2.4 2.3 4.0 4.2 Property, plant and equipment, net $ 27,206,000 $12,269,000 $10,202,000 $ 8,353,000 $ 8,200,000 Total assets $ 82,012,000 $57,791,000 $45,344,000 $38,081,000 $37,369,000 Long-term liabilities $ 24,674,000 $10,292,000 $ 3,523,000 $ 3,507,000 $ 3,761,000 Shareholders' equity $ 40,544,000 $34,347,000 $30,905,000 $29,212,000 $28,712,000 Shareholders' equity per share $5.56 $4.82 $4.38 $4.14 $4.07 Number of shares outstanding at year-end 7,292,000 7,128,000 7,064,000 7,058,000 7,055,000 * Anti-dilutive in 1994, 1993, and 1992
12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- FINANCIAL REVIEW - OPERATIONS REVENUES. Consolidated revenues increased 41.7% as compared to the prior year. Sales within the Heat Transfer segment increased 55.7% in 1996 and reflect higher sales of the extended surface heat transfer equipment which continues to surpass 1995 levels, as well as increased sales volume of the air cooled product line to new and existing customers. The 1996 results of the Heat Transfer segment were also impacted favorably by sales of approximately $16.4 million from API Ketema, which was acquired by the Company on April 1, 1996. The Electronic Components segment sales increased 1.9% in 1996 as compared to 1995; the increase was primarily the result of a slight increase in sales volume to existing customers. The increase of 39.9% in sales of the Motion Technologies segment was the result of higher sales of electromagnetic clutches and brakes and motion control devices to new and existing customers, combined with an increase in the market share of products offered by Harowe Servo Controls Inc. The 1996 results of the Motion Technologies segment were also favorably impacted by sales of approximately $7.3 million from API Gettys, which was acquired by the Company on April 19, 1996. In 1995, consolidated revenues increased 26.7% as compared to 1994. Sales within the Heat Transfer segment increased 22.6% in 1995; the increase is attributable to increased sales of traditional water cooled heat exchangers to existing customers, as well as significant growth in the air cooled heat exchanger product line. The Electronic Components segment sales increased 8.7% due to a higher sales volume in a specific axial-leaded product, offset by completion of a major sales order to one customer in 1994 which did not recur in 1995. The increase of 45.4% in sales of the Motion Technologies segment was the result of the acquisition of Harowe Servo Controls Inc. in June 1994, as well as a slightly higher sales volume of previously existing motion control products. The Company's consolidated backlog of firm orders at January 3, 1997 was $39,216,000, up 28.8% from the prior year. This reflects a 49.8% increase in the Heat Transfer segment, a 9.0% increase in the Electronic Components segment, and a 11.9% increase in the Motion Technologies segment. A focused strategic account sales program, the favorable general business climate, and the acquisition of API Ketema and API Gettys all contributed to the increase. Investment income increased $70,000, or 27.2% in 1996 as compared to 1995. This increase was attributable primarily to investment income earned on the undisbursed proceeds from the Air Technologies Industrial Revenue Bond financing, which was concluded in December 1995. Investment income declined $112,000, or 30.4% in 1995 as compared to 1994. The decline reflects lower average investment asset balances resulting from the 13 14 sale of various bonds to fund both current operations and the purchase of Harowe in June 1994 combined with lower average interest rates. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses increased $7,609,000, or 40.5% in 1996 as compared to 1995. The majority of the increase was due to: 1) the inclusion of API Ketema and API Gettys administrative expenses since the dates of acquisition; 2) increased commission expenses as a result of the increased sales revenue; 3) increased provision for bonus under the Company's incentive plans; and 4) compensation expense recorded in connection with stock appreciation rights granted to the Chief Executive Officer in 1992. Selling and administrative expenses increased $3,219,000, or 20.7% in 1995 as compared to 1994 primarily as the result of : 1) increased commission expense due to increases in sales revenue; 2) the inclusion of Harowe's selling and administrative expenses for the full year in 1995 and only six months in 1994; and 3) higher bonus provision under the Company's incentive plans. In spite of these increases, selling and administrative expenses continue to decline when expressed as a percent of net sales. RESEARCH AND PRODUCT DEVELOPMENT. Research and product development expenses increased $648,000, or 58.3% in 1996 as compared to 1995 and $223,000, or 25.1% in 1995 as compared to 1994. The increase in 1996 over 1995 for research and product development costs reflects the acquisition of API Gettys, as well as increased activities in the Motion Technologies segment relative to future new product offerings. The acquisition of Harowe impacted the increase in 1995. The increase in both periods reflects management's continued commitment to the design of new products and improvement of existing products. INTEREST AND DEBT EXPENSE. Interest and debt expense increased $1,057,000, or 444% in 1996 as compared to 1995. This increase was due to the outstanding debt associated with the industrial revenue bond financings secured for the expansion of the Air Technologies facility and the purchase of API Ketema. Also contributing to the increase in interest and debt expense was the debt incurred under the revolving credit agreement in connection with the acquisition of API Ketema and API Gettys. Interest and debt expense increased $18,000 or 8.2% in 1995 as compared to 1994. The increase was due to lower average principal balances in 1995, offset by slightly higher interest rates. While total debt increased in 1995 due to the industrial revenue bond financing of $6,660,000, there was only a minor impact on interest and debt expense because this financing was obtained on December 22, 1995. Another contributing factor was the increased activity in short-term borrowings in 1995 as compared to 1994. 14 15 INCOME TAXES. Income taxes expressed as a percent of earnings before taxes were 34.7%, 34.5%, and 35.3% in 1996, 1995, and 1994, respectively. The lower rates in 1996 and 1995 can be attributed to the undistributed earnings of Harowe (St. Kitts), the Company's foreign subsidiary, for which no federal tax has been provided since it is the intention of the Company to reinvest those earnings in the operations of that entity for an indefinite period of time. NET EARNINGS. Net earnings increased 37.9% in 1996 as compared to 1995 and 37.9% in 1995 as compared to 1994. A substantial part of these increases can be attributed to the increased net sales as discussed previously, offset by higher selling and administrative, research and product development costs, and interest and debt expense. FINANCIAL POSITION. The Company's liquidity is generated primarily from operations. In addition, short-term lines of credit totaling $4,232,000 and revolving credit of $7,000,000 were available at January 3, 1997. Information on the Company's liquidity position for the past three years is as follows:
------------------------------------------------------------------------- 1996 1995 1994 ------------------------------------------------------------------------- Net working capital $ 24,192,000 $ 18,463,000 $ 14,197,000 Current ratio 2.4 2.4 2.3 Cash flow from operations $ 7,755,000 $ 3,786,000 $ 3,267,000 Cash, cash equivalents, and marketable securities $ 2,412,000 $ 5,979,000 $ 3,841,000 Capital expenditures $ 8,319,000 $ 4,585,000 $ 1,857,000
