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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 28, 1996
COMMISSION FILE NO.: 0-18018
AEROVOX INCORPORATED
--------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0254329
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 BELLEVILLE AVENUE, NEW BEDFORD, MA 02745
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(Address of principal executive offices) (Zip Code)
(508) 994-9661
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(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 PER SHARE TRADED ON THE NASDAQ NATIONAL
PREFERRED SHARE PURCHASE RIGHTS MARKET SYSTEM
Shares Outstanding of the Registrant's Common Stock at March 17, 1997:
5,319,800. Aggregate market value of voting stock held by non-affiliates of the
registrant at March 17, 1997: $23,997,451.
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 28, 1996 are incorporated by reference into Parts I, II and IV
hereof. Portions of the Registrant's definitive Proxy Statement for use at the
1997 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 20 -23
hereof.
<PAGE>
PART I
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. 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
Massachusetts 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. 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 located in Weymouth, England.
During 1996 Aerovox reorganized its North American capacitor operations.
The former Aero M Group was merged with the film capacitor businesses of the
Aerovox Group to constitute the North American capacitor business of Aerovox,
which includes the aluminum electrolytic capacitors of the Aero M Group and the
electrostatic capacitor lines of the former Aerovox Group. In addition, the
Company established two small integrated business units for Power Factor
Correction products and EMI Filters. The foregoing product lines are
manufactured in the Company's three North American capacitor plants - one in New
Bedford, Massachusetts and two in Juarez, Mexico. A principal component,
aluminum foil for electrolytic capacitors, is produced in the Aerovox plant in
Huntsville, Alabama.
PRODUCT DESCRIPTION
Aerovox is a leading manufacturer of electrostatic (film and paper) and
aluminum electrolytic capacitors, sold worldwide, principally to original
equipment manufacturers (OEMs) for use as components in electrical and
electronic products.
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.
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MARKETS AND APPLICATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MARKETS APPLICATIONS AEROVOX PRODUCTS
=====================================================================================================================
<S> <C> <C>
MOTORS Compressors, air conditioners, pumps, AC Oil Capacitors
refrigeration, laundry equipment, garage AC Dry Capacitors
door openers, hospital beds Aluminum Electrolytic Capacitors
- ---------------------------------------------------------------------------------------------------------------------
LIGHTING Electromagnetic and electronic ballasts for AC Oil
Capacitors fluorescent and high AC Dry Capacitors
intensity discharge (HID) fixtures, DC Film Capacitors
and strobe lights Aluminum Electrolytic Capacitors
- ---------------------------------------------------------------------------------------------------------------------
POWER ELECTRONICS Variable speed drives, uninterruptible power DC Film Capacitors
supplies (UPS), power supplies, AC Oil Capacitors
transportation, welders, motor speed Aluminum Electrolytic Capacitors
controllers, telecommunications equipment,
audio/visual equipment, battery chargers
- ---------------------------------------------------------------------------------------------------------------------
SPECIALTY Microwave ovens, medical equipment Microwave Oven Capacitors
(defibrillator, X-ray equipment), government Energy Discharge/Storage Capacitors
and university research
- ---------------------------------------------------------------------------------------------------------------------
POWER FACTOR Industrial plants, commercial Power Factor Correction Capacitors and
CORRECTION facilities and Systems
institutions consuming large amounts of
electrical power
- ---------------------------------------------------------------------------------------------------------------------
EMI/RFI FILTERS Power supplies, industrial equipment, Custom and General Purposes
computer and telecommunications equipment EMI/RFI Filters
and appliances
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NORTH AMERICAN CAPACITOR OPERATIONS
Electrostatic Capacitors
Aerovox manufactures electrostatic capacitors in New Bedford, Massachusetts
(since 1938), and in Juarez, Mexico where the Company began manufacturing its
most labor intensive film capacitors in 1992.
All Aerovox alternating current (AC) film capacitors are manufactured with
polypropylene film and/or kraft paper, or polyester film (used in small units)
as the dielectric system. Aerovox's AC capacitors are utilized for continuous
duty in starting permanent split-phase motors and then provide power factor
correction during the running phase of the motor circuit. Applications include
air conditioners, pumps, refrigerators and other types of equipment. Aerovox AC
film capacitors are also utilized in ballasts for high intensity discharge (HID)
and fluorescent magnetic lighting fixtures, uninterruptible power supplies
(UPS), power supplies, and in welding equipment.
Direct current (DC) film capacitors utilize polyester films and
polypropylene (for high frequency applications) as the dielectric system.
Applications for Aerovox DC film capacitors
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include lighting (for electronic ballasts in fluorescent fixtures), UPS and
power supplies, variable speed drives, and equipment for audio, communications
and welding applications.
The Company 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 and other medical equipment, power
supply systems and welding equipment. Aerovox's larger DC capacitors are used in
government and university fusion power and particle acceleration research
products, government weaponry systems, in equipment for high energy x-rays, and
in high speed trains.
Now organized as a separate business within the Company, the Aerovox Power
Factor Correction Business Unit produces low and medium voltage power factor
correction systems. These systems are installed in manufacturing facilities,
large office 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 system problems such
as brownouts.
Aluminum Electrolytic Capacitors
Aerovox manufactures AC and DC aluminum electrolytic capacitors for North
and South America and Far East markets in Juarez, Mexico (since 1993). Aerovox's
AC motor start capacitors are utilized for intermittent duty in the starting of
electric motors and in limited gear motor applications. Start capacitors of this
type are used in compressor motors, pump motors, dental chairs, garage door
openers and other similar applications.
The Company's DC aluminum electrolytic capacitors are used in the
electrical equipment and electronic industry primarily for applications such as
power supplies, UPS, motor drives and energy discharge applications such as
welding, strobes and photo flash.
EMI/RFI Filters
Also organized as an integrated business within the Company is the EMI
Filters Business Unit. 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. They 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.
COMPETITION
Electrostatic Capacitors
AC capacitors are made by several domestic and foreign manufacturers, and
competition is intense. In the North American AC capacitor market, Aerovox
competes primarily with domestic manufacturers. Aerovox and the General Electric
Company are the primary producers, each offering
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a full line of AC products. Three other suppliers - York, Commonwealth Sprague
and Magnetek - though smaller, all manufacture quality products, and contribute
to price compression.
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
shipment to the United States uneconomical for overseas suppliers. However, Far
East manufacturers are beginning to make inroads into the U.S. markets, and
passage in Congress (anticipated in April 1997) of the Information Technology
Agreement (ITA), which will eliminate tariffs on capacitors coming into the
United States, is expected to increase Far East competition, in particular. The
principal competitive factors in the industry include product quality and
reliability, competitive prices, on-time delivery, customer service, the ability
to meet rigid customer specifications, and the ability to add value to the
customer's product.
The North American business of Aerovox 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, Aerovox has successfully
marketed energy discharge capacitors for specialized applications in Europe and
in the Korean market.
A significant number of DC film capacitor manufacturers, both domestic and
international, serve the North American market and, accordingly, Aerovox faces
stiff competition in this market. The competitive factors are primarily quality,
delivery and pricing.
Sales of power factor correction systems are largely influenced by the
penalty based rate structure imposed by some utilities on their customers.
Aerovox has four primary competitors in this market, all of whom manufacture
their own capacitors in addition to building the assemblies. Competitive factors
affecting this market are technical solution expertise, delivery performance,
and pricing.
Aluminum Electrolytic Capacitors
In the North American AC motor-start capacitor market, Aerovox has one
major competitor - North American Philips - but two new entries in the field,
North American Capacitor Company (NACC) and CGE in Mexico are stimulating
competition with low pricing. Offshore competition has not been a factor in this
market, but this situation may change with the tariff elimination that will
result from passage of the ITA. The principal competitive factors in the
industry are delivery, quality, customer service and pricing.
The large can computer grade DC electrolytic capacitor market is dominated
by Cornell Dubilier Electronics, North American Philips, United Chemi-Con and
other foreign-owned domestic manufacturers. This marketplace has minimum
standardization and is considered application-specific, normally requiring
design-in and qualification testing by its customers.
EMI/RFI Filters
A significant number of EMI custom filter manufacturers serve the North
American marketplace providing strong competition. The principal competitive
factors are technical support, quality, delivery and price.
5
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MANUFACTURING
Many of Aerovox's 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 operations and various tests are
conducted to assure continuity of high standards.
Most recently, the Company has embarked on a program to significantly
improve operating efficiency. In the New Bedford plant, goals to improve on-time
delivery performance, to reduce cycle times, and to reduce inventory investment
have been established, and information systems, materials acquisition and flows,
and production are being re-designed to meet these goals. Continuous flow pull-
through techniques, with emphasis on speed and waste elimination, are replacing
inflexible large-quantity batch production on the factory floor. Similar goals
and programs to achieve improved operating efficiency will be established
throughout the Company in 1997.
In December 1992, the Company formed a maquiladora in Juarez, Mexico for
the assembly of high labor content AC capacitor products and EMI filters. Both
oil filled and dry AC and DC film capacitors are now assembled in this plant
(referred to as Plant II by the Company) in addition to EMI filters.
A special products department in New Bedford assembles the energy storage
and discharge capacitor product lines. Power factor correction systems are also
assembled in New Bedford.
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 finished
capacitor. This processing, known as etching and forming of the aluminum foil,
is done at the Aerovox plant in Huntsville, Alabama. Slitting of the processed
foil to required widths is also completed at this plant. The foil is then
forwarded to Plant I in Juarez and to BHC Aerovox in the United Kingdom for
assembly into a finished aluminum electrolytic capacitor.
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, audio / visual equipment, welding equipment and other general
industrial electronics applications.
6
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A new building, completed in 1995, created 40% more space for expansion of
aluminum electrolytic capacitor production and for the introduction of microwave
oven capacitor manufacturing which took place in 1996.
COMPETITION
There is keen competition from a number of European and Far Eastern
suppliers for all of the aluminum electrolytic 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. Competitive factors
include European manufacturing status, flexible production, small can sizes,
pricing and quality.
BHC's business is subject to influence by foreign currency exchange rates.
The principal raw material is purchased in US dollars from the parent company
and approximately half of all sales are outside the United Kingdom.
MANUFACTURING
BHC Aerovox purchases etched aluminum foil from three sources, including
the Aerovox foil operation in Huntsville. The etched foil is processed to form a
dielectric (aluminum oxide) layer according to the voltage requirements. 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.
BHC's microwave production is based on the proven technology from Aerovox
USA and incorporates state-of-the-art processing 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 1996, accounted for 10% or more of the net
sales of the Company. In 1996, approximately 40% of the Company's net sales were
to its ten largest customers and 86% 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.
Foreign sales, primarily from BHC Aerovox Ltd., the Company's United
Kingdom subsidiary, represented approximately 24% of total sales in 1996.
