<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 27, l998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File #0-18018
AEROVOX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 76-0254329
-------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
740 Belleville Avenue, New Bedford, MA 02745
------------------------------------------------
(Address of principal executive offices) (Zip Code)
(508) 994-9661
--------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
At August 11, 1998, 5,388,290 shares of registrant's common stock (par value,
$1.00) were outstanding.
<PAGE>
AEROVOX INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------ ------------ ------------ ------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $32,228 $34,185 $61,756 $66,801
Cost of sales 26,060 28,565 50,361 55,332
Gross profit 6,168 5,620 11,395 11,469
Selling, general and administrative expenses 4,476 4,669 8,928 9,100
------------ ------------ ------------ ------------
Income from operations 1,692 951 2,467 2,369
Other income (expense):
Interest expense (422) (491) (827) (975)
Other income (expense) (29) 93 63 57
------------ ------------ ------------ ------------
Income before income taxes 1,241 553 1,703 1,451
Provision for income taxes 493 213 630 598
------------ ------------ ------------ ------------
Net income $ 748 $ 340 $ 1,073 $ 853
============ ============ ============ ============
Basic and diluted earnings per share $ 0.14 $ 0.06 $ 0.20 $ 0.16
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED, CONDENSED,
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
AEROVOX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 27, Dec. 27,
1998 l997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,191 $ 693
Accounts receivable, net 18,097 14,249
Inventories:
Raw materials 9,002 8,612
Work in progress 3,788 3,938
Finished goods 5,463 5,626
Prepaid expenses and other current assets 374 637
------------ ------------
Total current assets 37,915 33,755
Property, plant and equipment, net of accumulated
depreciation 30,302 32,263
Deferred income taxes 5,412 5,385
Other assets - 156
------------ ------------
Total assets $73,629 $71,559
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,236 $10,351
Accrued compensation and related expenses 3,023 2,887
Other accrued expenses 2,620 3,030
Current maturities of long-term debt 1,629 1,909
Income taxes 860 362
------------ ------------
Total current liabilities 19,368 18,539
Deferred income taxes 5,457 5,446
Industrial revenue bond 1,640 1,750
Long-term debt less current maturities 15,790 14,973
Reserve for environmental costs and plant remediation 6,033 6,033
Other liabilities 647 1,052
Stockholders' equity:
Common stock 5,387 5,384
Additional paid-in capital 1,045 1,037
Retained earnings 18,355 17,282
Foreign currency translation adjustment (93) 63
------------ ------------
Total stockholders' equity 24,694 23,766
------------ ------------
Total liabilities and stockholders' equity $73,629 $71,559
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED, CONDENSED,
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
AVEROVOX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 27, JUNE 28,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,073 $ 853
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 2,369 2,507
Deferred income taxes (8) (11)
Changes in operating assets and liabilities:
Accounts receivable (3,897) (3,542)
Inventories (128) 1,535
Prepaid expenses and other current assets 266 36
Accounts payable 917 2,136
Accrued expenses (238) 571
Income taxes payable 494 493
------------ ------------
Net cash provided by operating activities 848 4,578
------------ ------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (564) (1,723)
Other (287) (18)
------------ ------------
Net cash used in investing activities (851) (1,741)
------------ ------------
Cash flows from financing activities:
Proceeds from employee stock purchase
plan and exercise of stock options 10 239
Net borrowings (repayment) under line of credit 1,557 (2,321)
Long term debt borrowings - 946
Repayment of long-term debt (1,095) (1,813)
------------ ------------
Net cash provided by (used in) financing activities 472 (2,949)
------------ ------------
Effects of exchange rate on cash 29 10
------------ ------------
Increase (decrease) in cash 498 (102)
Cash beginning of period 693 864
------------ ------------
Cash at end of period $ 1,191 $ 762
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED, CONDENSED,
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AEROVOX INCORPORATED
NOTES TO UNAUDITED, CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
These unaudited, condensed, consolidated financial statements should be
read in conjunction with Aerovox Inc.'s ("the Company's") Annual Report on
Form 10-K for the fiscal year ended December 27, 1997, and the financial
statements and footnotes included therein. In the opinion of management,
the accompanying financial statements include all adjustments, consisting
of only normal recurring accruals, necessary to present fairly the
consolidated financial position, results of operation and cash flows of the
Company. The year-end balance sheet was derived from the Company's audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to Securities and Exchange Commission rules
and regulations.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current presentation.
