ITEM 1. BUSINESS
a. PRODUCTS AND MARKETING
The registrant and its subsidiaries (the "Company" or "API") conduct operations in two major business segments, namely, Motion Technologies and Heat Transfer.
The Company's objective is to consolidate a major share of target market segments in electromechanical and electronic motion control and industrial heat transfer. It further seeks to diversify into select market segments and geographic markets through internal growth and strategic acquisitions focused on enhancing and complementing its existing technology base.
API MOTION INC
API Motion Inc., comprised of API CONTROLS, API DELTRAN, API GETTYS, API HAROWE, API PORTESCAP, API POSITRAN, API ELMO, API DELEVAN, AND API SMD, is a designer and manufacturer of high performance precision motion control products and systems and inductive devices.
API CONTROLS 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, winding equipment, positioning tables and electronics assembly applications. Efforts continue on the development of network communications capabilities for its Intelligent Servo, Microstepper and Centennial drives.
API DELTRAN designs and manufactures high quality, precision electromagnetic clutches, brakes and clutch/brake assemblies used in sophisticated rotary motion control applications.
API GETTYS designs and manufactures precision servo and step motors for a broad range of applications. Product families include DC brush and AC servo motors and step motors with linear actuating assemblies. The Turbo series of step and servomotors are NEMA-standard, high performance designs available in several frame, length and feedback variations.
API HAROWE designs and manufactures high performance resolvers, encoders, and other specialty rotating electromagnetic components for industrial, medical, military and commercial aviation applications. Their Digital Resolver feedback package provides an ideal feedback solution for rugged operations such as welding, machine tools, and similar industrial applications.
API PORTESCAP participates in the market for high performance, miniature motors. It develops, manufactures and markets ironless DC motors, brushless DC motors, disc magnet stepper motors and complementary reduction gearboxes, DC tachogenerators, and magnetic encoders. API Portescap also offers a line of small frame brushless DC motors that can be provided in over 3,600 different model variations, allowing it to respond to a wide variety of markets such as medical instrumentation. In addition, API Portescap markets higher power ironless-rotor motors, iron core DC motors, and electronic drive circuits.
API Portescap's products are used by a number of business sectors. Applications for these products typically include the following features: (i) small size and light weight relative to the power output; (ii) low inertia which allows the motor to reach high speed in a very short time; (iii) low electrical energy consumption; and (iv) reliable and long service lives.
API POSITRAN offers high quality gearboxes designed and manufactured in its ISO 9001 certified facility. The gearboxes are available in offset, in-line, right angle and linear geometric choices, utilizing three technology alternatives - spur, bevel, and worm and wheel. The gearboxes provide an efficient match of high-speed motors to lower speed loads, thus enabling the drive and control electronics to operate more efficiently. This results in less heat loss and smaller actuators.
API ELMO, acquired February 1, 1999, develops and manufactures a wide range of customer-specific single phase and three phase induction and servo motors of rated power up to 25kW. Their computerized database includes 3,000 different motor models. Products are supplied to a number of leading industrial companies and feature compliance with international standards such as CSA and UL. Applications include use in industrial washing machines, looms and knitting machines, ventilation systems, medical and printing equipment, robotics and electric fork lift trucks.
API DELEVAN and API SMD design, manufacture and market an extensive line of quality printed circuit board through-hole and surface-mount inductors, EMI/RFI and transformer components 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. Both of these operations have been ISO 9001 certified since 1994.
The markets served by API Delevan and API SMD are comprised of a large number of OEM and distribution channels who serve primarily the non-consumer electronics industry. API's markets are the higher-grade industrial applications such as avionics, aerospace and medical equipment. Sales growth is oriented toward specialty niche markets and custom components to augment its large offering of standard catalog products.
API HEAT TRANSFER INC.
API Heat Transfer Inc., which is comprised of API BASCO, API AIRTECH, API KETEMA, and 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, food and dairy, and many of their support industries. Products range from small standard units to large custom-designed heat exchangers, and include industrial and portable compressors, refrigeration equipment, turbines, and applications in the food and beverage and chemical processing markets. API Basco, API Airtech, and API Schmidt-Bretten GmbH are ISO 9001 certified, an important element in the Company's plans for international growth.
API BASCO manufactures a full line of standard and custom shell and tube heat exchangers, plate fin intercoolers and aftercoolers, serving the compressor, air separation, chemical, petrochemical, and general industrial markets.
API AIRTECH manufactures a complete line of air-cooled aluminum heat exchangers including bar and plate, fan cooled, and refrigerated exchangers. The end markets include compressors, machine tools, turbo-generators, construction equipment, and truck and bus manufacturers. Operations are based in a modern 82,000 square foot facility which is designed to accommodate future growth needs.
API KETEMA has a strong position in both the general industrial and refrigeration heat transfer marketplace. This division manufactures shell and tube heat exchangers, chiller barrels, condensers, flooded evaporators and industrial packaged chillers.
API SCHMIDT-BRETTEN, with principal facilities located in Germany, designs and manufactures gasketed, welded, and brazed plate exchangers for the chemical and food markets. The plate-type heat exchanger products offer flexible design, high efficiencies and easy disassembly for cleaning or plate replacement. API Schmidt-Bretten also provides plate products to the U.S. market. In addition, its marketing organization allows API Heat Transfer to pursue the sale of its U.S. manufactured products into Europe.
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency (Euro). In 1999 these countries began using the Euro as their single currency, while still continuing to use their own notes and coins for cash transactions. Bank notes and coins denominated in Euros are expected to be put in circulation and local notes and coins will cease to be legal tender during 2002.
API conducts a material amount of business in these countries. Introduction of the Euro has not resulted in any material adverse impact on the Company's financial condition, liquidity or results of operations.
b. COMPETITION
In each of its segments the Company faces substantial competition from a number of companies, some of which have offshore manufacturing facilities. Some of these competitors are larger and have greater resources. The Company continues to be faced with strong global competition and cost reduction pressures.
The Company relies primarily on the depth of its engineering expertise in motion control and heat transfer technologies and on the quality of its extensive products and services 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 high quality micro-miniature electronic coil, electro-magnetic components, and compressor cooler markets.
c. BACKLOG
The Company's backlog of unfilled orders believed to be firm at December 31, 1999 was approximately $73,396,000. Most 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 two business segments:
The increase in backlog in the Motion Technologies segment is principally due to the acquisition of API Elmo offset by decreases in OEM components caused by customer trends of converting to "just in time" delivery requirements. Backlog has decreased for the Heat Transfer segment primarily due to weakness in the U.S. industrial compressor market and reductions in orders for shell and tube heat exchangers.
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. The Company has initiated actions to establish primary and second-tier preferred suppliers for significant raw materials. These supply chain management initiatives has resulted in closer alliances with suppliers with a focus on cost reductions and improved service levels.
e. PATENTS AND LICENSES
The Company has patents in multiple jurisdictions covering the design of certain API Portescap products including, in particular, the disc magnet motor, whose patent expires on July 21, 2004. Also API Portescap's escap(R) tradename is registered in multiple jurisdictions. The Company recently registered the tradename Turbo Servo, and the tradename Turbo Stepper for its new API Gettys' motor products.
The Company has patents in multiple jurisdictions covering the design of its API Elmo synchronous servomotors. Expiration of these patents occurs in 2008.
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 API Delevan. None of these patents expire prior to the year 2006.
The Company was issued a patent in December 1998 covering heat exchangers utilized in compressed air drying systems. This patent expires in 2017.
The Company has numerous other patents and trademarks. No single patent or trademark or group of patents or trademarks is material to the operations of any industry segment or to the business as a whole.
f. CUSTOMERS
During 1999, 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 $5,174,000, $4,917,000, and $3,667,000, in 1999, 1998, and 1997, respectively.
h. ENVIRONMENTAL MATTERS
- In April 1998, API Harowe Inc. ("Harowe") was notified by the owner of the real property in West Chester, Pennsylvania, at which Harowe leases its facility, that there was alleged contamination at the facility. The owner claims that Harowe is responsible for the remediation cost and other damages arising out of that alleged contamination. The owner, on its own initiative, undertook certain soil remediation activities at its own expense.
