<PAGE> 1
=============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended July 2, 1995
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: 0-9725
AURORA ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1539534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2030 MAIN STREET, SUITE 1120, IRVINE, CALIFORNIA 92714
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 660-1232.
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 [ ]
Indicated below is the number of shares outstanding of each class
of the registrant's common stock, as of August 11, 1995.
<TABLE>
<CAPTION>
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
<S> <C>
Common Stock, $0.03 par value 7,508,446 shares
</TABLE>
=============================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
</TABLE>
<PAGE> 3
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
July 2, September 30,
1995 1994
-------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12 $ 1,539
Short - term investments - 1,171
Trade receivables, less allowance for
doubtful accounts of $1,207 and $1,046,
respectively 14,229 16,841
Inventories 4,438 9,445
Deferred income taxes 4,000 5,038
Other current assets 1,985 1,067
-----------------------------------------------------------------------------------------
Total current assets 24,664 35,101
Property, plant and equipment, net 5,994 6,075
Intangible and other assets 50,627 61,751
-----------------------------------------------------------------------------------------
Total assets $ 81,285 $102,927
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,487 $ 5,622
Accounts payable 10,963 11,583
Accrued compensation 2,025 1,763
Accrued acquisition expenses 606 900
Accrued interest 358 980
Reserve for discontinued operations 2,149 2,814
Other current liabilities 1,145 601
-----------------------------------------------------------------------------------------
Total current liabilities 22,733 24,263
-----------------------------------------------------------------------------------------
Reserve for discontinued operations - long-term 2,091 2,210
Long-term debt 44,930 49,551
-----------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,000 shares authorized, none issued - -
Common stock, 8,097 and 8,020 shares issued, respectively 242 240
Additional paid-in capital 61,825 61,827
Accumulated deficit (44,672) (29,300)
Treasury stock, at cost, 561 shares (5,864) (5,864)
-----------------------------------------------------------------------------------------
Total stockholders' equity 11,531 26,903
-----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 81,285 $102,927
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- --------------------------------
July 2, June 30, July 2, June 30,
1995 1994 1995 1994
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 31,865 $35,744 $107,332 $87,994
Cost of sales 25,341 26,972 81,616 68,697
-------------------------------------------------------------------------------------------------------------------------
Gross profit 6,524 8,772 25,716 19,297
Selling, general and administrative expenses 7,785 5,456 21,573 11,007
Amortization of intangible assets 7,857 622 8,712 1,462
Restructuring charges and other 4,699 294 4,699 925
-------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (13,817) 2,400 (9,268) 5,903
Interest expense (1,424) (1,178) (4,152) (2,495)
Other income (expense), net (728) 53 (817) 208
-------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes (15,969) 1,275 (14,237) 3,616
Provision for income taxes 529 228 1,135 1,070
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(16,498) $ 1,047 $(15,372) $ 2,546
=========================================================================================================================
Net income (loss) per share of common stock $ (1.90) $ 0.13 $ (1.86) $ 0.34
=========================================================================================================================
Weighted average number of common and common equivalent
shares 8,686 7,976 8,280 7,576
=========================================================================================================================
</TABLE>
4
<PAGE> 5
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
-------------------------
July 2, June 30,
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(15,372) $ 2,546
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Foreign currency translation - (30)
Depreciation and amortization 10,154 2,566
Write-down of investment in subsidiary 711 -
Loss on disposal of equipment 94 -
Gain on sale of securities - (17)
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets 6,979 (5,425)
Accounts payable and other liabilities (107) (3,464)
Accrued interest and income taxes deferred, receivable
or payable 415 (154)
------------------------------------------------------------------------------------------------------
Net cash flows from continuing operations 2,874 (3,978)
Net cash flows from discontinued operations (784) 547
------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 2,090 (3,431)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,061) (2,528)
Acquisition of Century, net of cash received - (11,032)
Proceeds from sales of marketable securities and SSG note 1,171 481
------------------------------------------------------------------------------------------------------
Net cash flows from investing activities 110 (13,079)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (3,053) (1,111)
Purchases of treasury stock - (225)
Changes in borrowings under line of credit (674) 2,229
------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (3,727) 893
------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (1,527) (15,617)
Cash and cash equivalents at beginning of period 1,539 16,201
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12 $ 584
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
NOTE A. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These unaudited consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
annual report on Form 10-K/A for the year ended September 30, 1994.
