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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995 COMMISSION FILE NO.: 0-18018
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AEROVOX INCORPORATED (Exact name of Registrant as specified in its charter)
DELAWARE (State or other jurisdiction of incorporation or organization)
76-0254329 (I.R.S. Employer Identification No.)
370 Faunce Corner Rd., North Dartmouth, MA 02747
(Address of principal executive offices)
(508) 995-8000 (Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Title of Class
Common Stock, Par Value $1.00 Per Share
Preferred Share Purchase Rights
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Shares Outstanding of the Registrant's Common Stock at March 15, 1996:
5,306,195.
Aggregate market value of voting stock held by non-affiliates of the
registrant at March 15, 1996: $29,672,251.
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 twelve months, and (2) has been subject to
such filing requirements for the past ninety days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 30, 1995, are incorporated by reference into Parts I,
II and IV hereof. Portions of the Registrant's definitive Proxy Statement
for use at the 1996 Annual Meeting of Stockholders are incorporated by
reference into Part III hereof.
An index to exhibits filed with this Report on Form 10-K appears at pages
23-25 hereof.
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PART I.
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Item 1. Business
Aerovox's predecessor, Aerovox Corporation, began in 1922 producing crystal
wireless radios. In 1973, the Aerovox AC capacitor operations, including a
plant in New Bedford, Massachusetts, together with the Aerovox name, were
purchased from Aerovox Corporation by a newly-created corporation, Aerovox
Industries, which was headed by Clifford H. Tuttle, Aerovox's current President
and Chairman. In 1978, RTE Corporation ("RTE"), a manufacturer of distribution
transformers and other utility electrical products, purchased all of the assets
of Aerovox Industries through its newly organized subsidiary, Aerovox
Incorporated, a Massachusetts corporation ("Aerovox Massachusetts"). In 1988,
RTE was acquired by Cooper Industries ("Cooper"), and Aerovox Massachusetts
became an indirect wholly-owned subsidiary of Cooper, through Aerovox Holding
Company ("AHC"); a Delaware corporation incorporated on May 3, 1988. On May 26,
1989, Aerovox Incorporated was merged into AHC and AHC's name was changed to
Aerovox Incorporated. The sole purpose of this merger was to eliminate the
passive holding company structure. On February 26, 1990, 5,095,086 shares of
Aerovox Common Stock were distributed to Cooper shareholders of record on May 5,
1989.
On March 5, 1993, Aerovox purchased all the stock of Aero M, Inc., an
aluminum electrolytic capacitor manufacturer, from Cooper Industries. This
company now operates as two divisions: Aero M Group in Juarez, Mexico and the
Aerovox Foil Division in Huntsville, Alabama. On March 11, 1993, Aerovox
purchased certain assets of British aluminum electrolytic capacitor
manufacturer, BH Components Ltd., and formed a new company, BHC Aerovox Ltd.
which is headquartered in Weymouth, England.
The Company now consists of four divisions: the Aerovox Group, Aero M
Group, BHC Aerovox Ltd., and the Aerovox Foil Division which are more fully
described below.
AEROVOX GROUP
The Aerovox Group, headquartered in New Bedford, Massachusetts, is a
leading manufacturer of film capacitors. The Group manufactures AC capacitors,
used primarily in air conditioners (with both the compressor and fan motor),
fluorescent lighting, high intensity discharge (HID) lighting, microwave ovens
and other industrial applications. The Group also manufactures DC capacitors
primarily for the communications industry and for various power supply
applications; electromagnetic interference (EMI) filters used primarily in AC
power supplies for electronic equipment;
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power factor correction equipment and DC energy discharge capacitors used in
medical equipment, photocopiers, fusion power and various government research
and development programs.
Products and Markets
Capacitors are basic electrical components that store electrical energy and
regulate the frequency, timing and condition of electrical signals. They are
used to release predetermined amounts of energy and assist in running an
electrical device, to send predetermined amounts of energy to start an
electrical device, or to store energy for releases at unscheduled future times.
A principal functional element of every capacitor is its dielectric
(nonconductive) material, which functions as an insulator separating two
electrically charged plates (electrodes). Dielectric systems can be made using a
variety of materials, such as air, ceramic, tantalum oxide, aluminum oxide,
polypropylene film and paper.
All the Aerovox Group's AC capacitors are manufactured with polypropylene
film and/or kraft paper, or polyester film (used in small units) as the
dielectric system. DC Film capacitors utilize polyester films and polypropylene
(for high frequency applications) as the dielectric system.
EMI filters protect electronic equipment from electrical interference
("noise") coming from the power source and suppress high frequency interference
that would otherwise be transmitted out of the equipment along the power cord.
EMI filters can also be used to suppress high frequency and unintentional
"noise" generated in electronic and electromechanical equipment. Applications
for EMI filters include computer and computer peripheral equipment,
telecommunications and variable speed drives. They are also used in sensitive
electronic test and medical equipment.
The Aerovox Group also produces low and medium voltage AC power factor
correction systems. These systems are installed in manufacturing facilities,
large office buildings and apartment buildings and hospitals where use of motor-
driven equipment, air conditioning and specialized medical equipment is
widespread. Power factor correction capacitors improve a facility's electrical
system efficiency thus reducing power costs; they can also reduce the incidence
of such system problems as brownouts.
The Aerovox Group offers a complete line of high voltage, multipurpose DC
energy storage and discharge capacitors for both industrial and government
applications. The smaller models in this product line are used as components in
photocopiers, laser equipment, defibrillators, power supply systems and welding
equipment. The Group's larger DC capacitors are used in government and
university fusion power and particle acceleration
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research products, government weaponry systems, in equipment for high energy x-
rays and in high speed trains.
Competition
AC capacitors are made by several domestic and foreign manufacturers, and
competition is intense. Aerovox and the General Electric Company are the
primary producers of AC metallized film capacitors in North America, each
offering a full line of AC products. The other suppliers of these products are
generally smaller and do not offer a full line.
In the North American AC capacitor market, Aerovox competes almost entirely
with domestic manufacturers. Offshore competition has not been a major factor
in this market because normally the weight of a typical AC capacitor in relation
to its cost makes it uneconomical for European and Far Eastern suppliers to ship
such capacitors to the United States. The principal competitive factors in the
industry include product reliability, competitive prices, delivery, customer
service, and the ability to meet customer specifications.
The Aerovox Group is not a major supplier of general purpose AC capacitors
in either Europe or Asia and faces strong competition from locally based
manufacturers in those markets. However, it is becoming the market leader in
various specialty/niche products in the European marketplace.
There are also a significant number of DC wound film capacitor
manufacturers, both domestic and international, that serve the North American
market and, accordingly, the Aerovox Group faces stiff competition in this
market. The competitive factors are primarily price and delivery.
A significant number of EMI custom filter manufacturers serve the North
American marketplace for this product providing strong competition to the
Aerovox Group. The principal competitive factors are technical support,
quality, delivery and price.
Manufacturing
Many of the Aerovox Group manufacturing processes are automated;
mechanization is essential to its ability to control costs in order to meet
competitive prices and still maintain acceptable profit margins. The control of
quality levels is an equally important function throughout all departments of
the Group and various tests are conducted to assure continuity of high
standards. The Group also utilizes an advanced materials requirement planning
system; an on-line closed-loop data based system which manages customer orders
from order entry through shipping and invoicing.
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Each AC capacitor consists of one or more functional "sections" that are
enclosed in a metal or plastic container, or have a wax or pitch coating, or are
wrapped in polyester tape. Sections are produced on a five-day basis in two
production areas - one that produces metallized polypropylene sections and one
that produces other types of dielectric system sections (working two shifts).
Container covers are produced in both plastic (on a three shift basis) and metal
designs (on a two shift basis) in two production areas and are fed to the
assembly lines where the sections are assembled into containers to finalize the
packaging process. The assembled product is then filled or impregnated with an
oil. Each capacitor is then electrically tested and a visual inspection
conducted. Some capacitors are painted, if required, and all are marked prior to
packaging and shipping.
The Company formed a maquiladora, Aerovox de Mexico, S.A. in Juarez,
Mexico, in December 1992, to transfer high labor content AC capacitor products
and EMI filters for assembly.
The DC wound film capacitor operation consists of three production lines:
radial box (various sizes); axial leaded capacitors (both round and flat); and
special designs and configurations. The basic difference between these three
lines is the method of packaging the wound metallized film section for the
required application. The section winding is performed in one department. The
sections are then separated in a preparation area for zinc end spraying and then
distributed to the proper production area for assembly, packaging and testing.
The Group's EMI filter products are designed at the Group's New Bedford,
Massachusetts, facility. The filters consist of various components, typically
including various capacitors, resistors and a copper wire-wrapped magnetic core,
all precisely arranged within a steel or plastic container. The completion
processes include filling the remaining space in the container with a petroleum
distillate, sealing the container and electrically testing the finished product.
Prior to 1993, the actual assembly of filters was performed by two
subcontractors at two different locations in Mexico. The Company maquiladora,
located in Juarez, Mexico, now performs the assembly operations of the EMI
filters.
A special products department in New Bedford assembles the power factor
correction systems and energy storage and discharge capacitor product lines on a
one-shift basis.
AEROVOX FOIL DIVISION
In 1995, the Aerovox Foil Division, previously part of the Aero M Group,
was established as an autonomous organization. This Division etches and forms
(chemical and electrical processes) essentially pure aluminum foil to meet the
capacitance and voltage specifications of finished
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aluminum electrolytic capacitors. Slitting the processed foil to required
widths is also completed at the Huntsville, Alabama facility before the foil is
sent to Aero M or BHC for assembly into finished capacitors.
AERO M GROUP
The Aero M Group is a leading manufacturer of AC voltage aluminum
electrolytic capacitors for the electrical industry as well as various types of
DC voltage aluminum electrolytic large can computer grade capacitors for
electronic and electrical power supply applications. All products of this group
are assembled by Aerovox de Mexico, S.A., a maquiladora formed by the Company in
Juarez, Mexico.
Products and Markets
Aero M's AC voltage aluminum electrolytic capacitors, are produced
primarily for motor-start applications providing torque for single phase
electric motors, or for gear applications used as a short period electric motor
run.
Aero M DC voltage aluminum electrolytic capacitors are used in the
electronic industry primarily for large can applications such as DC power
supplies, uninterruptible power supplies, motor drives and energy discharge
applications such as welding, strobes and photoflash. The Group also produces a
variety of low profile "snap-ins", radial and axial tubular capacitors.
Competition
In the North American AC motor-start capacitor market, Aero M has only one
major competitor - North American Philips. Offshore competition has not been a
factor in this market. The principal competitive factors in the industry are
delivery, quality, customer service and pricing.
The large can computer grade DC capacitor market is dominated by CDE, and
North American Philips and other foreign-owned domestic manufacturers. This very
competitive marketplace has minimum to no standardization and is considered an
application-specific product normally requiring design-in and qualification
testing by its customers. The principal competitive factors in this industry
are technical capability and support, quality, delivery and pricing.
Manufacturing
The key material element of an aluminum electrolytic capacitor is an
essentially pure aluminum foil that has been processed, chemically and
electrically, to meet the capacitance and voltage specifications of the
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finished capacitor. This processing, known as etching and forming of the
aluminum foil, is done at the Aerovox Foil Division in Huntsville, Alabama.
Slitting of the processed foil to required widths is also completed at this
plant. The foil is then forwarded to the Aero M Juarez, Mexico facility for
assembly into a finished aluminum electrolytic capacitor. On separate assembly
lines, the aluminum foil is wound into the required sizes and assembled into
containers, filled with the appropriate electrolyte, tested and marked. In-can
electrical aging to prevent defects caused by surge currents delivers highly
reliable capacitors to the packaging and shipping docks.
BHC AEROVOX LTD.
BHC Aerovox Ltd., located in Weymouth, England, is one of Europe's leading
manufacturers of aluminum electrolytic capacitors with sales throughout Europe.
Products and Markets
BHC Aerovox is the major supplier of AC motor-start capacitors to the
European market, serving the fractional horsepower motor and the compressor
markets. Their leading edge technology high voltage DC capacitors are supplied
to all the major European motor drives manufacturers. Other applications
include uninterruptible power supplies, telecommunication power supplies,
traction units for trains, welding equipment and other general industrial
electronics applications.
In 1995, a new building created 40% more space for expansion of the
aluminum production and for introduction of a product line for microwave oven
capacitors.
Competition
There is keen competition from a number of European and Far Eastern
suppliers for all of the aluminum products made by BHC Aerovox. In each of the
main countries, there is at least one local supplier. BHC Aerovox has increased
its market share by offering technical backup to support a range of high
quality, technically advanced products.
There is only one European competitor for microwave capacitors (in Italy).
The main competitors are in Korea and the United States. BHC Aerovox will offer
the flexibility of a local supplier.
Manufacturing
BHC Aerovox purchases etched aluminum foil from several sources, including
the Aerovox Foil Division. The etched foil is processed to form a dielectric
(aluminum oxide) layer according to the voltage requirements.
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This processed foil is slit to the required width, wound with specially selected
tissue, impregnated with an electrolyte fluid and then assembled into
containers. A large part of the production is for custom designs to meet the
specific customer applications.
The microwave production is based on the proven technology from Aerovox
USA, but incorporates state-of-the-art impregnation equipment.
GENERAL
Sales and Distribution
Aerovox sells its products worldwide to over 1,000 customers, primarily
original equipment manufacturers ("OEMs"), who purchase capacitors and other
products manufactured by the Company for use as components in the products they
manufacture. No one customer, in 1995, accounted for 10% or more of the net
sales of the Company. In 1995, approximately 38% of the Company's net sales
were to its 10 largest customers and 83% were made to its 100 largest customers.
The Company expects that sales to these customers will continue to represent a
significant portion of its total sales.
Company foreign sales, primarily United Kingdom sales, represented
approximately 19% of total sales in 1995.
The Company markets most of its products to domestic OEMs primarily through
21 sales representative organizations which collectively employ over 200 sales
people. Aerovox has enjoyed long-term relationships with many of its sales
representatives, some of which have sold Aerovox products in excess of twenty-
five years. The Company's low and medium voltage power factor correction
capacitors, which are manufactured for installation into industrial, commercial
and other type facilities, are marketed through a separate group of industrial
sales representatives who specialize in these products. In the United Kingdom
and Europe, the Company sells direct and also utilizes 16 sales agents to market
Company products. In addition, 12 sales organizations facilitate sales in the
Far East, Japan, Australia, Mexico, the Middle East and South America. A
smaller portion of the Company's sales are made through distributors and a few
long-standing customers are handled as house accounts.
The Company's sales are slightly seasonal and are affected by Company
production and shipping schedules; the net sales for the first half of the year
are based on an aggregate average of 127 shipping days compared to 111 days for
the last half of the year. Approximately 75% of the net sales are produced
under agreements negotiated on an annual basis, usually during the fourth
quarter of the year. The Company sells approximately 95% of its products on a
manufactured-to-order basis. If an order is canceled the
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Company bills the customer for materials and labor expended on the order prior
to cancellation.
A critical element to the Company's strategy is its emphasis on customer
service. The Company maintains continual, multilevel contacts with many
customers and places a high priority on meeting each customer's requirements in
a timely manner.
Backlog
Aerovox's total backlog represents approximately six weeks of production.
The Company's manufacturing lead times vary from four to six weeks depending on
the product type, although some filter products and special larger EDC products
that must be built specifically to order may require longer lead time.
Generally, the Company does not book orders as firm, for purposes of calculating
backlog, until 90 days before the scheduled delivery date. The total active
backlog was $18.2 million at February 24, 1996, and $23.3 million at February
25, 1995. The Company expects to fill all backlog orders in 1996.
Product Development and Quality Control
Product development and improvement are important elements of Aerovox's
strategy. The Company's efforts to develop new products and to improve existing
products are continuous and benefit from long-term technical relationships with
a number of key suppliers and customers. Formal and informal consultation and
discussion on technical matters of common interest with key suppliers have
resulted in a number of significant product improvements, including the
development of thinner dielectric materials resulting in a more cost efficient
capacitor and development of improved capacitor fluid impregnants that reduce
capacitance loss.
Most recently, technical exchanges between the Company's operating groups
has resulted in the development of additional new products and processes, a
trend the Company is fostering particularly with the establishment of an
electrolytic technical center at the Huntsville plant.
The Company places a high degree of emphasis on quality control both in
product design (through improved design specifications) and in the production
process by means of continuous testing conducted throughout the manufacturing
cycle. Statistical Quality Control (SQC), a program aimed at encouraging
employee involvement and participation through decision making, is typical of
the programs that have helped Aerovox achieve significant quality improvements.
To meet worldwide quality standards, the Company has established a goal of
achieving company-wide International Standards Organization (ISO) certification
for all products. The Aerovox Group earned ISO 9002
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certification for products manufactured in the U.S., in December 1994, and for
those manufactured in Mexico in November 1995. BHC Aerovox Ltd. has been ISO
9001 certified for several years. The Aero M Group capacitor operation in
Juarez, Mexico successfully underwent a reassessment in 1995 to verify that the
quality systems that were certified in the former Glasgow location have been
established in the new location.