Harowe has retained an environmental consultant to assist it in determining what, if any, liability Harowe has with respect to the alleged contamination. In its Supplemental Site Characterization Report dated November 17, 1998, the consultant concluded that (1) although select volatile organic compounds ("VOCs") were detected in soil samples, none of these VOCs exceeds the limits set by the Pennsylvania Department of Environmental Protection ("PADEP"), and (2) ground water samples found five VOCs at concentration levels in excess of the PADEP's limits. The consultant's report concludes by stating that although the exact sources of these VOCs have not been identified, it is possible that they could be due to historical releases from underground storage tanks on the site or to past or present releases from the sanitary sewer line.
On January 26, 1999, the consultant submitted a proposal to conduct a remedial investigation and risk assessment of the site for an estimated cost of $76,050. The estimated cost does not include any of the costs for remedial action activities, attainment monitoring, or activities associated with entering into a formal process of receiving liability protection from the PADEP's land recycling program.
In a letter dated February 2, 1999, the owner's attorney advised Harowe that he did not believe that the consultant's proposed timetable was aggressive enough to move the process forward expeditiously, and that he did not agree with the consultant's suggestion to hold off contacting PADEP until all investigatory work was complete. The owner's attorney also demanded that Harowe reimburse the owner for all of its past costs, including those costs incurred to assess and remediate contaminated soils, which amounted to $77,360 through 1998. He also suggested that Harowe would be liable for any damages incurred by the owner if the owner was unable to close on its planned sale of the site due to the presence of contamination in either the soil or ground water.
During 1999, the consultant has expanded its proposed scope of work for the Remedial Investigation and Risk Assessment ("RI/RA") to include the installation of additional deep wells and off-site wells to evaluate further the possibility that the deep groundwater table and off-site groundwater have been impacted by contamination at the Harowe leased property. In addition, a well survey will be performed to determine whether there are any off-site wells in use which may be impacted by contamination at the site. These additional activities are expected to increase the cost of the RI/RA work by approximately $70,000.
A video inspection of the on-site sanitary sewer line was performed on October 26, 1999. That inspection revealed that some fittings on the line were separated or eroded to the extent that water could be observed leaking through them. Thus, historical leakage from this line could possibly have been a contributing source of the groundwater impacts found at the site.
Harowe intends to proceed along the lines suggested in the consultant's proposal, without admitting responsibility for all of the contamination found on the site. The Company has also made a demand on Hawker Siddeley Holdings Inc., from whom the Company purchased Harowe, to indemnify and hold the Company harmless from any damages arising out of this situation.
- In 1987, Transicoil Inc., which was formerly owned by Portescap U.S. Inc., a subsidiary of the Company acquired in 1997, was notified that the North Penn site in Pennsylvania on which its operations had been located was nominated for inclusion on the U.S. Environmental Protection Agency's ("EPA") National Priorities List of hazardous waste sites pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). In 1988, Portescap U.S. Inc., as well as Transicoil, Eagle-Picher Industries, Inc. (the owner of Transicoil at that time), other prior owners and the then owner of the
North Penn Site, were named by the EPA as "potentially responsible parties" ("PRPs") under CERCLA which imposes joint and several liability on each PRP for the cleanup of the site. Portescap U.S. Inc. denied liability and denied that it was a proper PRP. An investigation of the North Penn Site, performed by independent consultants at the request of the EPA, revealed the presence of contamination. In 1989, Eagle-Picher, Transicoil and the EPA entered into an administrative consent order, pursuant to which Eagle-Picher and Transicoil agreed to prepare a Remedial Investigation Report and a Feasibility Study of the North Penn Site. However, in 1991, prior to completion of either the Remedial Investigation Report or the Feasibility Study, Eagle-Picher and Transicoil filed for bankruptcy and were subsequently discharged from any liability for environmental contamination at the North Penn Site. In mid-1995, Portescap U.S. Inc. agreed in principle with one of the prior owners and operators of the North Penn Site to pay, on an equal shares basis, up to $15,000 toward installation of drinking water filtration systems at several homes in the vicinity of the North Penn Site. In August 1995, the EPA issued a unilateral order requiring certain prior and present owners and operators of the North Penn Site to undertake various remedial actions. The EPA, however, did not name Portescap U.S. Inc. as a party to that order, although it subsequently served Portescap U.S. Inc. with a formal request for information concerning its past relationship with Transicoil and the North Penn Site. In October 1995, Portescap U.S. Inc. received notice of an indemnification claim asserted against it by a prior owner of the North Penn Site. Portescap U.S. Inc. informed the entity that asserted the indemnification claim that it denies liability under that claim and that it will vigorously defend itself against that claim.
In early 1996 the EPA released the Remedial Investigation Report which indicated the presence and nature of contamination at the North Penn Site. The Feasibility Study was concluded in early 1997, and in July 1997 the EPA released its proposed Remedial Action Plan in which it recommends two alternatives for remediating the environmental problems associated with the North Penn Site, which involve a combination of ground water treatment and the connection of residents around the North Penn Site to a public water supply. The EPA estimates that the ground water treatment alternative would cost approximately $830,000 and the proposal to connect residents to a public water supply would cost approximately $2,340,000. The EPA has held a public hearing on these matters and will make a final determination as to which alternative or combination of alternatives, if any, to adopt. Once the EPA selects a remediation plan, it is likely to assert a claim against the PRPs named in its August 1995 unilateral order to recover the costs of remediation. Those PRPs may assert a claim against Portescap U.S. Inc. for contribution. In that event, Portescap intends to deny any liability, and to assert a counterclaim for contribution against the other PRPs. However, there is no assurance that it will prevail on either its denial of liability or its claim for contribution.
Inter Scan Holding Ltd., from whom API acquired Portescap, has agreed to indemnify API, Portescap and its subsidiaries for any losses, as defined, which arise out of any violation of environmental laws or disposal of hazardous waste at the North Penn Site up to a maximum of 2,000,000 CHF (approximately $1,250,000). Indemnification on any such claims asserted after October 8, 1998 are limited to 1,000,000 CHF (approximately $625,000).
i. EMPLOYEES
At December 31, 1999, 2,178 persons were employed by the Company.
j. LINES OF BUSINESS AND INDUSTRY SEGMENT INFORMATION
API's manufacturing operations in 1999 were carried on through subsidiaries. Operations are classified into two industry segments based upon the characteristics of manufacturing processes and the nature of markets served. The manufacturing units which currently comprise the segments and their principal products are as follows:
Amounts of revenue from sales to unaffiliated customers, operating profit or loss, and identifiable assets for the three years ended December 31, 1999, are included in Note L of the notes to consolidated financial statements included in this report.
k. FOREIGN OPERATIONS
Export sales from North America are primarily to Europe and to other countries within North America. Export sales from Europe are principally to countries within their geographic segment. These sales comprise approximately 34%, 31%, and 29%, of consolidated sales for 1999, 1998, and 1997, 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. Additional information relating to geographic operating data is included in Note L of the notes to consolidated financial statements included in this report.
ITEM 2.
ITEM 2. PROPERTIES
The location of API's manufacturing facilities and their approximate size in terms of floor area are as follows:
Of the facilities listed above, the API Gettys, API Portescap, API Positran, API Elmo, API Delevan, API SMD, API Basco, API Airtech, and API Ketema facilities are owned by API.
The facilities occupied by API Airtech and API Schmidt-Bretten, API Ketema, and API SMD constitute collateral for three industrial revenue bond financings. The land and buildings owned by API Portescap in Switzerland, API Positran in England, and API Elmo in Sweden have been pledged as security for certain mortgage loans.
The facilities leased by API are as follows:
In addition, subsidiaries of API Portescap lease office space in Pforzheim (Germany), Creteil (France), Tokyo (Japan), and Stockholm (Sweden). A sales subsidiary of API Schmidt-Bretten GmbH leases office space in Leeuwarden, the Netherlands. The approximate aggregate annual rentals for these sales offices is $.2 million. The lease terms range from 2000 to 2003, and the aggregate square footage is approximately 15,500.
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.
ITEM 3. LEGAL PROCEEDINGS
See Item 1(h).