The Company markets most of its products to domestic OEMs primarily through
a network of independent manufacturers' sales representative organizations which
collectively employ over 200
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sales people. Aerovox has enjoyed long-term relationships with many of its sales
representatives--some 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 manufacturers'
representatives who specialize in these products. In the United Kingdom and
Europe, the Company sells through a combination of direct employees and
independent manufacturers' representatives. In addition, independent sales
organizations represent the Company in the Far East, Japan, Australia, Mexico,
the Middle East and South America. A smaller portion of the Company's sales are
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 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 nine weeks of production.
The Company's manufacturing lead times vary from four to eight 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.
The Company books orders, for purposes of calculating backlog, when a firm
delivery date that is no more than 12 months out is scheduled. The total active
backlog was $23, 963,000 at February 22, 1997, and $18.2 million at February 24,
1996. The Company expects to fill all backlog orders scheduled for 1997
delivery.
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.
Technical exchanges between the Company's operations have resulted in the
development of additional new products and processes, a trend the Company is
fostering particularly with the establishment of an electrolytic foil technical
center at the Huntsville plant.
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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 process monitoring and control throughout the
manufacturing cycle. Statistical Process Control (SPC), a program aimed at
encouraging employee involvement and participation through fact-based decision
making, is typical of the programs that have helped Aerovox achieve significant
quality improvements.
The Company adheres to worldwide quality standards in all its operations.
Each of its capacitor manufacturing facilities has achieved International
Standards Organization (ISO) certification. In January 1997, the Aerovox plant
in New Bedford and one in Juarez were approved for ISO 9002 recertification,
while the electrolytic capacitor plant in Juarez was recertified as an ISO 9002
operation in August 1996. BHC Aerovox Ltd. has been ISO 9001 certified for
several years.
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 three sources in the United States. There are several 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 22 active patents and three pending patents.
Aerovox licenses some of its product technology and process know-how to
Lumisistemas in Mexico. An agreement renewing the license was signed by both
companies in September 1996. Licensing activity does not generate material
amounts of income 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, 19 other United States registered trademarks, some of
which are registered in other countries. 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.
EMPLOYEES
As of February 23, 1997 Aerovox had 1,652 employees worldwide. An aggregate
of 330 employees hold salaried management, supervisory, sales and clerical
positions and 1,322 hourly employees are engaged in production and related
activities. Unions represent 2.8% of the employees. None of the Company's
production departments are unionized. Approximately 290 employees have been with
their respective Aerovox company for 10 years or more.
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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. In New Bedford, a new three-year agreement was reached with
the International Union of Operating Engineers in August 1995, and a new two-
year contract with the International Brotherhood of Electrical Workers was
negotiated 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>
- -----------------------------------------------------------------------------------------------------------
YEAR LEASE
PROPERTY SQ. FEET OWNED/LEASED EXPIRES
===========================================================================================================
<S> <C> <C> <C>
North Dartmouth, MA 11,600 Leased 2003
(Office space to be sublet in 1997)
- -----------------------------------------------------------------------------------------------------------
New Bedford, MA 435,000 Owned -
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Huntsville, AL 85,000 Owned -
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Juarez, Mexico 45,000 Leased 1997
- -----------------------------------------------------------------------------------------------------------
Juarez, Mexico 100,000 Leased 1999
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Weymouth, England 10,000 Owned -
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Weymouth, England 35,000 Leased 2008
- -----------------------------------------------------------------------------------------------------------
Weymouth, England 27,000 Owned -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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
Plant II maquiladora in Juarez, Mexico. In Weymouth, England, a 27,000 square
foot building to facilitate expanded aluminum electrolytic capacitor and
microwave oven capacitor production was completed in 1995. Equipment at Plant I
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 is the plaintiff in a patent infringement suit brought against
American Radionic Company, Inc. in the United States District Court for the
Middle District of Florida on September 1, 1995. The Company contends that the
defendant has infringed its U.S. Patent covering certain technology used in the
manufacture of capacitors. The Company seeks treble damages and an injunction to
prevent the defendant from making or selling infringing capacitors, along with
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reimbursement of its costs and attorneys fees. Pretrial discovery has not been
completed, and it is not yet possible to determine if the Company will prevail
in this matter, and therefore no gains or losses have been recorded on the
balance sheet as of December 28, 1996. Legal fees have been charged to expense
as incurred.
In a prior year the Company settled a claim made against it concerning the
cost of clean up of a hazardous waste facility ("Resolve") in Massachusetts. As
part of that settlement the Company paid $1,583,000, an amount equal to the
present value of the Company's share of the total estimated clean up cost.
Approximately $715,000 of that amount has been reimbursed to the Company by its
primary insurers. The excess uninsured portion of $868,000 was charged to income
and paid in 1988 and 1994. 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 or results of operations.
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. 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.
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 storm water 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
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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 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 1996.
ITEM 4A. EXECUTIVE OFFICERS - Set forth below are the names, ages and positions
of the executive officers of Aerovox in 1996 and currently:
<TABLE>
<CAPTION>
NAME AGE OFFICE(S)
- ---- --- ---------
<S> <C> <C>
Clifford H. Tuttle...............66 Chairman, and Chief Executive Officer
(until September 1, 1996)
Robert D. Elliott................46 President, and Chief Executive Officer
(beginning September 1, 1996)
John A. Chmura Jr................53 Senior Vice President, Sales
Philip J. Fox....................52 Senior Vice President, Operations
Support (until February 21, 1997)
Martin Hudis.....................54 Senior Vice President, Business and
Technology Development
Ronald F. Murphy.................67 Senior Vice President, Secretary, and
Treasurer (until August 1996)
Jeffrey A. Templer...............49 Senior Vice President, Chief Financial
Officer and Treasurer (beginning
August 1996)
William T. Allen III.............40 Vice President, Mexican Operations
Mulk R. Arora....................54 Vice President, Huntsville Operations
Lawrence K. Bromley..............51 Vice President and General Manager,
Power Factor Correction Business Unit
Earl F. Sherman..................60 Vice President, Marketing
</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. In preparation for his retirement at the
end of 1996, Mr. Tuttle was succeeded as President (March 1996) and Chief
Executive Officer (September 1996) by Robert D. Elliott.
12
<PAGE>
Mr. Elliott graduated in 1973 from Clarkson University with a Bachelor of
Science Degree in Industrial Distribution, and received a Master of Business
Administration from the University of Wisconsin in 1981. From 1991 to 1993, Mr.
Elliott served as President of Hendrix Wire & Cable, a manufacturer of cable and
accessories for the electric utility market, and a business unit of the
Electrical Products Group of Eagle Industries, a diversified manufacturing
company. From 1993 to 1995, he was Group Executive of Eagle's Electrical
Products Group. Mr. Elliott joined Aerovox as President in March 1996 and was
named Chief Executive Officer of the Company in September 1996.
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 1995, Senior Vice President, Sales.
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 left the Company in February, 1997.
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 in 1995. He is a senior member of The
Institute of Electrical and Electronics Engineers, an international organization
of electrical and electronic engineers.
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. He
joined Aerovox in 1976 as Senior Vice President, and Treasurer (until August
1996) , and served in this office until retiring from the Company at the end of
1996.
Mr. Templer holds a Bachelor of Science Degree from Salem State College
(1972) and a Master of Business Administration from the Harvard Business School
(1974). In 1985 he joined Freudenberg North America Inc., a holding company, as
Vice-President, Finance and Administration. In 1988, Mr. Templer was named Vice-
President, Finance and Chief Financial Officer of Freudenberg Nonwovens, a
manufacturer of nonwoven fabrics and related products, and was President and
Chief Executive Officer of that company from 1992 to 1995. In June 1996, Mr.
Templer joined Aerovox as Senior Vice President and Chief Financial Officer and
was appointed Treasurer in August 1996.
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
13
<PAGE>
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, and named
Vice President, Mexican Operations in March 1996. 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 Huntsville, and was named a
Vice President of the Company in 1995. 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. Since August 1996, he has served as Vice
President and General Manager, Aerovox Power Factor Correction Business Unit.
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
five years before joining Aerovox as General Manager of the Electronic Group in
1990. In November 1993, he was named Vice President, Marketing.
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
28, 1996, 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 25, 1997 was 7,446. 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by this item appears in the Company's 1996 Annual
Report to Stockholders on page 23 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.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item appears in the Company's 1996 Annual
Report to Stockholders on pages 6 - 8 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 1996 Annual Report to Stockholders on the pages indicated below and
are incorporated herein by reference:
Consolidated Statements of Income for the years ended December 28, 1996, 9
December 30, 1995, and December 31, 1994.
Consolidated Statements of Stockholders' Equity for the years ended
December 28, 1996, December 30, 1995, and December 31, 1994. 9
Consolidated Balance Sheets at December 28, 1996 and December 30, 1995. 10
Consolidated Statements of Cash Flows for the years ended
December 28, 1996, December 30, 1995, and December 31, 1994. 11
Notes to Consolidated Financial Statements 12
Report of Independent Accountants 24
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 1997 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.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
This information is contained in the Company's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders on pages 5 through 10 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 1997 Annual Meeting of Stockholders on pages 11 and 12 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 20 through 23 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 ended 17
December 28, 1996, December 30, 1995, and December 31, 1994.
Report of Independent Accountants on Financial Statement Schedules. 18
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
16
<PAGE>
AEROVOX INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
SCHEDULE II
<TABLE>
<CAPTION>
ADDITIONS
---------------------------------------------
BALANCE AT CHARGED CHARGED TO BALANCE
BEGINNING TO OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS DESCRIBE(1) PERIOD
- ------------------------------------- -------------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1996: $635 $715 - $665 $685
Allowance for doubtful
accounts receivable
Year ended December 30, 1995: $295 $354 - $ 14 $635
Allowance for doubtful
accounts receivable
Year ended December 31, 1994: $284 $114 - $103 $295
Allowance for doubtful
accounts receivable
</TABLE>
(1) Write-off of accounts receivable.
17
<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 twenty-four of
the 1996 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 17, 1997
18
<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/ ROBERT D. ELLIOTT BY /S/ JEFFREY A. TEMPLER
- ------------------------------------- ----------------------------
President and Chief Executive Officer Sr. Vice President and Chief
March 21, 1997 Financial Officer
March 21, 1997
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.