The accompanying unaudited consolidated financial statements include
the accounts of Aurora Electronics, Inc. and all of its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain operating segments that have been sold and segments for
which a plan of disposal had been adopted as of September 30, 1992 have been
reported as discontinued operations. In the opinion of management, the
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position as of July 2,
1995 and the results of operations and cash flows for the periods shown.
Investments in affiliated companies are included based upon the equity or cost
methods of accounting, as appropriate. Operating results for the interim
period ending July 2, 1995 are not indicative of the results that may be
expected for the year ending September 30,1995.
NOTE B. FISCAL PERIOD
Effective fiscal 1995, the Company adopted a 52-53 week year ending on
September 30. Consequently, the third fiscal quarter ended on July 2, 1995.
NOTE C. ACQUISITIONS
Micro - C Corporation ("Micro-C")
Pursuant to the terms of the purchase agreement for the acquisition
of Micro-C, the Company was required to pay certain additional consideration to
the sellers of Micro-C based upon Micro-C's annual operating results and
revenues during a three year period beginning with the fiscal year ended
September 30, 1993. As a result of actual operating results achieved by
Micro-C during the year, the Company issued 77,414 and 60,820 shares of common
stock on December 31, 1994 and 1993, respectively. As a result of the actual
operating results achieved through the nine months ended July 2, 1995 of fiscal
year 1995, the Company currently expects to issue approximately 99,000 shares
of common stock on December 31, 1995, the final required such payment.
Century Computer Marketing ("Century")
Effective March 1, 1994, the Company acquired substantially all of
the assets and liabilities of Century. Century is a distributor of new and
refurbished spare parts to the computer maintenance market, selling the
products of over 500 manufacturers. Pursuant to the terms of the Asset
Purchase Agreement, the total consideration paid to Century was approximately
$29 million in cash, $2.0 million in common stock of the Company and an
additional $2.7 million in common stock of the Company to be issued on December
31, 1995. The Company financed the acquisition of Century with proceeds from a
new five year $25 million bank term loan facility and internally generated
cash.
6
<PAGE> 7
NOTE D. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock is based upon the weighted average
number of common and common equivalent shares outstanding. Outstanding stock
options and warrants are treated under the treasury stock method as common
stock equivalents when dilution results from their assumed exercise. The
Company's 7-3/4% Convertible Subordinated Debentures due April 15, 2001 and 7%
Subordinated Convertible Promissory Notes (the "7% Notes") due September 30,
1997 were not common stock equivalents at the time of issuance and are
therefore not included in the calculation of primary earnings per share. Fully
diluted net earnings per share is not presented due to its anti-dilutive
effect.
NOTE E. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 2, 1995 SEPTEMBER 30, 1994
------------ ------------------
<S> <C> <C>
Spare and repair parts $ 959 $1,083
Work in process 216 1,152
Finished goods and purchased product 3,263 7,210
------ ------
Total inventories $4,438 $9,445
====== ======
</TABLE>
NOTE F. GOODWILL
The Company assesses the recoverability of its goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through projected non-discounted future cash flows over the remaining
amortization period. If projected future cash flows indicate that unamortized
goodwill will not be recovered, an adjustment is made to reduce the net
goodwill to an amount consistent with projected future cash flows discounted at
the Company's incremental borrowing rate. Cash flow projections, although
subject to a degree of uncertainty, are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
During the third quarter, the Company made an adjustment of $7,499 which
represents the balance of the intangible asset associated with the FRS, Inc.
acquisition. See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
NOTE G. COMMITMENTS AND CONTINGENCIES
Settlement of Class Action Complaint
In the fourth quarter of fiscal 1994, the Company recorded a charge to
operations in the amount of $1,693 to reflect a preliminary agreement to settle
a securities class action complaint against the Company. The settlement
requires the Company to issue $1,250 of common stock valued at fair market
value at the time of issuance and $250 in cash. The balance of the settlement
of $1,500 will be funded by the Company's insurer. The settlement was
preliminarily approved by the court on June 20, 1995. The Company paid its
cash portion of the settlement on July 5, 1995. Management expects the
settlement to receive final court approval following a final hearing in
September 1995.