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
COMMON STOCK PRICES
American Precision Industries common stock is listed on the New York Stock Exchange and 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.
As of December 31, 1999, there were 812 shareholders of record. Effective in the first quarter of 1997, the Company decided to eliminate its quarterly cash dividend and to retain the cash for expansion and acquisitions.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA FIVE YEAR FINANCIAL SUMMARY (Dollars in thousands, except per share amounts)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW - OPERATIONS
NET SALES
Consolidated net sales in 1999 were $236.3 million, compared with $216.6 million in 1998, an increase of $19.7 million or 9.1%. Of the increase, $27.8 million was due to the acquisition on February 1, 1999 of Elmo Industrier AB ("Elmo"), a Swedish motor manufacturer. Offsetting this increase were sales decreases of API Motion's brake, clutch, control and motor products and API Heat Transfer's shell and tube heat exchangers. These declines were the result of weak market conditions in the semi-conductor, factory and office automation, medical instruments and compressor industries.
In 1998, consolidated net sales were $216.6 million, an increase of 17.7% as compared with 1997 net sales. The ownership of API Portescap for a full 12 months in 1998, higher sales of API Motion's brakes, clutches, feedback and components products and of API Heat Transfer's air-cooled and plate and frame products accounted for the sales increase.
COST OF PRODUCTS SOLD
The cost of products sold in 1999 was $167.7 million, compared with $150.3 million in 1998, an increase of $17.4 million, or 11.6%. Cost of products sold which resulted from the acquisition of Elmo was not fully offset by the lower cost of products sold resulting from lower sales volume and cost reduction actions at API's other businesses.
In 1998, cost of products sold was $150.3 million, a $23.1 million increase as compared with 1997. The majority of the increase resulted from the ownership for a full 12 months in 1998 of API Schmidt-Bretten (acquired January 30, 1997) and API Portescap (acquired July 8, 1997). Also impacting 1998 cost of products sold were higher costs due to operational inefficiencies at API Heat Transfer's air-cooled products facility, product introduction costs at API Motion offset by a $1.2 million reduction in API Portescap's inventory obsolescence reserve.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses were $47.3 million in 1999, an amount equal to 1998 expenses. Selling cost increases resulting from the acquisition on February 1, 1999 of Elmo were offset by lower selling expense at other units due to lower sales volume and cost reductions.
Selling and administrative expenses in 1998 were $47.3 million as compared with $38.0 million in 1997. The majority of the increase was due to the ownership for a full 12 months in 1998 of API Schmidt-Bretten and API Portescap. Product introduction costs at API Motion plus higher sales volumes accounted for the balance of the increase.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses were $5.2 million in 1999, compared with $4.9 million in the prior year. Product development costs at Elmo accounted for the increase.
Research and product development costs in 1998 increased to $4.9 million from $3.7 million in 1997. Ownership of API Schmidt-Bretten and API Portescap for a full 12 months in 1998 and higher product development costs for air-cooled heat exchangers, turbo motors, brakes and clutches accounted for the increase.
INTEREST AND DEBT EXPENSE, NET OF INVESTMENT INCOME
Interest and debt expense in 1999 was $3.8 million, compared with $3.4 million in 1998. Interest costs for debt related to the acquisition of Elmo more than offset the lower interest cost of non-Elmo related debt resulting from principal repayments.
Interest and debt expense in 1998 was $3.4 million as compared with $2.8 million in 1997. The ownership of API Portescap for a full year in 1998, costs associated with the establishment of a $100 million, multi-currency revolving credit facility in August 1998 and lower investment income was only partially offset by lower interest rates in Switzerland and the U.S.
INCOME TAXES
Income taxes in 1999 were $4.2 million, a rate of 34.1% of earnings before income taxes. The tax rate reflects the geographic mix of earnings and the Swiss tax holiday granted by the Neuchatel Canton in December 1998 and the Swiss federal government in early 1999. Income tax expense for 1999 includes a $.2 million charge resulting primarily from the write-down of net deferred tax assets associated with operating loss carryforwards on API Portescap's balance sheet at acquisition which have a lower future value due to the granting in 1999 of the Swiss federal tax holiday.
Income taxes in 1998 were $4.3 million, a rate of 40.5% of earnings before income taxes. This included $.6 million of tax expense resulting from the granting of a 10-year tax holiday for API Portescap by the Swiss canton of Neuchatel. The $.6 million charge reflected in the 1998 tax provision resulted primarily from the write-down of net deferred tax assets associated with operating loss carryforwards recorded on the balance sheet at API Portescap's acquisition which have a lower future value as a result of the Swiss cantonal tax holiday.
Excluding the unusual charges, API's 1999 consolidated tax rate was 32.3% as compared with 35.0% in 1998 and 32.0% in 1997. The 1999 decrease in rate from 1998 reflects changes in API's geographical mix of earnings. Non-recurring adjustments to pre-1997 provisions following the completion of audits also lowered the 1998 and 1997 rates.
NET EARNINGS
Net earnings in 1999 were $8.1 million, compared with $6.4 million in 1998. The acquisition of Elmo and cost reductions at other units offset the impact of lower sales volume due to the weak market conditions affecting major market segments served by API Motion and API Heat Transfer.
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
On January 1, 1999, a dividend began to accrue on API's 7% Convertible Preferred Stock. The 1999 accrued preferred dividend was approximately $1.8 million. 1999 net earnings available to common shareholders was thus $6.3 million as compared with $6.4 million in 1998 (when the preferred stock was dividend free).
BUSINESS SEGMENT DISCUSSION
API MOTION: 1999 sales were $145.7 million, an increase of $24.2 million when compared with 1998. The February acquisition of Elmo Industrier AB, a Swedish motor manufacturer, added $27.8 million to 1999 sales. Offsetting this increase were lower sales due to weak market conditions in the semiconductor, factory and office automation and medical instruments markets and the impact of a strong U.S. dollar when translating the sales of API Motion's Swiss subsidiary.
API Motion's 1999 operating profit was $12.5 million, a 31.1% increase when compared with $9.5 million in 1998. Lower product introduction and development costs, the acquisition of Elmo and cost reduction programs accounted for the increase.
API HEAT TRANSFER: In 1999, net sales were $90.6 million compared with $95.1 million in 1998. The 4.7% decrease was the result of weak market conditions in the U.S. compressor industry resulting in lower demand for shell and tube products and the impact of a stronger U.S. dollar when translating the sales of API Heat Transfer's German subsidiary. These factors more than offset growth in demand for API Heat Transfer's plate and frame products.
API Heat Transfer's 1999 operating profit was $8.7 million, a 3.5% decline when compared with $9.1 million in 1998. The reduced operating profit due to the $4.5 million lower sales was not fully offset by cost reductions.
YEAR 2000 INITIATIVES
As previously reported, over the past several years the Company has developed and implemented a plan to address the anticipated impacts of the so-called Year 2000 ("Y2K") problem on our information technology (IT) systems and on non-IT systems involving embedded chip technologies. This plan also included the survey of selected third parties to determine the status of their Year 2000 compliance programs. In addition, we developed contingency plans specifying what the Company would do if we or important third parties experienced disruptions to critical business activities as a result of the Year 2000 problem.
API's Year 2000 plan was completed in all material respects prior to the anticipated Year 2000 failure dates. As of March 21, 2000, the Company has not experienced any materially important business disruptions or system failures as a result of Year 2000 issues, nor is it aware of any Year 2000 issues that have impacted its customers, suppliers or other significant third parties to an extent significant to the Company. However, Year 2000 compliance has many elements and potential consequences, some of which may not be foreseeable or may be realized in future periods. Consequently, there can be no assurance that unforeseen circumstances may not arise, or that the Company will not in the future identify equipment or systems which are not Year 2000 compliant.
As of December 31, 1999, costs for U.S. operations for Y2K related hardware and software upgrades were approximately $.4 million. The 1999 cost to complete the implementation of information systems at Schmidt-Bretten Germany was approximately $.2 million, while the 1999 compliance cost for Elmo was approximately $.1 million. Costs specifically related to Y2K compliance at Portescap approximated $.5 million.