The credit available under the Revolving Credit was reduced to $2.4 million following the consummation of the Schmidt-Bretten acquisition on January 31, 1997. Future acquisitions may require the Company to arrange additional credit facilities with lenders or procure financing through issuance of debt or equity securities. The increase in cash flow from operations from 1996 as compared to 1995 is the combined result of increased sales and net income, as well as the positive effects generated from the acquisition of API Ketema and API Gettys. The increase in cash flow from operations from 1995 as compared to 1994 is principally the result of the increased sales volume and the resulting net income. The increase in capital expenditures in 1996 as compared to 1995 reflects the new building associated with the Air Technologies expansion program, as well as 15 16 significant investments in new machinery and equipment. Also reflected in capital expenditures are investments in new machinery and equipment acquired by API Ketema and API Gettys since their respective dates of acquisition. The increase in capital expenditures in 1995 as compared to 1994 reflects the Company's investment in new machinery and equipment and computer systems at both the Heat Transfer and Motion Technologies Groups. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of American Precision Industries Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a)(1) on page 40 present fairly, in all material respects, the financial position of American Precision Industries Inc. and its subsidiaries at January 3, 1997 and December 29, 1995, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Buffalo, New York February 17, 1997 16 17
CONSOLIDATED BALANCE SHEET ASSETS - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 2,412,000 $ 2,486,000 Accounts receivable less allowance for doubtful accounts of $487,000 and $264,000 17,912,000 12,691,000 Marketable securities -- 3,493,000 Inventories 17,431,000 10,589,000 Prepaid expenses 1,137,000 967,000 Deferred income tax benefit 2,094,000 1,389,000 - -------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 40,986,000 31,615,000 - -------------------------------------------------------------------------------- INVESTMENTS 3,279,000 6,277,000 OTHER ASSETS Cost in excess of net assets acquired, net of accumulated amortization 4,472,000 2,153,000 Prepaid pension costs 2,104,000 2,140,000 Net cash value of life insurance 2,655,000 2,222,000 Other 1,310,000 1,115,000 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS 10,541,000 7,630,000 - -------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 665,000 211,000 Buildings and improvements 13,549,000 6,183,000 Machinery, equipment, and furniture 32,589,000 22,265,000 Construction in process 1,502,000 1,450,000 - -------------------------------------------------------------------------------- 48,305,000 30,109,000 Less accumulated depreciation 21,099,000 17,840,000 - -------------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT 27,206,000 12,269,000 - -------------------------------------------------------------------------------- $82,012,000 $57,791,000
See notes to consolidated financial statements 17 18
LIABILITIES AND SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term borrowings $ -- $ 2,602,000 Accounts payable 8,511,000 5,136,000 Accrued compensation and payroll taxes 5,167,000 3,566,000 Other accrued expenses 1,341,000 757,000 Dividends payable 471,000 463,000 Current portion of long-term obligations 1,292,000 628,000 Federal and state income taxes 12,000 -- - -------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 16,794,000 13,152,000 - -------------------------------------------------------------------------------- DEFERRED INCOME TAXES 1,417,000 1,251,000 OTHER NONCURRENT LIABILITIES 1,046,000 413,000 LONG-TERM OBLIGATIONS, less current portion 22,211,000 8,628,000 SHAREHOLDERS' EQUITY Common stock, par value $.66 2/3 per share: Authorized - 10,000,000 shares Issued - 7,666,011 and 7,502,000 shares 5,110,000 5,001,000 Additional paid-in capital 11,065,000 9,532,000 Retained earnings 27,281,000 22,629,000 Minimum pension liability change, net of tax (74,000) -- Net unrealized gain on marketable securities -- 23,000 - -------------------------------------------------------------------------------- 43,382,000 37,185,000 Less cost of 374,262 treasury shares 2,838,000 2,838,000 - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 40,544,000 34,347,000 - -------------------------------------------------------------------------------- $ 82,012,000 $ 57,791,000
See notes to consolidated financial statements 18 19
CONSOLIDATED STATEMENT OF EARNINGS 1996 1995 1994 NET SALES $116,783,000 $ 82,403,000 $ 64,896,000 INVESTMENT INCOME 327,000 257,000 369,000 - -------------------------------------------------------------------------------------------- REVENUES 117,110,000 82,660,000 65,265,000 - -------------------------------------------------------------------------------------------- COSTS AND EXPENSES COST OF PRODUCTS SOLD 77,652,000 55,289,000 43,270,000 SELLING AND ADMINISTRATIVE 26,410,000 18,801,000 15,582,000 RESEARCH AND PRODUCT DEVELOPMENT 1,759,000 1,111,000 888,000 INTEREST AND DEBT EXPENSE 1,295,000 238,000 220,000 - -------------------------------------------------------------------------------------------- 107,116,000 75,439,000 59,960,000 - -------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 9,994,000 7,221,000 5,305,000 FEDERAL AND STATE INCOME TAXES 3,469,000 2,490,000 1,874,000 - -------------------------------------------------------------------------------------------- NET EARNINGS $ 6,525,000 $ 4,731,000 $ 3,431,000 - -------------------------------------------------------------------------------------------- NET EARNINGS PER COMMON SHARE $ .91 $ .67 $ .49 - -------------------------------------------------------------------------------------------- NET EARNINGS PER COMMON SHARE - FULLY DILUTED* $ .86 $ .65 $ -- - -------------------------------------------------------------------------------------------- AVERAGE COMMON SHARE OUTSTANDING 7,190,000 7,090,000 7,062,000 AVERAGE COMMON SHARES OUTSTANDING-FULLY DILUTED 7,605,000 7,330,000 --
* Anti-dilutive in 1994. See notes to consolidated financial statements. 19 20 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Net Unrealized Gain (Loss) Common Stock Additional on Minimum ---------------------- Paid-in Retained Marketable Pension Shares Amount Capital Earnings Securities Liability ---------- ---------- ---------- ----------- ----------- ---------- Balance at December 31, 1993 7,436,103 $4,958,000 $9,073,000 $18,043,000 $ - $ - Net earnings - 1994 - - - 3,431,000 - - Stock options exercised, net 5,945 3,000 25,000 - - - Cash dividends declared, $.2475 per share - - - (1,748,000) - - Net unrealized (loss) on marketable securities - - - - (18,000) - - -------------------------------------------------------------------------------------------------------------------------- Balance at December 30, 1994 7,442,048 4,961,000 9,098,000 19,726,000 (18,000) - Net earnings - 1995 - - - 4,731,000 - - Stock options exercised, net 59,952 40,000 422,000 - - - Treasury shares issued as bonus - - 12,000 - - - Cash dividends declared, $.2575 per share - - - (1,828,000) - - Net unrealized gain on marketable securities - - - - 41,000 - - -------------------------------------------------------------------------------------------------------------------------- Balance at December 29, 1995 7,502,000 5,001,000 9,532,000 22,629,000 23,000 - Net earnings - 1996 - - - 6,525,000 - - Stock options exercised, net 164,011 109,000 1,533,000 - - - Cash dividends declared, $.26 per share - - - (1,873,000) - - Minimum pension liability changes, net - - - - - (74,000) Net unrealized (loss) on marketable securities - - - - (23,000) - - -------------------------------------------------------------------------------------------------------------------------- Balance at January 3, 1997 7,666,011 $5,110,000 $11,065,000 $27,281,000 $0.00 ($74,000) Treasury Stock ------------------------ Shares Amount -------- -------- Balance at December 31, 1993 378,262 $2,862,000 Net earnings - 1994 - - Stock options exercised, net - - Cash dividends declared, $.2475 per share - - Net unrealized (loss) on marketable securities - - - -------------------------------------------------------------- Balance at December 30, 1994 378,262 2,862,000 Net earnings - 1995 - - Stock options exercised, net - - Treasury shares issued as bonus (4,000) (24,000) Cash dividends declared, $.2575 per share - - Net unrealized gain on marketable securities - - - -------------------------------------------------------------- Balance at December 29, 1995 374,262 2,838,000 Net earnings - 1996 - - Stock options exercised, net - - Cash dividends declared, $.26 per share - - Minimum pension liability changes, net - - Net unrealized (loss) on marketable securities - - - -------------------------------------------------------------- Balance at January 3, 1997 374,262 $2,838,000