Contingent Lender Warrants
During the quarter ended April 2, 1995, the Company re-negotiated the
additional common stock purchase warrants previously issued to the Company's
senior bank lenders ("Contingent Warrants"). The Contingent Warrants are
warrants to purchase shares of common stock at an exercise price equal to 50%
of the Fair Market Value (as defined in the Warrant Agreements governing the
Contingent
7
<PAGE> 8
Warrants) of one share of Common Stock as of the exercise date ("Exercise
Price"). If any amount is past due under the 7% Notes and a holder of the 7%
Notes accelerates, demands payment or takes other enforcement action, the
number of shares underlying the Contingent Warrants is equal to the balance of
principal and accrued and unpaid interest outstanding under the 7% Notes as of
the exercise date, divided by the Exercise Price. If any amount is past due
under the 7% Notes and a holder of the 7% Notes has not accelerated, demanded
payment or taken other enforcement action, the number of shares underlying the
Contingent Warrants is equal to the amount past due for principal and interest
under the 7% Notes as of the exercise date, divided by the Exercise Price. The
aggregate principal balance of the 7% Notes has been reduced from $7,379 to
$2,648 as a result of an arbitration award in April 1995. The Contingent
Warrants will be nullified in proportional amount to the extent of principal
and accrued and unpaid interest then payable if, prior to September 30, 1995,
1996 or 1997 (the principal payment dates under the 7% Notes), (i) the 7% Notes
are restructured so that the principal payment due on that payment date is
canceled or rescheduled to fall after October 1, 1999, (ii) the principal
payment due on that payment date is converted into Common Stock, or (iii) the
principal payment due on a payment date is prepaid with the proceeds of the
issuance of Common Stock or subordinated debt under which no principal payment
is required until after October 1, 1999.
Management is pursuing alternatives to render the Contingent Lender
Warrants null and void. However, should one of the events noted above not
occur before each one of the three principal payment dates for the 7% Notes;
the Company will incur a non-cash charge to operations during the quarters
ended September 30, 1995, 1996 and 1997, respectively, for the amount of the
principal and accrued interest on the 7% Notes due and payable at each such
date (approximately $883 as of each September 30, 1995, 1996, and 1997,
respectively). Management currently expects to pay the September 30, 1995
installment with the proceeds of privately issued subordinated debt or Common
Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands, except share data)
RESULTS OF OPERATIONS - THREE MONTHS ENDED JULY 2, 1995 AS COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1994
During the three months ended July 2, 1995, the Company substantially
completed a major corporate reorganization into two core businesses: (a) spare
parts distribution and related installed base support services as provided
through the Century Division, and (b) integrated circuit ("IC") recycling
services provided through the Asset Recovery Services Division ("ARS"). These
operations have historically generated strong and consistent cash flow and
profitability.
As part of the reorganization, the Company took the following actions
during the three months ended July 2, 1995:
o Shutdown of the Premier Division's memory upgrade supply business;
o Conducted negotiations which are expected to lead to the transfer
of the Premier Division's reduced specification IC business to a
joint venture; and
o Restructuring of the Century Division's repair services business
to (a) reduce the costs of operations of its general depot repair;
and (b) better utilize the unit's repair capabilities to support
Century's spare parts distribution customers.
As a result of the reorganization, the Premier Division's primary
facility was closed, the Century Division's repair service centers in Memphis,
Tennessee and Houston, Texas were consolidated into the Sacramento, California
facility, and the Century Division's repair operations were significantly
downsized,
8
<PAGE> 9
with unprofitable repair lines eliminated. Overall, corporate headcount has
been reduced by approximately 25% and total inventories have been reduced by
approximately $6,000 from the previous quarter. In the aggregate, the Company
recognized approximately $14,400 in charges (before income taxes) in the third
quarter which management believes are either directly related to the
reorganization or non-recurring in nature and indirectly related to the
reorganization. Approximately $11,900 related to non-cash items.