Signatures
/S/ CLIFFORD H. TUTTLE, JR. Chairman of the Board March 19, 1997
----------------------------
Clifford H. Tuttle, Jr. of Directors
/S/ RONALD F. MURPHY Secretary March 19, 1997
---------------------
Ronald F. Murphy
/S/ JOHN F. BRENNAN Director March 19, 1997
--------------------
John F. Brennan
/S/ JAMES B. HANGSTEFER Director March 21,1997
------------------------
James B. Hangstefer
/S/ DENNIS HOROWITZ Director March 21, 1997
--------------------
Dennis Horowitz
/S/ WILLIAM G. LITTLE Director March 21, 1997
----------------------
William G. Little
/S/ BENEDICT P. ROSEN Director March 21, 1997
----------------------
Benedict P. Rosen
/S/ JOHN L. SPRAGUE Director March 21, 1997
--------------------
John L. Sprague
19
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 28, 1996)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <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 3.2 *
(a 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 4.4 Form 10-K for
July 8, 1993, between the Company and the First National year ended
Bank of Boston. Jan. 1, 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
Company, BHC Aerovox Ltd. and the First National Oct. 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 year ended
Bank of Boston. Dec. 31, 1994
4.4.3 Second Amendment to Amended and Restated 4.4.3 Form 10-K for
Revolving Credit Agreement, dated December 29, year ended
1995. Dec. 30, 1995
4.4.4 Third Amendment to Amended and Restated 4.4.4 Form 10-K for
Revolving Credit Agreement, dated May 15, 1996. year ended
June 29, 1995
</TABLE>
20
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 28, 1996)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <C>
4.4.5 Fourth Amendment to Amended and Restated 4.4.5 Form 10-Q for
Revolving Credit Agreement, dated November 1, 1996. quarter ended
Sept, 28, 1996
Filed Herewith:
4.4.6 Fifth Amendment to Amended and Restated Revolving ---- ----
Credit Agreement, dated February 14, 1997.
4.5 Loan and Security Agreement, dated March 30, 1992, between the 4.5 Form 10-K for
Company and The CIT Group/Equipment Financing, Inc., as year ended
amended by Amendment No. 1 dated March 1, 1993. Jan. 2, 1993
4.5.1 Amendment No. 2 dated May 30, 1995. 4.5.1 Form 10-K for
year ended
Dec. 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 10.3.1 Form 10-K for
Savings 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
</TABLE>
21
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 28, 1996)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <C> <C>
10.7 Forms of Indemnification Agreements between Aerovox Incorporated 10.7 *
and its directors and certain officers.
10.8 Severance Agreements:
Filed Herewith:
(a) Severance Agreement with Robert D. Elliott --- ---
(b) Severance Agreement with Jeffrey A. Templer --- ---
(c) Severance Agreement with Martin Hudis 10.8 Form 10-K for
year ended
Dec. 30, 1995
(d) 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 and 2.1 Form 8-K dated
Cooper Ind. March 5, 1993
(13) Annual Report to Security Holders.
---------------------------------
Filed Herewith:
13.1 The Annual Report to Shareholders for the fiscal year ended --- ---
December 28, 1996. 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 28, 1996 is not being filed
as part of this report.
(18) Letter Re: Change in Accounting Principle
-----------------------------------------
Filed Herewith:
18.1 Letter of Independent Certified Public Accountants. --- ---
</TABLE>
22
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended December 28, 1996)
<TABLE>
<CAPTION>
Page/SEC
Exhibit Item Exhibit Document
- ------------ ------- --------
<S> <C> <C> <C>
(21) Subsidiaries.
------------
Filed Herewith:
21.1 List of Subsidiaries of the Company. ----- -----
(23) Consents of Experts and Counsel.
-------------------------------
Filed Herewith ----- -----
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 and Exhibit to Amendment on Form 8 to the Registration
Statement on Form 10, filed with the Securities and Exchange Commission
on February 16, 1990.
23
<PAGE>
Exhibit 4.4.6
FIFTH AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Fifth Amendment") is made and entered into as of the 14th day
of February, 1997, 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., (predecessor in interest
to the Guarantor under the Loan Documents) 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, December 29, 1995, May 15, 1996, and November 1, 1996 (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, 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)1.1 OF THE CREDIT AGREEMENT. Section 1.1 of the
--------- -- ------ -- --- ------ ---------
Credit Agreement is hereby amended to add the following definitions:
"BHC REVOLVER. The Revolving Credit Facility Letter dated as of
--- --------
September 7, 1994 by and between the Guarantor and the First National
Bank of Boston, London Branch, as such agreement may be amended and in
effect from time to time."
"BORROWING BASE. At the relevant time of reference thereto, an
--------- ----
amount determined by the Bank by reference to the most recent Borrowing
Base Report delivered to the Bank pursuant to (S)6.4(d), which is equal
to the sum of:
(a) 80% of Eligible Receivables owing from account debtors
located within the United States or a territory thereof less than 60
days past due under the original terms of sale; plus
----
<PAGE>
-2-
(b) 50% of Eligible Receivables owing from account debtors
located outside the United States or a territory thereof less than 30
days past due under the original terms of sale; plus
----
(c) the lesser of (i) 40% of the Eligible Inventory Amount, or
(ii) $7,000,000; minus
-----
(d) an amount not to exceed $1,000,000 as selected by the
Borrower in the relevant Borrowing Base Report."
"Borrowing Base Report. See (S)6.4(d)."
--------- ---- ------
"Capitalized Leases. Leases under which the Borrower or any of
----------- ------
its Subsidiaries is the lessee or obligor, the discounted future rental
payment obligations under which are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with generally
accepted accounting principles."
"Consolidated Operating Cash Flow. For any period, an amount
------------ --------- ---- ----
equal to (i) the sum of (A) EBIT for such period, plus (B)
----
depreciation, and amortization and all other noncash charges for such
period, less (ii) the sum of (A) cash payments for all taxes paid
----
during such period, plus (B) Capital Expenditures made during such
----
period to the extent permitted by (S)8.4."
"Consolidated Annual Financial Obligations. With respect to
------------ ------ --------- -----------
any fiscal year, an amount equal to the sum of all payments on
Indebtedness (including, but not limited to payments of principal and
interest) that become due and payable or that are to become due and
payable during such fiscal year pursuant to any agreement or instrument
to which the Borrower or any of its Subsidiaries is a party relating to
the borrowing of money or the obtaining of credit or in respect of
Capitalized Leases. Demand obligations shall be deemed to be due and
payable during any fiscal year during which such obligations are
outstanding."
"Eligible Finished Goods Inventory. The gross book value, as
-------- -------- ----- ---------
reflected on the books of the Borrower and its Subsidiaries other than
the Guarantor in accordance with GAAP consistently applied, of salable
products and finished goods as to which (a) the Borrower or any of its
Subsidiaries other than the Guarantor has acquired title and, except as
provided below, (b) the Bank has a valid and perfected first priority
security interest under applicable law subject only to the Permitted
Liens and (c) the Borrower has furnished reasonably detailed
information to the Bank in a Borrowing Base Report, determined after
taking into account all charges and liens of all kinds (other than
those of the Bank and carrier, warehouse, customs, and similar
statutory liens arising in the ordinary course of business) against
such finished goods and reduction in the market value thereof, all as
determined by the Bank in its reasonable discretion, which, absent
manifest error, shall be final and binding upon the Borrower and its
Subsidiaries. Finished goods inventory immediately loses the status of
Eligible Finished Goods Inventory if and when the Borrower or any of
its Subsidiaries other than the Guarantor sells it, otherwise passes
title thereto, or consumes it,
<PAGE>
-3-
or the Bank release or transfers its security interest therein, or if
and when an Eligible Account Receivable arises by virtue of
constituting proceeds of such inventory. Notwithstanding the foregoing,
but without duplication, Eligible Finished Goods Inventory shall be
reduced by the amount of any specific reserve established by the
Borrower or any of its Subsidiaries other than the Guarantor with
respect to any Eligible Finished Goods Inventory. Calculation of
Eligible Finished Goods Inventory will be made on a FIFO basis."
"Eligible Inventory Amount. Eligible Finished Goods Inventory
-------- --------- ------
plus Eligible Raw Materials."
"Eligible Raw Materials. An amount equal to the gross book
-------- --- ---------
value, as reflected on the books of the Borrower and its Subsidiaries
other than the Guarantor in accordance with GAAP consistently applied,
of raw material used in the production of Eligible Finished Goods
Inventory, as to which (a) the Borrower or any of its Subsidiaries
other than the Guarantor has acquired title and, except as provided
below, (b) the Bank has a valid and perfected first priority security
interest under all applicable laws subject only to have furnished
reasonable detailed information to the Bank in a Borrowing Base Report,
after taking into account all charges and liens (other than those of
the Bank and carrier, warehouse, customs and similar statutory liens
arising in the ordinary course of business) of all kinds against such
raw materials and reductions in the market value thereof, all as
determined by the Bank in its reasonable discretion, which, absent
manifest error, shall be final and binding upon Borrower and its
Subsidiaries. Raw material immediately loses the status of Eligible Raw
Material if and when the Borrower or any of its Subsidiaries other than
the Guarantor sells it, otherwise passes title thereto, consumes it, or
materially changes it in the course of processing the same, or the Bank
releases or transfers its security interest therein. Notwithstanding
the foregoing, but without duplication, Eligible Raw Materials shall be
reduced by the amount of any specific reserve established by the
Borrower or any of its Subsidiaries other than the Guarantor with
respect to any Eligible Raw Materials. Calculation of Eligible Raw
Materials will be made on a FIFO basis."
"Eligible Receivable. With respect to the Borrower and its
-------- ----------
Subsidiaries other than the Guarantor, the net amount, as reflected on
the books of the Borrower and its Subsidiaries other than the Guarantor
in accordance with GAAP consistently applied, of trade accounts
receivable outstanding and owed the Borrower and its Subsidiaries other
than the Guarantor by account debtors which are not Subsidiaries of the
Borrower, as to which the Bank has a valid and perfected first priority
security interest under all applicable laws and as to which the
Borrower has furnished reasonably detailed information to the Bank in a
Borrowing Base Report, determined after deducting from the aggregate
amount thereof all payments, adjustment, discounts and credits
applicable thereto, all charges and liens (other than those of the
Bank) of all kinds against such accounts receivable, all amounts due
thereon considered by the Bank to be difficult to collect or
uncollectible by reason of return, rejection, repossession, loss or
damage of or to the merchandise giving rise thereto, merchandise-
related or other disputes, insolvency of the account debtor, or any
other reason, and excluding (a) any accounts receivable arising out of
transactions with respect to which there shall exist any payables,
discounts other than prompt payment discounts in the ordinary
<PAGE>
-4-
course of business consistent with past practices, or other similar
offsets or reductions, (b) any accounts receivable that are due from
any single account debtor if more than twenty percent (20%) of the
aggregate amount of all accounts receivable owing to the Borrower or
any of its Subsidiaries other than the Guarantor from any distributor
that has the right to return unsold goods to the Borrower or any of its
Subsidiaries other that the Guarantor (but only to the extent of such
right), all as determined by the Bank in its reasonable discretion,
which, absent manifest error, shall be final and binding upon the
Borrower and its Subsidiaries."
3. AMENDMENT TO (S)2.1 OF THE CREDIT AGREEMENT. The first sentence
--------- -- ------ -- --- ------ ---------
of (S)2.1 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof.
"Subject to the terms and conditions set forth in this Agreement,
the Bank agrees to lend to the Borrower and the Borrower may borrow and
reborrow from time to time between the Closing Date and the Maturity
Date, upon notice to the Bank given in accordance with (S)2.6 hereof,
such sums as are requested by the Borrower up to a maximum principal
amount outstanding (after giving effect to all amounts requested and
the amount of the Total Outstanding) at any one time not to exceed the
lesser of (a) the Borrowing Base, or (b) $14,360,000, as such amount
maybe reduced pursuant to (S)2.2 hereof (the "Total Commitment")."