FINANCIAL POSITION
The Company's liquidity is primarily generated from operations. In addition, short-term lines of credit totaling $9.5 million and revolving credit of $62.9 million were available at December 31, 1999.
On August 31, 1998, the Company signed an agreement with Marine Midland Bank (now known as HSBC Bank) and Fleet National Bank for a $100 million, multi-currency, five-year unsecured Revolving Credit Facility. This replaced the Company's $20 million Revolving Credit Facility. Twenty-five million dollars of the new facility is available for general corporate purposes. The balance is available for potential acquisitions. The facility is guaranteed by the Company's U.S. subsidiaries. At December 31, 1999, borrowings under the Revolving Credit Facility were $37.0 million, as compared to $18.3 million at December 31, 1998.
In February 1999, the Company's Directors approved a program that authorized the repurchase from time to time of up to $5 million of its common stock. The authorization was increased in November 1999 by an additional $5 million. As of December 31, 1999, the Company had repurchased 627,300 shares at a cost of $6.5 million under these authorizations.
Information on the Company's liquidity position for the past three years is as follows:
The lower 1999 net working capital as compared with 1998 is the net result of a decrease in inventory from reduction programs and from lower translated dollar values of foreign unit inventories, offset by the acquired net working capital at Elmo (acquired February 1999). The cash produced from the inventory reduction helped fund long-term debt reductions, common stock repurchases and preferred dividends.
Cash flow from operations increased to $22.0 million in 1999 from $11.2 million in 1998. The acquisition of Elmo and decreases in overall inventory levels contributed to this $10.8 million increase in cash flow from operations.
Capital expenditures in 1999 were $9.6 million compared with $9.3 million in 1998. The acquisition of Elmo and spending by API Motion to improve the API Portescap facility and support product introduction at other facilities offset lower spending at API Heat Transfer.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its financing and international operating activities, is exposed to market risk from changes in interest rates and foreign currency exchange rates which may adversely affect its results of operations and financial position. The Company seeks to minimize the risks from these interest rate and foreign currency exchange rate fluctuations through its normal operating and financing activities. When deemed appropriate, the Company utilizes forward contracts to minimize the foreign currency exchange rate risk. The Company does not use derivative financial instruments for trading or other speculative purposes.
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt obligations which consist of a revolving credit facility, industrial revenue bonds and various term loans. The majority of these debt obligations have variable interest rates, primarily based on the London Interbank Offered Rate (LIBOR) and an index rate based on short-term federal tax exempt obligations. At December 31, 1999 and December 31, 1998, the carrying value and fair value under these obligations were approximately $69 million and $49 million, respectively. If these variable interest rates were to change by 10%, the impact on consolidated interest expense would be approximately $.4 million and $.2 million for 1999 and 1998, respectively.
The Company's exposure to market risk for changes in foreign currency exchange rates arises from investment in and intercompany balances with foreign subsidiaries, receivables, payables, and firm commitments arising from international transactions. The Company attempts to have all such transaction exposures hedged with internal natural offsets to the fullest extent possible and, once these opportunities have been exhausted, selectively through derivative financial instruments with third parties using forward agreements. At December 31, 1999 there were nine outstanding forward agreements with aggregate fair values of approximately $3 million with associated settlement dates identified in the six-month period ending June 30, 2000. At December 31, 1998 one forward agreement with a settlement date of April 30, 1999 was outstanding with a fair value of approximately $.3 million. A 10% change in foreign exchange rates would not have a material impact on the fair value of the forward agreements or the Company's results of operations or cash flows related to those contracts.
The above discussion and the estimated amounts generated from the sensitivity analyses referred to above include forward-looking statements of market risk which assume that certain adverse market conditions may occur. Actual future market conditions may differ materially from such assumptions. Accordingly, the forward-looking statements should not be considered projections by the Company of future events of losses.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued SFAS No. 137, which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is continuing its process of analyzing and assessing the impact that this new standard is expected to have on its consolidated results of operations, cash flows and financial position, but has not yet reached any conclusions.
ITEM 8.
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 accompanying consolidated balance sheet and the related consolidated statements of earnings, comprehensive income, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of American Precision Industries Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, 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.
As discussed in Note P to the financial statements, on February 15, 2000 the Company entered into an agreement and plan of merger providing for the acquisition of American Precision Industries, Inc. by Danaher Corporation.
PricewaterhouseCoopers LLP
Buffalo, New York February 14, 2000
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF EARNINGS
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
See Accompanying Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except shares and per share data) For the three years in the period ended December 31, 1999.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) NATURE OF OPERATIONS American Precision Industries Inc. ("API" or the "Company") is a multi-domestic, diversified manufacturing company whose principal lines of business include the production and sale of precision motion control devices and products for the heat transfer industry. The Company's principal markets are in North America and Europe.
(2) FISCAL YEAR During 1997 API converted its fiscal year to a calendar year ending on December 31.
(3) BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of all subsidiaries. All material intercompany accounts and transactions have been eliminated. The Statement of Earnings and Comprehensive Income and the Statement of Cash Flows include the results of API Schmidt-Bretten, API Portescap and API Elmo since January 31, 1997, July 8, 1997, and February 1, 1999, the dates of their respective acquisitions.
(4) FOREIGN CURRENCY TRANSLATION The financial statements of subsidiaries outside the United States are measured using the local currency as the functional currency. Assets, including goodwill, and liabilities are translated at the rates of exchange at the balance sheet date. The resulting translation adjustments are included in equity as "foreign currency translation adjustment", a separate component of shareholders' equity reported in Accumulated other comprehensive (loss) income. Translation adjustments are not tax-effected since they relate to investments which are permanent in nature. Income and expense items are translated at average monthly rates of exchange.
The Company utilizes forward foreign currency exchange contracts to manage exposures resulting from fluctuations in foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies arising from its operations. Gains and losses on foreign currency transactions are recorded in income and are not material during the periods presented. The Company does not engage in foreign currency speculation.
The aggregate value of foreign exchange contracts outstanding as of December 31, 1999 and 1998 were approximately $3,000 and $300, respectively.
(5) INVENTORIES Inventories are valued at the lower of cost or market, net of progress payments. At December 31, 1999 and December 31, 1998 inventories comprising approximately 20% and 25%, respectively, of consolidated inventories were valued using the last-in, first-out (LIFO) method. Other inventories are priced using the first-in, first-out (FIFO) method.
(6) PROPERTY, PLANT AND EQUIPMENT These assets are stated at cost and are depreciated for financial reporting purposes principally by use of the straight-line method over their estimated useful lives: buildings and improvements - 5 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.
Total depreciation expense for 1999, 1998, and 1997 was $10,805, $8,669, and $6,900, respectively.
(7) 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 25-30 years on a straight-line basis. Amortization expense amounted to $966, $724, and $455 in 1999, 1998, and 1997, respectively. Accumulated amortization of goodwill at December 31, 1999 and 1998 was $2,356 and $1,512, respectively.
(8) INCOME TAXES The Company follows the asset and liability approach to account for income taxes. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. No provision has been made for United States income taxes applicable to undistributed earnings of certain foreign subsidiaries as it is the intention of the Company to indefinitely reinvest those earnings in the operations of those entities.
(9) 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 plans 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 API Harowe are based upon years of service, not to exceed 35, multiplied by a fixed rate specified in the union contract. Benefits under this plan are funded annually based upon funding recommendations of the plan actuaries.
Other union employees are covered under defined contribution plans. The Company's contributions to these plans are set forth under the provisions of the specific contracts.
The Company's principal foreign subsidiaries also maintain defined benefit pension plans covering substantially all employees of those subsidiaries.
(10) 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 or income is recorded with respect to changes in the value of stock appreciation rights. The Company has adopted certain disclosure requirements as prescribed by FASB Statement No. 123.
(11) ADVERTISING The Company expenses the production costs of advertising in the year in which the advertising occurs. Total advertising expense in 1999, 1998, and 1997 was $1,674, $2,098, and $1,661, respectively.
