UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended March 31, 1996
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number 1-6176
AUGAT INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2022285
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
89 Forbes Boulevard, P.O. Box 448, Mansfield, Massachusetts 02048
----------------------------------------------------------- --------
(Address of principal executive offices) (Zip
Code)
(508) 543-4300
---------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ----
The number of shares of the Registrant's common stock
outstanding on March 31, 1996 was 19,821,217.
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<PAGE>
AUGAT INC.
INDEX
Page No.
--------
Part I - Financial Information ................. 3
Financial Statements (Unaudited)
Statements of Consolidated Income - For the
Three Months Ended March 31, 1996 and 1995 .. 3
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 ....................... 4 - 5
Statements of Consolidated Cash Flows For the
Months Ended March 31, 1996 and 1995 ........ 6
Notes to Unaudited Consolidated Financial
Statements .................................... 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 9 - 11
Part II - Other Information ..................... 12
Signatures ...................................... 12
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<PAGE>
PART I - FINANCIAL INFORMATION
Statements of Consolidated Income
For the Three Months Ended March 31, 1996 and 1995
(In thousands, except per share data)
1996* 1995*
------- -------
Net sales $145,012 $134,589
Cost of products sold 114,260 106,732
--------- ---------
Gross margin 30,752 27,857
Selling, general and
administrative expenses 19,582 18,005
--------- ---------
Income from operations 11,170 9,852
Other income (expense):
Interest income, etc. 112 124
Interest expense (982) (911)
--------- ---------
Net (870) (787)
--------- ---------
Income before taxes on income 10,300 9,065
Provision for taxes on income 3,700 3,265
--------- ---------
Net income $ 6,600 $ 5,800
========= =========
Earnings per share $.33 $.30
Average common shares outstanding 19,854 19,541
Dividends paid per share $.04 $.04
* Unaudited
See notes to unaudited consolidated financial statements.
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<PAGE>
Consolidated Balance Sheets, March 31, 1996 and December 31, 1995
(In thousands)
Assets 1996* 1995*
------- -------
Current Assets:
Cash and cash equivalents ............. $ 21,950 $ 30,744
Accounts receivable-net ............... 100,513 85,887
Refundable income taxes ............... 4,000
Inventories:
Finished goods ..................... 39,084 34,859
Work in process .................... 28,079 29,325
Raw materials ...................... 32,644 28,945
--------- ---------
Total inventories ................ 99,807 93,129
Deferred income taxes ................. 8,412 7,481
Prepaid expenses ...................... 2,423 1,530
--------- ---------
Total current assets ............. 233,105 222,771
Property, Plant, and Equipment:
Land .................................. 4,766 4,910
Buildings and building improvements ... 68,836 69,455
Machinery and equipment ............... 157,826 163,142
Furniture and fixtures ................ 24,742 24,457
Construction in progress - buildings
and machinery ...................... 14,873 14,496
--------- ---------
Total ............................ 271,043 276,460
Less accumulated depreciation ......... (137,178) (141,808)
--------- ---------
Property, plant, and equipment-net ...... 133,865 134,652
Other Assets:
Goodwill-net .......................... 38,416 31,697
Property held for sale-net ............ 2,183 2,183
Other ................................. 15,959 16,173
--------- ---------
Total other assets ................. 56,558 50,053
--------- ---------
Total ............................ $423,528 $407,476
========= =========
* Unaudited
See notes to unaudited consolidated financial statements.
