<PAGE> 1
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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 December 31, 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 January 29, 1996:
<TABLE>
<CAPTION>
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
<S> <C>
Common Stock, $0.03 par value 8,297,910 shares
</TABLE>
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1995 3
Consolidated Statements of Operations for the Three Months Ended
December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 10
Item 6 Exhibits 10
Signatures 11
Index to Exhibits 12
</TABLE>
2
<PAGE> 3
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,451 $ 81
Trade receivables, net 12,184 15,828
Inventories 4,964 4,021
Deferred income taxes 1,487 1,532
Other current assets 1,001 516
-------- --------
Total current assets 21,087 21,978
Property, plant and equipment, net 5,523 5,752
Deferred income taxes 2,202 2,202
Intangible and other assets 50,381 50,784
-------- --------
$ 79,193 $ 80,716
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,075 $ 6,700
9 1/4% senior subordinated notes 8,788 -
Accounts payable 9,428 8,105
Accrued compensation 1,773 2,021
Accrued interest 478 920
Current portion of reserve for discontinued operations 1,569 1,569
Other current liabilities 2,200 2,467
-------- --------
Total current liabilities 30,311 21,782
Reserve for discontinued operations 2,265 2,504
Long-term debt 33,262 44,092
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,000 shares authorized, none issued - -
Common stock, 8,402 shares issued (8,062 shares at
September 30, 1995 252 242
Additional paid-in capital 62,665 61,932
Accumulated deficit (45,180) (44,683)
Treasury stock, at cost, 479 shares (561 shares at
September 30, 1995 (4,382) (5,153)
-------- --------
Total stockholders' equity 13,355 12,338
-------- --------
$ 79,193 $ 80,716
======== ========
</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
---------------------------------
December 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Net revenues $29,920 $37,761
Cost of sales 21,928 27,770
------- -------
Gross profit 7,992 9,991
Selling, general and administrative expenses 6,248 6,666
Amortization of intangible assets 366 428
------- -------
Operating income (loss) 1,378 2,897
Interest expense (1,250) (1,347)
Other income (expense), net 21 (89)
------- -------
Income (loss) before provision for income taxes 149 1,461
Provision for income taxes 45 584
------- -------
Net income (loss) $ 104 $ 877
======= =======
Net income (loss) per share of common stock $ 0.01 $ 0.11
======= =======
Weighted average number of common and common equivalent shares 9,997 8,060
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 104 $ 877
Adjustments to reconcile net income to
net cash flows from continuing operations:
Depreciation and amortization 957 902
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets 2,156 36
Accounts payable and other liabilities (537) (889)
Accrued interest and income taxes deferred, receivable or payable 905 (620)
------- -------
Net cash flows from continuing operations 3,585 306
Net cash flows from discontinued operations (239) (38)
------- -------
Net cash flows from operating activities 3,346 268
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (194) (226)
------- -------
Net cash flows from investing activities (194) (226)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (1,037) (1,021)
Changes in borrowings under line of credit (745) (184)
------- -------
Net cash flows from financing activities (1,782) (1,205)
------- -------
Net change in cash and cash equivalents 1,370 (1,163)
Cash and cash equivalents at beginning of period 81 1,539
------- -------
Cash and cash equivalents at end of period $ 1,451 $ 376
======= =======
</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
In the opinion of management, the accompanying balance sheets and
related interim statements of operations and cash flows include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses. Actual results could differ from those estimates.
Interim results are not necessarily indicative of results for a full year.
Certain information in footnote disclosure normally included in
financial statements has been condensed or omitted in accordance with the rules
and regulations of the Securities and Exchange Commission. The information
included in this Form 10-Q should be read in conjunction with Management's
Discussion and Analysis and financial statements and notes thereto included in
the Aurora Electronics, Inc. 1995 Annual Report on Form 10-K/A.
NOTE B. 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 C. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1995
----------------- ------------------
<S> <C> <C>
Spare and repair parts $ 529 $ 535
Work in process 283 253
Finished goods and purchased product 4,152 3,233
------ ------
Total inventories $4,964 $4,021
====== ======
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
AND DECEMBER 31, 1994
OVERVIEW
Aurora Electronics, Inc. provides spare parts distribution and electronics
recycling services to major personal computer manufacturers and field service
organizations. Aurora operates worldwide, with facilities in the United
States, Canada, the United Kingdom and the Netherlands.