Net revenues for the three months ended July 2, 1995 were $31,865 as
compared to $35,744 for the three months ended June 30, 1994. The Company
experienced a $1,700 or 20.7% year on year growth in revenues generated by the
ARS Division, and a $4,500 or 45.2% year on year growth in Century's parts
distribution business. This increase in revenues was offset by a 45.1%
decrease in the reduced specification IC and memory product lines
(approximately $5,300) as this unit is being shut down, and a 71.3% decrease in
Century's repair business (approximately $4,000) due to elimination of
unprofitable repair lines and overall consolidation.
Gross profit for the three months ended July 2, 1995 was $6,524 (20.5%
of net revenues), as compared to $8,772 in gross profit (24.5% of net revenues)
for the three months ended June 30, 1994. The decrease in gross profit and
gross margin was due primarily to the reorganization, including a decrease of
approximately $1,600 in gross profit from the Premier Division, and a decrease
of approximately $760 in gross profit from Century's repair activities. These
decreases in gross profit due to the reorganization were partially offset by
higher gross profit in the ARS Division and Century's parts distribution
business.
Selling, general and administrative expenses for the three months
ended July 2, 1995 were $7,785 (24.4% of net revenues), as compared to $5,456
(15.3% of net revenues) for the three months ended June 30, 1994. Such
expenses for the three months ended July 2, 1995 include approximately $1,800
in expenditures which management believes are either directly related to the
reorganization or non-recurring in nature and indirectly related to the
reorganization. Management is targeting that ongoing selling, general and
administrative expenses should approximate $6,000 per quarter.
Amortization expense for the three months ended July 2, 1995 was
$7,857, which includes a $7,499 write-off of the balance of the intangible
assets associated with the FRS, Inc. acquisition (Century's repair services
business). Cash flow projections did not support the balance of goodwill over
its remaining life. See Note F to the Consolidated Financial Statements.
Ongoing amortization expense for the three months ended July 2, 1995 was $358
(1.1% of net revenues), as compared to $622 (1.7% of net revenues) for the
three months ended June 30, 1994.
Restructuring charges for the three months ended July 2, 1995 were
$4,699 and consisted of costs related to the shutdown of the Premier Division
and the restructuring and downsizing of Century's repair services operations.
The charge consists primarily of $2,800 in inventory writedowns, $900 in
employee severance, and $600 in facilities termination costs associated with
the reorganized product lines and businesses. Other charges for the year
earlier period ended June 30, 1994 consisted of program development costs in
the amount of $294. This reflected the completed development of a new service
line to complement the then existing repair business during the fiscal year
ended September 30, 1994.
Net interest expense for the three months ended July 2, 1995 was
$1,424 or 4.5% of revenues as compared to $1,178 or 3.3% of revenues for the
comparable 1994 period. The increase of $246 is primarily due to the increase
in prevailing interest rates.
Other expense for the three months ended July 2, 1995 was $728 (2.3%
of net revenues) and included a non-recurring charge of $695 related to the
writedown of the investment in the Aurora Merchant Systems, LLC joint venture.
Other income (expense) for the three months ended June 30, 1994 was $53 (0.1%
of net revenues).
9
<PAGE> 10
Despite a net loss before provision for income taxes of $15,679 for
the three months ended July 2, 1995, the Company recorded a provision for
income taxes of $529. This provision represents an adjustment to properly
state the deferred income tax asset on the balance sheet.
Net loss for the three months ended July 2, 1995 was $16,498, as
compared to net income of $1,047 (2.9% of net revenues) for the three months
ended June 30, 1994. The decrease in net income was substantially due to the
charges recorded in connection with the restructuring and reorganization of the
Company's businesses.