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<PAGE>
Consolidated Balance Sheets, March 31, 1996 and December 31, 1995
(In thousands)
Liabilities and Shareholders' Equity
1996* 1995*
------- -------
Current Liabilities:
Notes payable ......................... $ 20,400 $ 22,500
Current maturities of long-term debt .. 9,557 9,362
Accounts payable ...................... 41,122 36,192
Federal, state and foreign taxes
payable ............................. 5,662 3,667
Accrued compensation and benefits ..... 13,481 14,456
Accrued restructuring costs ........... 16,891 17,322
Other accrued expenses ................ 17,409 16,454
--------- ---------
Total current liabilities .......... 124,522 119,953
Long-Term Debt .......................... 30,348 25,854
Deferred Income Taxes ................... 13,655 11,931
Shareholders' Equity:
Common stock .......................... 1,984 1,979
Paid-in capital ....................... 81,193 80,751
Retained earnings ..................... 153,792 147,984
Cumulative translation adjustment ..... 19,150 20,258
Treasury stock, at cost ............... (110) (110)
Other ................................. (1,006) (1,124)
--------- ---------
Shareholders' equity ................ 255,003 249,738
--------- ---------
Total ............................. $423,528 $407,476
========= =========
* Unaudited
See notes to unaudited consolidated financial statements.
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<PAGE>
Statements of Consolidated Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(In thousands)
1996* 1995*
Cash Flows From Operating Activities: ------- -------
Net income ................................... $ 6,600 $ 5,800
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 5,225 5,467
(Gain) loss on the sale of property,
plant and equipment ...................... (70) 56
Deferred federal income taxes - net ........ 793 388
Amortization of restricted stock awards..... 118 126
Changes in operating assets and liabilities,
net of effects from business acquired:
Accounts receivable ........................ (14,627) 1,873
Refundable income taxes .................... 4,000
Inventories ................................ (4,578) (5,618)
Prepaid expenses ........................... (894) (1,191)
Other assets ............................... 955 190
Accounts payable ........................... 3,930 1,006
Income taxes payable ....................... 1,995 885
Accrued restructuring, compensation and
other expenses ........................... (952) (3,153)
Effect of exchange rate changes on current
assets and liabilities (other than cash).. 1 636
-------- --------
Net cash provided by operating activities... 2,496 6,465
-------- --------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment.. (4,435) (6,733)
Proceeds from the sale of property, plant,
and equipment ............................ 545 6
Acquisition, net of cash acquired .......... (8,212)
-------- --------
Net cash used for investing activities ....... (12,102) (6,727)
-------- --------
Cash Flows From Financing Activities:
Cash dividends paid ........................ (792) (779)
Net borrowings on credit line .............. 6,100 5,000
Payments for long-term debt ................ (4,638) (7,460)
Common stock issued under employee benefit
plans .................................... 448 666
-------- --------
Net cash provided (used) by financing
activities .................................. 1,118 (2,573)
Effect of exchange rate changes on cash ........ (306) (329)
-------- --------
Net changes in cash and cash equivalents ....... (8,794) (3,164)
Cash and cash equivalents at beginning of the
period ....................................... 30,744 20,535
-------- --------
Cash and cash equivalents at end of the
period ....................................... $21,950 $17,371
======== ========
* Unaudited
See notes to unaudited consolidated financial statements.
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<PAGE>
AUGAT INC.
Notes to Unaudited Consolidated Financial Statements
----------------------------------------------------
1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1996,
the results of operations for the three months ended March 31,
1996 and 1995 and the cash flows for the three month periods
then ended.
2. The results of operations for the three month period ended
March 31, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
3. Earnings Per Share - Earnings per share are based on the
weighted average number of shares outstanding during each
period. The exercise of all presently issued outstanding
stock options and the issuance of shares under the "Employee
Stock Purchase Plan" would have no material dilutive effect
on earnings per share.
4. The acquisition of National Industries, Inc. in 1991 included a
liability of approximately $5.4 million to cover the estimated
costs of site remediation for certain National facilities.
Management estimated the liability using third-party consultants.
Costs incurred as of March 31, 1996 (approximately $1.2 million)
represent amounts expended for preliminary site evaluation and
design and testing. The Company has obtained the necessary
permits and is in the process of remediating the site. The
Company is keeping the state informed of its progress. The
Company believes the recorded liability of approximately
$4.2 million at March 31, 1996 to be adequate.
Based on a study conducted in 1995, the Company notified the
Massachusetts Department of Environmental Protection of the
release of hazardous materials associated with its facility
in Mashpee, Massachusetts. The Company will follow-up this
notice with further investigation in accordance with state
law. Based upon preliminary information provided by third-
party consultants, the Company estimates that the clean-up
costs will be approximately $1.8 million. This amount was
charged to SG&A in the fourth quarter of 1995. The Company
believes the recorded liability of approximately $1.8 million
at March 31, 1996 to be adequate.