See notes to consolidated financial statements 20 21
CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities Net earnings $ 6,525,000 $ 4,731,000 $ 3,431,000 Adjustments to reconcile net income to cash and cash equivalents provided by operating activities: Depreciation and amortization 3,785,000 2,594,000 2,275,000 Gain on sale of investments/fixed assets 46,000 42,000 -- Increase in supplemental benefit program 100,000 125,000 176,000 Recognition of pension expense (income) under FASB #87 36,000 (136,000) (280,000) Stock compensation programs 582,000 202,000 -- Change in various allowance accounts (639,000) (95,000) 91,000 Treasury stock issued as bonus -- 36,000 -- (Increase) Decrease in: Accounts receivable (472,000) (2,028,000) (2,168,000) Inventories (2,006,000) (1,785,000) (1,267,000) Prepaid expenses (115,000) (75,000) (199,000) Prepaid federal and state income taxes 6,000 -- 58,000 Deferred income taxes (691,000) (386,000) (267,000) Prepaid pension cost -- -- (24,000) Net cash value of life insurance (433,000) (571,000) (548,000) Other assets, net (459,000) (475,000) (140,000) Increase (Decrease) in: Accounts payable 1,613,000 373,000 953,000 Accrued expenses (385,000) 902,000 1,062,000 Federal and state income taxes 12,000 (79,000) (93,000) Deferred income taxes 199,000 376,000 31,000 Other noncurrent liabilities 51,000 35,000 176,000 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by Operating Activities 7,755,000 3,786,000 3,267,000 - ------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Investments in API Gettys & API Ketema net of cash & cash equivalents acquired (17,359,000) -- -- Purchases of investments and marketable securities (127,000) (6,233,000) (2,546,000) Additions to property, plant and equipment (8,319,000) (4,585,000) (1,857,000) Proceeds from investments and marketable securities 6,609,000 1,797,000 7,225,000 Investment in Harowe Servo Controls Inc. -- -- (5,195,000) Proceeds from sale of fixed assets 46,000 36,000 7,000 - ------------------------------------------------------------------------------------------------------------------------------- Net cash used by Investing Activities (19,150,000) (8,985,000) (2,366,000) - ------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Exercise of stock options 1,642,000 462,000 28,000 Payments of long-term obligations, including current maturities (1,785,000) (368,000) (519,000) Dividends paid (1,865,000) (1,806,000) (1,730,000) Increase in long-term debt 15,931,000 6,660,000 -- (Decrease) increase in short-term Borrowings (2,602,000) 602,000 2,000,000 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by Financing Activities 11,321,000 5,550,000 (221,000) - ------------------------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash and Cash Equivalents (74,000) 351,000 680,000 Cash and Cash Equivalents at Beginning of Year 2,486,000 2,135,000 1,455,000 - ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 2,412,000 $ 2,486,000 $ 2,135,000
See notes to consolidated financial statements 21 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended January 3, 1997, December 29, 1995, and December 30, 1994. A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) NATURE OF OPERATIONS American Precision Industries Inc. (the "Company") is a diversified manufacturing company whose principal lines of business include the production and sale of heat transfer products, motion control devices, and electronic components. Sales of these products are primarily to customers in industrialized nations both domestic and foreign. (2) CONSOLIDATION The accounts of all subsidiaries are included in the consolidated financial statements. The fiscal years consisted of 52 weeks, except for 1996 which consisted of 53 weeks and ended on January 3, 1997. The Statement of Earnings and Statement of Cash Flows include the results of API Ketema and API Gettys since April 1, 1996 and April 19, 1996, respectively, the dates of acquisition. The Consolidated Statement of Earnings and Statement of Cash Flows also includes the results of Harowe Servo Controls Inc. since June 30, 1994, the date of acquisition. (3) INVENTORIES Inventories are valued at the lower of cost or market, net of progress payments. At January 3, 1997 and December 29, 1995 inventories comprising approximately 61% and 50%, respectively, of total inventories were valued using the last-in, first-out (LIFO) method. Other inventories are priced using the first-in, first-out (FIFO) method. (4) PROPERTY, PLANT AND EQUIPMENT These assets are stated at cost and are depreciated over their estimated useful lives; building and improvements - 10 to 45 years; machinery, equipment, and furniture - 2 to 15 years. Expenditures for maintenance and repairs are charged to expense; renewals and betterments are capitalized and depreciated. Properties are removed from the accounts when they are disposed of, and the related cost and accumulated depreciation are eliminated from the accounts. Associated gains and losses, if any, are included in consolidated net earnings. The Company adopted the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" on January 1, 1996. Adoption of this Statement had no impact on the Company's financial position, results of operations, or liquidity. 22 23 (5) GOODWILL The excess of the purchase cost over the fair value of net assets acquired in an acquisition (goodwill) is separately disclosed, net of accumulated amortization, and is being amortized over 25 years on a straight-line basis. Amortization expense amounted to $163,000 in 1996 and $102,000 in 1995. Accumulated amortization of goodwill at January 3, 1997 was $309,000. (6) INCOME TAXES The Company provides for deferred income taxes under the asset and liability approach. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. No provision has been made for United States income taxes applicable to undistributed earnings of a foreign subsidiary as it is the intention of the Company to indefinitely reinvest those earnings in the operations of that entity. (7) EMPLOYEE BENEFIT PLANS Benefits under the Company's salaried defined benefit and supplemental benefit plans are based upon years of service and average compensation during an individual's last years of employment for the defined benefit plan and final pay for the supplemental benefit plan. Benefits under the salaried defined benefit plan are funded annually based upon the maximum contribution deductible for federal income tax purposes. The supplemental benefit program is funded through company-owned life insurance contracts on the lives of the participants, but the benefit obligation to certain participants will be offset by the participant's interest in a split-dollar insurance contract. Benefits under the hourly defined benefit plan of Harowe are based upon years of service, not to exceed 35, times a fixed rate specified in the union contract. Benefits under this plan are funded annually based upon funding recommendations of the plan actuaries. All union employees are covered under defined contribution plans. The Company's contribution to these plans are set forth under the provisions of the specific union contracts. (8) STOCK OPTIONS Proceeds from the sale of common stock issued under employee stock option plans are credited to capital accounts. There are no charges to income with respect to the plans; however, compensation expense is recorded with respect to the increase in value of stock appreciation rights. The Company has adopted certain disclosure requirements as prescribed by FASB Statement No. 123. 