Establishing "partnership" programs with customers is another important
aspect of Aerovox's quality endeavors. The Company has established such
programs with a number of customers wherein the customer commits to placing a
major portion of their business with Aerovox, to forecasting that business, and
adhering to a forecasted production schedule. Aerovox, in turn, commits to
favorable pricing and to quality levels that allow components to be shipped
directly to the customer's manufacturing site without customer inspection.
Raw Materials
The Company purchases raw materials from a number of regional, national and
international suppliers. All of these raw materials are available from a
variety of suppliers with whom the Company has had long-term relationships. The
Company purchases its plain and metallized polypropylene from several sources in
Europe and Asia and four sources in the United States. There are four Company
approved suppliers for metallized polyester, two in the United States and two in
Europe. A number of sources are approved to provide aluminum foil for the
Company's electrolytic products - three in the United States, four in Europe,
and two in Asia.
Patents, Licenses and Trademarks
The Company's most important intellectual property is its capacitor
manufacturing processes which have been developed over a period of many years.
Aerovox has approximately 29 active patents or pending patents.
Aerovox licenses some of its product technology and process know-how to
Lumisistemas in Mexico. This technology licensing activity does not generate
material amounts of revenue for Aerovox.
The Aerovox trademark is registered or registration is pending in 23
countries in Europe, North and South America, the Far East, the Middle East and
Australia. This trademark has been in force since 1976. In addition, the
Company holds or has pending, 18 other United States registered trademarks, some
of which are registered in other countries, including the Aero M trademark. The
duration of Aerovox's product trademark registrations range from one year to
fifty-nine years. The Company believes that its trademark status helps to
maintain the proprietary nature of its products.
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Employees
As of February 4, l996, Aerovox had 1,607 employees worldwide. An
aggregate of 295 employees hold salaried management, supervisory, sales and
clerical positions and 1,311 hourly employees are engaged in production and
related activities. Unions represent 2.5% of the employees. None of the
Company's production departments are unionized. Approximately 275 employees
have been with their respective Aerovox company for 10 years or more.
Aerovox considers its employee relations to be good. There have been no
labor stoppages in recent years, and union contracts have been renegotiated
without difficulty. A new three year agreement was reached with the
International Union of Operating Engineers in April 1995, and a new contract
with the International Brotherhood of Electrical Workers will be negotiated by
the Aerovox Group in April 1996.
Environmental Compliance
The Company has made substantial capital expenditures on environmental
controls and compliance at its facilities. See, "Legal Proceedings -
Environmental Compliance" below.
Item 2. Properties
<TABLE>
<CAPTION>
Owned/ Year Lease
Property Sq. Feet Leased Expires
- -------- -------- ------ --------
<S> <C> <C> <C>
Aerovox Corporate Office
North Dartmouth, MA 11,600 Leased 2003
Aerovox Group
New Bedford, MA 435,000 Owned -
Aerovox Group
Juarez, Mexico 45,000 Leased 1996
Aero M Group
Huntsville, AL 85,000 Owned -
Juarez, Mexico 100,000 Leased 1999
BHC Aerovox, Ltd.
Weymouth, England 10,000 Owned -
Weymouth, England 35,000 Leased 2008
Weymouth, England 27,000 Owned -
</TABLE>
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The Company has invested in automation and equipment necessary to increase
production capability (primarily for the metallized polypropylene product line)
in New Bedford. Capital has also been expended on the research and development
laboratory at this location and on equipment to manufacture new products at the
Aerovox Group maquiladora. In Weymouth, England, a 27,000 square foot building
to facilitate expanded aluminum electrolytic capacitor production and
commencement of microwave oven capacitor production was completed in 1995.
Equipment at the Aero M plant in Juarez continues to be up-graded and new
equipment acquired for greater efficiency and capability. A quality control, and
research and development labs were installed at the plant in Huntsville, Alabama
during 1995. The Company believes that its facilities are adequate for its
foreseeable needs.
Item 3. Legal Proceedings:
The Company settled a claim made against it concerning the cost of clean up
of a hazardous waste facility ("Resolve") in Massachusetts, in which the Company
will pay an amount currently estimated at $1,500,000, but subject to change.
Approximately $715,000 of the amount has been reimbursed to the Company by its
primary insurers. The Company initiated appropriate action to collect amounts
not covered by the primary insurers from its excess/umbrella liability insurer.
The excess insurer denied that it is required to cover this matter and brought
suit against the Company seeking a declaration that the excess liability
insurance policies issued by it to the Company do not cover claims made by the
Company for environmental response costs with respect to the so-called Resolve
site. In April of 1993, the insurer moved for Summary Judgment on its claims,
relying on a "sudden and accidental" pollution exclusion clause. By order, dated
October 8, 1993, the Court denied the insurer's motion but stated that the
motion would be allowed unless Aerovox submitted additional evidence concerning
property damage caused by an earlier fire at the site. A Motion for
Reconsideration was filed by the insurer on December 7, 1993. The Company
submitted additional evidence on January 6, 1994, in accordance with the Court's
Order. On February 28, 1994, the Court released a Memorandum of Decision and
Order Denying Plaintiff's Motion for Reconsideration and Denying the Motion for
Summary Judgment, stating that Aerovox had complied with the Court's Order of
October 8, 1993, and had submitted evidence tending to show a causal link
between a "sudden and accidental" occurrence and property damage for which it
was held liable. On April 27, 1994, the insurer moved for reconsideration of the
February 28, 1994, decision and, on September 26, 1994, the Court granted the
Plaintiff's Motion for Summary Judgment. Accordingly, the Company charged
approximately $500,000 to earnings in the third quarter of 1994. On December 23,
1994, the Company filed a notice of appeal of this decision of the Court. The
Appeal Brief was filed on February 13, 1996. The Company, based on information
presently available, does not believe that
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this matter will have a material adverse effect on the Company's financial
condition.
On February 9, 1990, the Company entered into a settlement agreement
(the "Settlement Agreement") with the United States and The Commonwealth of
Massachusetts (the "governments") resolving litigation commenced by the
governments in the U.S. District Court for the District of Massachusetts, on
December 10, 1983 under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, commonly known as the "Superfund" legislation. The
litigation concerned the alleged disposal by various defendants of
polychlorinated biphenyls ("PCB's") in the Acushnet River and New Bedford
Harbor. The Settlement Agreement resolved all of the governments' claims
against the Company and Aerovox Industries, Inc. (the Company's predecessor, now
known as Belleville Industries, Inc.) arising out of the contamination of the
Acushnet River and New Bedford Harbor with PCB's, including cleanup costs, study
costs and damages to natural resources, now or hereafter incurred, except that
the Settlement Agreement provides that the governments may seek damages from the
Company and Aerovox Industries, Inc. for future liability in the event that such
future liability arises out of unknown conditions at the site.
Environmental Compliance
The Company is currently subject to a water discharge permit that allows
discharges from the New Bedford, Massachusetts facility of up to 10 parts per
billion ("ppb") of PCBs in its stormwater and other discharges. For several
years, the Company and the United States Environmental Protection Agency ("EPA")
have been discussing possible changes to this permit. At one point, EPA
tentatively proposed a limit of 1 ppb, a level that would be difficult, if not
impossible, to meet at all times. As a result of extensive comments submitted by
the Company, the EPA in the most recent draft permit, dated August 26, 1991, has
proposed separate limits for each discrete discharge point from a maximum of 2
ppb for non-contact cooling water to 61 ppb for stormwater discharges. The draft
permit would also require the Company to conduct studies to determine if further
reductions are possible. After a thorough review of the draft permit, the
Company submitted comments to the EPA requesting the clarification of several
technical issues. The Company tentatively believes the limits in the most recent
draft permit are attainable. The draft permit must also be reviewed by several
Massachusetts state agencies. The Company has been informed that the
Massachusetts Department of Environmental Protection (the "DEP") has taken the
position that the draft permit would not comply with state water quality
standards and the EPA has concurred in this view. This assertion may prevent the
issuance of the permit at the levels currently proposed. An outlined scope of
work for a Storm Water Study Plan and a Best Management Practices Plan was
provided to EPA by the Company in December 1992. A response was received in
January 1993 from DEP noting concurrence with the scope of work. The following
plans were submitted to
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EPA and DEP in June 1994: Stormwater Study Plan, Quality Assurance Project
Plan, and Stormwater Best Management Practices Plan. Aerovox will proceed with
implementation of the plans upon receipt of EPA and DEP approvals. The Company
cannot predict what further actions the EPA or DEP may take with regard to the
permit or what impact any such actions may have on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable. No matter was submitted to stockholders of the Company
during the fourth quarter of fiscal 1995.
Item 4A. Executive Officers - Set forth below are the names, ages and positions
of the executive officers of Aerovox in 1995:
<TABLE>
<CAPTION>
Name Age Office(s)
- ---- --- ---------
<S> <C> <C>
Clifford H. Tuttle......... 65 Chairman and Chief Executive
Officer
Richard D. Capra........... 63 Senior Vice President,
Electrolytics
John A. Chmura Jr.......... 52 Senior Vice President, Sales &
Marketing
Philip J. Fox.............. 51 Senior Vice President,
Operations Support
Martin Hudis............... 52 Senior Vice President, Technology
Robert B. Hunter........... 64 Senior Vice President and
Managing Director, BHC Aerovox
Ltd.
Peter B. Kirschmann........ 52 Senior Vice President, and
President, Aerovox Group
Ronald F. Murphy........... 66 Senior Vice President, Treasurer,
and Secretary
William T. Allen III....... 39 Vice President, Manufacturing
Operations
Mulk R. Arora.............. 53 Vice President, General Manager
Aerovox Foil Division
Lawrence K. Bromley........ 50 Vice President, Quality Assurance
</TABLE>
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<TABLE>
<S> <C> <C>
Earl F. Sherman............ 58 Vice President, Marketing
Aerovox Group
</TABLE>
Mr. Tuttle received a Bachelor of Arts degree from Amherst College in 1952.
In 1964, he founded and became President of Marketing Assistance Incorporated, a
consulting organization working with small companies offering technological
products. He joined Aerovox Corporation (now AVX Corporation) in June of 1970 as
Vice President of Marketing and Sales. In 1973, Mr Tuttle participated in the
purchase of Aerovox Corporation's Electrical Products Division. Mr. Tuttle
became President of the resulting company, Aerovox Industries, which is the
predecessor of Aerovox Incorporated.
Mr. Capra graduated from St. Louis University with a Bachelor of Science
Degree in 1954. Mr. Capra's career in the electrical industry spans twenty-five
years. From 1987 to 1990, he was President and Chief Executive Officer of
Philips Lighting Co., a manufacturer of lighting equipment. He was a consultant
to the electrical industry from 1991 to 1993, when he became President of
Crescent Electric Supply Co., a wholesaler of electrical supplies to contractors
and industrial markets. Mr. Capra joined Aerovox in November 1994 as Senior Vice
President of the Company and President of the Aero M Group, and became a part-
time employee consultant to Aero M and BHC, the Company's electrolytic
operations, in October 1995.
Mr. Chmura graduated with a Bachelor of Science degree in Engineering
Sciences from the United States Naval Academy in 1967. Mr. Chmura joined
Aerovox in 1977 as a product manager. Since then he has held the positions of
Regional Sales Manager, Marketing Manager, Director of Marketing, Director of
Sales, Vice President of Sales, and since 1986, Vice President of Sales and
Marketing, and since 1995, Senior Vice President, Sales and Marketing.
Mr. Fox graduated from the University of Rhode Island with a Bachelor
of Science degree in Industrial Engineering in 1967 and joined Aerovox in 1976
as Manager of Manufacturing Engineering progressing to General Manager of the
Electrical Group in December 1990. In 1993, he was named Vice President,
Operations Support and in 1994, was promoted to Senior Vice President,
Operations Support. Mr. Fox is Chairman of the Board of BHC Aerovox Ltd.
Dr. Hudis holds a Bachelor of Science degree from the University of
California in Los Angeles (1965), a PhD in Nuclear Engineering from the
Massachusetts Institute of Technology (1970), and a Master of Business
Administration from the University of Chicago (1981). He was Vice President for
Engineering and Marketing of LH Research, a manufacturer of power supplies, from
1989 to 1991. Dr. Hudis joined Aerovox as Vice President, Technology in
January, 1992 and became a Senior Vice President
15
<PAGE>
in 1995. He is a senior member of The Institute of Electrical and Electronics
Engineers, an international organization of electrical and electronic engineers.
Mr. Hunter studied chemistry at Glasgow University. In 1957, he joined
British Drug Houses, in charge of an Organic Analytical Laboratory. He joined
Daly Condensers in 1962 as Technical Manager, progressing to Managing Director
in 1968, and continued to serve this role for three years after STC acquired
Daly condensers in 1979. In 1983, Mr. Hunter founded B.H. Components, a
manufacturer of aluminum electrolytic capacitors, which was acquired by Aerovox
in 1993. Mr. Hunter remained as Managing Director of the successor company, BHC
Aerovox Ltd., and was named a Vice President of Aerovox Incorporated in 1994,
and Senior Vice President in 1995.
Mr. Kirschmann graduated from Worcester Polytechnic Institute with a
Bachelor of Science in Electrical Engineering in 1965, and received a Master of
Business Administration degree from Syracuse University in 1966. Mr. Kirschmann
worked for General Electric Co. for twenty-four years, and was appointed
Manager - capacitor and power protection operations in 1987. He became
President of Lapp Insulator Co., a manufacturer of ceramic and polymer
insulators for the electrical utility industry in 1990. In February 1993,
Mr. Kirschmann joined Aerovox as Senior Vice President and General Manager of
the Electrical Group, and in November 1993 was named Senior Vice President and
President of the consolidated Aerovox Group.
Mr. Murphy graduated from Bentley College in Boston, Massachusetts,
from the Evening Division in 1959. He started his business career in 1955 after
an honorable discharge from the U.S. Air Force. In 1967 he joined the Sippican
Corporation, a diversified manufacturing and consulting engineering firm, as
Corporate Controller, and was promoted to Vice President of Finance in 1971. In
1976, he joined Aerovox as Senior Vice President and Treasurer.
Mr. Allen studied civil engineering at Roger Williams College. He was
Director of Quality for North American operations at the Dresser Valve and
Controls Division of Dresser Industries from 1988 to 1992. Following that, he
served as Director Quality-Worldwide at Branson Ultrasonics Corporation, a
division of Emerson Electric Company. Mr. Allen joined Aerovox early in 1995 as
Director, Manufacturing for the Aerovox Group. In September of 1995, he was
promoted to Vice President, Manufacturing Operations. He is a senior member of
the American Society for Quality Control and a member of the American Society
for Testing and Materials.
Dr. Arora holds a Bachelor of Engineering degree in Metallurgy from
the Indian Institute of Technology, Bombay, India (1964), and a Ph.D. in
Materials Science from McMaster University, Hamilton, Canada (1974). After
twelve years with Philips Components, where he was the Manager of Foil
Development, he joined Aerovox in 1993 to direct the Foil Operations in
16
<PAGE>
Huntsville. In 1995, he was named Vice President of the newly created Foil
Division. Dr. Arora is a member of the Electrochemical Society and the American
Society for Metals.
Mr. Bromley graduated from the Franklin Institute in Boston in 1967 with an
Associate's degree in Mechanical Engineering. He worked in the capacitor field
at General Electric for twenty years and became a Quality Control Manager in
1983, the position he held until joining Aerovox as Director of Quality
Assurance in 1988. In 1990, Mr. Bromley was named to the corporate position of
Vice President for Quality Assurance.
Mr. Sherman graduated from Bryant College with a Bachelor of Arts degree in
1972. He served as President of Ludell Manufacturing Co., a manufacturer of heat
recovery systems and electronic controls for the petro-chemical industry, for 5
years before joining Aerovox as General Manager of the Electronic Group in 1990.
In November 1993, he was named Vice President of Marketing for the consolidated
Aerovox Group.
PART II.
________________________________________________________________________
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock trades on NASDAQ National Market System under
the symbol ARVX. The Company's Common Stock was distributed to the beneficiaries
of the Aerovox Liquidating Trust on February 26, 1990. See "Shareholder
Information" in the Annual Report to stockholders for the year ended December
30, 1995, incorporated herein by reference, for the quarterly market price range
of the Company's Common Stock. The number of record holders of the Company's
Common Stock at February 16, 1996 was 7,887. The Company has not declared
dividends previously and currently intends to continue to retain earnings for
use in its business and does not expect to pay dividends for the foreseeable
future. The Company's common stock dividend policy will be reviewed periodically
by the Board of Directors as may be appropriate in light of relevant factors.
Item 6. Selected Consolidated Financial Data
The information required by this item appears in the Company's 1995 Annual
Report to Stockholders on page 31 and is incorporated herein by reference. Such
information should be read in conjunction with the Company's consolidated
financial statements and the notes thereto which are included in such Annual
Report and are incorporated by reference in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
17
<PAGE>
The information required by this item appears in the Company's 1995
Annual Report to Stockholders on pages 14-16 and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
The following financial statements of Aerovox Incorporated appear in
the Company's 1995 Annual Report to Stockholders on the pages indicated below
and are incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Income for the years ended 17
December 30, 1995, December 31, 1994, and January 1, 1994.
Consolidated Statements of Stockholders' Equity for 17
the years ended December 30, 1995, December 31, 1994, and
January 1, 1994.
Consolidated Balance Sheets at December 30, 1995, and 18
December 31, 1994.
