<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 1, 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 #0-18018
AEROVOX INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 76-0254329
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
370 Faunce Corner Road, North Dartmouth, Massachusetts 02747
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(Address of principal executive offices) (Zip Code)
(508) 995-8000
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Registrant's telephone number
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____
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
At July 1, 1995, 5,234,564 shares of registrant's common stock (par value,
$1.00) were outstanding.
Page 1
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AEROVOX INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
July 1, Dec. 31,
1995 1994
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 322 $ 102
Accounts receivable, net 23,015 16,278
Inventories 22,801 19,895
Prepaid expenses and other current assets 1,420 1,225
Deferred income taxes 997 997
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Total current assets 48,555 38,497
Property, plant and equipment,
net of accumulated depreciation 39,631 37,101
Deferred income taxes 1,752 1,752
Other assets 452 409
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Total assets $ 90,390 $ 77,759
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,861 $ 9,986
Accrued expenses 4,158 3,294
Current maturities of long-term debt 3,080 2,292
Income taxes 1,317 484
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Total current liabilities 20,416 16,056
Deferred income taxes 5,825 5,821
Industrial revenue bond 2,765 2,943
Long-term debt less current maturities 25,195 18,705
Other liabilities 916 818
Stockholders' equity:
Common stock 5,235 5,231
Additional paid-in capital 617 592
Retained earnings 29,812 27,887
Foreign currency translation adjustment (391) (294)
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Total stockholders' equity 35,273 33,416
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Total liabilities and stockholders' equity $ 90,390 $ 77,759
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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AEROVOX INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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July 1, July 2, July 1, July 2,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Net sales $ 36,737 $ 34,801 $ 70,878 $ 67,705
Cost of sales 30,685 27,356 58,901 53,660
----------- ----------- ----------- -----------
Gross profit 6,052 7,445 11,977 14,045
Selling, general and administrative expenses 3,873 4,069 8,152 8,171
----------- ----------- ----------- -----------
Income from operations 2,179 3,376 3,825 5,874
Other income, (expense):
Interest expense (569) (381) (1,082) (721)
Other income 161 140 390 238
----------- ----------- ----------- -----------
Income before income taxes 1,771 3,135 3,133 5,391
Provision for income taxes 680 1,249 1,208 2,152
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Net income $ 1,091 $ 1,886 $ 1,925 $ 3,239
=========== =========== =========== ===========
Net income per share $ 0.21 $ 0.35 $ 0.36 $ 0.60
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AEROVOX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 1, July 2,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,925 $ 3,239
Adjustments to reconcile to cash provided by (used in)
operating activities:
Depreciation and amortization 2,159 1,954
Deferred income taxes 4 72
Changes in operating assets and liabilities:
Accounts receivable (6,737) (3,850)
Inventories (2,906) (1,969)
Prepaid expenses and other current assets (195) (239)
Accounts payable 1,875 2,787
Accrued expenses 864 (903)
Income taxes payable 833 1,556
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Net cash provided by operating activities (2,178) 2,647
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Cash flows from investing activities:
Acquisition of property, plant and equipment (4,689) (2,923)
Other (42) 380
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Net cash used in investing activities (4,731) (2,543)
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Cash flows from financing activities:
Net borrowings under line of credit 4,795 1,027
Long-term debt borrowings 3,500 -
Long-term debt repayment (1,195) (1,054)
Common stock issued 29 294
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Net cash provided by financing activities 7,129 267
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Increase in cash and cash equivalents 220 371
Cash and cash equivalents at beginning of period 102 215
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Cash and cash equivalents at end of period $ 322 $ 586
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Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,176 $ 763
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Cash paid during the year for income taxes $ 418 $ 452
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</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AEROVOX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(1) The consolidated financial statements are unaudited, and in the opinion
of management, reflect all adjustments, all of a normal recurring nature,
necessary for a fair presentation of the financial statements for the
interim periods.
The financial statements are presented as permitted by Form 10Q, and do
not contain certain information included in the Company's annual
financial statements and notes.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of operations for the Three Months Ended July 1, 1995 as compared to
Three Months Ended July 2, 1994.
Net sales for the second quarter of 1995 totaled $36,737,000 compared to
$34,801,000 for the second quarter of 1994, a 5.6% increase.
Gross profit, at $6,052,000, was 16.5% of net sales, decreased from
$7,445,000, 21.4% of net sales, recorded for the second quarter of 1994.