4. AMENDMENT TO (S)2.12 OF THE CREDIT AGREEMENT. Section 2.12 of the
--------- -- ------- -- --- ------ ---------
Credit Agreement is hereby amended to add the phrase, "or (b) the Borrowing Base
then in effect" immediately following the phrase, "(whether by reduction of the
Total Commitment or otherwise)" appearing in the fourth and fifth lines thereof.
5. AMENDMENT TO (S)8.1 OF THE CREDIT AGREEMENT. Section 8.1 of the
--------- -- ------ -- --- ------ ---------
Credit Agreement is hereby deleted in its entirety and the following substituted
in place thereof.
"(S)8.1. DEBT TO WORTH RATIO. As at the end of any fiscal quarter
---- -- ----- -----
commencing with the fiscal quarter ending December 28, 1996, the ratio
of Consolidated Total Liabilities to Consolidated Tangible Net Worth
shall be less than the stated ratio for the respective periods set
forth below:
<TABLE>
<CAPTION>
-----------------------------------------
PERIOD RATIO
------ -----
-----------------------------------------
<S> <C>
fiscal quarters ending 1.75:1
12/28/96 and 9/30/97
-----------------------------------------
Thereafter 1.50:1"
-----------------------------------------
</TABLE>
<PAGE>
-5-
6. 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 December 28, 1996,
the ratio of EBIT to Consolidated Total Interest Expense (a) for the
two fiscal quarters ending on such date with respect to the fiscal
quarter ending December 28, 1996, and (b) for the fiscal year-to-date
on a cumulative basis with respect to any fiscal quarter ending after
December 28, 1996 shall not be less than the stated ratio for the
fiscal quarters ending during the respective periods set forth below:
<TABLE>
<CAPTION>
-------------------------------------------------
" PERIOD RATIO
------ -----
-------------------------------------------------
<S> <C>
fiscal quarter ending 1.25:1
12/28/96
-------------------------------------------------
fiscal quarter ending on or 1.80:1
about 3/31/97
-------------------------------------------------
fiscal quarter ending on or 2.10:1
about 6/30/97
-------------------------------------------------
fiscal quarter ending on or 2.25:1
about 9/30/97
-------------------------------------------------
fiscal quarters ending 2.50:1
thereafter
-------------------------------------------------
</TABLE>
7. ADDITION OF (S)8.3 AND (S)8.4 OF THE CREDIT AGREEMENT. Sections 8.3
-------- -- ------ --- ------ -- --- ------ ---------
and 8.4 are hereby added to the Credit Agreement immediately following (S)8.2
thereof, which "8.3 and 8.4 read as follows:
"(S)8.3. DEBT SERVICE COVERAGE. As of the end of any fiscal quarter
---- ------- --------
commencing with the fiscal quarter ending December 31, 1997, the ratio
of (a) Consolidated Operating Cash Flow to (b) Consolidated Annual
Financial Obligations shall not be less than 1.25:1"
"(S)8.4. CAPITAL EXPENDITURES. As at the end of any fiscal year
------- ------------
commencing with the fiscal year ending December 31, 1997 the total
amount of Capital Expenditures for such fiscal year shall not exceed
(a) $3,000,000 with respect to the fiscal year ending December 31,
1997, or (b) $5,000,000 with respect to any fiscal year ending
thereafter."
8. COVENANT REGARDING INVENTORY LOCATED IN MEXICO. On or before April
-------- --------- --------- ------- -- ------
1, 1997, the Borrower shall, and shall cause its Subsidiaries to, deliver to the
Bank in form and substance satisfactory to the Bank, such documents and
instruments as are necessary in the opinion of counsel to the Bank to create and
perfect a valid first-priority lien in favor of the Bank on all inventory of the
Borrower and its Subsidiaries located in Mexico. Notwithstanding the requirement
set forth in
<PAGE>
-6-
the definition of Eligible Raw Materials and Eligible Finished Goods Inventory
that the Bank have a valid and perfected first priority security interest in
such raw materials and inventory in order for such items to be included in the
Borrowing Base, the Borrower may include raw materials and inventory located in
Mexico as to which the Bank does not have to have a valid and perfected security
interest in the calculation of the Borrowing Base prior to April 1, 1997.
9. RATIFICATION, ETC.
------------ ---
Except as expressly amended 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 Fifth 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 Fifth Amendment. By
executing this Fifth Amendment where indicated below, the Guarantor hereby
ratifies and confirms its guaranty of the Obligations, and acknowledges and
consents to the terms of this Fifth Amendment.
10. GOVERNING LAW.
--------- ---
THIS FIFTH 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.
11. COUNTERPARTS. This Fifth 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>
-7-
12. EFFECTIVENESS. This Fifth Amendment shall become effective
-------------
upon (a) its execution and delivery by the respective parties hereto, and (b)
the execution and delivery of the Second Amendment to the BHC Revolver by the
respective parties thereto.
13. ENTIRE AGREEMENT. The Credit Agreement as amended by this
------ ---------
Fifth 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 Fifth
Amendment under seal as of the date first set forth above.
THE BORROWER:
--- --------
AEROVOX INCORPORATED
By: /S/JEFFREY A. TEMPLER
----------------------------------
Title: Sr. V.P. and CFO
-------------------------------
THE GUARANTOR:
--- ---------
BHC AEROVOX, LTD.
By: /S/RONALD F. MURPHY
----------------------------------
Title: Sr. V.P./Director
--------------------------------
THE BANK:
--- ----
THE FIRST NATIONAL BANK OF BOSTON
By: /S/PAULINE J. MOZZONE
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
Exhibit 10.8(a)
AEROVOX INCORPORATED
Severance Agreement
-------------------
Agreement, made this 26th day of February, 1996, by and between Robert
D. Elliott ("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 the 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
employ of the Company and will render the services contemplated in the recitals
to the 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:
<PAGE>
SEVWG
(a) the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 300% 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
(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.
<PAGE>
SEVWG
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 be 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.
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.
<PAGE>
SEVWG
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. 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 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.
<PAGE>
SEVWG
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.
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 acquirer 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
suggest otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquire of such assets of the Company.
<PAGE>
SEVWG
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 an 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.
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 February 26, 2001, 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>
SEVWG
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 designed, 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 extend 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
---------------------------------
Clifford H. Tuttle, Jr.
Chairman & CEO
BY: /s/ ROBERT D. ELLIOTT
---------------------------------
Executive
Robert D. Elliott
<PAGE>
Exhibit 10.8(b)
AEROVOX INCORPORATED
Severance Agreement
-------------------
Agreement, made this 3rd day of June, 1996, by and between Jeffrey A.
Templer ("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 the 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
employ of the Company and will render the services contemplated in the recitals
to the 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:
<PAGE>
SEVWG
(a) the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% 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
(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.
<PAGE>
SEVWG
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 be 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.
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.
<PAGE>
SEVWG
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. 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 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.
<PAGE>
SEVWG
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.
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 acquirer 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
suggest otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquire of such assets of the Company.
<PAGE>
SEVWG
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 an 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.
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 February 26, 2001, 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>
SEVWG
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 designed, 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 extend 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.
Chairman & CEO
BY: /S/ JEFFREY A. TEMPLER
---------------------------
Executive
Jeffrey A. Templer
<PAGE>
[LOGO OF AEROVOX APPEARS HERE]
1996 Annual Report
<PAGE>
Aerovox(R)
Sales by Market
(millions US $124.5)
[PIE CHART APPEARS HERE]
Specialty 16%
Lighting 19%
Power Electronics 28%
Motors 37%
<TABLE>
<CAPTION>
Markets Applications Aerovox Products
- --------------------------------------------------------------------------------
<S> <C> <C>
Motors Compressors, air conditioners AC Oil Capacitors
refrigeration, laundry equipment, AC Dry Capacitors
pumps, garage doors openers, Aluminum Electrolytic
hospital beds Capacitors
- --------------------------------------------------------------------------------
Lighting Electromagnetic and electronic AC Oil Capacitors
ballasts for fluorescent and HID AC Dry Capacitors
fixtures, and strobe lights DC Film Capacitors
Aluminum Electrolytic
Capacitors
- --------------------------------------------------------------------------------
Power Variable speed drives, UPS, DC Film Capacitors
Electronics power supplies, transportation AC Oil Capacitors
welders, motor speed controllers Aluminum Electrolytic
telecommunications equipment, Capacitors
audio/visual equipment, battery
chargers
- --------------------------------------------------------------------------------
Specialty Microwave ovens Microwave Oven Capacitors
Medical equipment Energy Discharge/Storage
(defibrillator, X-ray equipment), Capacitors
government and university research
Industrial plans, commercial Power Factor Correction
facilities and instructions Capacitors and Systems
consuming large amounts of
electrical power
Power supplies, industrial EMI Filters
equipment, computer and
telecommunications equipment
and appliances
</TABLE>
<PAGE>
Company Profile
Aerovox Incorporated ~ 1996 Annual Report
Aerovox is a leading manufacturer of film, paper, and aluminum electrolytic
capacitors. The Company sells its products worldwide, principally to original
equipment manufacturers (OEMs) of electrical and electronic products.
Applications include air conditioners, fluorescent and high intensity discharge
(HID) lighting, a variety of appliances including microwave ovens, motors, power
supplies, photocopiers, telecommunications, computer and medical equipment, and
industrial electrical systems.
The Company's manufacturing facilities are located in New Bedford,
Massachusetts; Huntsville, Alabama; Weymouth, England; and Juarez, Mexico.
The shares of Aerovox Incorporated trade on the Nasdaq Stock Market (National
Market) under the symbol ARVX.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
For The Years Ended
Operating Results Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $124,478 $128,322 $125,640
Income (loss) from
operations (338) 4,246 6,010
Net income (loss) (1,347) 1,601 3,024
Net income (loss) per share $ (0.25) $ 0.30 $ 0.56
Cash Flow
-----------------------------------------------------------------------------
Net cash provided by
operating activities $ 8,317 $ 1,529 $ 3,426
Financial Position
-----------------------------------------------------------------------------
Total assets $ 84,976 $ 89,331 $ 78,398
Long-term obligations 23,806 28,777 22,466
Stockholders' equity 35,073 35,505 34,054
</TABLE>
1
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Dear Fellow Shareholder:
1996 was a year of transition for Aerovox. It was a year marked by many
changes - from a new management team, organization structure, and management
style to the development of plans and actions to dramatically change the way we
operate our business. While our results do not yet reflect the benefits of
these changes, we have initiated a number of steps which we believe will help
position Aerovox for renewed growth and continuous improvement during 1997 and
beyond.
For the most part, our financial performance in 1996 was disappointing.
Sales declined slightly from 1995 and, in fact, have been flat for three years.
Contained within that total however, are the positive results from our U.K.
subsidiary, BHC Aerovox Ltd., whose revenues were up nearly five percent for the
year, despite soft fourth quarter sales in Germany and France.