Consolidated Statements of Cash Flows for the years 19
ended December 30, 1995, December 31, 1994, and
January 1, 1994.
Notes to Consolidated Financial Statements 20
Report of Independent Accountants 32
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III.
- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
(a) Directors - Information with respect to all directors may be found
in the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders on pages 2 and 3 under the caption "Election of Directors," which
Statement is to be filed with the Securities and Exchange Commission. Such
information is incorporated herein by reference.
(b) Executive Officers - Information with respect to executive officers
appears in Item 4A. of Part I.
Item 11. Executive Compensation
18
<PAGE>
This information is contained in the Company's definitive Proxy Statement
for the 1996 Annual Meeting of Stockholders on pages 10-15 under the caption
"Executive Compensation" and "Compensation Committee Report", which Statement is
to be filed with the Securities and Exchange Commission. Such information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is contained in the Company's definitive Proxy Statement
for the 1996 Annual Meeting of Stockholders on page 16 and 17 under the caption
"Security Ownership of Certain Beneficial Owners and Management," which
Statement is to be filed with the Securities and Exchange Commission. Such
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV. __________________________________________________________
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a) Exhibits:
A list of Exhibits filed with or incorporated by reference in this
Report on Form 10-K appears at pages 23-25 hereof, which list is
incorporated herein by reference.
(b) Financial Statements:
A list of consolidated financial statements is contained in
Item 8 and is incorporated here by reference.
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years 20 20
ended December 30, 1995, December 31, 1994, and January 1, 1994.
Report of Independent Accountants on Financial Statement 21
Schedules.
All other financial statement schedules are inapplicable or the required
information is contained in the Company's consolidated financial statements
or notes thereto, which have been incorporated by reference herein.
(c) Reports on Form 8-K:
None
19
<PAGE>
AEROVOX INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(Amounts In Thousands)
<TABLE>
<CAPTION>
Schedule II
Additions
Balance at ----------------------------------------------- Balance at
Beginning of Charged to Charged to Deductions End of
Description Period Expense Other Accounts(1) Describe (2) Period
----------- ----- ------- ---------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 30, 1995: $295 $354 -- $ 14 $635
Allowance for doubtful
accounts receivable
Year ended Decemnber 31, 1994: $284 $114 -- $103 $295
Allowance for doubtful
accounts receivable
Year ended January 1, 1994: $194 $143 $45 $ 98 $284
Allowance for doubtful
accounts recevable
</TABLE>
(1) Allowance for doubtful accounts receivable acquired in acquisitions of
businesses.
(2) Write-off of accounts receivable.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Aerovox Incorporated
Our report on the consolidated financial statements of Aerovox Incorporated has
been incorporated by reference in this Form 10-K from page thirty-two of the
1995 Annual Report to Stockholders of Aerovox Incorporated. In connection with
our audit of such financial statements, we have also audited the related
financial statement schedule listed in Item 14(b) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements as a whole, presents
fairly, in all material respects, the information required to be included
therein.
BY /S/ COOPERS & LYBRAND L.L.P.
- -------------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 28, 1996
21
<PAGE>
Signatures
Pursuant to the requirements of Section 13 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
(Registrant)
BY /S/ CLIFFORD H. TUTTLE, JR.
-------------------------------------
Chairman of the Board of Directors
President and Chief Executive Officer
March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures
<S> <C> <C>
/s/ CLIFFORD H. TUTTLE, JR. Chairman of the
- -------------------------- Board of Directors,
Clifford H. Tuttle, Jr. President and Chief
Executive Officer March 25, 1996
/s/ RONALD F. MURPHY Senior Vice President,
- ------------------------- Treasurer and Secretary
Ronald F. Murphy Principal Financial
and Accounting Officer March 25, 1996
/s/ JOHN F. BRENNAN Director March 28, 1996
- -------------------------
John F. Brennan
/s/ JAMES B. HANGSTEFER Director March 25, 1996
- -------------------------
James B. Hangstefer
/s/ DENNIS HOROWITZ Director March 25, 1996
- -------------------------
Dennis Horowitz
/s/ WILLIAM G. LITTLE Director March 22, 1996
- -------------------------
William G. Little
/s/ BENEDICT P. ROSEN Director March 22, 1996
- -------------------------
Benedict P. Rosen
/s/ JOHN L. SPRAGUE Director March 22, 1996
- -------------------------
John L. Sprague
</TABLE>
22
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 30, 1995)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <C>
(3) Articles of Incorporation and By-Laws.
-------------------------------------
3.1 Restated Certificate of Incorporation. 3.1 *
3.1.1. Certificate of Designations, Preferences and Rights of 3.1.1 Form 10-K for
Series A Junior Participating Preferred Stock. year ended Dec.
30, 1989
3.2 Certificate of Ownership and Merger of Aerovox Incorporated (a 3.2 *
Massachusetts corporation) into Aerovox Holding Company (a
Delaware corporation).
3.3 By-Laws. 3.3 *
(4) Instruments Defining the Rights of Security Holders, Including Indentures.
-------------------------------------------------------------------------
4.1 Instruments Defining Rights of Security holders (See Exhibits 4.1 *
3.1, 3.1.1, 3.2, 3.3, 4.2 and 4.3).
4.2 Form of Stock Certificate. 4.2 Form 10-K for
year ended Dec.
30, 1989
4.3 Form of Aerovox Incorporated Rights Agreement. 4.3 ***
4.4 Amended and Restated Revolving Credit Agreement, dated July 4.4 Form 10-K for
8, 1993, between the Company and the First National Bank of year ended Jan. 1,
Boston. 1994
4.4.1 First Amendment to Amended and Restated Revolving 4.3 Form 10-Q for
Credit Agreement, dated August 30, 1994, between the quarter ended Oct.
Company, BHC Aerovox Ltd. and the First National 1, 1994
Bank of Boston.
4.4.2 Revolving Credit Facility, dated September 7, 1994, 4.4.2 Form 10-K for
between BHC Aerovox Ltd. and the First National Bank year ended Dec.
of Boston. 31, 1994
4.4.3 Second Amendment to Amended and Restated Revolving ( )
Credit Agreement, dated December 29, 1995.
4.5 Loan and Security Agreement, dated March 30, 1992, between 4.5 Form 10-K for
the Company and The CIT Group/Equipment Financing, Inc., as year ended Jan. 2,
amended by Amendment No. 1 dated March 1, 1993. 1993
</TABLE>
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 30, 1995)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <C>
4.5.1 Amendment No. 2 dated May 30, 1995 ( )
NOTE: The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any
other instrument with respect to long term debt of the Company & its subsidiaries. Such instruments are not
filed herewith because no such instrument relates to outstanding debt in an amount greater than 10% of the
total assets of the Company and its subsidiary on a consolidated basis.
(10) Material Contracts.
-------------------
Compensation Agreements
-----------------------
10.1 1989 Stock Incentive Plan. 10.1 *
10.1.1 Amended Stock Incentive Plan 10.1.1 Form 10-K for
year ended Dec.
31, 1994
10.2 Profit-Sharing Savings Plan. 10.2 **
10.3 Deferred Supplemental No. 1 to Deferred Supplemental Savings 10.3.1 Form 10-K for
Plan. year ended Dec.
29, 1990
10.4 Deferred Compensation Plan for Directors. 10.4 *
10.5 1989 Stock Option Plan for Directors. 10.4 *
10.5.1 Amended Stock Option Plan for Directors. 10.5.1 Form 10-K for
year ended Dec.
31, 1994
10.7 Forms of Indemnification Agreements between Aerovox 10.7 *
Incorporated and its directors and certain officers.
10.8 Severance Agreements:
(a) Severance Agreement with Clifford H. Tuttle 10.8 *
(b) Severance Agreement with Ronald F. Murphy 10.8 **
(c) Severance Agreement with Richard D. Capra ( )
(d) Severance Agreement with Martin Hudis ( )
(e) Severance Agreement with Peter Kirschmann 10.8 Form 10-K for
</TABLE>
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 30, 1995)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <C>
year ended
Jan. 1, 1994
(f) Form of Severance Agreement for other executives. .10.8 **
10.9 Consulting Agreements:
(a) Consulting Agreement with Clifford H. Tuttle 10.12 Form 10-K for
year ended
(b) Consulting Agreement with Ronald F. Murphy 10.12 Jan. 1, 1994
Other Agreements
----------------
10.10 Form of Sales Representative Agreement. 10.9 **
10.11 Purchase Agreement dated March 5, 1993 between the Company 2.1 Form 8-K dated
and Cooper Ind. March 5, 1993
(13) Annual Report to Security Holders.
---------------------------------
13.1 The Annual Report to Shareholders for the fiscal year ended ( )
December 30, 1995. With the exception of the information
specifically incorporated by reference in Parts I, II and IV
of this report on Form 10-K, the Annual Report Stockholders
for the fiscal year ended December 30, 1995 is not being filed
as part of this report.
(21) Subsidiaries.
------------
21.1 List of Subsidiaries of the Company. ( )
(23) Consents of Experts and Counsel.
-------------------------------
23.1 Consent of Coopers & Lybrand L.L.P. ( )
</TABLE>
* Filed as an Exhibit to Registration Statement on Form 10 filed with the
Securities and Exchange Commission on October 4, 1989, and incorporated
herein by reference.
** Filed as an Exhibit to Amendment No. 1 to the Registration Statement to
Form 10 filed with the Securities and Exchange Commission on December 1,
1989, and incorporated herein by reference.
*** Filed as an Exhibit to Amendment on Form 8 to the Registration Statement on
Form 10, filed with the Securities and Exchange Commission on February 16,
1990.
<PAGE>
Exhibit 4.4.3
SECOND AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "Second Amendment") is made and entered into as of the 29th day of
December, 1995, by and among AEROVOX INCORPORATED, a Delaware corporation having
its principal place of business at 370 Faunce Corner Road, North Dartmouth,
Massachusetts 02747 (the "Borrower"), BHC AEROVOX, LTD., a corporation organized
under the laws of the United Kingdom (the "Guarantor") and THE FIRST NATIONAL
BANK OF BOSTON (the "Bank"), a national banking association having its principal
place of business at 100 Federal Street, Boston, Massachusetts 02110.
WHEREAS, the Borrower, Aerovox Aero M, Inc., and the Bank entered into an
Amended and Restated Revolving Credit Agreement dated as of July 8, 1993 and
amended as of August 30, 1994 (as further amended and in effect from time to
time, the "Credit Agreement") pursuant to which the Bank extended credit to the
Borrower on the terms set forth therein;
WHEREAS, Aerovox Aero M, Inc. has merged into its parent corporation,
Aerovox Incorporated;
WHEREAS, BHC Aerovox, Ltd. ("BHC"), a wholly-owned Subsidiary of the
Borrower has agreed to guaranty the Obligations pursuant to (S)13 of the Credit
Agreement and to assume all of the obligations of the Guarantor under the Loan
Documents; and
WHEREAS, the Bank, the Borrower and the Guarantor have agreed to amend the
Credit Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Capitalized terms used herein without definition have
-----------
the meanings ascribed to them in the Credit Agreement.
2. Amendment to (S)2.1 of the Credit Agreement. Section 2.1 of the Credit
-------------------------------------------
Agreement is hereby amended to delete the amount "$15,000,000" appearing therein
and to substitute the amount "$14,360,000" in place thereof.
3. Amendment to (S)8.1 of the Credit Agreement. The table set forth in
-------------------------------------------
(S)8.1 of theCredit Agreement is hereby deleted and the following substituted in
place thereof:
<PAGE>
2
"Period Ratio
------ -----
7/1/93 through 12/31/93 1.75:1
1/1/94 through 3/31/95 1.50:1
4/1/95 through 6/30/95 1.54:1
7/1/95 through 9/30/95 1.50:1
10/1/95 through 12/31/95 1.55:1
1/1/96 through 3/31/96 1.75:1
Thereafter 1.50:1."
4. Amendment to (S)8.2 of the Credit Agreement. Section 8.2 of the Credit
Agreement is hereby deleted in its entirety and the following substituted in
place thereof:
"8.2. Interest Coverage Ratio. As of the end of any fiscal quarter
-----------------------
commencing with the fiscal quarter ending September 30, 1993, the ratio of
EBIT to Consolidated Total Interest Expense shall not be less than the
stated ratio for the respective periods set forth below:
Period Ratio
7/1/93 through 3/31/95 4.00:1
4/1/95 through 6/30/95 3.66:1
7/1/95 through 9/30/95 2.40:1
10/1/95 through 12/31/95 2.00:1
1/1/96 through 3/31/96 3.00:1
Thereafter 4.00:1."
5. Ratification, etc.
------------ ---
Except as expressly amended or waived hereby, the Credit Agreement, the
other Loan Documents and all documents, instruments and agreements related
thereto are hereby ratified and confirmed in all respects and shall continue in
full force and effect. This Second Amendment and the Credit Agreement shall
hereafter be read and construed together as a single document, and all
references in the Credit Agreement or any related agreement or instrument to the
Credit Agreement shall refer to the Credit Agreement as amended by this Second
Amendment. By executing this Second Amendment where indicated below, the
Guarantor hereby ratifies and confirms its guaranty of the Obligations, and
acknowledges and consents to the terms of this Second Amendment.
6. GOVERNING LAW.
-------------
THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A SEALED
INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
7. Counterparts. This Second Amendment may be executed in any number of
------------
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with the Bank.
<PAGE>
3
8. Effectiveness. This Second Amendment shall become effective upon its
-------------
execution and delivery by the respective parties hereto.
9. Entire Agreement. THE CREDIT AGREEMENT AS AMENDED BY THIS SECOND
----------------
AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the undersigned have duly executed this Second
Amendment under seal as of the date first set forth above.
THE BORROWER:
------------
AEROVOX INCORPORATED
By: Ronald F. Murphy
--------------------------
Title: Sr. V.P./Treasurer
-----------------------
THE GUARANTOR:
-------------
BHC AEROVOX, LTD.
By: Ronald F. Murphy
--------------------------
Title: Director
----------------------
THE BANK:
--------
THE FIRST NATIONAL BANK OF
BOSTON
By: Pauline J. Mozzone
--------------------------
Title: Vice President
----------------------
<PAGE>
Exhibit 4.5.1
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 2, dated as of May 30, 1995, TO LOAN AND SECURITY AGREEMENT,
dated as of March 30, 1992, as amended by Amendment No. 1, dated on or about
February 26, 1993, between AEROVOX INCORPORATED, as borrower, and THE CIT
GROUP/EQUIPMENT FINANCING, INC., as lender ("Amendment No. 2") ("Agreement").
R E C I T A L S
---------------
CIT and Debtor entered into the Agreement, pursuant to which CIT agreed to
lend to Debtor and aggregate principal amount not to exceed $5,000,000.00;
Pursuant to Amendment No. 1 CIT made Loans to Debtor in an additional
aggregate principal amount not to exceed $5,000,000.00, such additional Loans
being secured by the existing first priority security interest on the Equipment;
and
Debtor has requested that CIT lend Debtor an additional aggregate principal
amount not to exceed $5,000,000.00, such additional Loan or Loans to be
similarly secured by the existing first priority security interest on the
Equipment and Cit is willing to do so upon the terms and conditions of this
Amendment No. 2.
In consideration of the premises and mutual covenants hereinafter set
forth, Cit and Debtor agree as follows:
1. DEFINED TERMS. Terms defined in the Agreement shall have the same
-------------
meanings herein unless otherwise defined herein or unless the context clearly
requires otherwise.
2. AMENDMENTS TO THE AGREEMENT. Notwithstanding anything to the contrary
---------------------------
contained in the Agreement, the following definitions and financial terms and
conditions shall apply to the Loans made as the result of this Amendment No. 2
("A2 Loan" or "A2 Loans") without effecting any similar terms applicable to any
Loans made under the original Agreement or any Amendment Loans made under
Agreement No. 1:
(a) DEFINITIONS.
-----------
(i) "Interest Period" shall mean, with respect to any A2 Loan,
---------------
each successive thirty (30)-day period occurring from the date the A2
Loan is made to the last Installment Payment Date. For each A2 Loan,
the initial Interest Period shall begin on the date the A2 Loan is
made and continue up to but not including the first Installment
Payment Date, and each subsequent Interest Period shall begin on the
Installment Payment Date following the last day of the preceding
Interest Period and continue up to but not including the next
Installment Payment Date. Notwithstanding the foregoing, and Interest
Period which should otherwise end on
<PAGE>
a day which is not a Business Day shall extend to the next succeeding
Business Day and interest shall accrue during such extension. Any
Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period shall end on the last day of a calendar month.
Interest shall be charged for each day of each Interest Period.
(ii) "LIBOR Rate" shall mean the rate of interest equal to the
----------
one-month London Interbank Offered Rate as reported and published in
The Wall Street Journal. The LIBOR Rate in effect during any Interest
Period shall be the LIBOR Rate in effect at the close of business on
the latest Rate Determination Date preceding the Installment Payment
Date upon which such Interest Period commences.
(iii) "Note" shall mean each promissory note of Debtor evidencing
----
and A2 Loan, as described in this Amendment No. 2.