Second quarter gross margins were expected to be lower than the corresponding
period of 1994 as the Aero M Group, although production trends were still
improving, reported essentially a break-even gross margin for the quarter
compared to a gross margin of approximately $1,035,000, or 17.9% of net sales,
for the second quarter of 1994. Other operations of the Company, on a combined
basis, reported $6,064,000 gross profits, a slight decrease from the 1994 level
for the second quarter. Selling and general and administrative expenses for
the quarter were 10.5% of net sales, at $3,873,000, compared to 11.7% of net
sales for the second quarter of 1994, at $4,069,00, as reductions were made,
primarily in incentive bonus accruals, to reflect the lower earnings levels.
Interest expense for the second quarter, at $569,000, compared to
$381,000 for the comparable period of 1994 as interest rates (measured by the
Prime Rate) increased by approximately 2.5 to 3.0 percentage points when
comparing second quarter, 1995, interest rates with the corresponding quarter
in 1994. This increase in rates was compounded by an increase in loans
outstanding at the end of the second quarter of 1995 (increased by
approximately $2,000,000 during the quarter) of approximately $9,900,000 over
loans outstanding at the end of the second quarter of 1994. Other income, at
$161,000, was comparable to the $140,000 reported for the second quarter of
1994.
Income before taxes was $1,771,000, 4.8% of net sales, versus $3,135,000,
9.0% of net sales, for the second quarter of 1994. Income tax provisions for
the second quarter of 1995 were $680,000 compared to $1,249,000 for the same
period of 1994. Net income was $1,091,000 ($.21 per common share) compared to
$1,886,000 ($.35 per share) for the second quarter of 1994.
Results of operations for the Six Months Ended July 1, 1995 as compared to Six
Months Ended July 2, 1994.
Net sales for the first six months of 1995 totaled $70,878,000 compared
to $67,705,000 recorded for the first six months of 1994, or a 4.7% increase.
Gross profits, at $11,977,000, 16.9% of net sales, compared to gross
profits for the first six months of 1994, at $14,045,000, 20.7% of net sales,
as the Aero M Group reported negative gross profits (approximately $137,000)
for its operations during the first six months of 1995 compared to profitable
operations at the gross profit level (approximately $2,200,000) in the
comparable period of 1994 prior to its physical move of operations from
Kentucky to Juarez, Mexico, during the latter half of the 1994. Selling,
general and administrative expenses were $8,152,000 (11.5% of net sales) for
the first six months of 1995 compared to $8,171,000 (12.1% of net sales) for
the corresponding period of 1994.
Interest expenses for the first half of 1995 totaled $1,082,000 compared
to $721,000 in 1994 as increased loan balances at July 1, 1995 ($31,040,000)
<PAGE>
over those at July 2, 1994 ($21,125,000) compounded by increased interest rates
(measured by the Prime Rate) of approximately 2.5 to 3.0 percentage points in
1995 over 1994 increased interest costs. Other income of $390,000 was
approximately $152,000 higher than that recorded in 1994 as a Licensee
purchased more raw materials from the Company than the previous period in 1994,
and an exchange gain was recorded by the Company's U.K. subsidiary.
Income before taxes was $3,133,000 (4.4% of net sales) compared to
$5,391,000 (8.0% of net sales) for the corresponding period in 1994. Income
tax provisions were $1,208,000 for the first six months of 1995 compared to
$2,152,000 for the first six months of 1994. The tax rate of 38.6% for 1995
(compared to 39.9% for 1994) was favorably affected by the increase in the
percentage of profits of the Company by its U.K. subsidiary with lower tax
rates. Net income was $1,925,000 ($.36 per common share) compared to the first
six months of 1994 of $3,239,000 ($.60 per share).
Financial Conditions: Liquidity and Capital Resources
Cash at the end of the second quarter, 1995, totaled $322,000 as
compared to $586,000 at the end of the second quarter of 1994 (including a cash
equivalent of $505,000 pledged as collateral for an environmental issue).
Working capital was $28,139,000 at the end of the first half of 1995 versus
$22,845,000 at the close of the comparable period in 1994. Current ratio of
2.4:1 compares to a ratio of 2.2:1 at July 2, 1994. Approximately $4,689,000
of expenditures were made during the first half of 1995 for property, plant and
equipment compared to $2,923,000 expended during the first six months of 1994.
The Company has an Amended Revolving Credit Agreement, dated July 8,
1993, with the The First National Bank of Boston (Bank of Boston), wherein the
Company may borrow up to a limit of $15,000,000. This Agreement was further
amended on August 4, 1994, to include, among other things, the right of BHC
Aerovox Ltd. (BHC) to borrow an amount not to exceed 4,000,000 Pounds Sterling
in addition to the $15,000,000 the Company may borrow under this Agreement.