In the third quarter of fiscal 1995, Aurora initiated and substantially
completed a corporate reorganization focusing the Company on the businesses
which were determined to have the highest growth potential -- spare parts
distribution and electronics recycling and asset recovery -- and eliminated
unprofitable or non-strategic business activities. The Company operates
through two divisions; its Century Division ("Century"), which is a leading
provider of spare parts distribution and related services for the computer
maintenance market; and through its Asset Recovery Services Division ("ARS"),
which has become the world's largest supplier of integrated circuit ("IC")
recycling and recovery services.
RESULTS OF OPERATIONS
Net revenues for the first quarter of fiscal 1996 were $29,920 as
compared to $37,761 for the first quarter of fiscal 1995. The Company's
decline in revenues is due to the elimination of the Premier Division which was
restructured during the third quarter of fiscal 1995. Excluding the Premier
Division, net revenues for the first quarter of fiscal 1996 increased 23.6%
over the same quarter a year ago. The Company's Century Division (spare parts
distribution) had revenue growth of 40.1% over the same quarter a year ago,
reflecting continued penetration of major computer OEM and third-party
maintenance service customers. Offsetting growth in Century's spare parts
distribution business was a 45.5% decline in revenues from repair services,
resulting in total growth in revenues for the Century Division of 26.4% over
the same quarter a year ago. The Company's ARS Division (electronics
recycling) had revenue growth of 18.5% over the same quarter a year ago. ARS
achieved this performance with unit volume increases and mix improvements,
despite unevenness in the integrated circuit market, where prices for some high
volume memory parts have declined as much as 22% over the comparable period in
the prior year.
Gross profit for the first quarter of fiscal 1996 was $7,992 (26.7% of
net revenues), as compared to $9,991 in gross profit (26.5% of net revenues)
for the first quarter of fiscal 1995. The decrease in gross profit was due
primarily to the decrease of approximately $2,229 relating to the elimination
of the Premier Division, and a decrease of approximately $490 in gross profit
from Century's repair activities. These decreases in gross profit were
partially offset by higher gross profit in the ARS Division and Century's spare
parts distribution business.
7
<PAGE> 8
Selling, general and administrative expenses for the first quarter of
fiscal 1996 were $6,248 (20.9% of net revenues), as compared to $6,666 (17.7%
of net revenues) for the first quarter of fiscal 1995. Excluding the
eliminated Premier Division, selling, general and administrative expenses for
the first quarter of fiscal 1996 were 20.9% of net revenues compared to 25.0%
of net revenues for the same quarter a year ago. Amortization expense for the
first quarter of fiscal 1996 was $366 compared to $428 for the first quarter of
fiscal 1995. The decrease was due to the write-off in the third quarter of
fiscal 1995 of goodwill related to the acquisition of FRS, Inc.
Net interest expense for the first quarter of fiscal 1996 was $1,250
or 4.2% of revenues as compared to $1,347 or 3.6% of revenues for the same
quarter a year ago reflecting a decrease in total debt. The provision for
income taxes of $45 for the first quarter of fiscal 1996 represents the
Company's estimated rate of income tax expense for all of fiscal 1996 (30%)
applied to its taxable income to date.
Net income for the first quarter of fiscal 1996 was $104 (.3% of
revenues), as compared to net income of $877 (2.3% of net revenues) for the
first quarter of fiscal 1995. Excluding the Premier Division, the first
quarter of fiscal 1995 would have been in a net loss position. The increase in
weighted average shares outstanding reflects shares issuable in connection with
the final payment for the Century acquisition, the class action settlement
approved in September 1995, and shares sold in conjunction with the first
principal payment on the 7% Subordinated convertible promissory notes made in
October 1995.
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 and required debt principal payments. The Company's working capital
deficit was $8,985 as of December 31, 1995 compared to working capital of $196
as of September 30, 1995. The working capital deficit is primarily caused by
the reclassification of the 9-1/4% Senior Subordinated Notes to short-term debt
because they mature in November 1996.
During the fourth quarter of fiscal 1995, management retained
financial advisors to investigate and recommend a recapitalization of the
Company, including sources of capital for the retirement of the 9-1/4% Senior
Subordinated Notes. As of this date, active discussions with recapitalization
investors continue.
The Company entered into a Third Amendment ("Amendment") to the May
1994 Senior Secured Credit Agreement ("Agreement") effective September 30,
1995. This Amendment includes waivers and adjustments to the financial
covenants, a material adverse effect clause and the Company's agreement to
recapitalize prior to June 30, 1996 (the "Recapitalization"). As defined in
the Amendment, the Recapitalization includes repayment of the senior term loan
and the revolving line of credit, as well as repayment of the 9-1/4% Senior
Subordinated Notes. According to the Amendment, in the event the
Recapitalization does not occur by June 30, 1996, certain conditions will
restrict all future payments due on all of the Company's subordinated debt and
will prohibit all future payments due on the non-cancelable building lease
associated with discontinued operations. These events could cause a default
under the subordinated debt and operating lease. In the event of such a
default, management believes, based on the terms of the three subordinated debt
issues, that payments of principal and interest on the subordinated debt would
be prohibited unless waived by the holders of the senior indebtedness pursuant
to the Agreement.