Earnings were heavily impacted by the write-offs we took during 1996,
resulting in a loss for the year. The one bright spot financially is that our
emphasis on cash flow during the year resulted in a stronger balance sheet with
the reduction of nearly five million dollars in long-term debt. Since complete
financial statements and a detailed discussion of results are covered later in
this report, I would like to use the remainder of this letter to tell you what
we are doing to improve your Company.
Organization/Management Style
We have begun work to de-layer and streamline the management of our
business. During 1996, several executive and managerial positions were
eliminated. Further salaried position reductions are anticipated during 1997 as
we continue to redesign work flows.
We have begun a major change in style, or culture, throughout the Company.
We are moving toward a team-based, participatory approach which encourages
creativity, innovation, risk taking, problem solving through the use of
quantitative methods, and an attitude of continuous improvement. With this
change, we are eliminating bureaucratic and functional barriers as we become
more dynamic in our approach to increase the speed and quality of decision
making.
Operating Efficiency
Coupled with this cultural change is a drive to significantly improve
fundamental operating efficiency. We have established short-term goals to:
. Improve on-time delivery performance to our customers using a tighter
standard of measurement while improving quality levels
. Reduce cycle times by half
. Reduce inventory investment by 25% company-wide
In our manufacturing facilities we are redesigning our processes -
information flows, materials acquisition and flows, and actual production. We
are moving to a leaner organizational structure, utilizing
2
<PAGE>
cell concepts within focused manufacturing areas.
The factory floor is being transformed from
inflexible large quantity batch production, to [PHOTOGRAPH APPEARS HERE]
continuous flow pull-through techniques with
emphasis on speed and the elimination of Robert D. Elliot
waste in all areas. President and Chief Executive Officer
We have initiated a process for continuous improvement labeled
"ACTION...Aerovox Commitment to Improving Operations Now!" This is a team-based
approach using a multi-step process of problem solving. We have increased our
level and commitment to training, enabling our people to acquire the skills
required to operate in the 21st century. Curricula now being delivered to
Aerovox employees include quality principles and such topics as basic and
advanced quantitative methods of problem solving, single-minute-exchange-of-dies
(SMED) techniques, just-in-time (JIT) manufacturing and various computer
applications courses.
Underpinning everything else we are doing is a decision we made during the
fourth quarter of 1996 to install a new fully integrated information system
throughout Aerovox. Currently, we operate multiple business computer systems,
many of which are more than ten years old, on different hardware platforms.
Dubbed the "Millennium Project," upon completion at the end of 1998, we will
have a common integrated and flexible information system working on similar
hardware throughout the Company.
A Word of Thanks
Two key executives of Aerovox retired at the end of 1996 - Clifford H.
Tuttle, Chief Executive Officer, and Ronald F. Murphy, Chief Financial Officer.
Both Cliff (26 years) and Ron (20 years) have given themselves totally to
Aerovox and were the driving force behind the Company's growth from an $8
million product line in 1973 to a $125 million multi-national company today. We
thank both Cliff and Ron for their many contributions and wish them well in
retirement.
The actions described in this letter have all been undertaken to improve
shareholder value by dramatically improving our responsiveness and ability to
profitably satisfy our customers. Your management team fully understands that
recent financial performance is unacceptable. We are all committed to turning
that around and putting Aerovox back on a profitable growth track. The first
major step is to rebuild a solid operating base from which to grow.
We thank you for your understanding and continued support.
/s/ Robert D. Elliot
Robert D. Elliott
President and Chief Executive Officer
3
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Capacitors are basic electrical components that store electrical energy and
regulate the frequency, timing and condition of electrical signals. Air
conditioners, compressors, fluorescent and high intensity discharge lighting,
microwave ovens, washing machines, refrigerators, computer equipment,
defibrillators and other medical equipment, telephone switching systems -
products that consumers use every day - all rely on electrical energy.
Capacitors are the critical components in these and many other products that
allow them to use this energy more efficiently.
Aerovox sells its components worldwide to over 1,000 customers who are
primarily original equipment manufacturers. Almost 25% of revenues in 1996 were
from foreign sales, principally from the Company's subsidiary in the United
Kingdom.
Founded in 1922, Aerovox now manufactures capacitors in four plants: AC
and DC film capacitors are produced in New Bedford, Massachusetts (since 1938)
and in Juarez, Mexico (since 1992). Aluminum electrolytic capacitors are made
in a second plant in Juarez (since 1993) and in Weymouth, England. In
Huntsville, Alabama, we etch and form the aluminum foil that is a critical
component in the electrolytic capacitors made in Juarez and in Weymouth.
At Aerovox, we are working to secure the future of our company as a leading
manufacturer of film, paper and aluminum electrolytic capacitors. While this is
a relatively mature industry, the technology is changing, new products are
evolving and we are constantly challenged to keep pace with our customer
demands. To become a better supplier, we are redesigning the way we do
business. In 1996, we inaugurated an initiative aptly named ACTION! - Aerovox
Commitment To Improve Operations Now! - that will change the way Aerovox does
business now and in the future.
North American Operations and Products
In New Bedford, Massachusetts, change is the order of the day. Here
ACTION! is in place and providing impetus for improvements. Products
manufactured in this facility include
4
<PAGE>
AC capacitors and DC film capacitors for motor, lighting and power electronics
applications, microwave oven capacitors, energy discharge capacitors for medical
and research applications, and power factor correction capacitors and systems
for industrial plants. While ACTION! was first introduced in New Bedford, it is
a company-wide initiative that will eventually involve operational changes at
all of our manufacturing facilities. Initiatives are planned to improve
operating systems in Mexico, both at Plant I where we produce aluminum
electrolytic capacitors for power electronics and motor applications, and at
Plant II where Aerovox manufactures more labor intensive AC and DC film
capacitors and EMI filters. ACTION! will also focus on improvements in the
Company's foil operation in Huntsville, Alabama.
European Operation and Products
BHC Aerovox Ltd., in Weymouth, England, is a leading European manufacturer
of aluminum electrolytic capacitors and the major supplier of AC motor start
capacitors in this market. Compressors and fractional horsepower motors are the
primary application for this product line. BHC's leading edge technology DC
capacitors are supplied to all the major European motor drives manufacturers.
Other applications for BHC's aluminum electrolytic capacitors include a wide
range of power electronics equipment - power supplies, motor drives,
uninterruptible power supplies, welding equipment, audio amplifiers, traction
units for trains, and other industrial electronic applications.
Teamwork in ACTION!
ACTION! requires teamwork. And at Aerovox, whether in New Bedford, Juarez,
Huntsville or Weymouth, we are all on the same team. ACTION! will take a cross-
functional, multi-level approach and involve as many people and areas as
necessary to find the right solutions. ACTION! represents a significant culture
change for Aerovox and its success depends on the hard work and commitment of
everyone. Together, we are confident we can build a stronger company.
5
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
The table below sets forth the year-to-year percentage increases (decreases)
in various items from the consolidated statements of income.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Sales (3.0)% 2.1%
Cost of sales (1.4)% 5.0%
Gross profit (12.4)% (11.8)%
Selling, general and
administrative expenses 15.3% (4.9)%
Income from operations (108.0)% (29.4)%
</TABLE>
The table below depicts the same items as percentages of net sales.
<TABLE>
<CAPTION>
For The Years Ended
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of sales 86.7% 85.3% 82.9%
Gross profit 13.3% 14.7% 17.1%
Selling, general and
administrative expenses 13.6% 11.4% 12.3%
Income from operations (0.3)% 3.3% 4.8%
</TABLE>
1996 versus 1995
In fiscal 1996 consolidated net sales were $124,478,000, a decline of 3% from
1995 sales of $128,322,000. Order backlog decreased from the end of the prior
year by $1,400,000. During 1996 the company reorganized its North American
capacitor operations. The Aero M group was merged with the film capacitor
businesses of the Aerovox Group to constitute the North American capacitor
division of Aerovox, which includes both the aluminum electrolytic capacitors
business of the former Aero M Group and the AC film capacitor product lines of
the former Aerovox Group. These product lines are manufactured in the company's
three capacitor plants in New Bedford, Massachusetts and Juarez, Mexico, and a
principal component, electrolytic foil, is produced in the Aerovox plant in
Huntsville, Alabama.
The North American capacitor business accounted for $94,350,000 of 1996 net
sales, versus $98,452,000 in 1995, a decline of 4.2%. $1,700,000 of the decline
is attributable to the company's film capacitor product lines, and is a result
of increased competition and declining prices. The remainder of the decline was
in the aluminum electrolytic capacitor product lines, and was due to production
problems and the resulting inability to ship on schedule.
Sales of the company's Power Factor Correction and EMI Filter business units
declined 11% versus 1995 to $6,593,000.
Sales of the company's UK capacitor manufacturing subsidiary, BHC Aerovox Ltd.
increased from $22,444,000 in 1995 to $23,535,000, or 4.9%. This increase is
accounted for by the start-up in early 1996 of a new capacitor line at BHC to
supply European manufacturers of microwave ovens.
Gross profit for Aerovox in 1996 was $16,582,000, or 13.3% of sales. This
represents a decrease of $2,337,000 from 1995. Of this decline $600,000 resulted
from the lower volume in North America reported during 1996. Additionally, gross
profit was negatively impacted by $4,249,000 of special charges in the second
quarter and fourth quarter. These charges increased the reserves for obsolete
and excess
6
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
inventories and warranty costs, primarily related to operational problems in
Mexico. Adjusted for these special charges, gross profit was $20,831,000, or
16.7% of sales.
Selling, general, and administrative expenses were $16,920,000, an increase of
$2,247,000, or 15.3% over 1995. Approximately one-half of the increase related
to the special charge in the second quarter, and served to increase reserves for
bad debts, as well as account for the termination of certain employee benefit
plans. Selling, general, and administrative expenses in the fourth quarter of
1996 also included $250,000 in costs associated with the planned closure of the
Company's North Dartmouth offices, and $320,000 in accrued employee severance
benefits. Loss from operations for 1996 was $338,000.
Interest expense for 1996 was $2,263,000, slightly lower than in 1995.
Interest rates paid on borrowings during the year ranged from 6.8% to 8.75%.
Normal levels of profit on licensing income were partially offset by foreign
exchange items totaling $531,000.
The provision for income taxes reflects a credit of $1,104,000 against a loss
before taxes of $2,451,000. This credit included an expected refund of $218,000
for overpayment of income taxes to the United Kingdom in prior years. Net loss
after provision for taxes was $1,347,000, or ($.25) per share.
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 profit 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 profit was
affected by reduced domestic shipment volume but was also impacted by continued
losses at operations in Mexico. Operations in the United Kingdom (BHC Aerovox
Ltd.) improved its gross profit 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.
7
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Other income totaled $702,000 in 1995
compared to $753,000 in 1994. A positive [PHOTOGRAPH APPEARS HERE]
exchange gain in 1994 of $250,000 that Jeffrey A. Templer
was recorded in the UK operations was not Senior Vice President
repeated in 1995. and Chief Financial Officer
Income before taxes for fiscal 1995 was $2,652,000 compared to $4,693,000 for
fiscal year 1994. 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.