(iv) "Treasury Rate" shall mean the rate per annum equal to the
yield to maturity (A) for the U.S. Treasury security having a
remaining term to maturity closest to the average life of the A2 Loan
for an A2 Fixed Rate Loan the term of which is five (5) years and (B)
for the average life U.S. Treasury securities of the remaining term of
an A2 Loan which is an A2 Floating Rate Loan being converted to an A2
Fixed Rate Loan, in either case determined as at the close of business
of the third Business Day prior to the making or conversion of such A2
Loan, as reported on page 5 ("U.S. Treasury and Money Markets") of the
information provided by Telerate Systems Incorporated.
"A2 Voluntary Prepayment Premium" shall mean, on the date of the
prepayment of the Notes for the A2 Fixed Rate Loans pursuant to the
terms of the Agreement, the sum of the following products as
determined with respect to each Note for an A2 Fixed Rate Loan: for
each A2 Fixed Rate Loan, the product obtained by multiplying the then
outstanding principal balance by a number equal to the product of 5%
times a fraction, the numerator of which will be the number of
Installment Payment Dates with respect to each such Note remaining
after such date of prepayment (including the Installment Payment Date,
if any, on which such prepayment is made if the payment due on such
date shall not have been made, and, excluding the Installment Payment
Date, if any, which such prepayment is made if the payment due on such
date shall have been made) and the denominator of which shall be
thirty (30).
(b) FINANCIAL TERMS AND CONDITIONS.
------------------------------
(i) Term. Subject to the terms and conditions of this Agreement,
CIT agrees to make a maximum of five (5) A2 Loans, from time to time,
to Debtor in an aggregate principal amount not to exceed
$5,000,000.00. Each A2 Loan shall be in a principal amount of at least
$500,000.00. The obligation of CIT to make
<PAGE>
A2 Loans hereunder shall terminate on August 31, 1996.
(ii) Interest Rate. Debtor shall give CIT at least three Business
-------------
Days' prior written notice of the date and amount of each proposed A2
Loan. In such notice, Debtor shall elect (which election shall be
irrevocable except as provided in Subsection (iii) below) one of the
following interest rate options for such A2 Loan: (A) an interest rate
which shall float throughout the term of the A2 Loan at LIBOR Rate
plus 2.10%, or (B) an interest rate which shall fix for the entire
term of the A2 Loan at the Treasury Rate plus 2.05% or (C) an interest
rate which shall fix for the remaining term of the A2 Loan, converted
as set forth in Subsection (iii) below, at the Treasury Rate plus
2.2%. Each A2 Loan made under the foregoing option (A) shall be
referred to herein as an "A2 Floating Rate Loan." Each A2 Loan made or
---------------------
converted under foregoing options (B) and (C) shall be referred to
herein as an "A2 Fixed Rate Loan."
------------------
(iii) Conversion to Fixed Rate. With respect to any A2 Floating
------------------------
Rate Loan, Debtor shall have the option to convert such A2 Loan to an
A2 Fixed Rate Loan in accordance with the following conditions. (A)
Debtor shall give CIT at least thirty (30) days prior written notice
of its decision (which shall be irrevocable) to convert such A2 Loan;
(B) such conversion shall become effective on the Installment Payment
Date on or next following the expiration of such thirty (30)-day
notice period; (C) such conversion shall be elected and completed on
or prior to the second anniversary of the A2 Loan being converted; and
(D) Debtor shall upon CIT's request execute a new promissory note
evidencing the new A2 Fixed Rate Loan.
(iv) The Notes. Each A2 Loan shall be evidenced by a promissory
---------
note of Debtor substantially in the form of Exhibit A2-1 hereto with
respect to an A2 Floating Rate Loan and in the form of Exhibit A2-2
hereto with respect to an A2 Fixed Rate Loan, with appropriate
insertions therein as to amounts and dates. Each Note shall (i) be
dated the date on which the A2 Loan evidenced thereby is made; (ii) be
for the term specified in such Note; (iii) be stated to mature in
sixty (60) consecutive monthly installments, which installments will
be payable in arrears on the dates and in the amounts set forth in
such Note; and (iv) bear interest from the date thereof on the unpaid
principal amount thereof at the rate per annum set forth in the Note
until such amount shall become due and payable (whether at the stated
maturity thereof, by acceleration or otherwise). Any amount not paid
when due under the Notes shall bear late charges thereon, calculated
at the Late Charge Rate, from the due date thereof until such amount
shall be paid in full. The Installment Payment Dates for each A2 Loan
shall coincide with the Installment Payment Dates for the initial A2
Loan. With respect to all A2 Loans after the initial A2 Loan, the
first Installment Payment Date for each Loan shall be (1) the first
succeeding Installment Payment Date of the initial A2 Loan if there
are more than 15 days between the date of the Note for such A2 Loan
and such first succeeding Installment Payment Date; and (2) the second
succeeding Installment
<PAGE>
Payment Date of the initial A2 Loan if there are 15 or fewer days
between the date of the Note for such A2 Loan and the first succeeding
Installment Payment Date of the initial A2 Loan.
(v) Voluntary Prepayment. Debtor may, on at least 30 but no more
--------------------
than 60 Business Days prior written notice to CIT (which notice shall
be irrevocable) prepay the Notes evidencing A2 Loans as follows:
(A) With respect to the Notes for the A2 Floating Rate
Loans, Debtor may, on an Installment Payment Date, prepay all, but
not less than all, of such Notes after the twenty-fourth (24th)
Installment Payment Date of the last Note for an A2 Floating Rate
Loan, by adding (1) the unpaid principal amount of such Notes,
plus (2) interest accrued on such Notes to the date of such
prepayment, plus (3) any and all costs due and unpaid hereunder
with respect to such Notes to the date of such prepayment; and
(B) With respect to the Notes for A2 Fixed Rate Loans,
Debtor may prepay all, but not less than all, of such Notes on or
after the thirtieth (30th) Installment Payment Date of the last
Note for an A2 Fixed Rate Loan, by adding (1) the unpaid principal
amount of such Notes to the date of such prepayment, plus (3) any
and all costs due and unpaid hereunder with respect to such Notes
to the date of such prepayment, plus (4) an amount equal to the A2
Voluntary Prepayment Premium.
(c) SPECIAL CONDITIONS OF BORROWING. CIT shall not be required to make an
-------------------------------
A2 Loans unless on the Closing Date of the initial A2 Loan:
(i) CIT or its agent shall have completed an updated appraisal of
the Equipment, such updated appraisal to demonstrate, for purposes of
CIT's making the last $1,500,000.00 in principal amount of A2 Loans,
that the orderly liquidation value of the Equipment is not less than
the outstanding principal balance under all the Notes.
(ii) CIT shall have received from Ropes & Gray, counsel to the
Debtor, an updated opinion as to certain corporate matters relating
to Debtor and an updated opinion referred to in Subsection 3.2 ( ) of
the Agreement, and CIT shall have found each opinion satisfactory to
it.
(d) Commitment Fee. CIT acknowledges that Debtor has paid to it a fee in
--------------
the amount of $25,000.00 with respect to Amendment No. 2 and the A2 Loans.
Debtor acknowledges that this fee is in all events non-refundable.
3. RATIFICATION AND REAFFIRMATION. Debtor and Cit ratify and reaffirm the
------------------------------
terms of the Agreement, as amended hereby. Debtor and CIT further agree that
the terms and conditions of the Agreement not specifically amended hereby apply
to all Loans made pursuant to
<PAGE>
the Agreement, whether denominated "Loans", "Amendment Loans" or "A2 Loans."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be duly executed and delivered by their duly elected and authorized officers as
of the day and year first written above.
THE CIT GROUP/EQUIPMENT AEROVOX INCORPORATED
FINANCING, INC.
By: Rich Doherty By: Ronald F. Murphy
---------------------- -------------------------------
Title: Sr. Vice President Title: Sr. Vice President/Treasurer
------------------- ----------------------------
<PAGE>
EXHIBIT 10.8 (c)
AEROVOX INCORPORATED
Severance Agreement
-------------------
AGREEMENT, made this 16th day of November, 1994 by and between Richard D.
Capra ("Executive") and AEROVOX INCORPORATED (the "Company"),
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders for the
Company to agree to provide benefits under circumstances described below to
Executive and other executives who are responsible for the policy-making
functions of the Company and its subsidiaries and the overall viability of the
Company's business; and
WHEREAS, the Board recognizes that the possibility of a change of control
of the Company is unsettling to such executives and desires to make arrangements
at this time to help assure their continuing dedication to their duties to the
Company and its shareholders, notwithstanding any attempts by outside parties to
gain control of the Company; and
WHEREAS, the Board believes it important, should the Company receive
proposals from outside parties, to enable such executives, without being
distracted by the uncertainties of their own employment situation, to perform
their regular duties, and where appropriate to assess such proposals and advise
the Board as to the best interests of the Company and its shareholders and to
take such other action regarding such proposals as the Board determines to be
appropriate; and
WHEREAS, the Board also desires to demonstrate to the executives that the
Company is concerned with their welfare and intends to provide that loyal
executives are treated fairly.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership, company, or
other entity (a "Person"), which term shall include a "group" (within the
meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act")),
begins a tender or exchange offer, circulates a proxy to the Company's
shareholders, or takes other steps to effect a "Change of Control" (as defined
in paragraph 3 below), Executive agrees that he will not voluntarily leave the
<PAGE>
-2-
employ of the Company and will render the services contemplated in the recitals
to this Agreement until such Person has terminated the efforts to effect a
Change of Control or until a Change of Control has occurred.
2. If, within 24 months following a Change of Control, Executive's
employment with the Company is terminated by the Company for any reason other
than for "Cause" (as defined in paragraph 4 below) or Executive terminates such
employment for good reason as described in paragraph 5 below:
(a) the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% of the sum
of (i) his annual base salary at the rate in effect immediately before the
Change of Control (or for such shorter portion of that period as Executive
performed services for the Company), plus (ii) an amount equal to
Executive's X-Factor bonus level, as described in the Aerovox Incorporated
Executive Incentive Bonus Plan as in effect on the date immediately before
the Change of Control (the "Bonus Plan"), multiplied by such annual base
salary, without deduction for any amounts previously paid or payable to
Executive under the Bonus Plan; and
(b) the Company will pay Executive within 30 days after completion of
the year-end audit for the fiscal year in which the Change of Control
occurs any "hold back" (as described in the Bonus Plan) due to Executive
under the Bonus Plan based on the actual RONA (as defined in the Bonus
Plan); and
(c) any stock options granted to Executive by the Company will become
immediately exercisable in full, and any restricted stock grants shall
immediately vest in full, notwithstanding any provision to the contrary of
the options or restricted stock awards; and
(d) the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to his credit with the Company under any and all deferred
compensation plans or arrangements; and
(e) Executive, together with his dependents, will continue following
such termination of employment to participate fully in all accident and
health plans maintained or sponsored by the Company immediately prior to
the Change of Control, or receive substantially the equivalent coverage (or
the full value thereof in cash) from the Company, until the first
anniversary of such termination; and
<PAGE>
-3-
(f) in the event the Company is providing an automobile for
Executive's use, the Company will pay to the leasing company 60% of the
balance of the lease payments remaining outstanding and will assign the
lease to Executive, provided that Executive agrees to assume the lease in
accordance with its terms; and
(g) the Company will promptly reimburse Executive for any and all
legal fees and expenses incurred by him, as incurred, as a result of such
termination of employment, including without limitation all fees and
expenses incurred to enforce the provisions of this Agreement.
Notwithstanding anything herein to the contrary, to the extent that any
payment or benefit provided for in this Section 2 is required to be paid or
vested at an earlier date under the terms of any other plan, agreement or
arrangement, such other plan, agreement or arrangement shall control.
3. A Change of Control will occur for purposes of this Agreement if (i)
any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Act) of securities of the Company representing more than 30% of the combined
voting power of the Company's then-outstanding securities (other than as a
result of acquisitions of such securities from the Company), (ii) there is a
change of control of the Company of a kind which would be required to be
reported under Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Act (or a similar item in a similar schedule or form), whether or not the
Company is then subject to such reporting requirement, (iii) the Company is a
party to, or the stockholders approve, a merger, consolidation or other
reorganization (other than (a) a merger, consolidation or other reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent, either by remaining
outstanding or by being converted into voting securities of the surviving
entity, more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger,
consolidation, or other reorganization, or (b) a merger, consolidation, or other
reorganization effected to implement a recapitalization of the Company, or
similar transaction, in which no person acquires more than 20% of the combined
voting power of the Company's then outstanding securities), a sale of all or
substantially all assets, or a plan of liquidation, or (iv) individuals who, at
the date hereof, constitute the Board cease for any reason to constitute a
majority thereof, provided, however, that any director who is not in office at
-------- -------
the date hereof but whose
<PAGE>
-4-
election by the Board or whose nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the directors then
still in office who either were directors at the date hereof or whose election
or nomination for election was previously so approved (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be deemed to have been in office
at the date hereof for purposes of this definition.
Notwithstanding the foregoing provisions of this paragraph 3, a "Change of
Control" will not be deemed to have occurred (i) solely because of the
acquisition of securities of the Company (or any reporting requirements under
the Act relating thereto) by an employee benefit plan maintained by the Company
for its employees or (ii) as a result of the transfer of voting securities of
the Company by Bank of New England, N.A., as Trustee under the Trust Agreement
dated April 17, 1989 between said Trustee and Cooper Industries, Inc., to the
beneficiaries of said Trust.
4. "Cause" means only: commission of a felony by the Executive and
intended to result in substantial personal enrichment of the Executive at the
expense of the Company, conviction of a crime involving moral turpitude, or
willful failure by the Executive to perform his duties to the Company which
failure is deliberate on the Executive's part, results in material injury to the
Company, and continues for more than 15 days after written notice given to the
Executive pursuant to a two-thirds vote of all of the members of the Board, such
vote to set forth in reasonable detail the nature of the failure. For purposes
of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and the Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason:
following a reduction in his position, compensation, responsibilities,
authority, fringe benefits, perquisites, or any other benefit or privilege
enjoyed by him prior to the Change of Control (other than an insubstantial and
inadvertent action which is remedied by the Company promptly after receipt of
notice thereof given by the Executive), or following an attempt by the Company
to relocate Executive outside an area of approximately comparable size
surrounding the place where
<PAGE>
-5-
he is now employed, or to require him to perform regular services outside of
such area (except for travel reasonably required in the performance of
responsibilities), his employment will be deemed to have been terminated by the
Company for reasons other than Cause.
6. If any payments or benefits received by Executive under paragraph 2
and/or any other plan, agreement, or arrangement is subject to the excise tax
imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company will pay to Executive an additional amount in cash (the
"Additional Amount") equal to the amount necessary to cause the aggregate
payments and benefits received by Executive under paragraph 2 and/or any other
plan, agreement, or arrangement, including such Additional Amount (net of all
federal, state, and local income taxes and all taxes payable as a result of the
application of sections 280G and 4999 of the Code), to be equal to the aggregate
payments and benefits Executive would have received under paragraph 2 and/or any
other plan, agreement, or arrangement as if sections 280G and 4999 of the Code
(or any successor provisions thereto) had not been enacted into law.
Following the termination of Executive's employment, Executive may submit
to the Company a written opinion (the "Opinion") of a nationally recognized
accounting firm, employment consulting firm, or law firm selected by Executive
setting forth a statement as to whether any excise tax pursuant to Section 4999
of the Code is due and a calculation of the Additional Amount. The
determinations of such firm concerning whether and the extent of the Additional
Amount (which determinations need not be free from doubt), shall be final and
binding on both Executive and the Company. The Company will pay to Executive
the Additional Amount not later than 10 days after the Opinion has been
submitted to the Company. The Company agrees to pay the fees and expenses of
such firm in preparing and rendering the Opinion.
If, following the payment to Executive of the Additional Amount,
Executive's liability for the excise tax imposed by Section 4999 of the Code on
the payments and benefits received by Executive under paragraph 2 is finally
determined (at such time as the Internal Revenue Service is unable to make any
further adjustment to the amount of such liability) to be less than or greater
than the amount thereof set forth in the Opinion, Executive shall reimburse the
Company (if the
<PAGE>
-6-
liability is less than the amount so set forth) or the Company shall reimburse
Executive (if the liability is greater than the amount so set forth), in either
case without interest, in an amount equal to the amount by which the Additional
Amount should be reduced or increased to reflect such decrease or increase in
the actual excise tax liability. The calculation of such reimbursement shall be
made by a nationally recognized accounting firm, an employment consulting firm,
or a law firm selected by Executive, whose determination shall be binding on
Executive and the Company and whose fees and expenses therefor shall be paid by
the Company.
7. In the case of any dispute under this Agreement, Executive may initiate
binding arbitration in either Boston, Massachusetts or the State capital of the
State where he is now employed, before the American Arbitration Association by
serving a notice to arbitrate upon the Company or, at Executive's election,
institute judicial proceedings, in either case within 90 days of the effective
date of his termination or, if later, his receipt of notice of termination, or
such longer period as may be reasonably necessary for Executive to take such
action if illness or incapacity should impair his taking such action within the
90-day period. The Company shall not have the right to initiate binding
arbitration, and agrees that upon the initiation of binding arbitration by
Executive pursuant to this paragraph 7 the Company shall cause to be dismissed
any judicial proceedings it has brought against Executive relating to this
Agreement. The Company authorizes Executive from time to time to retain counsel
of his choice to represent Executive in connection with any and all actions,
proceedings, and/or arbitration, whether by or against the Company or any
director, officer, shareholder, or other person affiliated with the Company,
which may affect Executive's rights under this Agreement. The Company agrees
(i) to pay the fees and expenses of such counsel as incurred, (ii) to pay the
cost of such arbitration and/or judicial proceeding, and (iii) to pay interest
to Executive on all amounts owed to Executive under this Agreement during any
period of time that such amounts are withheld pending arbitration and/or
judicial proceedings. Such interest will be at the base rate as announced from
time to time by The First National Bank of Boston.