23 24 (9) EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares outstanding during each year. Net earnings per common share are based on the weighted average number of common shares outstanding during the respective years. The effect of common stock equivalents, consisting of stock options, on net earnings per common share is not material except on a fully diluted basis in 1996. (10) ADVERTISING The Company expenses the production costs of advertising in the year in which the advertising takes place. Total advertising expense in 1996, 1995, and 1994 was $879,000, $874,000, and $664,000, respectively. (11) ESTIMATES 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 assets and 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 these estimates. B. BUSINESS ACQUISITIONS BUSINESS ACQUISITIONS On April 1, 1996, API Ketema Inc., a wholly-owned subsidiary of the Company, acquired the assets and assumed certain liabilities of the Heat Transfer Division (HTD) of Ketema, Inc. at a cost of approximately $12,000,000. HTD manufactures shell and tube heat exchangers, refrigeration condensers, and packaged chillers. On April 19, 1996, API Gettys Inc., a wholly-owned subsidiary of the Company acquired the assets and assumed certain liabilities of Gettys Corporation and Gettys Property Corporation (Gettys) at a cost of approximately $4,800,000. Gettys manufactures AC and DC servo motors, amplifiers, and control electronics. On June 30, 1994, the Company acquired 100% of the stock of Harowe Servo Controls, Inc. (HSC), a Delaware corporation and Harowe Servo Controls (St. Kitts) Limited (HSC Limited), a corporation organized under the laws of the Island of St. Christopher and Nevis, from Hawker Siddeley Holdings Inc., at a cost of approximately $5,200,000. The following table presents unaudited pro forma results of operations as if the acquisition of HSC and HSC Limited had occurred on January 1, 1994 and 1993, respectively, and the acquisition of HTD and Gettys had occurred on January 1, 1996 and 1995, respectively, after giving effect to certain adjustments, including amortization of goodwill, loss of interest income on tax-exempt municipal bonds sold to fund the purchase cost, adjusted depreciation 24 25 of fair value of assets acquired, addition of interest expense on additional debt required to fund the acquisitions, and the related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions occurred at the beginning of 1995 for Gettys and Ketema and 1993 for HSC and HSC Limited or of results which may occur in the future. Furthermore, no effect has been given in the pro forma information for operating and synergistic benefits that are expected to be realized through the combination of the entities because precise estimates of such benefits cannot be quantified.
Thousands of Dollars, Except per Share Data (Unaudited) 1996 1995 1994 1993 - ------------------------------------------------------------------------------- Revenues $125,778 $116,762 $ 69,631 $ 61,195 Earnings before Income Taxes $ 10,416 $ 4,585 $ 5,641 $ 3,681 Net Earnings $ 6,863 $ 2,972 $ 3,517 $ 2,335 Net Earnings Per Common Share $ .95 $ .42 $ .50 $ .33 Net Earnings Per Common Share - Fully diluted $ .90 $ .41 $ -- $ --
C. CASH EQUIVALENTS, MARKETABLE SECURITIES, AND INVESTMENTS (1) Cash equivalents consist of money market funds, commercial paper, and certificates of deposit with original maturities of three months or less. Marketable securities, consisting of municipal bonds, are carried at market. Investments primarily consist of marketable municipal bonds, which are carried at market. Included in Investments in 1996 and 1995 is $3,272,000 and $6,233,000 of funds obtained under industrial revenue bond financing. Use of these funds is restricted and can only be applied to the purchase of capital assets for the related expansion program. For the purpose of determining gross realized gains and losses, the cost of securities sold is based upon specific identification. The Company classifies debt and equity securities not classified as either held-to-maturity or trading as "available for sale" and reported at market value. Unrealized gains and losses are reported as a separate component of shareholders' equity. 25 26
(2) Additional information pertaining to the Consolidated Statement of Cash Flows is as follows: - -------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------- Cash paid during the year for: Interest $1,038,000 $ 225,000 $ 184,000 Income taxes net of tax refunds $3,598,000 $2,513,000 $2,145,000 D. INVENTORIES The major classes of inventories are as follows: - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Finished goods $ 3,867,000 $ 995,000 Work in process 3,834,000 2,538,000 Raw materials 9,730,000 7,056,000 - -------------------------------------------------------------------------------- $17,431,000 $10,589,000
Had the cost of all inventories at January 3, 1997 and December 29, 1995 been determined by the FIFO method, the amounts thereof would have been greater by $1,147,000 and $1,187,000, respectively. E. OTHER NONCURRENT LIABILITIES In 1996 and 1995, other noncurrent liabilities consist of the noncurrent portion of bonus obligations under the Company's incentive plans, deferred compensation associated with the stock appreciation rights granted to the Chief Executive Officer in 1992, and discount on options granted to certain members of the Board of Directors of the Company in lieu of certain directors' fees. F. SHORT AND LONG-TERM OBLIGATIONS (1) Short-Term Obligations There were no significant short-term borrowings during 1996. As of December 29, 1995, the Company had $2,602,000 outstanding on its line of credit. This amount was outstanding for four business days. The Company had available unsecured, short-term lines of credit totaling $4,232,000 and $7,398,000 at the prime rate on January 3, 1997 and December 29, 1995, respectively. 26 27
(2) LONG-TERM OBLIGATIONS CONSIST OF THE FOLLOWING: - ------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Industrial revenue bonds $13,405,000 $ 8,112,000 Revolving credit debt 9,000,000 -- Supplemental benefit program 1,098,000 1,144,000 - -------------------------------------------------------------------------------- 23,503,000 9,256,000 Less current obligations 1,292,000 628,000 - -------------------------------------------------------------------------------- Long-term obligations $22,211,000 $ 8,628,000
During 1996 the Company entered into a Credit Agreement with Marine Midland Bank which provides an unsecured Revolving Credit facility of $16,000,000. The Revolving Credit matures on March 29, 1999, at which time the Company may convert the amount outstanding under the Revolving Credit to a term loan payable over a four year term. The interest rate on the Revolving Credit as of January 3, 1997, under the LIBOR Rate Option in the Credit Agreement, was 6.33%. During the third quarter of 1996, the Company concluded a $6,000,000 15-year industrial revenue bond ("IRB") financing with the Grand Prairie Industrial Development Authority. Substantially all of the proceeds were used in connection with the purchase of the Heat Transfer Division of Ketema, Inc. on April 1, 1996. During the fourth quarter of 1995, the Company obtained adjustable rate IRB capital lease financing of $6,660,000 for asset purchases associated with its Air Technologies expansion program. Unexpended revenue bond proceeds of $3,272,000 were held and invested by a trustee at the end of 1996 and are included in Investments in the accompanying consolidated balance sheet. Such amount is restricted and can only be applied to the purchase of capital assets for the related expansion program, and such assets will be pledged as collateral for the bonds. The adjustable rate IRB capital lease financing is collateralized by assets with a depreciated value of $11,314,000 at January 3, 1997. The interest rate on the IRBs approximates 60% of the prime rate and is adjustable every seven days in order for the Remarketing Agent to sell the bonds at par value. 