Liquidity and Capital Resources
Working capital at December 28, 1996, was $24,576,000 compared to $27,451,000
at the end of fiscal 1995. Current ratio was 2.4 at year end 1996 and 2.5 at
year end 1995. Net accounts receivable and inventories decreased by $3,872,000
and $3,052,000, respectively, during 1996. Net cash provided by operating
activities in 1996 totaled $8,317,000 compared to $1,521,000 in 1995.
The Company invested approximately $3,348,000 in capital assets in 1996
compared to $8,130,000 in 1995.
The Company's Revolving Credit Agreement (as amended on December 29, 1996)
provides for a credit line of $21,815,000 to the Company, including 4,400,000
British Pounds ($7,455,000 at year end exchange rates) to BHC Aerovox Ltd.
(BHC), a wholly-owned subsidiary in the United Kingdom. The Agreement, which
extends to May 31, 1999, also includes various interest rate options which, for
fiscal 1996, have varied from 6.8% to 8.75% on an annualized basis. The security
for this line of credit is accounts receivable and inventories and a Company
guarantee for the UK loan. The outstanding balance of loans at fiscal years
ended December 28, 1996, and December 30, 1995, was $17,423,000 and $20,291,000,
respectively. Please refer to Note 3 to the consolidated financial statements
for more information about borrowings.
The Company also has a term line of credit with an equipment financing company
with an outstanding balance at the end of 1996 of $6,066,000 compared to an
outstanding balance at the end of 1995 of $7,677,000. These loans, secured by
equipment at the Company's New Bedford facility, have five-year terms and carry
annual interest rates varying from 7.5% to 8.1%.
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. The outstanding balance at fiscal year end was
$2,573,000 versus a balance at year end, 1995, of $2,942,000.
Cash at December 28, 1996, totaled $864,000 compared to $573,000 December 30,
1995.
Other Matters
The impact of inflation on the Company's business has not been material.
8
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Consolidated Statements of Income
<TABLE>
<CAPTION>
For The Years Ended
(Amounts in Thousands, Except Per Share Data) Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $124,478 $128,322 $125,640
Cost of Sales 107,896 109,403 104,202
Gross profit 16,582 18,919 21,438
Selling, general and administrative expenses 16,920 14,673 15,428
Income (loss) from operations (338) 4,246 6,010
Other income (expense):
Litigation settlement (Note 12) - - (504)
Interest expense (2,263) (2,296) (1,566)
Other income 150 702 753
Income (loss) before income taxes (2,451) 2,652 4,693
Provision for income taxes (Note 11) (1,104) 1,051 1,669
Net income (loss) $ (1,347) $ 1,601 $ 3,024
Net income (loss) per share $ (.25) $ .30 $ .56
</TABLE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Foreign
Additional Currency Total
Common Capital Retained Translation Stockholders'
(Amounts in Thousands) Stock Paid-In Earnings Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $5,171 $ 326 $24,863 $(202) $30,158
Adjustment for the cumulative
effect on prior years of applying
retroactively the new method
of valuing inventories (Note 1) - - 640 - 640
Balances at January 1, 1994 as adjusted 5,171 326 25,503 (202) 30,798
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 28,527 (294) 34,056
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 30,128 (691) 35,505
Net income (loss) - - (1,347) - (1,347)
Proceeds from employee stock
purchase plan and exercise of
stock options (16,254 shares) 16 73 - - 89
Foreign currency translation adjustments - - - 826 826
-------------------------------------------------------------------
Balance at December 28, 1996 $5,315 $ 842 $28,781 $135 $35,073
===================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
<TABLE>
<CAPTION>
(Amounts in Thousands) Dec. 28, 1996 Dec. 30, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 864 $ 573
Accounts receivable, net of allowance for
doubtful accounts of $685 in 1996 and $635
in 1995 (Note 3) 16,096 19,588
Inventories (Notes 1, 2 & 3) 20,910 23,654
Prepaid expenses and other current assets 1,044 1,073
Deferred income taxes (Note 11) 3,608 885
----------------------------
Total current assets $42,522 $45,773
Property, plant and equipment, at cost (Note 3):
Land 391 384
Buildings and improvements 11,285 11,056
Machinery and equipment 61,471 57,598
73,147 69,038
Less accumulated depreciation (32,617) (27,787)
40,530 41,251
Deferred income taxes (Note 11) 1,651 1,906
Note receivable 195 293
Other assets 78 108
----------------------------
Total assets $ 84,976 $ 89,331
============================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 8,298 $ 11,270
Accrued compensation and related expenses 2,874 2,523
Other accrued expenses (Note 4) 3,012 816
Current maturities of long-term debt (Note 3) 3,552 3,205
Income taxes 210 508
----------------------------
Total current liabilities 17,946 18,322
Deferred income taxes (Note 11) 8,151 6,727
Industrial revenue bond (Note 3) 2,175 2,573
Long-term debt less current maturities (Note 3) 20,335 25,132
Deferred compensation 1,296 1,072
Commitments and contingencies (Notes 5, 7, & 12)
Stockholders' equity (Notes 7, 8, & 9):
Preferred stock, $.01 par value; 5,000,000
shares authorized; none issued - -
Common Stock; $1.00 par value; 20,000,000
shares authorized;
5,314,995 and 5,298,741 shares issued and
outstanding 5,315 5,299
Additional paid-in capital 842 769
Retained earnings 28,781 30,128
Foreign currency translation adjustments 135 (691)
----------------------------
Total stockholders' equity 35,073 35,505
----------------------------
Total liabilities and stockholders' equity $ 84,976 $ 89,331
============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
<TABLE>
<CAPTION>
For The Years Ended
(Amounts in Thousands) Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(1,347) $ 1,601 $ 3,024
Adjustments to reconcile net
income (loss) to
cash provided by (used in)
operating activities:
Depreciation and amortization 4,673 4,046 3,682
Deferred income taxes (1,104) 489 1,223
Changes in operating assets
and liabilities:
Accounts receivable 3,872 (3,409) (178)
Inventories 3,052 (2,770) (4,018)
Prepaid expenses 38 79 (102)
Recoverable income taxes - (22) 255
Accounts payable (3,069) (1,344) 2,101
Accrued compensation and
related expenses 326 (102) (580)
Other accrued expenses 2,183 237 (1,886)
Income taxes payable (307) 36 (95)
-------------------------------------------
Net cash provided by operating
activities 8,317 1,529 3,426
-------------------------------------------
Cash flows from investing
activities:
Acquisition of property,
plant and equipment (3,348) (8,498) (7,072)
Cash equivalents pledged as
collateral - - 505
Other 666 213 (163)
-------------------------------------------
Net cash used in investing
activities (2,682) (8,285) (6,730)
-------------------------------------------
Cash flows from financing
activities:
Proceeds from employee stock
purchase plan and exercise
of stock options 89 245 326
Net borrowings (repayments)
under line of credit (3,387) 6,246 4,854
Long-term borrowings 1,500 3,500 -
Payments of long-term debt (3,481) (2,700) (2,152)
-------------------------------------------
Net cash provided by (used in)
financing activities (5,279) 7,291 3,028
-------------------------------------------
Effects of exchange rate on
cash (65) (64) 163
-------------------------------------------
Increase (decrease) in cash 291 471 (113)
Cash at beginning of year 573 102 215
-------------------------------------------
Cash at end of year $ 864 $ 573 $ 102
===========================================
Supplemental disclosure of
cash flow information:
Cash paid during the year
for interest $ 2,263 $ 2,344 $ 1,592
===========================================
Cash paid during the year
for income taxes $ 582 $ 637 $ 621
===========================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Note 1 - 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 and certain reclassifications have been made to prior year's
financial statements to conform to the 1996 presentation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to December 31. Fiscal
years 1996, 1995, and 1994 ended on December 28, 1996, December 30, 1995, and
December 31, 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 $73,000, $72,000, and $101,000 in 1996, 1995, and 1994,
respectively.
Financial Instruments
Derivative financial instruments are used by the Company in the management of
foreign currency exposures and are accounted for on an accrual basis. Gains and
losses resulting from effective hedges of existing assets, liabilities, or firm
commitments are deferred and recognized when the offsetting gains and losses are
recognized on the related hedged items.
Grants
Grants received from governments by foreign subsidiaries are recognized in
income when the related funds are received. In 1996 and 1995, grants of
approximately $88,000 and $250,000, respectively, received by the Company's
United Kingdom subsidiary were recognized as a reduction of related operating
expenses.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market.
During the fourth quarter of 1996 the Company changed its method for costing
domestic inventories from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method. All inventories, both foreign and domestic, are now
costed using the FIFO method. The Company will also apply to the Internal
Revenue Service to change to the FIFO method of inventory costing for tax
purposes.
The Company has been experiencing customer demand for decreasing prices. The
establishment of two manufacturing facilities in Mexico several years ago were
in response to this trend. The Company expects this pattern to continue with
level or decreasing costs well into the future. At the same time, the Company is
investing in efforts to increase the turnover of inventories and the reduction
of manufacturing cycle times. Accordingly, the Company believes that the FIFO
method results in a better matching of current costs with current revenues.
The change has been applied to prior periods by retroactively restating the
financial statements as required by generally accepted accounting principles.
The effect of this restatement was to increase retained earnings by $640,000 and
inventory by $1,024,000 as of December 31, 1993, and to decrease deferred tax
assets by $384,000 as of that date. There was no change in the reported net
income for the years ended December 31,1994 and December 30, 1995. Net loss and
loss per share for the year ended December 28, 1996 would have been $370,000 and
$0.07 greater, respectively, had the Company retained the LIFO method.
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;
leasehold improvements, over the life of the lease or the useful life of the
asset, whichever is shorter; machinery and equipment, 3-15 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
12
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
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.
Concentrations of Credit Risks
Financial Instruments which potentially subject the company to concentrations
of credit risk consist primarily of trade receivables and certain other off-
balance sheet financial instruments. By their nature, all such financial
instruments involve risk, including risk of non-performance by counterparties,
and the maximum potential loss may exceed the amounts recognized on the balance
sheet. Exposure to credit risk is controlled through credit approvals, credit
limits, and monitoring procedures. Management believes that the reserves for
losses are adequate.
Use of Estimates
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.
Revenue Recognition
Revenues from product sales are recorded when the product is shipped.
Provisions for product returns and allowances are recorded in the same period as
the related revenue.
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 purposes.
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, calculated
under the treasury stock method as prescribed by APB 15 (5,430,625 in 1996,
5,393,202 in 1995, and 5,410,088 in 1994). Fully diluted net income per share is
the same as net income per share.