5. The private placement senior note agreement includes certain
financial covenants and restrictions upon dividends,
investments, indebtedness, and the sale of certain assets.
Had the agreement not been amended during the first quarter
of 1996, the Company would have violated certain requirements
of the agreement relating to failure to maintain certain
minimum financial ratios as a result of the restructuring
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<PAGE>
charge in 1995. If the agreement is not renegotiated or
refinanced, or if additional amendments are not received, the
Company will be in default at June 30, 1996. The Company,
which is currently investigating various long-term financing
alternatives, has the ability to prepay the notes utilizing
proceeds from its revolving credit agreement which would
become payable July 1, 1997. Accordingly, the private
placement senior notes have been classified as noncurrent
at March 31, 1996.
At March 31, 1996 the Company's long-term debt includes $8.2
million of notes payable classified as long-term based on
the Company's intent to refinance the notes on a long-term
basis and the availability of such financing.
6. During the first quarter of 1996, the Registrant acquired the
fiber optics business of Porta Systems Corporation, for an
aggregate amount of cash of approximately $8.2 million. The
acquisition has been accounted for by the purchase method of
accounting. Preliminary goodwill of approximately $7.1
million has been recorded and is being amortized on a
straight-line basis over 20 years. The operating results of
this acquisition is included in the Company's consolidated
results of operations from the date of acquisition. Pro-forma
results of this acquisition, assuming it had been made at the
beginning of each period presented, would not be materially
different from the results reported.
7. In December 1995, the Registrant recorded estimated restruct-
uring costs of $18.7 million. These costs included $9.3 million
related to redundant or excess facilities and equipment; $5.5
million for employee severance costs and $3.9 million related
to the cost to exit low-margin product inventory. As of
March 31, 1996, the Registrant recorded inventory and
equipment write-offs amounting to $1.3 million and paid
severance costs of $.5 million.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Net Sales: Net sales for the quarter ended March 31, 1996 by product
---------
group, compared to the quarter ended March 31, 1995, are as follows
(dollars in thousands):
------------------------------------------------------------------
Quarter Ended March 31,
1996 1995
---------------- --------------
Product Group % %
------------------------------------------------------------------
Interconnection Products Business $ 32,639 22.5% $ 33,254 24.7%
Wiring Systems and Components
Business 69,636 48.0% 65,601 48.7%
Communications Products Business 42,737 29.5% 35,734 26.6%
-------- ------ -------- ------
Total $145,012 100.0% $134,589 100.0%
======== ====== ======== ======
--------------------------------------------------------------------
Net sales for the quarter ended March 31, 1996 increased over the
first quarter of 1995 primarily due to the increased demand for the
Company's products in the domestic automotive market and in the
international communications and cable television markets. Including
the Elastomeric Technologies acquisition (May 1995), Interconnection
Products Business, European sales improved in 1996 while shipments
into its domestic and Far East markets declined in 1996.
Business conditions in the first quarter of 1996 continue to reflect
improvement for the Communications business in the Far East and
European markets in which the Company serves. Incoming orders for
the first quarter of 1996 were $143 million, compared to $138
million for the same period of the prior year. Incoming orders
for the current quarter increased approximately 45 percent for
the Communications Products Business and 2 percent for the Wiring
Systems and Components Business while decreasing 25 percent in
the Interconnection Products Business as compared to the same
period of the prior year. The backlog at March 31, 1996 was
$122 million compared with $122 million at March 31, 1995.
In March 1996, the Company was notified by Ford Motor Company that
Ford is proceeding with a plan to consolidate its suppliers. The
first expected impact from this process to Augat is not until 1998
for various wiring cable products. Although the Company cannot
at this time predict with certainty the future impact of the Ford
consolidation plans, at the present time this could represent a
reduction of approximately $15-20 million in sales volume in 1998.