27 28 The following are the weighted average interest and debt expense rates for 1996: Industrial Revenue Bonds 5.51% Revolving Credit Debt 6.13% All the industrial revenue bonds are subject to mandatory sinking fund repayment schedules with various dates extending through 2015. The Revolving Credit and each of the IRB's are subject to various restrictive covenants, with respect to which the Company is in compliance. Under the supplemental benefit program, the Company provides retirement or death benefits to directors and certain officers meeting specified service requirements. Directors are entitled to an annual benefit of $10,000 per year for ten years. Participating officers are provided an annual benefit equal to 20% of their current salary payable over fifteen years, except for the Chief Executive Officer whose annual benefit, payable over fifteen years, is currently approximately $112,000 and indexed to the Consumer Price Index. In the case of several executives, these benefits will be partially or totally funded through split-dollar life insurance contracts. The estimated future benefits to be paid directly by the Company under this program are accrued over the participants' service lives by estimating the present value of such future benefits assuming a 9% rate of interest. The Company has also invested in company-owned life insurance contracts on the lives of the participants, the cash surrender values of which are recorded in Other Assets. It is actuarially assumed that over the term of this program all costs will be offset by benefits provided from the underlying contracts. Over the next five years, the Company will make long-term obligation payments of approximately $1,292,000 in 1997, $1,322,000 in 1998, $1,358,000 in 1999, $1,378,000 in 2000, and $1,371,000 in 2001. Such amounts exclude the revolving credit. G. OPERATING LEASES The Company leases certain office and manufacturing facilities and automotive and other equipment through operating leases. Certain of these provide for the payment of taxes, insurance and maintenance costs and most contain renewal options. Net future minimum lease commitments do not have a material impact on the consolidated financial statements. Total rental expense for 1996, 1995, and 1994, was $730,000, $587,000, and $568,000, respectively. 28 29 H. EMPLOYEE BENEFITS Retirement Plans - In addition to the aforementioned supplemental benefit program, the Company has a defined benefit retirement plan covering all nonunion employees ("Salaried Plan") and makes contributions to union-sponsored plans. Harowe has a defined benefit retirement plan covering all hourly employees in its West Chester, Pennsylvania location ("HSC Hourly Plan"). The total expense for such plans, net of the recognition of net periodic pension income was $392,000, $227,000, and $44,000, in 1996, 1995, and 1994, respectively. The following summarizes the funded status of the Company's and Harowe's defined benefit retirement plans:
- -------------------------------------------------------------------------------------------------------------- 1996 1995 HSC HSC HOURLY SALARIED HOURLY SALARIED PLAN PLAN PLAN PLAN - -------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested Benefits $ 724,000 $ 5,401,000 $ 712,000 $ 4,649,000 Nonvested benefits 10,000 106,000 17,000 74,000 - ------------------------------------------------------------------------------------------------------------- Accumulated benefit obligations 734,000 5,507,000 729,000 4,723,000 - ------------------------------------------------------------------------------------------------------------- Projected benefit obligations 724,000 6,556,000 729,000 5,646,000 Plan assets at fair value 385,000 10,396,000 393,000 9,336,000 - ------------------------------------------------------------------------------------------------------------- Assets in excess of (less than) projected benefit obligation (339,000) 3,840,000 (336,000) 3,690,000 Unrecognized prior service cost 187,000 -- 13,000 30,000 Less: Accumulated unrecognized net loss -- -- 20,000 -- Unrecognized net gain (loss) at transition being recognized over 15 years (77,000) 491,000 -- 614,000 Additional minimum liability 107,000 Unrecognized net gain arising since transition -- 1,492,000 -- 973,000 - ------------------------------------------------------------------------------------------------------------- (Accrued) prepaid pension cost $ (339,000) $ 2,044,000 $ (316,000) $ 2,116,000
29 30 Net periodic pension (cost) income associated with the salaried plan and the HSC Hourly Plan for 1996 and 1995 included the following components:
1996 1995 - --------------------------------------------------------------------------------------- HSC HSC HOURLY SALARIED HOURLY SALARIED PLAN PLAN PLAN PLAN - ---------------------------------------------------------------------------------------- Service costs - benefits earned during the period $ (21,000) $(577,000) $ (19,000) $(347,000) Interest on projected benefit obligations (51,000) (440,000) (51,000) (392,000) Actual return on assets 14,000 831,000 24,000 754,000 Amortization of transition assets and deferrals 7,000 113,000 -- 121,000 - ---------------------------------------------------------------------------------------- Net periodic pension (cost) income $ (51,000) $ (73,000) $ (46,000) $ 136,000
An assumed discount rate of 7.75%, a rate increase in future compensation of 4.0%, and an expected long-term rate of return of 9.0% have been used in determining the actuarial present value of projected benefit obligations of the Salaried Plan for 1996 and 1995. The HSC Hourly Plan includes an assumed discount rate and expected long-term rate of return of 7.5% for 1996 and 1995. I. FAIR VALUE OF FINANCIAL INSTRUMENTS During 1996, the Company adopted the provisions of Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments". This statement requires that companies disclose the estimated "fair value" of their financial instruments. Financial instruments primarily consist of trade receivables and payables, investments in municipal bond funds, and debt facilities with various third party lenders. At January 3, 1997, management believes the carrying amounts of financial instruments, approximates fair value. J. SHAREHOLDERS' EQUITY (1) PREFERRED STOCK - None of the Company's authorized 20,000 shares of preferred stock (par value $50 a share) have been issued. (2) STOCK OPTIONS - The Company has granted incentive stock options (ISO) to officers and other key employees and nonqualified options (NQO) for 100 common shares to most other employees after one year of employment. The grants were made at an exercise price of not less than 100% of the market value on the date of grant. Options may be exercised in cumulative annual increments of 20% for ISOs and 50% for NQOs beginning one year from the date of grant. All options expire ten years from date of grant. 30 31 The Company applies APB Opinion No. 25 in accounting for its stock option plans. Accordingly, no compensation expense has been charged to earnings for options granted in 1996 and 1995 since all such options have an exercise price equal to 100% of market value on the date of grant. Had the Company adopted the provisions of FASB Statement No. 123, compensation expense for options granted in 1996 and 1995 would have reduced the Company's net earnings and earnings per share to the pro forma amounts shown below.
1996 1995 ----------------- ----------------- Net earnings: As reported $6,525,000 $4,731,000 Pro forma $6,217,000 $4,636,000 Earnings per share: As reported - per common share $.91 $.67 As reported - fully diluted $.86 $.65 Pro forma - per common share $.86 $.65 Pro forma - fully diluted $.82 $.63
The fair value of each option granted in 1996 and 1995 was estimated using the Black-Scholes option pricing model with the following assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.6% and 7.1%; dividends of 0 and $.19; expected term of 9.2 years and 9.2 years; annual standard deviation (volatility) of 25% and 24%. The weighted average fair value of options granted in 1996 and 1995 was $6.32 and $4.67, respectively. 31 32 A summary of the status of options granted under all employee plans and pursuant to the employment of the Company's Chief Executive Officer is presented below.