In addition, notwithstanding any existing prior attorney-client
relationship between the Company and counsel retained by Executive, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel and agrees that a confidential relationship shall exist
between executive and such counsel.
<PAGE>
-7-
8. If the Company is at any time before or after a Change of Control
merged or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if all or substantially
all of the assets thereof are transferred to another corporation or other
entity, the provisions of this Agreement will be binding upon and inure to the
benefit of the corporation or other entity resulting from such merger or
consolidation or the acquiror of such assets, and this paragraph 8 will apply in
the event of any subsequent merger or consolidation or transfer of assets.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Executive's right to or privilege of participation in any stock option or
purchase plan or any bonus, profit sharing, pension, group insurance
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.
In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquire of such assets of the Company.
9. All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries, or estate will be subject to the withholding
of such amounts relating to tax and/or other payroll deductions as may be
required by law.
10. There shall be no requirement on the part of the Executive to seek
other employment or otherwise mitigate damages in order to be entitled to the
full amount of any payments and benefits to which Executive is entitled under
this Agreement, and the amount of such payments and benefits shall not be
reduced by any compensation or benefits received by Executive from other
employment.
11. Nothing contained in this Agreement shall be construed as a contract
of employment between the Company and the Executive, or as a right of the
Executive to continue in the employ of the Company, or as a limitation of the
right of the Company to discharge the Executive with or without Cause; provided
that the Executive shall have the right to receive upon termination of his
employment the payments and benefits provided in this Agreement and shall not be
deemed to have waived any rights he may have either at law or in equity in
respect of such discharge.
<PAGE>
-8-
12. No amendment, change, or modification of this Agreement may be made
except in writing, signed by both parties.
13. At the election of the Company, this Agreement shall not apply to a
Change of Control which takes place after the fifth anniversary of the date
first written above, provided that the Company has given Executive notice of its
election at least 30 days before the Change of Control.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive.
Executive hereby waives all rights that he may have against the Company, Aerovox
M, Inc., RTE Corporation, Cooper Power Systems, Inc., Cooper Industries, Inc.,
or any affiliate or subsidiary thereof under the Key Executive Employment and
Severance Agreement between Executive and RTE Corporation dated April 15, 1988
and agrees that said agreement is hereby terminated.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal representatives,
and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of the State of Delaware.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments hereunder shall be assignable by
the Executive; provided, however, that this provision shall not preclude him
-------- -------
from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries
<PAGE>
-9-
so designated to receive any such amount, or if no beneficiary has
been so designated, the legal representative of the Executive's estate.
No right, benefit, or interest hereunder, shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or
set-off in respect of any claim, debt, or obligation, or to execution,
attachment, levy, or similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall, to the full extent permitted by law, be
null, void, and of no effect.
IN WITNESS WHEREOF, AEROVOX INCORPORATED and Executive have each caused
this Agreement to be duly executed and delivered as of the date first written
above.
AEROVOX INCORPORATED
By: /s/ Clifford H. Tuttle, Jr.
-----------------------------------
CLIFFORD H. TUTTLE, JR.
/s/ Richard D. Capra
-------------------------------------
Executive
RICHARD D. CAPRA
<PAGE>
Exhibit 10.8(d)
AEROVOX INCORPORATED
Severance Agreement
-------------------
AGREEMENT, made this 6th day of January, 1992 by and between Martin
Hudis ("Executive") and AEROVOX INCORPORATED (the "Company"),
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders for the
Company to agree to provide benefits under circumstances described below to
Executive and other executives who are responsible for the policy-making
functions of the Company and its subsidiaries and the overall viability of the
Company's business; and
WHEREAS, the Board recognizes that the possibility of a change of control
of the Company is unsettling to such executives and desires to make arrangements
at this time to help assure their continuing dedication to their duties to the
Company and its shareholders, notwithstanding any attempts by outside parties to
gain control of the Company; and
WHEREAS, the Board believes it important, should the Company receive
proposals from outside parties, to enable such executives, without being
distracted by the uncertainties of their own employment situation, to perform
their regular duties, and where appropriate to assess such proposals and advise
the Board as to the best interests of the Company and its shareholders and to
take such other action regarding such proposals as the Board determines to be
appropriate; and
WHEREAS, the Board also desires to demonstrate to the executives that the
Company is concerned with their welfare and intends to provide that loyal
executives are treated fairly.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership, company, or
other entity (a "Person"), which term shall include a "group" (within the
meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act")),
begins a tender or exchange offer, circulates a proxy to the Company's
shareholders, or takes other steps to effect a "Change of Control" (as defined
in paragraph 3 below), Executive agrees that he will not voluntarily leave the
<PAGE>
SEVI
-2-
employ of the Company and will render the services contemplated in the recitals
to this Agreement until such Person has terminated the efforts to effect a
Change of Control or until a Change of Control has occurred.
2. If, within 24 months following a Change of Control, Executive's
employment with the Company is terminated by the Company for any reason other
than for "Cause" (as defined in paragraph 4 below) or Executive terminates such
employment for good reason as described in paragraph 5 below:
(a) the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the sum of (i)
his annual base salary at the rate in effect on the date immediately before
the Change of Control (or for such shorter portion of that period as
Executive performed services for the Company), plus (ii) an amount equal to
Executive's X-Factor bonus level, as described in the Aerovox Incorporated
Executive Incentive Bonus Plan as in effect on the date immediately before
the Change of Control (the "Bonus Plan"), multiplied by such annual base
salary, without deduction for any amounts previously paid or payable to
Executive under the Bonus Plan; and
(b) the Company will pay Executive within 30 days after completion of
the year end audit for the fiscal year in which the Change of Control
occurs any "hold back" (as described in the Bonus Plan) due to Executive
under the Bonus Plan based on the actual RONA (as defined in the Bonus
Plan); and
(c) any stock options granted to Executive by the Company will become
immediately exercisable in full, and any restricted stock grants shall
immediately vest in full, notwithstanding any provision to the contrary of
the options or restricted stock awards; and
(d) the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to his credit with the Company under any and all deferred
compensation plans or arrangements; and
(e) Executive, together with his dependents, will continue following
such termination of employment to participate fully in all accident and
health plans maintained or sponsored by the Company immediately prior to
the Change of Control, or receive substantially the equivalent coverage (or
the full value thereof in cash) from the Company, until the first
anniversary of such termination; and
<PAGE>
SEVI
-3-
(f) the Company will promptly reimburse Executive for any and all legal
fees and expenses incurred by him, as incurred, as a result of such
termination of employment, including without limitation all fees and
expenses incurred to enforce the provisions of this Agreement.
Notwithstanding anything herein to the contrary, to the extent that any
payment or benefit provided for in this Section 2 is required to be paid or
vested at an earlier date under the terms of any other plan, agreement or
arrangement, such other plan, agreement or arrangement shall control.
Payments under Section 2 of this Agreement shall be made without regard to
whether the deductibility of such payments (or any other payments to or for the
benefit of Executive) would be limited or precluded by Internal Revenue Code
Section 280G and without regard to whether such payments (or any other payments)
would subject Executive to the federal excise tax on certain "excess parachute
payments" under Internal Revenue Code Section 4999; provided, that if the total
--------
of all payments to or for the benefit of Executive, after reduction for all
federal taxes (including the tax described in Internal Revenue Code Section
4999, if applicable) with respect to such payments (Executive's "total after-tax
payments"), would be increased by the limitation or elimination of any payment
under Section 2, amounts payable under Section 2 of this Agreement shall be
reduced to the extent, and only to the extent, necessary to maximize Executive's
total after tax payments. The determination as to whether and to what extent
payments under Section 2 of this Agreement are required to be reduced in
accordance with the preceding sentence shall be made at the Company's expense by
a nationally recognized accounting firm or law firm selected by Executive. In
the event of any underpayment or overpayment under Section 2 of this Agreement,
as determined by such firm as may have been designated in accordance with the
preceding sentence, the amount of such underpayment or overpayment shall
forthwith be paid to Executive or refunded to the Company, as the case may be,
with interest at the applicable Federal rate provided for in Section 7872(f) (2)
of the Internal Revenue Code.
<PAGE>
SEVI
-4-
3. A Change of Control will occur for purposes of this Agreement if (i)
any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Act) of securities of the Company representing more than 30% of the combined
voting power of the Company's then-outstanding securities (other than as a
result of acquisitions of such securities from the Company), (ii) there is a
change of control of the Company of a kind which would be required to be
reported under Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Act (or a similar item in a similar schedule or form), whether or not the
Company is then subject to such reporting requirement, (iii) the Company is a
party to, or the stockholders approve, a merger, consolidation or other
reorganization (other than (a) a merger, consolidation or other reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent, either by remaining
outstanding or by being converted into voting securities of the surviving
entity, more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger,
consolidation, or other reorganization, or (b) a merger, consolidation, or other
reorganization effected to implement a recapitalization of the Company, or
similar transaction, in which no person acquires more than 20% of the combined
voting power of the Company's then outstanding securities), a sale of all or
substantially all assets, or a plan of liquidation, or (iv) individuals who, at
the date hereof, constitute the Board cease for any reason to constitute a
majority thereof, provided, however, that any director who is not in office at
-------- -------
the date hereof but whose election by the Board or whose nomination for election
by the Company's shareholders was approved by a vote of at least a majority of
the directors then still in office who either were directors at the date hereof
or whose election or nomination for election was previously so approved (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) shall be deemed to
have been in office at the date hereof for purposes of this definition.
Notwithstanding the foregoing provisions of this paragraph 3, a "Change of
Control" will not be deemed to have occurred (i) solely because of the
acquisition of securities of the Company (or any reporting requirements under
the Act relating thereto) by an employee benefit plan maintained by the Company
for its employees or (ii) as a result of the transfer of voting securities of
the Company by Bank of New England, N.A., as Trustee under the Trust Agreement
dated April 17, 1989 between said Trustee and Cooper Industries, Inc., to the
beneficiaries of said Trust.
<PAGE>
SEVI -5-
4. "Cause" means only: commission of a felony by the Executive and
intended to result in substantial personal enrichment of the Executive at the
expense of the Company, conviction of a crime involving moral turpitude, or
willful failure by the Executive to perform his duties to the Company which
failure is deliberate on the Executive's part, results in material injury to the
Company, and continues for more than 15 days after written notice given to the
Executive pursuant to a two-thirds vote of all of the members of the Board, such
vote to set forth in reasonable detail the nature of the failure. For purposes
of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and the Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason:
following a reduction in his position, compensation, responsibilities,
authority, fringe benefits, perquisites, or any other benefit or privilege
enjoyed by him prior to the Change of Control (other than an insubstantial and
inadvertent action which is remedied by the Company promptly after receipt of
notice thereof given by the Executive), or following an attempt by the Company
to relocate Executive outside an area of approximately comparable size
surrounding the place where he is now employed, or to require him to perform
regular services outside of such area (except for travel reasonably required in
the performance of responsibilities), his employment will be deemed to have been
terminated by the Company for reasons other than Cause.
6. In the case of any dispute under this Agreement, Executive may initiate
binding arbitration in either Boston, Massachusetts or the State capital of the
State where he is now employed, before the American Arbitration Association by
serving a notice to arbitrate upon the Company or, at Executive's election,
institute judicial proceedings, in either case within 90 days of the effective
date of his termination or, if later, his receipt of notice of termination, or
such longer period as may be reasonably necessary for Executive to take such
action if illness or incapacity should impair his taking such action within the
90-day period. The Company shall not have the right to initiate binding
arbitration, and agrees that upon the initiation of binding arbitration by
Executive pursuant to this paragraph 7 the Company shall cause to be dismissed
any judicial proceedings it has brought against Executive relating to this
Agreement. The Company authorizes Executive from time to time to retain counsel
of his choice to represent Executive in connection with any and all actions,
proceedings, and/or arbitration, whether by or against the Company or any
<PAGE>
-6-
director, officer, shareholder, or other person affiliated with the Company,
which may affect Executive's rights under this Agreement. The Company agrees (i)
to pay the fees and expenses of such counsel as incurred, (ii) to pay the cost
of such arbitration and/or judicial proceeding, and (iii) to pay interest to
Executive on all amounts owed to Executive under this Agreement during any
period of time that such amounts are withheld pending arbitration and/or
judicial proceedings. Such interest will be at the base rate as announced from
time to time by The First National Bank of Boston.
In addition, notwithstanding any existing prior attorney-client
relationship between the Company and counsel retained by Executive, the Company
irrevocably consents to Executive entering into an attorney-client relationship
with such counsel and agrees that a confidential relationship shall exist
between executive and such counsel.
7. If the Company is at any time before or after a Change of Control
merged or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if all or substantially
all of the assets thereof are transferred to another corporation or other
entity, the provisions of this Agreement will be binding upon and inure to the
benefit of the corporation or other entity resulting from such merger or
consolidation or the acquiror of such assets, and this paragraph 8 will apply in
the event of any subsequent merger or consolidation or transfer of assets.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Executive's right to or privilege of participation in any stock option or
purchase plan or any bonus, profit sharing, pension, group insurance
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.
In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquire of such assets of the Company.
8. All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries, or estate will be subject to the withholding
of such amounts relating to tax and/or other payroll deductions as may be
required by law.
<PAGE>
-7-
9. There shall be no requirement on the part of the Executive to seek
other employment or otherwise mitigate damages in order to be entitled to the
full amount of any payments and benefits to which Executive is entitled under
this Agreement, and the amount of such payments and benefits shall not be
reduced by any compensation or benefits received by Executive from other
employment.
10. Nothing contained in this Agreement shall be construed as a contract
of employment between the Company and the Executive, or as a right of the
Executive to continue in the employ of the Company, or as a limitation of the
right of the Company to discharge the Executive with or without Cause; provided
that the Executive shall have the right to receive upon termination of his
employment the payments and benefits provided in this Agreement and shall not be
deemed to have waived any rights he may have either at law or in equity in
respect of such discharge.
11. No amendment, change, or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to a
Change of Control which takes place after the fifth anniversary of the date
first written above, provided that the Company has given Executive notice of its
election at least 30 days before the Change of Control.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive.
Executive hereby waives all rights that he may have against the Company, Aerovox
M, Inc., RTE Corporation, Cooper Power Systems, Inc., Cooper Industries, Inc.,
or any affiliate or subsidiary thereof under the Key Executive Employment and
Severance Agreement between Executive and RTE Corporation dated April 15, 1988
and agrees that said agreement is hereby terminated.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal representatives,
and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of the State of Delaware.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
<PAGE>
-8-
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments hereunder shall be assignable by
the Executive; provided, however, that this provision shall not preclude him
-------- -------
from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount, or if no beneficiary has
been so designated, the legal representative of the Executive's estate.
No right, benefit, or interest hereunder, shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or
set-off in respect of any claim, debt, or obligation, or to execution,
attachment, levy, or similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence shall, to the full extent permitted by law, be
null, void, and of no effect.
IN WITNESS WHEREOF, AEROVOX INCORPORATED and Executive have each caused
this Agreement to be duly executed and delivered as of the date first written
above.
AEROVOX INCORPORATED
By: /s/ Clifford H. Tuttle, Jr.
-----------------------------------
Clifford H. Tuttle, Jr.
-----------------------------------
/s/ Martin Hudis
-----------------------------------
Executive
<PAGE>
Exhibit 13.1
Aerovox Incorporated
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The table below sets forth the year-to-year percentage increases (decreases) in
various items from the consolidated statements of income.
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales 2.1% 9.1%
Cost of sales 5.0% 10.2%
Gross profit (11.8%) 3.9%
Selling, general and administrative expenses (4.9%) 3.7%
Income from operations (29.4%) 4.4%
</TABLE>
The table below depicts the same items as percentages of net sales.
<TABLE>
<CAPTION>
For The Years Ended
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.3% 82.9% 82.1%
Gross profit 14.7% 17.1% 17.9%
Selling, general and administrative expenses 11.4% 12.3% 12.9%
Income from operations 3.3% 4.8% 5.0%
</TABLE>
1995 versus 1994
Net sales for the fiscal year of 1995 totaled $128,322,000 compared to net sales
of $125,640,000 for fiscal 1994, a 2.1% increase. The Aerovox Group reported
net sales of approximately $87,500,000 for 1995 versus $88,400,000 for 1994, a
1% decrease. The second half of the year was disappointing for this Group as,
for example, air-conditioning capacitor requirements never returned to 1994
levels even though warm summer temperatures did help deplete air conditioner
inventories. The Aero M Group had net sales in 1995 of approximately
$18,400,000 compared to about $19,300,000 in 1994, a 4.7% decrease. Motor start
(AC) capacitor sales were lower by approximately 38% from the previous year -
other type capacitors (DC), along with processed foil sales, increased in 1995
over 1994 but not enough to offset the motor start capacitor shortfall. BHC
Aerovox Ltd. (United Kingdom) increased its net sales in 1995 by approximately
25% to $22,400,000 as growth in both AC and DC application capacitors exceeded
20%. Backlog at year end 1995 decreased to $17,923,000 from $21,100,000 at the
end of 1994.