(12) ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
B. BUSINESS ACQUISITIONS On February 1, 1999, API Elmo AB ("Elmo"), a newly formed wholly-owned subsidiary of the Company, purchased the on-going business and related assets of ELMO Industrier AB, a manufacturer of specialty electronic induction and servo motors. The purchase price consisted of a net cash payment of Swedish kronor (SEK) 169,910 plus the assumption of SEK 44,200 of bank debt (aggregate of approximately $27.5 million U.S.). Liabilities in the amount of approximately $225 were established related to the Elmo acquisition. Actual charges incurred during 1999 reduced this reserve to approximately $50 as of December 31, 1999.
On January 31, 1997, API Schmidt-Bretten Beteiligungs GmbH, a wholly owned subsidiary of the Company, acquired all the outstanding capital stock of Schmidt-Bretten GmbH ("SBG") for approximately $6,100 in cash and a note for $1,800. SBG manufactures plate and frame heat exchangers in Bretten, Germany.
On July 8, 1997, the Company acquired all the outstanding capital stock of Portescap, a Swiss manufacturer of micromotors. The purchase price consisted of Series A convertible preferred stock of the Company with a liquidation value of $21,156, an exchangeable note for $5,000, and cash of approximately $3,800. The Series A convertible preferred stock and the exchangeable note were exchanged for 1,236,337 shares of Series B convertible preferred stock, which, in turn is convertible at $17.00 per share into 1,538,603 shares of the Company's common stock.
In connection with the 1997 acquisitions, a liability of approximately $2,100 was established for redundancy and relocation costs. As of December 31, 1999 and December 31, 1998, all significant costs related to this reserve have been incurred and charged to the appropriate liability. Remaining nominal costs are expected to be incurred in 2000.
The aforementioned acquisitions have been accounted for as purchase transactions in accordance with APB No.16, "Business Combinations".
The following table presents unaudited pro forma results of operations for 1999 and 1998 as if the acquisition of Elmo had occurred at the beginning of fiscal year 1998, after giving effect to certain adjustments, including amortization of goodwill, adjusted depreciation of fair value of assets acquired, interest expense on additional debt incurred 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 acquisition taken place at the beginning of 1998 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 entities since precise estimates of such benefits cannot be quantified.
Pro forma results with acquisition:
C. CASH AND CASH EQUIVALENTS Cash equivalents consist of money market funds, commercial paper, and certificates of deposit with original maturities of three months or less.
D. INVENTORIES - NET The major classes of inventories are as follows:
Had the cost of all inventories at December 31, 1999 and December 31, 1998 been determined by the FIFO method, these amounts would have been greater by $851 and $915, respectively.
E. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities is primarily comprised of accrued pension costs for Schmidt-Bretten Germany and API Harowe in total of $2,679 and $3,123 at December 31, 1999 and 1998, respectively. This balance also includes the noncurrent portion of bonus obligations under the Company's incentive plan, deferred compensation associated with the stock appreciation rights granted to the Chief Executive Officer in 1992, and the noncurrent portion of workers compensation liability reserve. In 1998 the balance included approximately $500 related
to the discount on stock options granted to certain members of the Board of Directors of the Company in lieu of directors' fees. This liability has been reported as a current liability for 1999.
F. SHORT AND LONG-TERM OBLIGATIONS
(1) SHORT-TERM OBLIGATIONS At December 31, 1999 and 1998, short-term bank borrowings consisted of:
The weighted average interest rate on the outstanding short-term debt at December 31, 1999 was 4.7% and was 4.6% at December 31, 1998.
The short-term credit facilities available at December 31, 1999 and December 31, 1998 consisted of:
(2) LONG-TERM OBLIGATIONS consist of the following:
On August 31, 1998, the Company signed an agreement with HSBC Bank and Fleet National Bank for a $100 million, multi-currency, five-year unsecured Revolving Credit Facility. This replaced the Company's $20 million Revolving Credit Facility. The credit facility is available for general corporate purposes and potential acquisitions. The facility is guaranteed by the Company's U.S. subsidiaries. Amounts available under this revolving credit facility were $63 million and $82 million as of December 31, 1999 and December 31, 1998, respectively. The Company used $24.2 million of this amount on February 1, 1999 to acquire the assets of ELMO Industrier AB. The interest rate on the Revolving Credit, under the LIBOR Rate Option in the Credit Agreement, averaged 5.9% as of December 31, 1999 and 5.8% as of December 31, 1998.
The Company has outstanding obligations under three industrial revenue bond ("IRB") financings relating to the acquisition or construction of production facilities. The bonds are subject to mandatory sinking fund repayment schedules with maturities extending through 2015. The bonds are collateralized by assets with a depreciated value of $10,936 at December 31, 1999 and $11,587 at December 31, 1998. 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. There were no unexpended revenue bond proceeds at December 31, 1999 or December 31, 1998.
The following are the weighted average interest rates at December 31, 1999 and 1998 for long-term debt:
The Revolving Credit and each of the IRB's are subject to various restrictive covenants, with respect to which the Company is in compliance.
Costs related to the acquisition of long-term debt are amortized over the life of the debt instrument. Fees are expensed as incurred. Together, these items comprise debt expense, which was $398 in 1999 and $286 in 1998. These expenses include amortization costs and fees related to the $100 million credit facility established August 31, 1998.
Under the supplemental benefit program, the Company provides retirement or death benefits to certain officers and certain executives of subsidiaries. In most cases, officers are provided an annual benefit equal to 20% of their current salary at the time of retirement, payable over fifteen years. Four participants are provided a specified benefit which, in one case, is indexed to the Consumer Price Index. These benefits are also payable over a fifteen year period. 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 certain participants, the cash surrender values of which are recorded in Other Assets.
Over the next five years, the Company will make long-term obligation payments of approximately $2,235 in 2000, $2,459 in 2001, $2,303 in 2002, $1,634 in 2003, and $743 in 2004. Such amounts exclude the Revolving Credit Debt.
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 with an initial term in excess of one year are payable as follows: 2000 - $925, 2001 - $757, 2002 - $149, 2003 - $8, 2004 - $5. Total rental expense for 1999, 1998, and 1997 was $1,397, $1,318, and $1,263, respectively.
H. EMPLOYEE BENEFITS In addition to the aforementioned supplemental benefit program, the Company has a defined benefit retirement plan covering all nonunion employees in the United States ("Salaried Plan"). API Harowe has a defined benefit retirement plan covering all hourly employees in its West Chester, Pennsylvania location ("Harowe Hourly Plan"). The Company also makes contributions to union-sponsored plans.
The Company's principal subsidiaries in Switzerland (Portescap) and Germany (SBG) also maintain defined benefit pension plans covering substantially all employees of those subsidiaries. Reconciliations of the Benefit Obligation, Plan Assets and Funded Status of certain defined benefit retirement plans are as follows:
As of December 31, 1999 and December 31, 1998, the tax effect on the gross additional minimum pension liability was $171 and $230, respectively.
The following factors have been assumed in determining the actuarial present value of projected benefit obligation shown in the previous table:
NA - not applicable
Net periodic pension cost associated with the plans reflected in the previous table for 1999 and 1998 included the following components:
The total expense for all retirement plans including union-sponsored plans was $2,286, $2,426, and $1,247, in 1999, 1998, and 1997, respectively.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has 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 December 31, 1999 and December 31, 1998, management believes the carrying amounts of its financial instruments approximates fair value.
J. SHAREHOLDERS' EQUITY (1) Preferred Stock - On November 14, 1997, the shareholders of the Company authorized 1,250,000 shares of Series B Seven Percent (7%) Cumulative Convertible Preferred Stock ("Series B Preferred"), 1,236,337 shares of which were issued to the seller of Portescap in exchange for the 20,000 shares of Series A Seven Percent (7%) Cumulative Convertible Preferred Stock and the $5,000 exchangeable note issued on July 8, 1997 in connection with the Portescap acquisition. The Series B Preferred has a liquidation value of $26,156, and is convertible in whole or in part at the option of the holder at any time into 1,538,603 shares of the Company's common stock at $17.00 per share. The Series B Preferred may be redeemed at the option of the Company upon 45 days notice to the holder. Dividends began to accrue on the Series B Preferred on January 1, 1999 and were paid quarterly. As of December 31, 1999, $1,373 has been paid. On all matters presented to API's shareholders for a vote, except the election of directors and ratification of independent auditors, the holder of the Series B Preferred is entitled to cast votes for that number of common shares into which the Series B Preferred is convertible, currently 1,538,603 shares. The Company also has authorized 20,000 shares of preferred stock (par value $50 a share), none of which is issued or outstanding.