Note 2 - Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995
Domestic Foreign Total Domestic Foreign Total
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raw materials $ 7,629 $2,368 $ 9,997 $10,582 $2,263 $12,845
Work in process 3,707 435 4,142 4,030 658 4,688
Finished goods 5,819 952 6,771 5,809 312 6,121
-----------------------------------------------------
$17,155 $3,755 $20,910 $20,421 $3,233 $23,654
-----------------------------------------------------
</TABLE>
Note 3 - Debt:
The Company maintains a Revolving Credit Agreement with a bank, which, as
amended, provides a credit line of approximately $22 million to the Company,
including a 4,400,000 British Pounds ($7,455,000 at year end exchange rates)
line of credit to BHC Aerovox, Ltd. (BHC), a wholly-owned subsidiary of the
Company. Amendments three through four to the Agreements were issued during
1996, adjusting financial covenants which require the Company to maintain debt
to tangible net worth and interest coverage ratios. Had these covenants not been
thereby changed, the Company would have been in violation at the end of each
quarter of 1996. This debt is partially secured by inventory and accounts
receivable.
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, 1999. A commitment fee, equal
to one-quarter percent per annum will be charged on the unused portion of the
total commitment. At December 28, 1996, borrowings outstanding under this
Agreement were $17,422,000, including 3,608,000 British Pounds ($6,113,000 at
year end exchange rates).
13
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
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. $397,500
of principal is payable in 1997. On December 28, l996, the bond balance
outstanding under this agreement was $2,572,500.
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 28, 1996, borrowings outstanding under this agreement
were $6,066,000 at annualized interest rates ranging from 7.36% to 8.24%, and
maturing at various dates through the year 2000. The agreement contains several
financial covenants requiring the Company to maintain certain ratios regarding
debt, equity, and interest costs. The Company was in violation of one of those
covenants on December 28, 1996, for which it received a waiver from the lender.
Total maturities of long-term debt over the next five years are:
<TABLE>
<CAPTION>
Year
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 3,552,000
1998 1,721,000
1999 18,880,000
2000 1,084,000
2001 553,000
Thereafter 272,000
</TABLE>
Note 4 - Other Accrued Expenses:
Other accrued expenses consist of the following at December 28, 1996
(in thousands):
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------------
<S> <C>
Warranty $ 1,394
Duty 1,002
Other 616
-----------
$ 3,012
===========
</TABLE>
Note 5 - Commitments:
The Company leases office space and equipment under various non-cancelable
operating leases. Rental expense amounted to $1,672,000 in 1996, $1,375,000 in
1995, and $1,652,000 in 1994. On December 28, 1996, future minimum annual rental
payments under all leases are as follows:
<TABLE>
<CAPTION>
Year
-----------------------------------------------------------------------
<S> <C>
1997 $1,208,000
1998 908,000
1999 786,000
2000 670,000
2001 668,000
Thereafter 1,933,000
</TABLE>
During the fourth quarter of 1996, the Company planned the closure of its
offices in North Dartmouth, Massachusetts. Accordingly, future minimum annual
rental payments exclude payments related to those offices.
The Company is self-insured for workers' compensation benefits for some of its
employees. The amounts charged to expense for workers' compensation were
$307,000 in 1996, $357,000 in 1995, and $417,000 in 1994, 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 $2,236,000
(based on current enrollment) for 1996. 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
14
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
aggregate stop/loss coverage and administrative fees, less employee
contributions, was $1,883,000 in 1996, $1,830,000 in 1995, and $1,672,000 in
1994.
Note 6 - Financial Instruments
The Company operates internationally, with manufacturing facilities,
customers, and vendors in several countries outside of the United States. The
Company may reduce its exposure to fluctuations in foreign exchange rates by
creating offsetting positions through the use of foreign currency forward
contracts, a type of derivative financial instrument. The Company does not use
derivative financial instruments for trading or speculative purposes, nor is the
Company a party to leveraged derivatives.
At December 28, 1996 the Company held foreign currency forward contracts with
notional value totaling approximately $1,640,000 (970,000 British Pounds
Sterling). These contracts all have maturities prior to December 31, 1997. The
carrying and net fair value of these contracts at December 28, 1996 was $0 and
($121,800), respectively.
Note 7 - 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, the sale or award of convertible securities and other
common stock-based awards, 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 950,000 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 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, 1996, 1995, and
1994, with respect to the plan, is as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
- ------------------------------------------------------------
<S> <C> <C>
Outstanding at Jan. 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 Dec. 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 Dec. 30, 1995 446,000 3.000-9.000
Granted 140,000 5.000-7.750
Canceled (79,000) 7.500-8.875
Exercised (7,000) 3.000
-------------------------
Outstanding at December 28, l996 500,000 $3.000-9.000
=========================
</TABLE>
15
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
These options expire at various dates through December 2006. Options for
293,000 shares were exercisable at December 28, 1996. At December 28, 1996,
there were 322,000 shares held available for future grants.
1989 Stock Option Plan for Directors
The 1989 Stock Option Plan for Directors reserved 80,000 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
of each annual meeting of shareholders of the Company, will receive options
covering 1,000 shares or 250 for each quarter of service if less than one year
elapses between the initial grant and an annual grant. 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.
Information for fiscal years 1996, 1995, and 1994, with respect to the plan, is
as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
- ----------------------------------------------------------
<S> <C> <C>
Outstanding at Jan. 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 Dec. 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 Dec. 30, 1995 31,665 2.750-9.625
Granted 6,000 6.50
Canceled (3,290) 2.750-9.625
Exercised - 0 - - 0 -
-----------------------
Outstanding at December 28, l996 34,375 $3.000-9.625
=======================
</TABLE>
These options expire at various dates through May 2006. Options for 26,539
shares were exercisable at December 28, 1996. There were 33,792 shares available
for future grants at December 28, 1996.
Accounting for Stock Options
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. This pronouncement describes a "fair
value" method for calculating the effect of options granted on the reported
earnings of the Company. This new method uses certain historical data regarding
outstanding options and the price history of a company's shares in a
mathematical model to determine the hypothetical value of the option had it been
sold in the open securities market rather than granted to the plan participant.
This is in contrast to the valuation method prescribed by APB 25, which
calculates the value at the date of grant as the difference, if any, between the
exercise price and the market price of the shares on that date.
The weighted average fair value at date of grant for options granted in 1996
and 1995 was $3.83 and $4.08 per option, respectively. These values were
estimated using the Black-Scholes model with the following weighted average
assumptions for 1996 and 1995: risk-free interest rates as of the grant dates
from 6.27% to 7.14%; no dividend yields; a volatility factor of the expected
market price of the Company's common stock of 30.97%, and a weighted average
expected life of the options of 9.87 years.
16
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
As allowed by SFAS 123, the Company has determined that it will elect the
disclosure-only alternative, and continue to calculate and report net income and
net income per share according to APB 25. Had compensation cost for the
Company's 1996 and 1995 grants for stock-based employee compensation plans been
determined consistent with SFAS 123, the Company's net income, and net income
per share for those years would approximate the pro forma amounts below (in
thousands except for per share data).
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995
As Reported Pro Forma As Reported Pro Forma
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(1,347) $(1,493) $1,601 $1,568
Net income (loss) per share $ (0.25) $ (.28) $ 0.30 $ 0.29
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of the pro forma effect on net income in future years because SFAS
123 does not take into consideration pro forma expense related to grants made
prior to 1995.
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 1996, 1995, and 1994, 9,254, 8,139, and 6,383 shares,
respectively, were sold under the plan. There were 21,818 shares qualified for
future sale on December 28, 1996.
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 of 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 on December 28, 1996 was approximately $1,799,000.
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 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 $471,000 in 1996,
$479,000 in 1995, and $608,000 in 1994.
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 $252,000 in 1996,
$189,000 in 1995, and $71,000 in 1994.
17
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
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 $169,000 in 1996,
$195,000 in 1995, and $934,000 in 1994.
Consulting Agreements
The Company has Consulting, Non-Competition and Confidentiality Agreements
with two former executives. Under the Agreements, which expire on December 28,
2006, the executives will be paid an aggregate of $160,000 per year.
Note 8 - 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.
On December 28, 1996, 55,000 shares of Series A Preferred were reserved for
issuance for stock purchase rights (see Note 9). No such rights have become
exercisable and no shares of Series A Preferred have been issued.
Note 9 - 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. The Rights, which do not have voting rights, expire on December 1,
1999, unless redeemed earlier by the Company.
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
18
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
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).
Note 10 - Operations by Geographic Area:
The Company is engaged in 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>
Operations by Geographic Area
United United
States Kingdom Mexico Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 28, 1996
Sales to unaffiliated customers $ 100,167 $ 23,535 $ 776 $ - $ 124,478
Transfer between geographic areas 3,739 - 6,385 10,124 -
---------------------------------------------------------------------
Total sales $ 103,906 $ 23,535 $ 7,161 $ 10,124 $ 124,478
---------------------------------------------------------------------
Operating profit (loss) $ (1,680) $ 1,077 $ 342 $ - $ (261)
---------------------------------------------------------------------
Interest expense (2,263)
Interest income 73
---------------------------------------------------------------------
Losses before taxes (2,451)
Identifiable assets $ 75,535 $ 15,901 $ 1,162 $ 7,622 $ 84,976
---------------------------------------------------------------------
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 $ 2,258 $ 2,404 $ 214 $ - $ 4,876
Interest expense (2,296)
Interest income 72
---------------------------------------------------------------------
Income before taxes $ 2,652
---------------------------------------------------------------------
Identifiable assets $ 80,308 $ 15,037 $ 848 $ 6,862 $ 89,331
---------------------------------------------------------------------
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 $ 4,299 $ 1,476 $ 383 $ - $ 6,158
Interest expense (1,566)
Interest income 101
---------------------------------------------------------------------
Income before taxes $ 4,693
---------------------------------------------------------------------
Identifiable assets $ 71,662 $ 10,769 $ 1,011 $ 5,045 $ 78,397
---------------------------------------------------------------------
</TABLE>
The results have been restated for the change in accounting for inventories from
LIFO to FIFO.
Transfers between geographic areas are accounted for at cost plus 15% in 1996,
1995, and 1994.
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.