As part of this supplier base consolidation, Augat will also be
discontinued as the harness supplier for the Mustang car platform
effective in the fiscal year 2001. Similarly, the Mustang
harnesses could represent approximately $30-40 million on a full
year basis in reduced sales in 2002. The Company believes there
may be some impact in 2001 but is unable at this time to quantify
the magnitude of such impact. The Company has continued to
implement programs within the automotive business to diversify
both its products and customer base for the long term.
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<PAGE>
Gross Margin: Gross Margin was approximately 21.2 percent of sales
------------
in the first quarter of 1996 compared to 20.7 percent in the first
quarter of 1995. Overall sales mix generated favorable margins that
were negatively impacted by selected selling price decreases,
increases in material costs, wage increases and overhead. These
increased expenses were partially offset by improved manufacturing
methods and on-going cost cutting programs.
Selling, General and Administrative Expenses: These expenses were
--------------------------------------------
13.5 percent of sales in the first quarter of 1996 compared to
13.4 percent in the comparable quarter of the prior year. While
the dollars spent in this area have increased, the Company intends
to maintain these expenses in the 13 percent to 15 percent range
of sales. These expenses may vary from period to period based on
various factors, none of which, individually, are significant.
Other Income (Expenses): Interest income, etc. decreased in 1996
-----------------------
versus 1995 due to a reduction in the cash available to invest.
Interest expense increased in the 1996 period compared to the same
period in 1995 due to the increase in total outstanding debt in
1996 when compared to 1995 as approximately $8 million was borrowed
to finance the fiber optic business acquired in March 1996.
Income Taxes: The effective income tax rate for the Company was
------------
36 percent for the first quarter of 1996 and 1995. The tax rate
in both periods is higher than the statutory rate due to income
earned in jurisdictions with higher effective tax rates.
Net Income: Net income was $6.6 million for the three months ended
----------
March 31, 1996, compared to net income of $5.8 million in the same
period of the prior year.
The increase in net income for the first quarter ended March 31,
1996 compared to the previous period of the prior year resulted
principally from increased sales volume in our domestic automotive
and European and Far East communications businesses.
Liquidity and Capital Resources: The Registrant continues to
-------------------------------
maintain sufficient liquidity and has adequate resources to fund
its operations under current business conditions. The income
generated from operations along with the cash on hand and
established bank credit facilities are sufficient to cover expected
sales growth and planned capital expenditure programs. See Note 5
to the Notes to Unaudited Consolidated Financial Statements for
further discussion.
Current Accounting Pronouncements: In October 1995, the Financial
---------------------------------
Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
---
which will be effective for the Company beginning January 1, 1996.
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<PAGE>
SFAS No. 123 requires expanded disclosures of stock-based
---
compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair
value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion
No. 25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings
per share.
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<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: - None
(b) Reports on 8-K - None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
AUGAT INC.
-------------------------------------
(Registrant)
S/ Ellen B. Richstone
-------------------------------------
Ellen B. Richstone
Vice President and
Chief Financial Officer
Date: May 13, 1996
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF AUGAT INC. FOR THE QUARTER ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000008462
<NAME> AUGAT INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 21,950
<SECURITIES> 0
<RECEIVABLES> 101,786
<ALLOWANCES> (1,273)
<INVENTORY> 99,807
<CURRENT-ASSETS> 233,105
<PP&E> 271,043
<DEPRECIATION> (137,178)
<TOTAL-ASSETS> 423,528
<CURRENT-LIABILITIES> 124,522
<BONDS> 30,348
<COMMON> 1,984
0
0
<OTHER-SE> 253,019
<TOTAL-LIABILITY-AND-EQUITY> 423,528
<SALES> 145,012
<TOTAL-REVENUES> 145,012
<CGS> 114,260
<TOTAL-COSTS> 114,260
<OTHER-EXPENSES> 19,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 982
<INCOME-PRETAX> 10,300
<INCOME-TAX> 3,700
<INCOME-CONTINUING> 6,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 6,600
<EPS-PRIMARY> 0.33
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</TABLE>