(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 U.S. 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.
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 1999, 1998, and 1997 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 expenses for options granted after 1994 would have reduced the Company's net earnings and earnings per share to the pro forma amounts shown below:
The fair value of each option granted in 1999, 1998, and 1997, was estimated using the Black-Scholes option pricing model with the following assumptions:
The weighted average fair value of options granted in 1999, 1998, and 1997 was $4.58, $6.00, and $9.35 respectively.
A summary of the status of options granted under all employee plans, including the options granted to the Company's Chief Executive Officer in 1992, is presented below.
The number of shares subject to options exercisable at the end of 1999, 1998, and 1997 were 785,364, 619,158, and 504,215, respectively.
The following tables summarize information about options outstanding at December 31, 1999:
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
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 became 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 income of $91 and $525 in 1999 and 1998, respectively and expense of $53 in 1997 in connection with the change in the value of the SARs.
On April 25, 1997, the Board of Directors adopted the 1997 Officers Stock Option Plan ("1997 Plan") and granted an option for 200,000 shares of common stock, exercisable at $17.50 per share, to the Company's Chief Executive Officer under the 1997 Plan. This 1997 Plan was approved by the shareholders at the Annual Shareholders Meeting in April, 1998. Two years from the date of grant, 40,000 shares become exercisable and 40,000 additional shares become exercisable annually thereafter. The excess of the common stock market value of $18.06 over the exercise price of $17.50 per share, multiplied by 200,000 shares will become a charge against the Company's earnings over the vesting period ending in April 2003. The shares relating to this option are included in the shares granted in 1998.
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 at December 31, 1999 totaled 109,893 shares, of which 69,482 were exercisable on that date, and 15,936 shares were available for future grants of options under the plan.
On April 24, 1998, the Board of Directors adopted a Director Stock Option Award Plan under the 1995 Director Plan. Under this program, each director will receive a grant of stock options ("Discretionary Options") on the date of the annual meeting of shareholders based upon a formula which uses the average compensation earned by all directors during the prior year and a multiplier related to the Company's EVA(R) performance for that year. Using this formula, a ten-year Discretionary Option for 2,100 shares exercisable at $10.31 per share was granted April 23, 1999 and 1,500 shares exercisable at $18.06 per share was granted April 24, 1998 to each non-employee director.
Prior to 1998, eligible directors with five or more years of continuous service were entitled to a benefit of $10,000 a year payable over ten years upon termination of their services as prescribed in the retirement plan. On April 24, 1998, the Board of Director's approved a plan to replace this retirement plan with a one-time grant of stock options. The grant was determined by replacing the present value of each individual retirement plan with the present fair value of a grant of options determined by utilizing the Black-Scholes option pricing model. Under this plan, a total of 27,400 options were granted at $18.06 per share.
As part of the compensation for services in connection with the Portescap acquisition, API's financial advisor was issued a warrant for the purchase of 50,000 shares of the Company's common stock. The warrant is exercisable at $12.95 per share and expires on July 8, 2002. The value of the warrant, calculated to be $524 under the Black-Scholes formula, has been included in the Portescap acquisition costs and added to the Company's paid-in capital in 1997.
Effective January 1, 1998, the Company entered into an agreement with Decision Process International ("DPI") under which DPI will provide training services to API personnel in exchange for API stock warrants. The contract stipulates that DPI is entitled to receive API stock warrants in exchange for actual training services rendered which allows them to purchase up to maximum of 50,000 shares of API common stock at an exercise price of $19.50 per common share. As of December 31, 1999, API has granted DPI 9,231 warrants in payment for services rendered during the period January 1, 1998 through December 31, 1999.
K. INCOME TAXES Earnings before provision for income taxes consisted of:
The provision for income taxes consisted of the following:
The provision for foreign deferred income taxes for 1999 and 1998 includes tax expense of $219 and $589, respectively, due to the reduction of the Swiss net deferred tax asset as a result of securing a federal and cantonal Swiss tax holiday commencing in 1999.
The provision for income taxes does not include the tax benefits of $23, $122, and $440, for 1999, 1998, and 1997, respectively, associated with the exercise of stock options which have been credited to paid-in-capital.
The provision for income tax differs from the federal statutory rate of 34% due to the following:
Deferred tax assets (liabilities) at December 31, 1999 and December 31, 1998 consisted of the following:
In 1999, the Company adopted a plan of liquidation of its wholly-owned subsidiary, Deltran St. Kitts. A deferred tax liability of approximately $50 has been recorded during 1999 applicable to the cumulative earnings.
The Company has not recorded deferred income taxes applicable to undistributed earnings of certain foreign subsidiaries that are indefinitely reinvested in foreign operations. Undistributed earnings amounted to approximately $9,956 at December 31, 1999. If earnings of such foreign subsidiaries were not reinvested, a deferred tax liability, before applicable foreign tax credits, of approximately $3,385 would have been required. In addition, foreign withholding taxes would be imposed on actual distributions.
L. BUSINESS SEGMENT DATA The Company has adopted FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement revised the manner in which an enterprise must report information concerning its operating segments. Adoption of this statement by the Company did not require significant changes in the way segments were disclosed.
The Company operates in two business segments: Motion Technologies and Heat Transfer. These reportable segments are strategic business units that offer different products and services. The segments are managed separately based on the fundamental differences of their operations.
Operations of the Motion Technologies segment is focused on the precision motion control market with product lines that include servo and stepper motors, micromotors, drives, clutches, brakes, magnetic components, feedback devices and gear boxes. The Heat Transfer segment includes the production and sale of shell & tube, plate & frame and air-cooled aluminum heat exchangers, packaged chillers and refrigeration condensers.
Total net sales by segment consist entirely of sales to unaffiliated customers. Operating profit is net sales less operating expenses. Operating profit does not include the following items: general corporate income and expense, investment income, interest and debt 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 consists principally of cash and cash equivalents, insurance-related assets and other assets. Information by industry segment is as follows:
Geographic operating data is as follows:
Export sales from North America are primarily to Europe and to other countries within North America. Export sales from Europe are principally to countries within their geographic segment.
The Company's international operations may be affected by exchange controls, currency fluctuations and laws or policies of particular countries, as well as the laws or policies of the United States affecting foreign trade and investment. The Company does not consider that its international businesses are exposed to significant political or economic risks which are disproportionate to ordinary risks of doing business, whether domestic or international.
M. COMPREHENSIVE INCOME The Company has adopted FASB Statement No. 130, "Reporting Comprehensive Income." Comprehensive income is defined as "the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources". Under this statement, the term "comprehensive income" is used to describe the total net earnings plus other comprehensive income (loss). For the Company, Other Comprehensive Income (loss) includes currency translation adjustments on foreign subsidiaries and minimum pension liability not yet recognized as net periodic pension cost. Application of SFAS 130 has no impact on the Company's results of operations or its financial position.
N. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
O. EARNINGS PER SHARE The following earnings per share (EPS) amounts reflect the 1997 adoption of Statement of Financial Accounting Standards No. 128 Earnings per Share ("SFAS 128"). Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computations plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.
The sequence in which potential common shares are considered in the computation of diluted EPS may effect the amount of dilution that they produce. To reflect maximum potential dilution, each issue or series of potential common shares should be considered in sequence from the most dilutive to the least dilutive. If including the next group of potential shares in the sequence results in a higher EPS than prior to their inclusion, the potential shares are antidilutive, and they should not be included in the calculation of diluted EPS.
(a) The assumed conversion of 1,539 shares of preferred stock is not considered in the calculation of diluted earnings per share for 1999 since the effect is antidilutive.
P. SUBSEQUENT EVENTS - On February 15, 2000 API entered into an Agreement and Plan of Merger ("Merger Agreement") providing for the acquisition of API by Alpha Acquisition I Corp. ("Purchaser"), a newly formed Delaware corporation wholly-owned by Danaher Corporation ("Danaher"), a New York Stock Exchange listed company.