8
<PAGE> 9
In consideration for the Amendment, the banks received amendment fees
of $50, an additional $100 at March 31, 1996, and an additional $150 on June
30, 1996 if the Company has not effected the Recapitalization as of March 31,
1996. In addition, if, as of June 30, 1996, the Company has not effected the
Recapitalization, the interest rate on the revolving line of credit and senior
term loan will be increased by 2% per annum. In addition, if the Company has
not effected the Recapitalization by March 31, 1996, a penalty fee of $200 will
be due to the banks, such fee increasing by $50 per month for each month that
the Recapitalization has not been completed. Also as consideration for this
Amendment, the exercise price of certain warrants received by the banks in May
1994 was repriced to $2.18, the average closing price of the Company's Common
Stock over the ten trading days preceding and including the Third Amendment
closing date.
On January 26, 1996, the Company and the U.S. Internal Revenue Service
("IRS") reached a preliminary settlement regarding the examination of the
federal income tax returns for the years 1986 through 1991. The preliminary
settlement will require the Company to pay $75 in additional taxes and interest
and increases the Company's net operating loss carryforward by an additional
$1,100.
Management believes that cash on hand, cash flow from operations, and
funds available under its credit facilities will be sufficient to meet the
Company's operating requirements, capital commitments and required principal
payments on the Senior Term loan for the next twelve months. Management also
believes that consummating the Recapitalization on or before June 30, 1996 is
important to ensuring an adequate level of liquidity in the future. Funds for
the principal payment on the 9-1/4% Senior Subordinated Notes due in November
1996 are expected to be satisfied by the proceeds of the new source of capital
sought in the Recapitalization. If the Company is unable to consummate the
Recapitalization by June 30, 1996, the Company will be required to explore
other financing alternatives.
9
<PAGE> 10
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item Page
---- ----
Exhibit 11 -- Computation of Per Share Earnings 13
(a)(2) Exhibit 27 -- Financial Data Schedule 14
10
<PAGE> 11
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.
February 5, 1996 By: /s/ JOHN P. GRAZER
---------------------------------
John P. Grazer,
Senior Vice President-Finance
and Administration and Chief
Financial Officer
(Principal Accounting and
Financial Officer)
11
<PAGE> 12
INDEX TO EXHIBITS
Item Description of Exhibits Page
---------- --------------------------------------- ----
Exhibit 11 Computation of Per Share Earnings 13
Exhibit 27 Financial Data Schedule -- Article 5 of
Regulation S-X 14
12
<PAGE> 1
AURORA ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------------------------------
1995 1994
-------------------------- --------------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Net income $ 104 $ 104 $ 877 $ 877
Add: Interest expense, net of income
tax, on debenture due 2001 and
Promissory Notes due 1997 - - - 163
------ ------ ------ ------
Adjusted net earnings $ 104 $ 104 $ 877 $1,040
====== ====== ====== ======
ADJUSTED NUMBER OF COMMON SHARES
Weighted average shares outstanding 7,923 7,923 7,780 7,780
Incremental shares for exercise of stock
options and warrants and common stock
issuable 2,074 2,074 280 379
Weighted average shares issuable upon
conversion of Debenture due 2001
and Promissory Notes due 1997 - - - 1,243
------ ------ ------ ------
Adjusted number of common shares 9,997 9,997 8,060 9,402
====== ====== ====== ======
Net earnings per common shares $ 0.01 $ 0.01 $ 0.11 $ 0.11
====== ====== ====== ======
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,451
<SECURITIES> 0
<RECEIVABLES> 13,459
<ALLOWANCES> 1,275
<INVENTORY> 4,964
<CURRENT-ASSETS> 21,087
<PP&E> 8,702
<DEPRECIATION> 3,179
<TOTAL-ASSETS> 79,193
<CURRENT-LIABILITIES> 30,311
<BONDS> 33,262
<COMMON> 252
0
0
<OTHER-SE> 13,103
<TOTAL-LIABILITY-AND-EQUITY> 79,193
<SALES> 29,920
<TOTAL-REVENUES> 29,920
<CGS> 21,928
<TOTAL-COSTS> 21,928
<OTHER-EXPENSES> 6,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,250
<INCOME-PRETAX> 149
<INCOME-TAX> 45
<INCOME-CONTINUING> 104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