Gross profits in 1995, totaled $18,919,000, 14.7% of net sales, compared to
$21,438,000, 17.1% of net sales, recorded in fiscal year 1994. Gross profits
were affected by reduced domestic shipment volume but were also impacted by
continued losses, at the gross margin level, by operations in Mexico.
Operations in the United Kingdom (BHC Aerovox Ltd.) improved its gross margin
percentage in 1995 by almost one full percentage point over results in 1994.
Selling and general and administrative expenses for 1995 were $14,673,000, 11.4%
of net sales, versus $15,428,000, 12.3% of net sales, for 1994. Income from
operations totaled $4,246,000 for fiscal year 1995 as compared to $6,010,000 for
fiscal year 1994, a 29.4% reduction. As a percentage of net sales, income from
operations decreased to 3.3% compared to 4.8% in 1994.
Interest expense of $2,296,000 was recorded in fiscal year 1995 versus
$1,566,000 in 1994. Borrowings increased in 1995 by $6,970,000 to support cash
requirements during the year. Annualized interest rates on these borrowings
ranged from 7.12% to 9.00% during 1995.
Other income totaled $702,000 in 1995 compared to $753,000 in 1994. A positive
exchange gain in 1994 of $250,000 that was recorded in the U.K. operations was
not repeated in 1995.
Income before taxes for fiscal 1995 was $2,652,000 compared to $4,693,000 for
fiscal year 1994. 1994 had been adversely affected by a $504,000 charge to
earnings for a litigation claim that is still under appeal by
14
<PAGE>
Aerovox Incorporated
Management's Discussion and Analysis of Financial Condition and Results of
Operations
the Company. Provision for income taxes in 1995 was $1,051,000 (39.6%) compared
to a provision in 1994 of $1,669,000 (35.6%). Net income for 1995 was
$1,601,000 (1.2% of net sales and $.30 per common share) compared to $3,024,000
(2.4% of net sales and $.56 per common share) for fiscal 1994.
1994 versus 1993
Net sales for fiscal 1994 totaled $125,640,000, an approximate 9.1% increase
over net sales for fiscal 1993, at $115,158,000. The Company acquired Aero M,
Inc., a domestic company, on March 5, 1993, and certain assets of BH Components,
Ltd., a United Kingdom company, on March 11, 1993. These acquisitions were
accounted for as purchases and, accordingly, the financial results of the
acquired companies are included from the date of acquisition. Approximately
$33,500,000 of net sales were recorded from date of purchase for these
acquisitions in fiscal 1993 compared to approximately $37,300,000 (an increase
of 11.3%) recorded for the full fiscal year of 1994. Net sales of the Aero M
Group were adversely affected by the physical move of its assembly operations
from Glasgow, Kentucky, to Juarez, Mexico, during 1994 while the BHC Group
operations in the United Kingdom increased net sales to a record level. The
third operating Group of the Company, the Aerovox Group, increased its 1994 net
sales level by approximately 8.2% to $88,400,000 from $81,700,000 in fiscal
1993. Backlog at the end of 1994 totaled $21,100,000 compared to $16,600,000 at
year end 1993.
Gross profits in 1994 totaled $21,438,000, 17.1% of net sales, compared to
$20,628,000 in 1993, 17.9% of net sales, an increase of $810,000. The reduced
productivity of the Aero M Group, due to the move of its assembly operations to
Mexico, contributed heavily to the lesser gross margin level in 1994.
Income from operations totaled $6,010,000 for fiscal 1994 as compared to
$5,757,000 for fiscal year 1993, a 4.4% increase for the year. As a percentage
of net sales, income from operations decreased to 4.8% compared to 5.0% in 1993.
Selling, general and administrative expenses for 1994 were $15,428,000, 12.3% of
net sales, versus $14,871,000, 12.9% of net sales, for 1993. Approximately
$364,000 of this increase of $557,000 is attributable primarily to increased
commissions associated with higher sales volumes.
Interest expense for fiscal 1994 was $1,566,000, compared to $1,388,000 in 1993.
Borrowings increased in 1994 by approximately $2,788,000 to support cash
requirements during the year. Annualized interest rates on these borrowings
varied between 6.7% and 8.24% during 1994.
Other income of $753,000 in fiscal 1994 was $125,000 greater than the $628,000
recorded in 1993 as a positive exchange gain of approximately $250,000 was
recorded in the U.K. operations.
Income before income taxes was adversely affected by a $504,000 charge to
earnings for a litigation claim that was the result of the reversal of two
earlier court decisions that could have required the umbrella insurer of the
Company to provide coverage for the excess of an environmental settlement
relating to a waste storage site that was not covered by the Company's primary
insurers. The Company is appealing this decision. Income before taxes for
fiscal 1994 was $4,693,000 compared to $4,997,000 in 1993. Provision for income
taxes in 1994 was $1,669,000 (35.6%) compared to a provision of $1,898,000
(38.0%) in 1993 as a valuation reserve was reduced by an approximate $122,000.
On January 3, 1993, the Company adopted Financial Accounting Standard 109
(FAS109), "Accounting for Income Taxes", which necessitated an adjustment of
$590,000 to provide for the cumulative effect of the required accounting change.
At the end of fiscal 1994, the net operating loss carry-forward was reduced to
approximately $1,700,000. Net income for 1994 was $3,024,000 ($.56 per share)
compared to $3,689,000 ($.68 per share) for fiscal 1993.
Liquidity and Capital Resources
Working capital at December 30, 1995, was $26,427,000 compared to $22,441,000 at
the end of fiscal 1994. Current ratio was 2.4:1 at both year end 1995 and 1994.
Net accounts receivable and inventories increased by $3,310,000 and $2,735,000,
respectively during 1995. Net cash provided by operating activities in 1995
totaled $1,521,000 as compared to $3,144,000 generated in 1994.
The Company invested approximately $8,130,000 in capital assets in 1995 as
compared to $6,990,000 in 1994.
15
<PAGE>
Aerovox Incorporated
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company's Revolving Credit Agreement (as amended on December 29, 1995)
provides for a credit line of $14,360,000 for the Company and 4,400,000 pounds
sterling for its wholly-owned subsidiary in the United Kingdom. The Agreement
which extends to May 31, 1997, also includes various interest rate options
which, for fiscal year 1995, have varied from 7.12% to 9.00% on an annualized
basis. The security for this line of credit is accounts receivable and
inventories and a Company guarantee for the U.K. loan. The outstanding balance
of loans at fiscal years ended December 30, 1995, and December 31, 1994, was
approximately $20,291,000 and $14,120,000, respectively.
The Company also has a term line of credit with an equipment financing company
with an outstanding balance at the end of 1995 of $7,677,000 compared to an
outstanding balance at the end of 1994 of $6,562,000. (On January 11, 1996, the
Company increased loans outstanding to this equipment financing company by
$1,500,000.) These loans, secured by equipment at the Company's New Bedford
facility, have five-year terms and carry annual interest rates varying from
7.36% to 8.24%.
Other long-term debt of the Company consists of an Industrial Revenue Bond
maturing on July 1, 2002, with an annual interest rate of 7.42% and quarterly
payments on the principal (outstanding balance at fiscal year end was $2,942,000
versus a balance at year end, 1994, of $3,258,000).
Capital expenditures during 1996 are expected to be funded primarily from cash
provided by operations.
Cash and cash equivalents at December 30, 1995, totaled $573,000 compared to
$102,000 at December 31, 1994.
Other Matters
The Company has been party to certain environmental matters over the past
several years. The matters have been settled and the related liabilities paid.
Management is not aware of any further environmental exposures which it believes
will have a material impact on future liquidity or results of operations.
The impact of inflation on the Company's business has not been material.
16
<PAGE>
Aerovox Incorporated
Consolidated Statements of Income
<TABLE>
<CAPTION>
For The Years Ended
(Amounts in Thousands, Except Per Share Data) Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $128,322 $125,640 $115,158
Cost of Sales 109,403 104,202 94,530
- ------------------------------------------------------------------------------------------------------------
Gross profit 18,919 21,438 20,628
Selling, general and administrative expenses 14,673 15,428 14,871
- ------------------------------------------------------------------------------------------------------------
Income from operations 4,246 6,010 5,757
Other income (expense):
Litigation settlement (Note J) -- (504) --
Interest expense (2,296) (1,566) (1,388)
Other income 702 753 628
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of the change in accounting for income taxes 2,652 4,693 4,997
Provision for income taxes (Note I) 1,051 1,669 1,898
- ------------------------------------------------------------------------------------------------------------
Income before cumulative effect of the change in
accounting for income taxes 1,601 3,024 3,099
Cumulative effect of the change in accounting
for income taxes (Note A) -- -- 590
- ------------------------------------------------------------------------------------------------------------
Net income $ 1,601 $ 3,024 $ 3,689
- ------------------------------------------------------------------------------------------------------------
Net income per share:
Income before cumulative effect of the change in
accounting for income taxes $.30 $.56 $.57
Cumulative effect of the change in accounting
for income taxes -- -- .11
- ------------------------------------------------------------------------------------------------------------
Net income per share $.30 $.56 $.68
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Foreign
Additional Currency Total
Common Paid-in Retained Translation Stockholders'
(Amounts in Thousands) Stock Capital Earning Adjustments Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1993 $ 5,151 $ 195 $ 21,174 $ (215) $26,305
Net income -- -- 3,689 -- 3,689
Proceeds from employee stock
purchase plan and exercise of
stock options (20,083 shares) 20 131 -- -- 151
Foreign currency translation adjustments -- -- -- 13 13
- -----------------------------------------------------------------------------------------------------------------------------
Balances at January 1, 1994 5,171 326 24,863 (202) 30,158
Net income -- -- 3,024 -- 3,024
Proceeds from employee stock
purchase plan and exercise of
stock options (59,716 shares) 60 266 -- -- 326
Foreign currency translation adjustments -- -- -- (92) (92)
- -----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1994 5,231 592 27,887 (294) 33,416
Net income -- -- 1,601 -- 1,601
Proceeds from employee stock
purchase plan and exercise of
stock options (68,090 shares) 68 177 -- -- 245
Foreign currency translation adjustments -- -- -- (397) (397)
- -----------------------------------------------------------------------------------------------------------------------------
Balances at December 30, 1995 $ 5,299 $ 769 $ 29,488 $ (691) $34,865
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Aerovox Incorporated
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Amounts in Thousands) Dec. 30, 1995 Dec. 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 573 $ 102
Accounts receivable, net of allowance
for doubtful
accounts of $635 in 1995 and $295
in 1994 (Note C) 19,588 16,278
Inventories (Notes B and C) 22,630 19,895
Prepaid expenses and other current
assets 974 1,148
Recoverable income taxes 99 77
Deferred income taxes (Note I) 885 997
- ------------------------------------------------------------------------------------------
Total current assets 44,749 38,497
Property, plant and equipment, at cost (Note C):
Land 384 308
Buildings and improvements 11,056 9,462
Machinery and equipment 56,010 46,867
Construction in progress 1,588 4,271
- ------------------------------------------------------------------------------------------
69,038 60,908
Less accumulated depreciation (27,787) (23,807)
- ------------------------------------------------------------------------------------------
41,251 37,101
Deferred income taxes (Note I) 2,290 1,752
Note receivable 293 285
Other assets 108 124
- ------------------------------------------------------------------------------------------
Total assets $ 88,691 $ 77,759
- ------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 11,270 $ 9,986
Accrued compensation and related
expenses 2,523 2,716
Other accrued expenses 816 578
Current maturities of long-term debt
(Note C) 3,205 2,292
Income taxes 508 484
- ------------------------------------------------------------------------------------------
Total current liabilities 18,322 16,056
Deferred income taxes (Note I) 6,727 5,821
Industrial revenue bond (Note C) 2,573 2,943
Long-term debt less current maturities (Note C) 25,132 18,705
Deferred compensation 1,072 818
Commitments and contingencies (Notes D, E and J)
Stockholders' equity (Notes E, F and G):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued -- --
Common stock; $1.00 par value; 20,000,000 shares authorized;
5,298,741 and 5,230,651 shares issued and outstanding 5,299 5,231
Additional paid-in capital 769 592
Retained earnings 29,488 27,887
Foreign currency translation
adjustments (691) (294)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 34,865 33,416
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 88,691 $ 77,759
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Aerovox Incorporated
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Years Ended
(Amounts in Thousands) Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,601 $ 3,024 $ 3,689
Adjustments to reconcile net income
to cash provided by operating activities,
net of effect of acquired companies:
Litigation settlement -- -- (1,000)
Depreciation and amortization 3,980 3,663 3,238
Deferred income taxes 480 1,220 2,039
Cumulative effect of change in accounting
principle -- -- (590)
Changes in operating assets and liabilities:
Accounts receivable (3,310) (348) (2,598)
Inventories (2,735) (4,173) (1,635)
Prepaid expenses 174 9 (395)
Recoverable income taxes (22) 255 (225)
Accounts payable 1,284 2,119 344
Accrued compensation and related expenses (193) (662) 1,404
Other accrued expenses 238 (1,866) (1,132)
Income taxes payable 24 (97) 114
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,521 3,144 3,253
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (8,130) (6,990) (4,066)
Acquisition of businesses -- -- (9,575)
Cash equivalents pledged as collateral -- 505 225
Proceeds from sales of assets -- -- 208
Other (135) 114 117
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,265) (6,371) (13,091)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from employee stock purchase plan
and exercise of stock options 245 326 151
Net borrowings under line of credit 6,170 4,940 9,180
Long-term borrowings 3,500 -- 5,000
Payments of short-term debt -- -- (2,485)
Payments of long-term debt (2,700) (2,152) (1,854)
- ----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,215 3,114 9,992
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in cash 471 (113) 154
Cash at beginning of year 102 215 61
- ----------------------------------------------------------------------------------------------------
Cash at end of year $ 573 $ 102 $ 215
- ----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,344 $ 1,592 $ 1,371
- ----------------------------------------------------------------------------------------------------
Cash paid during the year for income taxes $ 637 $ 621 $ 209
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany transactions have been
eliminated.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to December 31. Fiscal
years 1995, 1994, and 1993 ended on December 30, 1995, December 31, 1994, and
January 1, 1994, respectively.
Translation of Foreign Currencies
Assets and liabilities of all foreign subsidiaries are translated at period-end
rates of exchange, and income statement accounts are translated at average rates
of exchange. Resulting translation adjustments are recorded as a separate
component of stockholders' equity, "Foreign currency translation adjustments."
Cash
Cash consists of cash on hand. Interest income included in other income
amounted to $72,000, $101,000 and $46,000 in 1995, 1994, and 1993, respectively.
Grants
Grants received from governments by foreign subsidiaries are recognized in
income when the related funds are received. In 1995, grants of approximately
$250,000 received by the Company's United Kingdom subsidiary were recognized as
a reduction to related operating expenses.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for some domestic inventories and the
first-in, first-out (FIFO) method for foreign inventories and other domestic
inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Provisions for depreciation
of plant and equipment are computed using the straight-line method over the
estimated useful lives of the assets (buildings and improvements, 20-40 years;
lease-hold improvements, over the life of the lease; machinery and equipment, 5-
15 years). Expenditures for repairs and maintenance are charged to expense when
incurred. Betterments which materially extend the life of the related assets
are capitalized and depreciated. Upon retirement or other disposition of
property and equipment, the cost and related depreciation are removed from the
accounts and the resulting gain or loss is reflected in earnings.
Risks and Uncertainties
The Company's products are used primarily in air conditioners, fluorescent
lighting, high intensity discharge lighting, microwave ovens,
telecommunications, power supplies, and industrial power factor correction
applications. The Company maintains reserves for potential credit losses and
such losses have been within management's expectations. The Company invests its
excess cash in deposits and other securities with major banks. These
investments typically mature within ninety days and therefore bear minimal risk.
The Company has not incurred any losses related to these investments.
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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purpose. On January 3, 1993, the
Company adopted Financial Accounting Standard No. 109 (FAS 109), "Accounting for
Income Taxes" which necessitated an adjustment of $590,000 to provide for the
cumulative effect of the required accounting change. Prior year financial
statements were not restated to apply the provisions of FAS 109.
20
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
Net Income Per Share
Net income per share is computed based on the weighted average number of common
and common equivalent shares outstanding during the year (5,393,202 in 1995,
5,410,088 in 1994 and 5,393,294 in 1993). Fully diluted net income per share is
the same as net income per share.