Number of Weighted Shares Average Subject to Exercise Options Price ($) ---------- -------- Outstanding December 31, 1993 781,826 8.18 Granted in 1994 157,500 6.84 Exercised in 1994 (7,059) 5.11 Forfeited in 1994 (41,277) 8.20 - ------------------------------------------------------------- Outstanding December 30, 1994 890,990 8.05 Granted in 1995 214,350 9.22 Exercised in 1995 (79,430) 7.76 Forfeited in 1995 (14,085) 7.49 - ------------------------------------------------------------- Outstanding December 29, 1995 1,011,825 8.33 Granted in 1996 212,500 12.48 Exercised in 1996 (181,081) 8.58 Forfeited in 1996 (41,287) 8.04 - ------------------------------------------------------------- Outstanding January 3, 1997 1,001,957 9.15
The number of shares subject to options exercisable at the end of 1996, 1995, and 1994 were 488,087, 470,970, and 486,315, respectively. 32 33 The following table summarizes information about options outstanding at January 3, 1997:
Options Outstanding Options Exercisable ------------------------------------------------------------------------ ----------------------------- Weighted- average Weighted- Weighted- Range of remaining average average Exercise Number contractual exercise Number exercise Prices ($) Outstanding life price ($) exercisable price ($) ------------------------------------------------------------------------ ----------------------------- 6.625 - 9.76 709,046 6.1 years 7.93 419,026 7.87 10.50 - 13.00 288,911 7.8 years 12.00 69,061 10.95 17.625 4,000 9.9 years 17.63 0 -
On June 16, 1992, the Company's new Chief Executive Officer was granted options to acquire 200,000 shares of the Company's common stock, along with 50,000 stock appreciation rights (SARs) which must be exercised in tandem with the exercise of the options at the rate of one SAR for each four options exercised. The options and SARs have a term of ten years, are exercisable at $7.75 per share or right, the fair market value at date of grant, and become exercisable over a five year period at the rate of 20% per year. Data related to the CEO options are included in the tables above. The Company recorded compensation expense of $452,000 and $148,000 in 1996 and 1995, respectively, in connection with the increase in value of the SARs. Beginning on July 1, 1995, the Company has granted stock options to certain directors of the Company on the first day of each calendar quarter under the 1995 Directors Stock Option Plan. Under this plan, a director may elect to receive options in lieu of his annual cash retainer and meeting fees. The option exercise price is 30% of the fair market value of a share on the date of grant, and the cash fees foregone by the director are equivalent to 70% of the fair market value. Options become exercisable six months after date of grant and expire ten years from date of grant. Options outstanding January 3, 1997 totaled 23,336 shares, of which 16,179 were exercisable on that date and 26,664 shares were available for future grants of options under the plan. K. INVESTMENT INCOME Investment income consists of the following:
------------------------------------------------------------------------- 1996 1995 1994 ------------------------------------------------------------------------- Gain on sale of investments $ 27,000 $ -- $ 2,000 Interest and dividend income 300,000 257,000 367,000 ------------------------------------------------------------------------- $327,000 $257,000 $369,000
33 34 L. INCOME TAXES
The provision for income taxes includes the following: - ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Federal: Current $ 3,434,000 $ 2,114,000 $ 1,830,000 Deferred (421,000) 4,000 (187,000) State: Current 527,000 368,000 280,000 Deferred (71,000) 4,000 (49,000) - ------------------------------------------------------------------------------- $ 3,469,000 $ 2,490,000 $ 1,874,000
The provision for income taxes for 1996 does not include the tax benefit of $346,000 associated with the exercise of stock options which has been credited to paid in capital. Deferred tax liabilities (assets) at January 3, 1997 and December 29,1995 are comprised of the following: - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Accelerated depreciation $ 662,000 $ 662,000 Pension 780,000 844,000 Other 340,000 311,000 - -------------------------------------------------------------------------------- Gross deferred tax liabilities 1,782,000 1,817,000 - -------------------------------------------------------------------------------- Deferred compensation (803,000) (623,000) Various reserves (824,000) (634,000) Other (832,000) (698,000) - -------------------------------------------------------------------------------- Gross deferred tax assets (2,459,000) (1,955,000) - -------------------------------------------------------------------------------- Deferred tax assets valuation allowance -- -- - -------------------------------------------------------------------------------- $ (677,000) $ (138,000) 34 35 The provision for income tax differs from the federal statutory rate of 34% due to the following:
- ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Statutory rate 34.0% 34.0% 34.0% State income taxes, less federal effect 2.9 3.3 2.9 Nontaxable investment income (0.6) (0.9) (1.7) Effect of undistributed net earnings of foreign subsidiaries (1.3) (2.2) -- Other (0.3) 0.3 0.1 - ------------------------------------------------------------------------------- Effective tax rate 34.7% 34.5% 35.3%
The Company has not recorded deferred income taxes applicable to undistributed earnings of a foreign subsidiary that are indefinitely reinvested in foreign operations. Undistributed earnings amounted to approximately $978,000 at January 3, 1997. If the earnings of such foreign subsidiary were not reinvested, a deferred tax liability of approximately $374,000 would have been required. M. SUBSEQUENT EVENT On January 31, 1997, API Schmidt-Bretten GmbH, a newly formed wholly-owned subsidiary of the Company organized under the laws of the Federal Republic of Germany, acquired all of the shares of Schmidt-Bretten GmbH from Deutz Aktiengesellschaft, formerly Kloeckner-Humboldt-Deutz AG, and KHD Humboldt Wedag Aktiengesellschaft, both stock corporations organized under the laws of the Federal Republic of Germany. Neither seller is affiliated with the Company or any of its affiliates. The purchase price of DM 13,000,000 (approximately $7,900,000) was based upon the unaudited balance sheet of Schmidt-Bretten GmbH at December 31, 1996. An amount of DM 10,000,000 (approximately $6,100,000) was paid in cash on January 31, 1997 and a note for DM 3,000,000 (approximately $1,800,000) is due and payable on December 31, 1997. Payment of this final installment, which is subject to interest at a per annum rate of 5.5% commencing as of January 31, 1997, is guaranteed by the Company. The acquisition will be accounted for as a purchase in 1997 in accordance with APB No. 16 Business Combinations. The Company funded this transaction with funds borrowed under an existing Credit Agreement with Marine Midland Bank dated March 29, 1996. 35 36 N. BUSINESS SEGMENT DATA The Company conducts operations in three major industrial classifications: Heat Transfer Technology, Motion Technologies, and Electronic Components. The operations of the Heat Transfer Technology segment include the production and sale of water and air-cooled heat transfer equipment to industrial customers. Operations of the Motion Technologies segment comprises production and sale of electro-magnetic clutches and brakes, high performance servo motors, stepper motors, controllers, and resolvers. Operations of the Electronic Components segment involve production and sale of inductors and coils. Total revenues by segment consist entirely of sales to unaffiliated customers. Operating profit is total revenue less operating expenses. Operating profit does not include the following items: general corporate income and expense, investment income, interest expense, other income and expense, or income taxes. Identifiable assets by segment consist of those assets that are, or will be, used in the segmental operations. Corporate assets are principally cash, cash equivalents, marketable securities, investments, and other assets. Export sales, principally to Europe, Canada, Mexico, and Asia, were approximately 15% of consolidated sales for 1996. In 1995 and 1994, export sales were 14% and 17%, respectively of consolidated sales. 36 37 Information about the Company's operations in different industries, stated in thousands of dollars, are as follows:
- ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- REVENUES Heat Transfer $ 63,536 $ 40,819 $ 33,276 Motion 40,016 28,599 19,674 Electronic Components 13,231 12,985 11,946 General Corporate 327 257 369 - -------------------------------------------------------------------------------- Consolidated $ 117,110 $ 82,660 $ 65,265 - -------------------------------------------------------------------------------- OPERATING PROFIT Heat Transfer $ 8,230 $ 5,542 $ 5,331 Motion 3,908 2,466 614 Electronic Components 2,300 2,058 1,790 - -------------------------------------------------------------------------------- Combined 14,438 10,066 7,735 General Corporate expense, net (3,149) (2,607) (2,210) Interest and debt exense (1,295) (238) (220) - -------------------------------------------------------------------------------- Earnings before income taxes $ 9,994 $ 7,221 $ 5,305 - -------------------------------------------------------------------------------- IDENTIFIABLE ASSETS Heat Transfer $ 42,357 $ 23,673 $ 14,607 Motion 22,274 15,179 12,370 Electronic Components 6,488 6,821 6,071 General Corporate 10,893 12,118 12,296 - -------------------------------------------------------------------------------- Total assets $ 82,012 $ 57,791 $ 45,344 - -------------------------------------------------------------------------------- DEPRECIATION Heat Transfer $ 1,378 $ 877 $ 735 Motion 1,593 964 637 Electronic Components 534 558 598 General Corporate 58 61 62 - -------------------------------------------------------------------------------- Total Depreciation $ 3,563 $ 2,460 $ 2,032 - -------------------------------------------------------------------------------- NET CAPITAL EXPENDITURES Heat Transfer $ 5,878 $ 1,789 $ 1,358 Motion 842 2,218 188 Electronic Components 575 449 259 General Corporate 77 33 10 - -------------------------------------------------------------------------------- Total net capital expenditures $ 7,372 $ 4,489 $ 1,815 - --------------------------------------------------------------------------------
37 38 O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL FIRST SECOND THIRD FOURTH YEAR - --------------------------------------------------------------------------------------------------------- (Thousands except per share information) 1996 Revenues $ 22,022 $ 31,541 $ 31,658 $ 31,889 $ 117,110 Gross profit 7,380 10,102 10,613 11,036 39,131 Net earnings 1,399 1,573 1,736 1,817 6,525 Net earnings per common share .20 .22 .24 .25 .91 Net earnings per common share - fully diluted .19 .021 .23 .24 .86 Cash dividends declared per share .065 .065 .065 .065 .26 1995 Revenues $ 19,289 $ 20,360 $ 20,850 $ 22,161 $ 82,660 Gross profit 6,254 6,410 7,264 7,186 27,114 Net earnings 1,042 1,122 1,200 1,367 4,731 Net earnings per common share .15 .16 .17 .19 .67 Net earnings per common share - fully diluted .15 .16 .16 .19 .65 Cash dividends declared per share .0625 .065 .065 .065 .2575
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- There were no changes in accountants or disagreements with Price Waterhouse on accounting or financial disclosure. 38 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by this item concerning the directors and executive officers of the Company, appearing in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders, which has been filed with the Commission pursuant to Regulation 14A, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required by this item concerning executive compensation appearing in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders, which has been filed with the Commission pursuant to Regulation 14A, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- a) & b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------- The information required by this item, appearing in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders, which has been filed with the Commission pursuant to Regulation 14A, is incorporated herein by reference. c) CHANGES IN CONTROL ------------------ The Company knows of no contractual arrangements which may, at a subsequent date, result in a change in control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- a) TRANSACTIONS WITH MANAGEMENT AND OTHERS --------------------------------------- None. b) CERTAIN BUSINESS RELATIONSHIPS ------------------------------ None. c) INDEBTEDNESS OF MANAGEMENT -------------------------- None. d) TRANSACTIONS WITH PROMOTERS --------------------------- None. 39 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ----------------------------------------------------------------
PAGE IN a) 1. FINANCIAL STATEMENTS FORM 10-K -------------------- ---------- Report of Independent Accountants 16 Consolidated Balance Sheet 17-18 Consolidated Statement of Earnings 19 Consolidated Statement of Shareholders' Equity 20 Consolidated Statement of Cash Flows 21 Notes to Consolidated Financial Statements 22-38 2. FINANCIAL STATEMENT SCHEDULES ----------------------------- All schedules are omitted because they are inapplicable, immaterial, or not required under the instructions, or the information is included in the financial statements or notes thereto. b) REPORTS ON FORM 8-K ------------------- There were no reports on Form 8-K for the three months ended January 3, 1997. c) EXHIBITS -------- Exhibit No. ----------- 2-A Management Agreement dated December 23, 1994 among American Precision Industries Inc., Gettys Corporation, and Gettys Property Corporation, including List of Exhibits, List of Schedules, and Exhibit D - Asset Purchase Agreement m. 2-B Credit Agreement between American American Precision Industries Inc. and Marine Midland Bank dated March 29, 1996 k. 3-A Restated Certificate of Incorporation, as amended on April 26, 1991 e. 3-B Restated By-Laws, as amended on June 16, 1992 g.
40 41
C. EXHIBITS (CONTINUED) -------------------- EXHIBIT NO. ----------- * 10-A Form of Agreement relating to the Directors Supplemental Death Benefit and Fee Continuation Plan, as amended March 11, 1991 b. * 10-B Form of Agreement relating to the Executive Supplemental Death Benefit and Retirement Plan, as amended on March 11, 1991 b. * 10-C Form of Indemnification Agreement with directors dated February 25, 1991 c. * 10-D Form of Indemnification Agreement with officers dated February 25, 1991 b. * 10-E Long-Term Incentive Stock Option Plan c. * 10-F 1989 Stock Option Plan d. * 10-G Amendment to the American Precision Industries Inc. 1989 Stock Option Plan j. * 10-H Executive Employment Agreement dated April 14, 1992 between Kurt Wiedenhaupt and American Precision Industries Inc. f. * 10-I Stock Option and Tandem Stock Appreciation Rights Agreement dated June 16, 1992 between Kurt Wiedenhaupt and American Precision Industries Inc. f. * 10-J Agreement dated April 24, 1992 between Robert J. Fierle and American Precision Industries Inc. f. * 10-K Life Insurance Split-Dollar Agreement dated August 26, 1992 between Kurt Wiedenhaupt and American Precision Industries Inc. h. * 10-L Executive Supplemental Retirement Plan dated July 1, 1992 between Kurt Wiedenhaupt and American Precision Industries Inc. h.