Pursuant to the Merger Agreement, Purchaser commenced a tender offer on February 24, 2000 to purchase all of the outstanding shares of API's Common Stock at a cash price of $19.25 per share. Following consummation of the offer and subject to certain conditions, Purchaser will be merged into API. In the merger, each share of API's Common Stock not acquired in the tender offer will be converted into the right to receive $19.25 in cash. The tender offer expired at 12:00 midnight, New York City time on March 22, 2000.
Upon the expiration of the tender offer, 97% of the API Common Stock was tendered. Purchaser intends to acquire the remaining API Common Stock at a cash value of $19.25 per share. Finalization of the merger is contemplated by not later than early April, 2000.
The specific details of this proposed transaction were filed with the Securities and Exchange Commission by API on February 24, 2000 in Solicitation/Recommendation Statement Schedule 14D-9.
- On January 31, 2000, the Company sold a parcel of vacant land located in Buffalo, New York for $1.1 million, recognizing a net gain of approximately $.9 million. This land parcel was located adjacent to the company-owned facility which houses the API Basco operations and API corporate office. The Company had no identified future use for this land.
FORWARD-LOOKING INFORMATION - SAFE HARBOR STATEMENT
Certain information set forth herein (other than historical data and information) may constitute forward-looking statements based upon current expectations and are made 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 successful transition of the Elmo acquisition into the Company, the success of the actions taken to improve profitability, the realization of benefits from cost savings initiatives, market acceptance of new products, the absence of any disruptions to the Company's business as a result of the ongoing conversion to the Euro, and the Company's effectiveness at gaining market share, as well as general economic conditions in North America, Western Europe and Asia. The Company expressly disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date hereof.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in accountants or disagreements with PricewaterhouseCoopers LLP on accounting or financial disclosure.
PART III
ITEM 10.
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 Information Statement pursuant to Section 14 (f) of the Securities Exchange Act of 1934 dated February 24, 2000, filed as an exhibit hereto, is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION The information required by this item concerning executive compensation appearing in the Company's Information Statement pursuant to Section 14 (f) of the Securities Exchange Act of 1934 dated February 24, 2000, filed as an exhibit hereto, is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing in the Company's Information Statement pursuant to Section 14 (f) of the Securities Exchange Act of 1934 dated February 24, 2000, filed as an exhibit hereto, is incorporated herein by reference.
ITEM 13.
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.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
All other schedules and statements have been omitted as the required information is inapplicable or is presented in the financial statements or notes thereto.
b) REPORTS ON FORM 8-K
During the three months ended December 31, 1999, the Company did not file any reports on Form 8-K.
c) EXHIBITS
Exhibit No.
3(i)-A Restated Certificate of Incorporation dated October 29, 1986 and filed with the Secretary of State of Delaware on November 6, 1986 (incorporated by reference to Exhibit 4(a) in the Registration Statement on Form S-8, No. 33-31315, filed September 28, 1989).
3(i)-B Certificate of Amendment to the Restated Certificate of Incorporation dated April 26, 1991 (incorporated by reference to Exhibit A in the definitive Proxy Statement dated March 22, 1991).
3(i)-C Certificate of Designation, Preferences and Rights of Series A Seven Percent (7%) Cumulative Convertible Preferred Stock filed in Delaware on July 2, 1997 (incorporated by reference to Exhibit 3(i)C in Form 10-K for fiscal year ended December 31, 1997).
3(i)-D Certificate of Amendment to the Certificate of Incorporation of American Precision Industries Inc. filed in Delaware on November 14, 1997 (incorporated by reference to Exhibit 3(i)D in Form 10-K for fiscal year ended December 31, 1997).
3(ii) Restated By-Laws, as amended on June 16, 1992 (incorporated by reference to Exhibits B(i) -(ii) in Form 10-Q for fiscal quarter ended October 1, 1993).
4-A Rights Agreement between American Precision Industries Inc. and American Securities Transfer & Trust, Inc. dated July 24, 1998 (incorporated by reference to Exhibit 4 in Form 8-A dated July 24, 1998).
4-B Amended and Restated Rights Agreement dated January 29, 1999, by and between American Precision Industries Inc. and American Securities Transfer & Trust, Inc., as Rights Agent (incorporated by reference to Exhibit 4(A) in Form 8-K dated February 5, 1999).
4-C First Amendment dated February 17, 2000 to the Amended and Restated Rights Agreement by and between American Precision Industries Inc. and American Securities Transfer & Trust, Inc.*
4-D Warrant Agreement issued to Patricof & Co. Capital Corp. dated July 8, 1997 (incorporated by reference to Exhibit 99 in Form 10-Q for fiscal quarter ended July 4, 1997).
4-E Warrant Agreement Certificates No. 1 and No. 2 dated January 1, 1998 issued to Decision Processes International (Connecticut, Ltd.) on July 1, 1998 and December 31, 1998, respectively (incorporated by reference to Exhibit 4-D in Form 10-K for fiscal year ended December 31, 1998).
10-A Credit Agreement between American Precision Industries Inc. and Marine Midland Bank and Fleet National Bank dated August 31, 1998 (incorporated by reference to Exhibit 4(A) in Form 8-K dated September 8, 1998).
10-B First Amendment to Credit Agreement dated as of January 29, 1999, b and among American Precision Industries Inc., Marine Midland Bank and Fleet National Bank (incorporated by reference to Exhibit 4(B) in Form 8-K dated February 5, 1999).
10-C Form of Agreement relating to the Directors Supplemental Death Benefit and Fee Continuation Plan, as amended March 11, 1991 (incorporated by reference to Exhibit 10A in Form 10-K for fiscal year ended December 28, 1990).#
10-D Form of Indemnification Agreement with directors dated February 25, 1991 (incorporated by reference to Exhibit 10C in Form 10-K for fiscal year ended December 28, 1990).
10-E Form of Indemnification Agreement with officers dated February 25, 1991 (incorporated by reference to Exhibit 10D in Form 10-K for fiscal year ended December 28, 1990).