B. Inventories:
At December 30, 1995, domestic inventories at FIFO amounted to $20,423,000 and
were $18,377,000 at December 31, 1994, of which $12,487,000 and $13,045,000 were
subject to LIFO, respectively.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 30, 1995 December 31, 1994
Domestic Foreign Total Domestic Foreign Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raw materials $10,584 $ 2,263 $12,847 $ 7,661 $ 1,536 $ 9,197
Work in process 4,030 658 4,688 5,155 528 5,683
Finished goods 5,809 312 6,121 5,561 480 6,041
- ------------------------------------------------------------------------------------------------------
20,423 3,233 23,656 18,377 2,544 20,921
Less excess of FIFO
cost over LIFO cost (1,026) -- (1,026) (1,026) -- (1,026)
- ------------------------------------------------------------------------------------------------------
$19,397 $ 3,233 $22,630 $17,351 $ 2,544 $19,895
- ------------------------------------------------------------------------------------------------------
</TABLE>
C. Debt:
On August 30, 1994, the Company entered into a First Amendment to Amended and
Restated Revolving Credit Agreement which increased the Company's line of credit
to approximately $21 million (from $15 million) by incorporating a 4,000,000
British Pounds line of credit to BHC Aerovox, Ltd. (BHC), a wholly-owned
subsidiary of the Company. On December 29, 1995, a Second Amendment to The
Revolving Credit Agreement was entered into which adjusted the BHC line of
credit to 4,400,000 British Pounds with no change to the $21 million total lines
of credit for the Company. The Second Amendment also incorporated changes
including violation waivers to financial covenants which require the Company to
maintain debt to tangible net worth and interest coverage ratios as the Company
had been in violation of these covenants as of the end of the third and fourth
quarters of 1995. Interest is at the bank's prime rate payable in arrears on
the outstanding loan balance. The Company has the option to convert from a bank
base rate loan into a Eurodollar Loan at the then Eurodollar (LIBOR) rate plus 1
3/4 percentage points. The Company also has the option to convert up to $4
million of loans to a Bankers' Acceptance facility at interest rates equal to
the per annum average discount rate quoted to the bank on date of request for
such facility plus 1 1/2% per annum. The Agreement matures on May 31, 1997. A
commitment fee, equal to one-quarter percent per annum will be charged on the
unused portion of the total commitment. At December 30, 1995, borrowings
outstanding under this Agreement were $20,300,000.
A ten-year Industrial Revenue Bond was issued by the Massachusetts Industrial
Finance Agency in July 1982 to finance the acquisition of equipment. The bond
was transferred to another purchaser in June 1992. Interest at the rate of
12.5% per annum through June 1992 and 7.42% per annum thereafter and principal
are payable monthly commencing July 1, 1992 to July 1, 2002. The amount of each
installment is calculated on an assumed 10-year amortization schedule. $370,000
of principal is payable in 1996. At December 30, 1995, the bond balance
outstanding under this agreement was $2,942,000.
Other long-term debt of the Company consists of a term line of credit agreement
with an equipment financing company in the amount of $10,000,000, collateralized
by certain equipment. Payments of principal and interest are due quarterly. At
December 30, 1995, borrowings outstanding under this agreement were $7,677,000,
at annualized interest rates ranging from 7.36% to 8.24%, and maturing at dates
through the year 2000. This agreement contains certain restrictive covenants,
the most restrictive of which is to maintain a specified debt to tangible net
worth ratio. (On January 11, 1996, the Company increased loans outstanding to
the equipment financing Company by $1,500,000.)
21
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
Total maturities of long-term debt over the next five years are:
<TABLE>
<CAPTION>
Year
------------------------------------------
<S> <C>
1996 $ 3,205,000
1997 23,543,000
1998 1,421,000
1999 1,157,000
2000 784,000
Thereafter 800,000
</TABLE>
D. Commitments:
The Company leases office space and equipment under various non-cancelable
operating leases. Rental expense amounted to $1,375,000 in 1995, $1,652,000 in
1994, and $1,047,000 in 1993. At December 30, 1995, future minimum annual
rental payments under all leases are as follows:
<TABLE>
<CAPTION>
Year
------------------------------------------
<S> <C>
1996 $ 932,000
1997 862,000
1998 803,000
1999 779,000
2000 772,000
Thereafter $2,837,000
</TABLE>
The Company is self-insured for workers' compensation benefits for some of its
employees. The amounts charged to expense for workers' compensation were
$357,000 in 1995, $417,000 in 1994, and $275,000 in 1993, based upon reported
claims and estimates of claims incurred but not reported.
The Company is also self-insured for a portion of health care costs not covered
by insurance for some of its employees. The Company is liable for claims up to
$150,000 per employee and aggregate claims up to a maximum of $2,470,000 (based
on current enrollment) for 1995. Costs accrued are based upon reported claims
and estimates of claims incurred but not reported. The amount charged to
expense for health care costs, which includes paid claims, individual and
aggregate stop/loss coverage and administrative fees, less employee
contributions, was $1,830,000 in 1995, $1,672,000 in 1994, and $1,772,000 in
1993.
E. Incentive and Other Plans:
Stock Incentive Plan
The 1989 Stock Incentive Plan, permits the granting of a variety of stock and
stock-based awards, including stock options, rights to receive cash or shares in
respect of increases in the value of the Company's common stock, the award of
restricted and unrestricted shares, rights to receive cash or shares on a
deferred basis or based on performance, cash payments sufficient to offset the
federal ordinary income taxes under the plan, loans to participants in
connection with awards, and other common stock-based awards, including the sale
or award of convertible securities, that meet the requirements of the plan. The
plan also provides that option holders may surrender outstanding options in
exchange for a cash payment during the sixty-day period following a change in
control as defined in the plan.
A total of 700,000 shares of common stock have been reserved by the board of
directors and may be issued under the plan to full or part-time officers and
other key employees of the Company and its subsidiaries. The plan limits the
terms of awards to ten years and prohibits the granting of awards more than ten
years after the effective date of the plan.
The plan permits the granting of non-transferable stock options that qualify as
incentive stock options (ISOs) and options that do not so qualify. The exercise
price of each option may not be less than 100% of the fair market value, or 110%
in the case of a person holding 10% or more of the outstanding voting power of
all classes of stock of the Company, on the date of grant in the case of ISOs
and not less than 50% of the fair
22
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
market value in the case of non-qualified options. The term of each option is
fixed by the board of directors but may not exceed 10 years from the date of
grant (5 years in the case of a 10% shareholder) with respect to ISOs and 10
years and a day with respect to non-qualified options.
In the event of termination of employment by reason of retirement, disability or
death, an option may be exercised (to the extent it was then exercisable) for a
period of three years. In the event of termination for other reasons, an option
may be exercised (to the extent it was then exercisable) for three months.
Each option becomes exercisable at the rate of 20% per year and expires ten
years from the date of grant. Information for fiscal years, 1995, 1994, and
1993, with respect to the plan, is as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
- -----------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 2, 1993 365,000 $3.000-6.125
Granted 145,500 7.875-8.875
Canceled (14,000) 3.000-8.875
Exercised (10,000) 3.000
- -----------------------------------------------------------------------------
Outstanding at January 1, 1994 486,500 3.000-8.875
Granted 87,500 7.125-9.000
Canceled (37,000) 8.875-9.000
Exercised (52,500) 7.625-8.125
- -----------------------------------------------------------------------------
Outstanding at December 31, 1994 484,500 3.000-9.000
Granted 66,000 7.625
Canceled (54,500) 7.125-8.875
Exercised (50,000) 3.000
- -----------------------------------------------------------------------------
Outstanding at December 30, 1995 446,000 $3.000-9.000
- -----------------------------------------------------------------------------
</TABLE>
These options expire at various dates through December 2004. Options for
273,200 shares were exercisable at December 30, 1995. At December 30, 1995,
there were 133,000 shares held available for future grants.
1989 Stock Option Plan for Directors
The 1989 Stock Option Plan for Directors reserved 50,000 shares of common stock
for the granting of options to purchase stock at 100% of the fair market value
on the date of grant. Directors who are not employees of the Company are
eligible under the plan. Each newly elected director will be awarded options to
purchase 2,500 shares of common stock on the date of his first election.
Following the initial grant, each person who is an eligible director on the day
immediately succeeding the day of each annual meeting of shareholders of the
Company, will receive options covering 1000 shares. On August 13, 1993, the
Board of Directors adopted an amendment to the Plan approved by the stockholders
at the 1994 Annual Stockholders' Meeting, which increased the number of shares
covered by options that are awarded at the time of the annual meeting from 500
to 1,000, or 250 for each quarter of service if less than one year elapses
between the initial grant and an annual grant (subject to the maximum number of
shares available under the plan) of options on such date. These options expire
in ten years and become exercisable on the first anniversary of the date of the
grant. No options may be awarded under the plan after April 1999.
In addition, directors were allowed to elect to receive options to purchase
common stock of the Company at $1.00 per share in lieu of cash payments for
annual fees under the Deferred Director Fee Option Plan. The difference between
the option price and the fair market value at the date of election by the
Director is charged to expense. During 1992, options to purchase 1,951 shares
were granted under this arrangement. No shares were granted under this
agreement in 1994 and the Plan was discontinued on March 2, 1994, by vote of the
Board of Directors.
23
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
Information for fiscal years 1995, 1994, and 1993, with respect to the plan, is
as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 2, 1993 26,201 $1.000-6.750
Granted 7,000 8.875-9.625
Exercised (500) 4.500
- ---------------------------------------------------------------------------
Outstanding at January 1, 1994 32,701 1.000-9.625
Granted 8,500 6.750-9.000
Canceled (1,167) 6.125-9.625
Exercised (833) 6.125-6.750
- ---------------------------------------------------------------------------
Outstanding at December 31, 1994 39,201 1.000-9.625
Granted 8,250 7.500-7.750
Canceled (5,835) 6.125-9.625
Exercised (9,951) 1.000-6.750
- ---------------------------------------------------------------------------
Outstanding at December 30, 1995 31,665 $2.750-9.625
- ---------------------------------------------------------------------------
</TABLE>
These options expire at various dates through December 2003. Options for 18,745
shares were exercisable at December 30, 1995. There were 36,502 shares
available for future grants at December 30, 1995.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which is effective for fiscal year 1996. The Company has
determined that it will elect the disclosure-only alternative. The Company will
be required to disclose the pro forma net income or loss and per share amounts
in the notes to the financial statements using the fair value based method
beginning in fiscal 1996 with comparable disclosures for fiscal 1995. The
Company has not determined the impact of those pro forma adjustments.
Employee Stock Purchase Plan
In 1989, the Company established the Employee Stock Purchase Plan under which
100,000 shares of common stock were reserved for purchase by employees. The
plan provides for the sale of common stock at the average of the reported high
and low sales prices of the stock on the last business day of the accounting
period each month. Common stock purchases are paid through regular payroll
deductions of up to 10% of eligible compensation plus Company payments equal to
5% of the participant's payment plus an additional 1% for each full year of
continuous employment with the Company since January 1, 1973, up to a maximum of
20% of the participant's payment. In 1995, 1994, and 1993, 8,139, 6,383 and
9,583 shares, respectively, were sold under the plan. There were 31,072 shares
qualified for future sale at December 30, 1995.
Change of Control Severance Benefits
The Company has severance agreements with certain key employees which provide
that if, within 24 months following a change in control (as defined in the
severance agreements), the Company were to terminate the employee's employment
other than for cause or the employee were to terminate his employment for
reasons specified in the agreements, the employee would receive amounts up to
three times his annual base salary plus target bonus for such year without
deduction for any amounts previously paid under the bonus plan. The agreements
also provide for the immediate vesting of bonus awards, stock options and
similar awards, the immediate payment of deferred compensation amounts and the
continuation of certain benefits. The maximum contingent liability under these
agreements at December 30, 1995 was approximately $4,142,000.
Profit-Sharing Savings Plan
The Company maintains a Profit-Sharing Savings Plan which covers substantially
all domestic employees with at least twelve months of service. Under the plan,
each employee can elect to make a pre-tax contribution to the plan of not less
than 3% and not more than 8% of qualified compensation. The Company
24
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
makes annual contributions to the Plan on behalf of each participating employee
in an amount which, together with any forfeitures during the Plan year, is equal
to each employee's voluntary contribution up to a maximum aggregate contribution
of 6% of the pre-tax income of the Company, as defined, or 50% of the aggregate
pre-tax contributions of the participating employees. The Company's subsidiary
in the United Kingdom maintains a plan covering its eligible employees wherein
Company contributions are made on the basis of the individual's age and amount
of contribution. Expense under these plans amounted to $479,000 in 1995,
$608,000 in 1994, and $501,000 in 1993.
Deferred Supplemental Savings Plan
The Company has a Deferred Supplemental Savings Plan under which certain key
employees may defer a percentage of their compensation equal to the difference
between pre-tax amounts of compensation eligible to be contributed to the
Profit-Sharing Savings Plan and amounts actually eligible for contributing to
such plan. Under this plan, the Company will make a matching contribution in an
amount equal to the matching contribution which would have been made if such
contribution had been made under the Profit-Sharing Savings Plan. Expense
related to the Deferred Supplemental Savings Plan amounted to $189,000 in 1995,
$71,000 in 1994, and $101,000 in 1993.
Executive Incentive Bonus Plan
The Company has an Executive Incentive Bonus Plan under which certain officers
and other members of management may receive incentive awards based on a
percentage of the participants' base compensation and an annually targeted
return on net assets, as defined. Bonus expense amounted to $195,000 in 1995,
$934,000 in 1994, and $1,124,000 in 1993.
F. Preferred Stock:
The Company is authorized to issue up to 5,000,000 shares of preferred stock
without further stockholder approval in such series and with such preferences,
terms and other provisions as may be designated by the board of directors.
On August 16, 1989, the board of directors voted to create a series of 55,000
shares of preferred stock, par value $.01 per share, designated as Series A
Junior Participating Preferred Stock ("Series A Preferred"). Each Series A
Preferred share is entitled to receive a minimum preferential quarterly dividend
of $1.00 per share and an aggregate dividend of 100 times any dividend declared
per share of common stock. Each share of Series A Preferred is entitled to one
hundred votes and votes together as one class with the common stock. Upon
liquidation or dissolution of the Company, the holder of each share of Series A
Preferred is entitled to a liquidation payment of $100 per share plus an
aggregate payment of 100 times the payment made per share on the common stock.
The Series A Preferred shares are not redeemable and rank junior to all other
series of preferred stock of the Company.
In the event of any merger, consolidation or other transaction in which shares
of the Company's common stock are exchanged, each Series A Preferred share will
be entitled to receive 100 times the amount received per share of common stock.
At December 30, 1995, 55,000 shares of Series A Preferred were reserved for
issuance for stock purchase rights (see Note G). No such rights have become
exercisable and no shares of Series A Preferred have been issued.
G. Preferred Share Purchase Rights:
On August 16, 1989, the board of directors approved a preferred share rights
plan pursuant to which one preferred share purchase right (a "Right") was
distributed for each share of outstanding common stock. Each Right entitles the
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, $.01 par value per share, at a price of
$16.00 per one one-hundredth of a Series A Preferred Share, subject to
adjustment (see Note F). The Rights, which do not have voting rights, expire on
December 1, 1999, unless redeemed earlier by the Company.
25
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
At any time on or prior to the date which is ten days after the Shares
Acquisition Date, as defined in the plan, the Company may redeem the Rights in
whole, but not in part, at a price of $0.01 per Right.
The Rights will become exercisable if a person or group of affiliated or
associated persons (an "Acquiring Person") acquires beneficial ownership of 15%
or more of the outstanding shares of the Company's common stock or following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of the
Company's common stock.
In the event that the Company is acquired in a merger or other business
combination transaction or 30% or more of its consolidated assets or earnings
power are sold, the plan requires that proper provision be made so that each
holder of a Right will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the exercise price of the Right. In the
event that any person becomes an Acquiring Person, the holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will hereafter be
void), will have the right to receive upon exercise that number of shares of
common stock having a net value of two times the exercise price of the Right.
At any time after the Shares Acquisition Date and prior to the acquisition by an
Acquiring Person of 50% or more of the outstanding shares of the Company's
common stock, the Company may exchange the Rights (other than Rights owned by
Acquiring Persons which have become void), in whole or in part, at an exchange
ratio of one share of common stock, or one one-hundredth of a Series A Preferred
Share (or of a share of a class or series of the Preferred Stock of the Company
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
26
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
H. Operations by Geographic Area:
The Company is engaged in one industry segment, the manufacture of AC
capacitors, aluminum electrolytic capacitors, DC film capacitors, power factor
correction and energy discharge capacitors and EMI filters.
Information about the Company's operations in these geographic areas is as
follows (in thousands):
<TABLE>
<CAPTION>
United United
States Canada Kingdom Mexico Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 30, 1995
Sales to unaffiliated customers $105,278 $ -- $ 22,444 $ 600 $ -- $128,322
Transfer between geographic
areas 2,058 -- -- 6,648 8,706 --
- -------------------------------------------------------------------------------------------------------------------
Total sales $107,336 $ -- $ 22,444 $ 7,248 $ 8,706 $128,322
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 2,277 $ (19) $ 2,404 $ 214 $ -- $ 4,876
- -------------------------------------------------------------------------------------------------------------------
Interest expense (2,296)
Interest income 72
- -------------------------------------------------------------------------------------------------------------------
Income before taxes $ 2,652
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 79,332 $ 336 $ 15,037 $ 848 $ 6,862 $ 88,691
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994
Sales to unaffiliated customers $107,223 $ -- $ 17,995 $ 422 $ -- $125,640
Transfer between geographic
areas 1,385 -- 532 5,625 7,542 --
- -------------------------------------------------------------------------------------------------------------------
Total sales $108,608 $ -- $ 18,527 $ 6,047 $ 7,542 $125,640
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 4,297 $ 2 $ 1,476 $ 383 $ -- $ 6,158
- -------------------------------------------------------------------------------------------------------------------
Interest expense (1,566)
Interest income 101
- -------------------------------------------------------------------------------------------------------------------
Income before taxes $ 4,693
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 70,583 $ 441 $ 10,769 $ 1,011 $ 5,045 $ 77,759
- -------------------------------------------------------------------------------------------------------------------
Year Ended January 1, 1994
Sales to unaffiliated customers $102,134 $ -- $ 13,024 $ -- $ -- $115,158
Transfer between geographic
areas 226 -- -- -- 226 --
- -------------------------------------------------------------------------------------------------------------------
Total sales $102,360 $ -- $ 13,024 $ -- $ 226 $115,158
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 6,490 $ (41) $ (110) $ -- $ -- $ 6,339
- -------------------------------------------------------------------------------------------------------------------
Interest expense (1,388)
Interest income 46
- -------------------------------------------------------------------------------------------------------------------
Income before taxes $ 4,997
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 68,133 $ 421 $ 9,785 $ -- $ 7,244 $ 71,095
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Transfers between geographic areas are accounted for at cost plus 15% in 1995,
1994, and 1993. Operating profit is total sales less operating expenses.