41 42
c. Exhibits (continued) -------------------- Exhibit No. ----------- * 10-M 1993 Employees Stock Option Plan i. * 10-N Amendment to the American Precision Industries Inc. 1993 Employees Stock Option Plan j. * 10-O 1995 Directors Stock Option Plan j. * 10-P 1995 Employees Stock Option Plan j. * 10-Q Form of Change in Control Agreement between American Precision Industries Inc. and James W. Bingel, John M. Murray, Craig J. VanTine, and Richard S. Warzala dated October 21, 1996 l. * 10-R Change in Control in Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 l. * 10-S Amendment to and Restatement of Executive Employment Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 l. * 10-T First Amendment to American Precision Industries Inc. Grant of Restricted Stock and bonus to Kurt Wiedenhaupt dated July 1, 1996 l. * 10-U Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 l. * 10-V Amendment to Life Insurance Split-Dollar Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated as of July 1, 1994 l. * 10-W Life Insurance Split-Dollar (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 l.
42 43 11 Computation of Earnings Per Share ** 21 List of Subsidiaries ** 23 Consent of independent accountants Page 49 of Form 10-K 27 Financial Data Schedule ** * Management Contract or Compensatory Plan or Agreement. ** Documents filed herewith. a. Incorporated by reference to Exhibits A and B in the definitive Proxy Statement dated March 22, 1991. b. Incorporated by reference to Exhibits 10A-D in the Annual Report on Form 10-K for the fiscal year ended December 28, 1990. c. Incorporated by reference to Exhibit 4.4 in the Registration Statement on Form S-8 (#2-85320), filed July 22, 1983. d. Incorporated by reference to Exhibit 4(a) in the RegistrationStatement on Form S-8 (#33-31315) filed September 28, 1989. e. Incorporated by reference to Exhibits 3-B and 3-D in the Annual Report on Form 10-K for the fiscal year ended January 3, 1992. f. Incorporated by reference to Exhibits 10(i) - (iii) in the Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1992. g. Incorporated by reference to Exhibits B(i) - (ii) in the Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1993. h. Incorporated by reference to Exhibits 10(i) - (ii) in the Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1993. i. Incorporated by reference to Exhibit A in the definitive Proxy Statement dated March 22, 1993. j. Incorporated by reference to Exhibits A-C in the definitive Proxy Statement dated March 24, 1995. k. Incorporated by reference to Exhibit 2(iii) in the Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 1996. l. Incorporated by reference to Exhibits 10(i)-(vii) in the Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 1996. m. Incorporate by reference to Exhibit 2-A in the Annual Report on Form 10-K from the fiscal year ended December 30, 1994.
43 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN PRECISION INDUSTRIES INC. March 21, 1997 By: /s/ Kurt Wiedenhaupt ------------------------------- Kurt Wiedenhaupt President and Director March 21, 1997 By: /s/ Bruce McH. Kirchner ------------------------------ Bruce McH. Kirchner Chief Financial Officer March 21, 1997 By: /s/ John M. Murray ------------------------------ John M. Murray Vice President-Finance and Treasurer March 21, 1997 By: /s/ Thomas M. Huebsch ------------------------------- Thomas M. Huebsch Corporate Controller 44 45 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Robert J. Fierle February 25, 1997 - --------------------------------------- --------------------- Robert J. Fierle Chairman of the Board Date /s/ John M. Albertine February 25, 1997 - --------------------------------------- --------------------- John M. Albertine Director Date /s/ Bernard J. Kennedy February 25, 1997 - --------------------------------------- --------------------- Bernard J. Kennedy Director Date /s/ Douglas J. MacMaster February 25, 1997 - --------------------------------------- --------------------- Douglas J. MacMaster Director Date /s/ Klaus K. Oertel February 25, 1997 - --------------------------------------- --------------------- Klaus K. Oertel Director Date /s/ William P. Panny February 25, 1997 - --------------------------------------- --------------------- William P. Panny Director Date /s/ Victor Rice February 25, 1997 - --------------------------------------- --------------------- Victor Rice Director Date /s/ Jerre L. Stead February 25, 1997 - --------------------------------------- --------------------- Jerre L. Stead Director Date /s/ Kurt Wiedenhaupt February 25, 1997 - --------------------------------------- --------------------- Kurt Wiedenhaupt Director Date 45 46 * * * * * Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: With the exception of historical factual information, the matters and statements discussed, made or incorporated by reference in this Annual Report on Form 10-K constitute forward-looking statements based upon current expectations and are discussed, made or incorporated by reference pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks and uncertainties include, but are not limited to, the possibility that the sales revenues are not achieved, as well as the risks and uncertainties associated with general economic cycles in either North America or Europe. The Registrant disclaims any obligation to update any forward-looking statements as a result of developments occurring after the filing of this Report. * * * * * EXHIBIT INDEX ------------- 11 Computation of Earnings Per Share 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 46 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
FISCAL YEARS ENDED DECEMBER ------------------------ 1996 1995 1994 ------------------------- Amounts in thousands, except per share Primary Average common shares outstanding 7,190 7,090 7,062 Net earnings $6,525 $4,731 $3,431 Net earnings per common share outstanding (a) $ .91 $ .67 $ .49 Fully-diluted Average common shares outstanding 7,190 7,090 (c) Common stock equivalents (b) 415 240 ------ ------ Fully-diluted average common shares outstanding 7,605 7,330 Net earnings $6,525 $4,731 Net earnings per common share-fully diluted $ .86 $ .65 (a) Net earnings per common share outstanding is not materially affected by common stock equivalents used in the determination of primary earnings per share. (b) Represents shares issuable upon the assumed exercise of outstanding stock options determined under the "treasury stock" method. (c) Outstanding stock options were anti-dilutive in 1994.
47 EX-21 3 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ------------------------------ API Heat Transfer Inc. (New York) API Airtech Inc. (New York) API Basco Inc. (New York) API Ketema Inc. (Texas) API Schmidt-Bretten GmbH (Germany) Schmidt -Bretten GmbH (Germany) API Motion Inc. API Controls Inc. (New York) API Deltran Inc. (New York) API Deltran (St. Kitts) Ltd. API Gettys Inc. (Wisconsin) Harowe Servo Controls Inc. (Delaware) Harowe Servo Controls (St. Kitts) Ltd. API Electronic Components Inc. (New York) API Delevan Inc. (New York) API SMD Inc. (New York) 48 EX-23 4 EXHIBIT 23 1 EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-85320, 33-31315, 33-61734, and 33-71839) of American Precision Industries Inc. of our report dated February 17, 1997 appearing on page 16 of this Form 10-K. PRICE WATERHOUSE LLP Buffalo, New York March 25, 1997 49 EX-27 5 EXHIBIT 27
5 0000005657 AMERICAN PRECISION INDUSTRIES INC. YEAR JAN-03-1997 JAN-03-1997 2,412,000 0 17,912,000 487,000 17,431,000 40,986,000 48,305,000 21,099,000 82,012,000 16,794,000 0 5,110,000 0 0 38,272,000 82,012,000 116,783,000 117,110,000 77,652,000 107,116,000 28,169,000 0 1,295,000 9,994,000 3,469,000 0 0 0 0 6,525,000 $.91 $.86
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