10-F 1989 Stock Option Plan (incorporated by reference to Exhibit A in definitive Proxy Statement dated March 15, 1989).#
10-G Amendment to 1989 Stock Option Plan (incorporated by reference to Exhibit C(B) in the definitive Proxy Statement dated March 24, 1995).#
10-H Amendment No. 2 to the American Precision Industries Inc. 1989 Employees Stock Option Plan (incorporated by reference to Exhibit 10F in Form 10-Q for fiscal quarter ended September 30, 1998).#
10-I 1993 Employees Stock Option Plan (incorporated by reference to Exhibit A in the definitive Proxy Statement dated March 22, 1993).#
10-J Amendment to 1993 Employees Stock Option Plan (incorporated by reference to Exhibit C(A) in the definitive Proxy Statement dared March 24, 1995).#
10-K Amendment No. 2 to the American Precision Industries Inc. 1993 Employees Stock Option Plan (incorporated by reference to Exhibit 10E in Form 10-Q for fiscal quarter ended September 30, 1998).#
10-L 1995 Employees Stock Option Plan (incorporated by reference to Exhibit A in the definitive Proxy Statement dated March 24, 1995).#
10-M Amendment to the American Precision Industries Inc. 1995 Employees Stock Option Plan (incorporated by reference to Exhibit 10B in Form 10-Q for fiscal quarter ended June 30, 1998).#
10-N Amendment No. 2 to the American Precision Industries Inc. 1995 Employees Stock Option Plan (incorporated by reference to Exhibit 10D in Form 10-Q for fiscal quarter ended September 30, 1998).#
10-O 1995 Directors Stock Option Plan (incorporated by reference to Exhibit B in the definitive Proxy Statement dated March 24, 1995).#
10-P 1995 Directors Stock Option Plan, as amended and restated (incorporated by reference to Annex C in the definitive Proxy Statement dated March 25, 1998).#
10-Q Amendment No. 1 to the American Precision Industries Inc. 1995 Directors Stock Option Plan (incorporated by reference to Exhibit 10B in Form 10-Q for fiscal quarter ended September 30, 1998).#
10-R 1997 Officers Stock Option Plan (incorporated by reference to Annex B in the definitive Proxy Statement dated March 25, 1998).#
10-S Amendment No. 1 to the American Precision Industries Inc. 1997 Officers Stock Option Plan (incorporated by reference to Exhibit 10A in Form 10-Q for fiscal quarter ended September 30, 1998).#
10-T 1998 Employees Stock Option Plan (incorporated by reference to Annex A in the definitive Proxy Statement dated March 25, 1998).#
10-U Amendment No. 1 to the American Precision Industries Inc. 1998 Employees Stock Option Plan (incorporated by reference to Exhibit 10A in Form 10-Q for fiscal quarter ended June 30, 1998).#
10-V Amendment No. 2 to the American Precision Industries Inc. 1998 Employees Stock Option Plan (incorporated by reference to Exhibit 10C in Form 10-Q for fiscal quarter ended September 30, 1998).#
10-W Stock Option and Tandem Stock Appreciation Rights Agreement dated June 16, 1992 between Kurt Wiedenhaupt and American Precision Industries Inc. (incorporated by reference to Exhibit 10(ii) in Form 10-Q for fiscal quarter ended July 3, 1992).#
10-X First Amendment to American Precision Industries Inc. Grant of Restricted Stock and Bonus to Kurt Wiedenhaupt dated July 1, 1996 (incorporated by reference to Exhibit 10(iv) in Form 10-Q for fiscal quarter ended September 27, 1996).#
10-Y Executive Employment Agreement effective as of July 1, 1997 between Kurt Wiedenhaupt and American Precision Industries Inc. (incorporated by reference to Exhibit 10(ii) in Form 10-Q for fiscal quarter ended October 3, 1997).#
10-Z Change in Control Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 (incorporated by reference to Exhibit 10(ii) in Form 10-Q for fiscal quarter ended September 27, 1996.)#
10-AA Amendment to Change in Control Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated as of October 15, 1999 (incorporated by reference to Exhibit 38 in Schedule 14D-9 dated February 24, 2000).#
10-BB Form of Change in Control Agreement between American Precision Industries Inc. and James W. Bingel, Bruce McH. Kirchner, Craig J. Van Tine, Richard S. Warzala and Bradley Holcomb (incorporated by reference to Exhibit 10(i) in Form 10-Q for fiscal quarter ended September 27, 1996).#
10-CC Amendment to Change in Control Agreement between American Precision Industries Inc. and Bruce McH. Kirchner dated as of October 15, 1999 (incorporated by reference to Exhibit 40 in Schedule 14D-9 dated February 24, 2000).#
10-DD Amendment to Change in Control Agreement between American Precision Industries Inc. and Craig J. Van Tine dated as of October 15, 1999 (incorporated by reference to Exhibit 41 in Schedule 14D-9 dated February 24, 2000).#
10-EE Amendment to Change in Control Agreement between American Precision Industries Inc. and Richard S. Warzala dated as of October 15, 1999 (incorporated by reference to Exhibit 42 in Schedule 14D-9 dated February 24, 2000).#
10-FF Change in Control Agreement between American Precision Industries Inc. and Deborah K. Pawlowski dated as of October 15, 1999 (incorporated by reference to Exhibit 43 in Schedule 14D-9 dated February 24, 2000).#
10-GG Change in Control Agreement between American Precision Industries Inc. and Mark E. Wood dated as of October 15, 1999 (incorporated by reference to Exhibit 44 in Schedule 14D-9 dated February 24, 2000).#
10-HH Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 (incorporated by reference to Exhibit 10(v) in Form 10-Q for fiscal quarter ended September 27, 1996).#
10-II Amendment to Executive Supplemental Retirement Plan between American Precision Industries Inc. and Kurt Wiedenhaupt dated as of February 19, 1999 and Schedule A thereto (incorporated by reference to Exhibit 10-A in Form 10-Q for fiscal quarter ended June 30, 1999).#
10-JJ Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt, first dated as of July 1, 1992, as amended and restated as of July 1, 1996, and Schedule A thereto as amended effective February 19, 1999 (incorporated by reference to Exhibit 10-B in Form 10-Q for fiscal quarter ended June 30, 1999).#
10-KK Life Insurance Split-Dollar Agreement (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996 (incorporated by reference to Exhibit 10(vii) in Form 10-Q for fiscal quarter ended September 27, 1996).#
10-LL Amendment to Life Insurance Split-Dollar Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated as of February 19, 1999 and Schedule A thereto (incorporated by reference to Exhibit 10-C in Form 10-Q for fiscal quarter ended June 30, 1999).#
10-MM Life Insurance Split-Dollar Agreement (Second Restatement) between American Precision Industries Inc. and Kurt Wiedenhaupt, first dated August 26, 1992, as amended and restated as of February 19, 1999, and Schedule A thereto (incorporated by reference to Exhibit 10-D in Form 10-Q for fiscal quarter ended June 30, 1999).#
10-NN Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and James W. Bingel dated as of October 15, 1999 (incorporated by reference to Exhibit 51 in Schedule 14D-9 dated February 24, 2000).#
10-OO Amendment to Executive Supplemental Retirement Plan between American Precision Industries Inc. and James W. Bingel dated as of December 1, 1999 (incorporated by reference to Exhibit 52 in Schedule 14D-9 dated February 24, 2000).#
10-PP Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and Bruce McH. Kirchner dated as of October 15, 1999 (incorporated by reference to Exhibit 53 in Schedule 14D-9 dated February 24, 2000).#
10-QQ Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and Craig J. Van Tine dated as of October 15, 1999 (incorporated by reference to Exhibit 54 in Schedule 14D-9 dated February 24, 2000).#
10-RR Executive Supplemental Retirement Plan (as restated) between American Precision Industries and Richard S. Warzala first dated as of June 1, 1983, as amended and restated as of January 4, 1997 (incorporated by reference to Exhibit 55 in Schedule 14D-9 dated February 24, 2000).#
10-SS Amendment to Executive Supplemental Retirement Plan between American Precision Industries Inc. and Richard S. Warzala dated as of April 24, 1998 (incorporated by reference to Exhibit 56 in Schedule 14D-9 dated February 24, 2000).#
10-TT Form of Life Insurance Split-Dollar Agreement between American Precision Industries Inc. and James J. Bingel, Bruce McH. Kirchner and Richard S. Warzala (incorporated by reference to Exhibit 10- D(ii) in Form 10-K for fiscal year ended December 31, 1998).#
10-UU Amended and Restated Stock Purchase Agreement by and among InterScan Holding Ltd., Portescap and API Portescap Inc. and American Precision Industries Inc. dated July 3, 1997 (incorporated by reference to Appendix A to definitive Proxy Statement dated October 9, 1997).
10-VV Asset Purchase Agreement by and among Vatterledens Invest AB and ELMO Industrier AB and American Precision Industries Inc. and API ELMO AB, dated January 28, 1999 (incorporated by reference to Exhibit 2 in Form 8-K dated February 5, 1999).
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 in Form 10-K for fiscal year ended December 31, 1998).
23 Consents of independent accountants*
27 Financial Data Schedule*
99 Registrant's Information Statement pursuant to Section 14 (f) of the Securities Exchange Act of 1934 dated February 24, 2000 (incorporated by reference to the Information Statement filed with the Securities and Exchange Commission on February 25, 2000).
--------------------------------
* Documents filed herewith # Management contract or compensatory plan or arrangement
REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AMERICAN PRECISION INDUSTRIES INC.
Our report on the consolidated financial statements of American Precision Industries Inc. as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, is included on page 19 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed on page 48 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
Buffalo, New York February 14, 2000
AMERICAN PRECISION INDUSTRIES INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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 28, 2000 By: /s/ Kurt Wiedenhaupt ------------------------- Kurt Wiedenhaupt President and Director
March 28, 2000 By: /s/ Bruce McH. Kirchner ---------------------------- Bruce McH. Kirchner Chief Financial Officer
March 28, 2000 By:/s/ Mark E. Wood ----------------------- Mark E. Wood Corporate Controller
SIGNATURES
Pursuant to the requirement 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.
EXHIBIT INDEX