NINE MONTHS ENDED JULY 2, 1995 AS COMPARED TO THE NINE MONTHS ENDED JUNE 30,
1994
Net revenues for the nine months ended July 2, 1995 were $107,332 as
compared to $87,994 for the nine months ended June 30, 1994. The increase was
due primarily to the inclusion of the Century business for a full nine months
ended July 2, 1995 ($39,068) compared to only four months in the comparable
1994 period ($14,730). Revenues also reflect a $8,500 or 40.6% year on year
growth for ARS which partially offsets a $8,600 or 54.2% revenue decline in
Century's repair business and a $3,916 or 10.7% revenue decline in the reduced
specification IC and memory products line.
Gross profit for the nine months ended July 2, 1995 was $25,716 (24.0%
of net revenues) as compared to $19,297 in gross profit for the nine months
ended June 30, 1994 (21.9% of net revenues). The increase was due primarily to
the gross profits associated with the higher volumes in ARS and Century's
parts distribution business. This increase was partially offset by the
significant decreases in the volume and profitability for both the Premier
Division and Century's repair business.
Selling, general and administrative expenses for the nine months ended
July 2, 1995 were $21,573, or 20.1% of revenues, as compared to $11,007, or
12.5% for the comparable 1994 period. The increase of approximately $10,600 is
due primarily to the inclusion of Century's selling, general and administrative
expenses, expenditures related to the reorganization, non-recurring
professional fees, and the investments in systems and support costs required to
support the growth in the Company business.
Amortization expense for the nine months ended July 2, 1995 was
$8,712, or 8.1% of revenue, as compared to $1,462, or 1.7% for the comparable
1994 period. Amortization expense includes $7,499 related to the write-off of
the balance of the intangible assets associated with the FRS, Inc. acquisition
(the Company's repair services business). Cash flow projections did not
support the balance of goodwill over its remaining life. See Note F to the
Consolidated Financial Statements.
Restructuring charges for the nine months ended July 2, 1995 were
$4,699 and consisted of costs related to the shutdown of the Premier Division
and the restructuring and downsizing of the Company's repair services
operations. The charge consists primarily of $2,800 in inventory writedowns,
$900 in employee severance, and $600 in facilities termination costs associated
with the reorganized product lines and businesses. In addition, there were no
program development costs for the nine months ended July 2, 1995 as compared to
$925 or 1.1% of revenues for the comparable 1994 period. The expense in the
1994 period was related to development of a new service line to complement the
then existing repair business.
Net interest expense for the nine months ended July 2, 1995 was $4,152
or 3.9% of revenues, as compared to $2,495 or 2.8% for the comparable 1994
period. The increase of $1,657 in net interest expense was principally due to
the additional debt incurred in the acquisition of Century and the interest
expense related to the working capital facilities.
Other expense for the nine months ended July 2, 1995 was $817 (.8% of
net revenues) and included a non-recurring charge of $695 related to the
writedown of the investment in the Aurora Merchant Systems, LLC joint venture.
Other income (expense) for the nine months ended June 30, 1994 was $208 (0.2%
of net revenues).
10
<PAGE> 11
Net loss for the nine months ended July 2, 1995 was $15,372 as
compared to net income of $2,546 or 2.9% of net revenues for the comparable
period in 1994. The decrease in net income is due primarily to the charges
recorded in connection with the restructuring and reorganization of the Company
s businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are directly related to
its levels of accounts receivable, inventories, additions to its property and
equipment, costs resulting from the consolidation of its businesses, and
required debt principal payments. The Company's working capital was $1,931 as
of July 2, 1995 compared to working capital of $10,838 as of September 30,
1994.
As of July 2, 1995, the Company was not in compliance with certain
financial covenants under its bank loan agreement and has obtained a verbal
waiver of non-compliance from its lenders for the quarter ended July 2, 1995.
The primary reason for the non-compliance was due to charges related to the
restructuring of Premier's memory upgrade and reduced specification IC product
lines and the downsizing of Century's repair business. Management is in
negotiation with its lenders to amend the financial covenants of the credit
agreement beginning with the quarter ending September 30, 1995, based on
internally prepared financial projections.