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area.
27
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
I. Provision for Income Taxes:
The provision for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $ 6 $ 24 $ 70
State 93 75 (211)
Foreign 472 350 --
- --------------------------------------------------------------------------------------------------------
571 449 (141)
- --------------------------------------------------------------------------------------------------------
Deferred:
Federal 109 870 1,804
State 19 153 318
Foreign 352 197 (83)
- --------------------------------------------------------------------------------------------------------
480 1,220 2,039
- --------------------------------------------------------------------------------------------------------
Provision for income taxes $1,051 $1,669 $1,898
- --------------------------------------------------------------------------------------------------------
Deferred income taxes arise from (in thousands):
Accelerated depreciation $ 906 $ 949 $ 910
Net operating losses 278 1,614 735
Inventory valuation (396) (337) 5
Allowance for doubtful accounts (120) 2 (12)
Compensation related costs (118) (98) (71)
Litigation reserve -- -- 472
Other (73) (75) --
Tax credits 3 (713) --
Valuation allowance -- (122) --
- --------------------------------------------------------------------------------------------------------
$ 480 $1,220 $2,039
- --------------------------------------------------------------------------------------------------------
Income taxes are reconciled to the United States
statutory corporate tax rate as follows
(in thousands):
United States corporate tax at statutory rate $ 902 $1,596 $1,699
Increase (decrease) arising from:
State taxes 112 184 313
Foreign taxes 80 -- --
Alternative minimum tax -- -- 70
Tax credits -- -- (228)
Other (43) 11 44
Change in valuation allowance -- (122) --
- --------------------------------------------------------------------------------------------------------
$1,051 $1,669 $1,898
- --------------------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes, at $1,898,000 for 1993, was reduced by a
favorable adjustment in the amount of $228,000.
28
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
The components of the Company's deferred tax assets and liabilities as of
December 30, 1995 and December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
December 30, 1995 December 31, 1994
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred taxes:
Net operating loss carryforwards $ 401 -- $ 679 --
Compensation related costs 637 -- 519 --
Bad debt reserve 207 -- 87 --
Depreciation -- $6,727 -- $5,821
Inventory reserves 733 -- 337 --
Tax credit carryforwards 1,127 -- 1,130 --
Valuation allowance (78) -- (78) --
Other 148 -- 75 --
- --------------------------------------------------------------------------------------------------
$3,175 $6,727 $2,749 $5,821
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company had established a valuation allowance of $78,000 at December 30,
1995, principally for tax credits not expected to be realized.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
At December 30, 1995, the Company had a net operating loss carryforward of
approximately $1.0 million for tax purposes, which expires in 2007. This net
operating loss carryforward resulted primarily from litigation settlement
payments made during 1992 and differences between expenses recorded under book
and tax depreciation methods. At December 30, 1995, the Company also had
$1,127,000 of foreign and other tax credits which expire from 1997 to 2010.
Income before income taxes and cumulative effect of the change in accounting for
income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 464 $2,941 $5,316
Foreign 2,188 1,752 (319)
- ------------------------------------------------------------------------------------
Income before income taxes and
cumulative effect of the change in
accounting for income taxes $2,652 $4,693 $4,997
- ------------------------------------------------------------------------------------
</TABLE>
J. Legal Proceedings:
The Company settled a claim made against it concerning the cost of clean up of a
hazardous waste facility ("Resolve") in Massachusetts, in which the Company will
pay an amount currently estimated at $1,500,000, but subject to change.
Approximately $715,000 of the amount has been reimbursed to the Company by its
primary insurers. The Company initiated appropriate action to collect amounts
not covered by the primary insurers from its excess/umbrella liability insurer.
The excess insurer denied that it is required to cover this matter and brought
suit against the Company seeking a declaration that the excess liability
insurance policies issued by it to the Company do not cover claims made by the
Company for environmental response costs with respect to the so-called Resolve
site. In April of 1993, the insurer moved for Summary Judgment on its claims,
relying on a "sudden and accidental" pollution exclusion clause. By order, dated
October 8, 1993, the Court denied the insurers' motion but stated that the
motion would be allowed unless Aerovox submitted additional evidence concerning
property damage caused by an earlier fire at the site. A Motion for
Reconsideration was filed by the insurer on December 7, 1993. The Company
submitted additional evidence on January 6, 1994, in accordance with the Court's
Order. On February 28, 1994, the Court released a Memorandum of Decision and
Order Denying Plaintiff's Motion for Reconsideration and Denying the Motion for
Summary Judgment, stating that Aerovox had complied with the Court's Order of
October 8,
29
<PAGE>
Aerovox Incorporated
Notes to Consolidated Financial Statements
1993, and had submitted evidence tending to show a causal link between a "sudden
and accidental" occurrence and property damage for which it was held liable. On
April 27, 1994, the insurer moved for reconsideration of the February 28, 1994,
decision and, on September 26, 1994, the Court granted the Plaintiffs Motion for
Summary Judgment. Accordingly, the Company charged approximately $500,000 to
earnings in the third quarter of 1994. On December 23, 1994, the Company filed a
notice of appeal of this decision of the Court. The Appeal Brief was filed on
February 13, 1996. The Company, based on information presently available, does
not believe that this matter will have any further material adverse effect on
the Company's financial condition.
On February 9, 1990, the Company entered into a settlement agreement (the
"Settlement Agreement") with the United States and The Commonwealth of
Massachusetts (the "governments") resolving litigation commenced by the
governments in the U.S. District Court for the District of Massachusetts, on
December 10, 1983 under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, commonly known as the "Superfund" legislation. The
litigation concerned the alleged disposal by various defendants of
polychlorinated biphenyls ("PCB's") in the Acushnet River and New Bedford
Harbor. The Settlement Agreement resolved all of the governments' claim against
the Company and Aerovox Industries, Inc. (the Company's predecessor, now known
as Belleville Industries, Inc.) arising out of the contamination of the Acushnet
River and New Bedford Harbor with PCB's, including cleanup costs, study costs
and damages to natural resources, now or hereafter incurred, except that the
Settlement Agreement provides that the governments may seek damages from the
Company and Aerovox Industries, Inc. for future liability in the event that such
future liability arises out of unknown conditions at the site.
K. Foreign Operations:
Summarized financial information for the Company's foreign operations is as
follows (in thousands):
<TABLE>
<CAPTION>
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 8,876 $ 7,286 $ 7,062
Non-current assets 7,345 4,935 3,144
- ------------------------------------------------------------------------------
$16,221 $12,221 $10,206
- ------------------------------------------------------------------------------
Current liabilities $ 3,099 $ 2,493 $ 1,747
Due to parent 338 668 4,944
Long-term debt 6,423 4,554 --
Stockholders' equity 6,361 4,506 3,515
- ------------------------------------------------------------------------------
$16,221 $12,221 $10,206
- ------------------------------------------------------------------------------
Net sales $23,044 $18,417 $13,024
- ------------------------------------------------------------------------------
Net income (loss) $ 1,363 $ 1,148 $ (223)
- ------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Aerovox Incorporated
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
For The Years Ended
Dec. 30, Dec. 31, Jan. 1, Jan. 2, Dec. 28,
(Amounts in Thousands, Except Per Share Data) 1995 1994 1994 1993 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $128,322 $125,640 $115,158 $ 73,651 $ 63,582
Income from operations 4,246 6,010 5,757 3,490 3,422
Income before cumulative effect of
change in accounting for income taxes 1,601 3,024 3,099 1,654 133
Cumulative effect of change in
accounting for income taxes -- -- 590 -- --
- --------------------------------------------------------------------------------------------------------------
Net income $ 1,601 $ 3,024 $ 3,689 $ 1,654 $ 133
- --------------------------------------------------------------------------------------------------------------
Net income per share:
Income before cumulative effect of
change in accounting for
income taxes $ .30 $ .56 $ .57 $ .32 $ .03
Cumulative effect of change in
accounting for income taxes -- -- .11 -- --
- --------------------------------------------------------------------------------------------------------------
Net income per share $ .30 $ .56 $ .68 $ .32 $ .03
- --------------------------------------------------------------------------------------------------------------
Cash dividends per share -- -- -- -- --
Balance sheet data:
Total assets $ 88,691 $ 77,759 $ 71,095 $ 49,759 $ 47,874
Long-term obligations 28,777 22,466 19,671 8,104 7,586
Total stockholders' equity 34,865 33,416 30,158 26,305 24,742
</TABLE>
<TABLE>
<CAPTION>
Summary of Quarterly Results of Operations
(Unaudited) Quarter
(Amounts in Thousands, Except Per Share Data) First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 30, 1995:
Net sales $ 34,141 $ 36,737 $ 27,678 $ 29,766
Gross profit 5,925 6,052 3,074 3,868
Net income (loss) $ 834 $ 1,091 $ (406) $ 82
Net income (loss) per share $ .15 $ .21 $ (.08) $ .02
Year Ended December 31, 1994:
Net sales $ 32,904 $ 34,801 $ 28,884 $ 29,051
Gross profit 6,600 7,445 4,758 2,635
Net income (loss) $ 1,353 $ 1,886 $ 499 $ (714)
Net income (loss) per share $ .25 $ .35 $ .09 $ (.14)
</TABLE>
31
<PAGE>
Aerovox Incorporated
Report of Independent Accountants
To the Board of Directors and Stockholders of Aerovox Incorporated:
We have audited the accompanying consolidated balance sheets of Aerovox
Incorporated as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aerovox
Incorporated as of December 30, 1995 and December 31, 1994 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
Boston, Massachusetts /s/ Coopers & Lybrand L.L.P.
February 28, 1996
32
<PAGE>
Directors
John F. Brennan
Dean, School of Management, Suffolk University, Formerly Chairman and Chief
Executive Officer of the Hackney Corporation,
Director of The Timberland Company,
Director of Data Storage Corporation
James B. Hangstefer
President of Cordel Associates, Inc.,
Director of Dynatech Corporation
Dennis Horowitz
President, Americas, AMP Incorporated,
Director of Superconductor Technologies, Inc.
William G. Little
President and Chief Executive Officer of
Quam Nichols Co., Inc.,
Director of Ohmite Manufacturing Co.
Ronald F. Murphy
Senior Vice President and Treasurer since 1976, Secretary since 1989
Benedict P. Rosen
President and Chief Executive Officer of
AVX Corporation,
Senior Managing and Representative Director of Kyocera Corporation,
President of Elco Corp.
John L. Sprague
President of John L. Sprague Associates, Formerly President and Chief Executive
Officer of Sprague Electric Co.,
Director of Allmerica Financial Corporation, Director of California Micro
Devices Corp., Director of Sipex Corporation
Clifford H. Tuttle
Chairman of the Board since 1989,
President and Chief Executive Officer since 1973
Audit Committee
John F. Brennan, Chairman
James B. Hangstefer
John L. Sprague
Compensation Committee
William G. Little, Chairman
John F. Brennan
Benedict P. Rosen
Executive Committee
Clifford H. Tuttle, Chairman
Dennis Horowitz
Benedict P. Rosen
John L. Sprague
Finance Committee
James B. Hangstefer, Chairman
Dennis Horowitz
William G. Little
Nominating Committee
John L. Sprague, Chairman
John F. Brennan
James B. Hangstefer
Clifford H. Tuttle
Corporate Officers
Clifford H. Tuttle
Chairman, President and Chief Executive Officer
Richard D. Capra*
Senior Vice President, Electrolytics
John A. Chmura Jr.
Senior Vice President, Sales and Marketing
Philip J. Fox
Senior Vice President, Operations Support
Dr. Martin Hudis
Senior Vice President, Technology
Robert R. Hunter
Senior Vice President and Managing Director, BHC Aerovox Ltd.
Peter B. Kirschmann
Senior Vice President and President,
Aerovox Group
Ronald F. Murphy
Senior Vice President, Treasurer and Secretary
William T. Allen III
Vice President, Manufacturing Operations
Dr. Mulk R. Arora
Vice President, Foil Operations,
Aerovox Foil Division
Lawrence K. Bromley
Vice President, Quality Assurance
Earl F. Sherman
Vice President, Marketing, Aerovox Group
*In October 1995, Mr. Capra became a part-time
employee consultant to Aero M and BHC, the
Company's electrolytic groups.
Annual Meeting
The Annual Meeting of the shareholders of Aerovox Incorporated will be held at
the offices of Ropes & Gray, One International Place, Room 36/1, Boston,
Massachusetts 02110, at 10:00 a.m. on Tuesday, May 7, 1996.
Shareholders Inquiries
Inquiries concerning general shareholder matters should be addressed to:
Aerovox Inc.,
Shareholder Relations
370 Faunce Corner Road
North Dartmouth, MA 02747-1217
Telephone: (508) 995-8000, ext. 1653.
Transfer Agent and Registrar
Communications concerning change of address, lost certificates, stock transfer
and transfer requirements should be addressed to: American Stock Transfer &
Trust Company, 40 Wall Street, New York, NY 10005.
10-K Report
A copy of the Company's 1995 Annual Report to the Securities and Exchange
Commission on Form 10-K may be obtained by writing to Shareholder Relations at
the corporate offices.
Stock Listing
The Company's Common Stock has been listed on the NASDAQ Stock Market (National
Market) under the symbol ARVX since February 26, 1990.
<TABLE>
<CAPTION>
Common Stock 1995 1994
High Low High Low
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $8 1/4 $6 5/8 $ 9 $7 1/2
2nd Quarter 7 3/4 7 11 7
3rd Quarter 8 7/8 7 10 1/2 8
4th Quarter 8 1/8 5 3/8 9 3/4 6 1/4
</TABLE>
Additional Stock Information at February 16, 1996
Last sale price: $6.437
Number of shares outstanding: 5,306,195
Approximate number of stockholders: 7,887
The Company currently intends to retain all earnings for use in its business and
does not expect to pay dividends for the foreseeable future. The Company's
common stock dividend policy will be reviewed periodically by the board of
directors as may be appropriate in the light of relevant factors.
Aerovox Group 740 Belleville Avenue, New Bedford, MA 02745-6194
Aero M Group 9 C Founders Boulevard, El Paso, TX 79906-4905
BHC Aerovox Ltd. 20-21 Cumberland Drive, Granby Industrial Estate, Weymouth,
Dorset DT4 9TE ENGLAND
Aerovox Foil Division 2615 Memorial Parkway S.W., Huntsville, AL 35801-5629
Aerovox(R), AeroMet(R) II, Aero(R) M and AeroMax(TM) are trademarks of Aerovox
Incorporated
<PAGE>
Exhibit 21.1
------------
Aerovox Incorporated
Subsidiaries
Aerovox de Mexico S.A. De C.V.
R.F.C. AME 921117RHA
Ave. Vincente Guerrero No. 8234
CP. 32449
Cd. Juarez, Chihuahua
Mexico
BHC Aerovox Ltd.
20-21 Cumberland Drive
Granby Industrial Estate
Weymouth, Dorset DT4 9TE
England
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements of
Aerovox Incorporated on Form S-8 (File Nos. 33-35029, 33-35030, 33-35031, 33-
68940 and 33-86092) of our reports dated February 28, 1996 on our audits of the
consolidated financial statements and the financial statement schedule of
Aerovox Incorporated as of December 30, 1995 and December 31, 1994 and for the
years ended December 30, 1995, December 31, 1994, and January 1, 1994 which
reports are included or incorporated by reference in this Annual Report on
Form 10-K.
BY /S/ COOPERS & LYBRAND L.L.P.
-------------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 573
<SECURITIES> 0
<RECEIVABLES> 20,224
<ALLOWANCES> 636
<INVENTORY> 22,630
<CURRENT-ASSETS> 44,749
<PP&E> 69,038
<DEPRECIATION> 27,787
<TOTAL-ASSETS> 88,691
<CURRENT-LIABILITIES> 18,322
<BONDS> 0
0
0
<COMMON> 5,299
<OTHER-SE> 29,566
<TOTAL-LIABILITY-AND-EQUITY> 88,691
<SALES> 128,322
<TOTAL-REVENUES> 128,322
<CGS> 109,403
<TOTAL-COSTS> 123,843
<OTHER-EXPENSES> (702)
<LOSS-PROVISION> 233
<INTEREST-EXPENSE> 2,296
<INCOME-PRETAX> 2,652
<INCOME-TAX> 1,051
<INCOME-CONTINUING> 1,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,601
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