At the end of the second quarter of 1995, the Company had borrowed $13,260,000
and BHC had borrowed approximately 3,500,000 Pounds Sterling under the
Agreement with the Bank of Boston.
The Company also has a term line of credit with The CIT Group, an
equipment financing company. This line of $10,000,000, secured by equipment
at the Company's New Bedford facility, has annual interest rates ranging from
7.36% to 8.24%. Outstanding loans at the end of the second quarter, 1995, for
this part of the loan facility, totaled $5,534,000. Amendment No. 2 to this
Loan and Security Agreement, signed by the Company on June 8, 1995, provides
that the Company can borrow up to an additional aggregate amount not to exceed
$5,000,000, such additional borrowings to be similarly secured by the existing
security interest on the stated property. The Company had borrowed $3,500,000
on this new credit line as of the end of the second quarter, 1995.
It was determined, at the end of the first quarter of 1995, that the
Company was in default of financial covenants imposed by the Bank of Boston and
The CIT Group. Bank covenants for an interest coverage ratio of no less than
4 to 1 (earnings before interest and income taxes divided by total interest
expense) and a debt to worth ratio (consolidated total liabilities divided by
consolidated net worth) of no greater than 1.5 to 1 were not met at the end of
the first quarter - interest coverage ratio was 3.6 to 1 and the debt to worth
ratio was 1.54 to 1. Both banking institutions were advised of this position
and the Company received written waivers from them of what they recognize as
a temporary situation as well as relief from these covenants (interest coverage
<PAGE>
ratio to 3.5 to 1 and debt to worth ratio to 1.75 to 1) for the remainder of
1995.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
6 (a). The Company's Annual Meeting of Stockholders was held on Tuesday, May
9, 1995, in Boston, MA. Proxies for the meeting were solicited
pursuant to Regulation 14A.
6 (b). There was no solicitation in opposition to the nominees listed in the
proxy statement and all such nominees were elected.
6 (c). At the Annual Meeting of Stockholders, the following three Class III
Directors were elected to serve until the 1998 Annual Meeting. The
vote totals for each is as follows:
<TABLE>
<CAPTION>
Total Vote
Total Vote Withheld
for Each from Each
Director Director
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<S> <C> <C>
Dennis Horowitz 4,716,979 44,870
Ronald F. Murphy 4,716,943 44,906
Benedict P. Rosen 4,717,083 44,766
</TABLE>
Shareholders approved the amendment to increase the number of shares of
Common Stock reserved for issuance under the 1989 Stock Option Plan for
Directors from 50,000 to 80,000 and to change the vesting schedule so
that options become exercisable on the first anniversary of the date of
the grant.
Votes
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For 4,213,675
Against 224,212
Abstained 46,585
Unvoted 277,377
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
6 (a). Exhibits: None.
6 (b). Reports on Form 8-K: None filed.
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 thereunto duly authorized.
AEROVOX INCORPORATED
DATE August 14, 1995 BY /S/ RONALD F. MURPHY
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Ronald F. Murphy, Senior
Vice President, Treasurer, Secretary
and Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-30-1995
<PERIOD-START> JAN-02-1994 JAN-01-1995
<PERIOD-END> DEC-31-1994 JUL-01-1995
<CASH> 102 322
<SECURITIES> 0 0
<RECEIVABLES> 16,573 23,443
<ALLOWANCES> 295 428
<INVENTORY> 19,895 22,801
<CURRENT-ASSETS> 38,497 48,555
<PP&E> 60,908 65,596
<DEPRECIATION> 23,807 25,965
<TOTAL-ASSETS> 77,759 90,390
<CURRENT-LIABILITIES> 16,056 20,416
<BONDS> 21,648 27,960
<COMMON> 5,231 5,235
0 0
0 0
<OTHER-SE> 28,185 30,038
<TOTAL-LIABILITY-AND-EQUITY> 77,759 90,390
<SALES> 125,640 70,878
<TOTAL-REVENUES> 125,640 70,878
<CGS> 104,202 58,901
<TOTAL-COSTS> 119,630 67,053
<OTHER-EXPENSES> (260) (523)
<LOSS-PROVISION> 11 133
<INTEREST-EXPENSE> 1,566 1,082
<INCOME-PRETAX> 4,693 3,133
<INCOME-TAX> 1,669 1,208
<INCOME-CONTINUING> 3,024 1,925
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,024 1,925
<EPS-PRIMARY> 0.56 0.36
<EPS-DILUTED> 0.56 0.36
</TABLE>