During the third quarter of fiscal 1995, the Company substantially
completed a major corporate reorganization into two core businesses operating
through the ARS Division and the Century Division. As part of this
reorganization, the Company's memory upgrade business, as pursued through the
Premier Division, has been discontinued and the repair service operations have
been consolidated and rationalized. As a result of these actions, overall
headcount in the Company has been reduced by approximately 25%, three
facilities were shut down, and total inventories were reduced by approximately
$6,000 from the previous quarter. In the aggregate, the Company recognized
approximately $14,400 in charges (before income taxes) in the third quarter
which management believes are either directly related to the reorganization or
non-recurring in nature and indirectly related to the reorganization. Of these
charges, more than 83% were non-cash in nature. Substantially all of the funds
required for the reorganization have been provided by the liquidation of
certain inventories related to Premier's memory upgrade business and the
Company's repair services operations.
The first principal installment of $883 under the 7% Notes is due on
September 30, 1995. Management currently expects to pay such installment with
the proceeds of privately issued subordinated debt or Common Stock. Other than
such obligation, and funds required for (i) the restructuring mentioned above,
(ii) operations during fiscal 1995 and (iii) funds for the remaining
discontinued operations, the Company had no material capital commitments at
July 2, 1995.
Management believes that cash on hand, cash flows from operations, and
funds available under its credit facilities should be sufficient to meet the
Company's operating requirements, restructuring plans, capital commitments and
the required principal payments on its long-term debt through fiscal 1996. The
Company has financed acquisitions to date using bank debt, internally generated
cash and the issuance of common stock. Management has retained an investment
banking firm to investigate and recommend alternate sources of capital for the
retirement of the 9 1/4% Senior Subordinated Notes due in November of 1996 and
to review the capital structure of the Company.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGES IN SECURITIES
Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
Inapplicable.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item Page
(a)(1) Exhibit 11 -- Computation of Per Share Earnings 16
(a)(2) Exhibit 27 -- Financial Data Schedule 17
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AURORA ELECTRONICS, INC.
August 15, 1995 By: /s/ John P. Grazer
-------------------------------------------------
John P. Grazer,
Senior Vice President-Finance and Administration
and Chief Financial Officer
(Principal Accounting and Financial Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item Description of Exhibits Page
------------- ------------------------------------------------------------- ---------
<S> <C> <C>
Exhibit 11 Computation of Per Share Earnings 16
Exhibit 27 Financial Data Schedule -- Article 5 of Regulation S-X 17
</TABLE>
15
<PAGE> 1
EXHIBIT 11
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -----------------------
July 2, June 30, July 2, June 30,
1995 1994 1995 1994
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income $(16,498) $1,047 $(15,372) $2,546
=======================================================================================================
Adjusted Number of Common Shares
Weighted average shares outstanding 7,445 7,112 7,445 7,112
Incremental shares for exercise of stock
options and warrants and common stock
issuable 1,241 864 835 464
-------------------------------------------------------------------------------------------------------
Adjusted number of common shares 8,686 7,976 8,280 7,576
=======================================================================================================
Net earnings per common shares $(1.90) $0.13 $(1.86) $0.34
=======================================================================================================
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUL-02-1995
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 14,229
<ALLOWANCES> 1,207
<INVENTORY> 4,438
<CURRENT-ASSETS> 24,664
<PP&E> 5,994
<DEPRECIATION> 2,380
<TOTAL-ASSETS> 81,285
<CURRENT-LIABILITIES> 22,733
<BONDS> 44,930
<COMMON> 242
0
0
<OTHER-SE> 11,289
<TOTAL-LIABILITY-AND-EQUITY> 81,285
<SALES> 107,332
<TOTAL-REVENUES> 107,332
<CGS> 81,616
<TOTAL-COSTS> 81,616
<OTHER-EXPENSES> 35,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,152
<INCOME-PRETAX> (14,237)
<INCOME-TAX> 1,135
<INCOME-CONTINUING> (15,372)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,372)
<EPS-PRIMARY> (1.89)
<EPS-DILUTED> (1.89)
</TABLE>