19
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Note 11 - Provision for Income Taxes:
The provision for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
Dec. 8, 1996 Dec. 30, 1995 Dec. 31, 1994
---------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ 6 $ 24
State 58 93 75
Foreign (58) 463 347
---------------------------------------------
- 562 446
=============================================
Deferred:
Federal (1,074) 109 870
State (190) 19 153
Foreign 160 361 200
---------------------------------------------
Provision for income taxes (1,104) 489 1,223
---------------------------------------------
Deferred income taxes arise from (in thousands) $ (1,104) 1,051 $ 1,669
=============================================
Accelerated depreciation
Net operating losses $ 1,196 906 $ 949
Inventory valuation (2,033) 278 1,614
Allowance for doubtful
accounts 577 (396) (337)
Compensation related costs 4 (120) 2
Warranty reserve (71) (118) (98)
Other (492) - -
Tax credits (395) (64) (72)
Valuation allowance (28) 3 (713)
138 - (122)
---------------------------------------------
$ (1,104) $ 489 $ 1,223
=============================================
Income taxes are reconciled to the United States
statutory corporate tax rate as follows (in thousands)
United States corporate tax at statutory rate
Increase (decrease) arising from: $ (832) $ 902 $ 1,596
State taxes
Foreign taxes (190) 112 184
Other (218) 80 -
Change in valuation allowance (2) (43) 11
138 - (122)
---------------------------------------------
$ (1,104) $1,051 $1,669
=============================================
</TABLE>
The components of the Company's deferred tax assets and liabilities as of
December 28, 1996 and December 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995
Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred taxes:
Net operating loss carry forwards $ 2,434 $ - $ 401 $ -
Compensation related cost 708 - 637 -
Bad debt reserve 203 - 207 -
Depreciation - 7,923 - 6,727
Equipment reserve 199 - - -
Inventory reserves - 228 349 -
Warranty reserves 492 - - -
Tax credit carry forwards 1,155 - 1,127 -
Valuation allowance (216) - (78) -
Other 284 - 148 -
------------------------------------------------------------
$ 5,259 $ 8,151 $ 2,791 $ 6,727
============================================================
</TABLE>
20
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
The Company increased its valuation allowance to $215,700 at December 28,
1996, principally for foreign tax credits not expected to be realized.
At December 28, 1996, the Company had a net operating loss carryforward of
approximately $6.1 million for tax purposes, which expires in 2011. At December
28, 1996, the Company also had $1,079,000 of foreign and other tax credits which
expire from 1997 to 2011.
Income (loss) before income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ (3,393) $ 464 $ 2,941
Foreign 942 2,188 1,752
--------------------------------------------------
Income (loss) before income taxes $ (2,451) $ 2,652 $ 4,693
--------------------------------------------------
</TABLE>
Note 12 - Legal Proceedings:
The Company is the plaintiff in a patent infringement suit brought against a
competitor in a United States District Court on September 1, 1995. The Company
contends that the defendant has infringed its U.S. Patent covering certain
technology used in the manufacture of capacitors. The Company seeks treble
damages and an injunction to prevent the defendant from making or selling
infringing capacitors, along with reimbursement of its costs and attorneys fees.
Pretrial discovery has not been completed, and it is not yet possible to
determine if the Company will prevail in this matter, and therefore no gains or
losses have been recorded on the balance sheet as of December 28, 1996. Legal
fees have been charged to expense as incurred.
In a prior year the Company settled a claim made against it concerning the
cost of clean up of a hazardous waste facility ("Resolve") in Massachusetts. As
part of that settlement the Company paid $1,583,000, an amount equal to the
present value of the Company's share of the total estimated clean up cost.
Approximately $715,000 of that amount has been reimbursed to the Company by its
primary insurers. The excess uninsured portion of $868,000 was charged to income
and paid in 1988 and 1994. 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 or results of operations.
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. (a predecessor of the Company) 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. 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.
21
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
Note 13 - Foreign Operations:
Summarized financial information for the Company's foreign operations is as
follows (in thousands):
<TABLE>
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 9,132 $ 8,876 $ 7,286
Non-current assets 8,132 7,345 4,935
===================================================
$ 17,264 $ 16,221 $ 12,221
===================================================
Current liabilities $ 2,870 $ 3,099 $ 2,493
Due to parent 659 338 668
Long-term debt 6,113 6,423 4,554
Stockholders' equity 7,622 6,361 4,506
---------------------------------------------------
$ 17,264 $ 16,221 $ 12,221
===================================================
Net Sales $ 24,311 $ 23,044 $ 18,417
===================================================
Net income $ 840 $ 1,363 $ 1,148
===================================================
</TABLE>
22
<PAGE>
Aerovox Incorporated - 1996 Annual Report
<TABLE>
<CAPTION>
Selected Financial Data
For The Years Ended
Dec. 28, Dec. 30, Dec. 31, Jan. 1, Jan. 2,
(Amounts in Thousands, Except Per Share Data) 1996 1995 1994 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $124,478 $128,322 $125,640 $115,158 $73,651
Income (loss) from operations (338) 4,246 6,010 6,779 3,490
Income (loss) before cumulative effect of
change in accounting for income taxes (2,451) 1,601 3,024 3,737 1,654
Cumulative effect of change in
accounting for income taxes - - - 590 -
---------------------------------------------------------
Net income (loss) $ (1,347) $ 1,601 $ 3,024 $ 4,327 $ 1,654
---------------------------------------------------------
Net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting for income taxes $ (.25) $ .30 $ .56 $ .69 $ .32
Cumulative effect of change in accounting
for income taxes - - - .11 -
---------------------------------------------------------
Net income (loss) per share $ (.25) $ .30 $ .56 $ .80 $ .32
---------------------------------------------------------
Cash dividends per share - - - - -
Balance sheet data:
Total assets $ 84,976 $ 89,331 $ 78,397 $ 71,733 $49,759
Long-term obligations 23,806 28,777 22,466 19,671 8,104
Total stockholders' equity 35,073 35,505 34,054 30,795 26,305
</TABLE>
The results have been restated for the change in accounting for inventories
from LIFO to FIFO.
<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 28, 1996
Net sales $ 33,164 $ 32,030 $ 29,285 $29,999
Gross profit 6,014 1,652 4,716 4,200
Net income (loss) $ 861 $ (2,678) $ 301 $ 168
Net income (loss) per share $ .16 $ (.50) $ .06 $ .03
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
</TABLE>
The results have been restated for the change in accounting for inventories from
LIFO to FIFO.
For the quarters previously reported in fiscal 1996, the effect of the change in
accounting for inventories increased net income by $98,000, $103,000, and
$78,000, for the three months ended March 30, 1996, June 29, 1996, and September
28, 1996, respectively, and increased earnings per share by $0.02 in each of
those periods. There was no effect on net income for 1995.
23
<PAGE>
Aerovox Incorporated ~ 1996 Annual Report
To the Board of Directors and Stockholders of Aerovox Incorporated:
We have audited the accompanying consolidated balance sheets of Aerovox
Incorporated as of December 28, 1996 and December 30, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 28, 1996. 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 28, 1996 and December 30, 1995 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 28, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1996, the
Company changed its method of accounting for inventories.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 17, 1997
24
<PAGE>
Directors and Officers
Aerovox Incorporated - 1996 Annual Report
Directors
Clifford H. Tuttle
Chairman, Aerovox Inc.
Robert D. Elliott
President and
Chief Executive Officer
John F Brennan
Dean, School of Management,
Sulfolk University
James E. Hangstefer
President Cardel Associates, Inc.
Dennis J. Horowitz
President, Americas, AMP
Incorporated
William C. Little
President and
Chief Executive Officer
Quam-Nichols Company, Inc.
Ronald F. Murphy
Secretary, Aerovax Inc.
Benedict P. Rosen
President and
Chief Executive Officer.
AVX Corporation
John L. Sprague
President, John L. Spague
Associates
Officers
Robert D. Elliott
President and
Chief Executive Officer
John A. Chmura, Jr.
Senior Vice President, Sales
Martin Hudis
Senior Vice President, Business
and Technology Development
Jeffrey A. Templer
Senior Vice President and
Chief Financial Officer
William T. Allen, III
Vice President
Mexican Operations
Mulk R. Arora
Vice President,
Huntsville Operations
Lawrence K. Bromley
Vice President and General
Manager, Power Factor Correction
Business Unit
Earl F. Sherman
Vice President, Marketing
Committee Member
1 Executive
2 Audit
3 Finance
4 Compensation
5 Nominating
CORPORATE INFORMATION
Corporate Office
Aerovox Inc.
740 Belleville Avenue
New Bedford, Massachusetts 07745-6194
(509) 994-9661
Form 10-K/Investor Contact
In addition to annual and quarterly reports to share owners, copies of the
Company's annual and quarterly reports filed with the Securities and Exchange
Commission on Form 10-K and Form 10-Q are available on request from the Company.
Requests and other investor contact should be directed to Jeffrey A. Templer,
Chief Financial Officer at the Company's corporate office.
Annual Meeting
The annual meeting of the shareholders of Aerovox Inc. will be held on Tuesday
May 13, 1997 at 10:00 a.m. at the offices of Ropers & Gray, One International
Place, Room 36/1, Boston, Massachusetts 02110.
Common Stock and Dividend Information
The Company's common stock trades on the Nasdaq Stock Market under the symbol
ARVX. As of March 17, 1997, Aerovox Inc. had approximately 10,500 holders of the
common stock Of that total, 7,420 were stockholders of record. 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 following table sets forth the high and low sales price information as
reported by Nasdaq:
Common Stock Price
<TABLE>
<CAPTION>
1996 1995
High Low High Low
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $7.25 $5.63 $8.25 $6.63
Second Quarter $8.75 $5.63 $7.75 $7.00
Third Quarter $8.50 $5.38 $8.86 $7.00
Fourth Quarter $7.06 $4.50 $8.13 $5.38
</TABLE>
Transfer Agent and Registar
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(218) 921-8200
<PAGE>
[LOGO OF AEROVOX(R) APPEARS HERE]
740 Belleville Avenue
New Bedford, Massachusetts 02745-6194
www.aerovox.com
<PAGE>
Exhibit 18.1
Aerovox, Inc.
370 Faunce Corner Road
N. Dartmouth, MA 02747
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from the
Last-in, First-out (LIFO) basis of costing inventory to the First-in, First-out
(FIFO) method contained in the Company's Form 10-K for the year ended December
28, 1996. Based on our reading of the data and discussions with Company
officials of the business judgement and business planning factors relating to
the change, we believe management's justification to be reasonable. Accordingly,
in reliance on management's determination as regards elements of business
judgement and business planning we concur that the newly adopted accounting
principle described above is preferable in the Company's circumstances to the
method previously applied.
Boston, Massachusetts
February 17, 1997 By: /s/ Coopers & Lybrand L.L.P.
---------------------------------
Coopers & Lybrand L.L.P.
<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, 33-03693 and 33-11615) of our reports dated February 17,
1997, on our audits of the consolidated financial statements and the financial
statement schedule of Aerovox Incorporated as of December 28, 1996 and December
30, 1995 and for the years ended December 28, 1996, December 30, 1995, and
December 31, 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 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 864
<SECURITIES> 0
<RECEIVABLES> 16,781
<ALLOWANCES> 685
<INVENTORY> 20,910
<CURRENT-ASSETS> 42,522
<PP&E> 73,147
<DEPRECIATION> 32,617
<TOTAL-ASSETS> 84,976
<CURRENT-LIABILITIES> 17,946
<BONDS> 0
0
0
<COMMON> 5,315
<OTHER-SE> 29,758
<TOTAL-LIABILITY-AND-EQUITY> 84,976
<SALES> 29,999
<TOTAL-REVENUES> 29,999
<CGS> 25,799
<TOTAL-COSTS> 29,803
<OTHER-EXPENSES> (96)
<LOSS-PROVISION> 83
<INTEREST-EXPENSE> 445
<INCOME-PRETAX> (236)
<INCOME-TAX> (404)
<INCOME-CONTINUING> 168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