(2) EARNINGS PER SHARE (BASIC AND DILUTED)
The Company computes basic and diluted earnings per share in accordance
with Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings Per
Share", which the Company adopted as of December 27, 1997. Basic EPS is
computed by dividing income available to common stockholders (the
numerator) by the weighted-average number of common shares outstanding (the
denominator). Diluted EPS is computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of
common shares outstanding plus potentially dilutive common shares applying
the treasury stock method.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED ENDED
JUNE 27, 1998 JUNE 28, 1997
- ---------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS
PER SHARE $ 748 5,386,013 $ 0.14 $ 340 5,351,902 $ 0.06
- ---------------------------------------------------------------------------------------------
EFFECT OF
DILUTIVE
SECURITIES:
- ---------------------------------------------------------------------------------------------
Options 4,380 50,408
- ---------------------------------------------------------------------------------------------
DILUTED
EARNINGS PER
SHARE 5,390,393 $ 0.14 5,402,309 $ 0.06
- ---------------------------------------------------------------------------------------------
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED ENDED
JUNE 27, 1998 JUNE 28, 1997
- ---------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS
PER SHARE $1,073 5,385,468 $ 0.20 $ 853 5,347,251 $ 0.16
- ---------------------------------------------------------------------------------------------
EFFECT OF
DILUTIVE
SECURITIES:
- ---------------------------------------------------------------------------------------------
Options 17,071 56,048
- ---------------------------------------------------------------------------------------------
DILUTED
EARNINGS PER
SHARE 5,402,539 $ 0.20 5,403,299 $ 0.16
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Options to purchase 702,375 shares of common stock at prices ranging from
$3.375 to $9.625 per share were outstanding at June 27, l998 but were not
included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of
common shares. Options to purchase 109,500 shares of common stock at a
price of $3.00 per share were outstanding at June 27, 1998 and were
included in the calculation of dilutive options under the treasury stock
method, because the options were dilutive.
Options to purchase 337,250 shares of common stock at prices ranging from
$5.00 to $9.625 per share were outstanding at June 28, 1997 but were not
included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of
common shares. Options to purchase 233,125 shares of common stock at prices
ranging from $3.00 to $4.50 per share were outstanding at June 28, 1997 and
were included, in the calculation of dilutive options under the treasury
stock method, because they were dilutive.
(3) CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
This Statement establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholders'
equity. The Company's comprehensive earnings were as follows:
<TABLE>
<CAPTION>
(In Thousands) For the Three Months For the Six Months
Ended Ended
June 27, June 28, June 27, June 28,
---------- ---------- ---------- ----------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income $ 748 $ 340 $ 1,073 $ 853
Foreign currency translation adjustment (165) 134 (156) (114)
---------- ---------- ---------- ----------
Total comprehensive income $ 583 $ 474 $ 917 $ 739
========== ========== ========== ==========
</TABLE>
(4) NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The statement
is effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial
statements have not been issued. The statement defines which costs of
computer software developed or obtained for internal use are capital and
which costs are expensed. The Company adopted SOP 98-1 effective January
1, 1998. The adoption of SOP 98-1 does not materially affect the
consolidated financial statements.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting
<PAGE>
Standard No. 131 "Segment Reporting" ("SFAS 131") which establishes
standards for segment reporting in a full set of general purpose financial
statements. Management has not yet evaluated the effects of this change on
its reporting of income. The Company will adopt SFAS 131 for its fiscal
year ending December 26, 1998.
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133. "Accounting for Derivative
Instruments and Hedging Activities". This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Early
adoption is encouraged but it is permitted only as of the beginning of any
fiscal quarter that begins after June 1998. The Statement establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. Under the new Statement, the accounting for
changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation.
(5) SUBSEQUENT EVENT
On July 29, 1998 the Company sold its Power Factor Corrections Systems
("PFC") business to a unit of General Electric Company. The PFC unit
manufactured and sold equipment used to enhance the efficient use of power
by large industrial plants. The value of assets transferred in connection
with the sale was immaterial in relation to total assets.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended June 27, l998 compared to Three Months Ended June 28, l997.
Net sales for the second quarter of 1998 totaled $32,228,000 compared to
$34,185,000 for the second quarter of 1997, a decrease of $1,957,000 or 5.7%.
The reduction in revenue for the quarter was a result of lower pricing and
reduced volume in North America, as the company selectively eliminated
unprofitable product lines and accounts. These reductions were partially offset
by improved fixed cost absorption resulting from higher demand from HVAC OEMs,
whose business continued to be strong due to the hot weather across the United
States.
Gross profits improved in both dollars and percentage terms. Gross profit
for the second quarter of 1998 totaled $6,168,000 or 19.1% of net sales compared
to $5,620,000 or 16.4% of net sales, for the same period in 1997. Gross profits
improved due to cost control programs within all plants, improved volume in the
more profitable lines of business, and the selective reduction of business among
less profitable accounts and product lines.
Selling, general and administrative expenses for the second quarter of 1998
totaled $4,476,000 or 13.9% of net sales versus $4,669,000 or 13.7% of net
sales, for the same period in 1997. Continuing costs associated with the
conversion to new information systems within the Company's locations were offset
by reductions in other spending areas. The new system is operational at the
Company's British subsidiary, BHC Aerovox. The North American operations will
come on line during the third and fourth quarters of 1998.
Interest expense for the second quarter of 1998 was $422,000, compared to
$491,000 in the same period of 1997. The decrease was due to lower borrowings.
Other expenses of $29,000 were mostly due to foreign exchange losses.
Income before taxes was $1,241,000 or 3.9% of net sales compared to
$553,000 or 1.6% of net sales for the second quarter of 1997. The provision for
income taxes for the second quarter of 1998 was $493,000, reflecting statutory
rates plus adjustments for certain credits, compared to $213,000 in the second
quarter of 1997. Net income for the quarter of $748,000 or $0.14 per common
share diluted, compared to net income in the second quarter of 1997 of $340,000
or $0.06 per common share - diluted.
LIQUIDITY AND CAPITAL RESOURCES
Cash at the end of the second quarter of 1998 totaled $1,191,000 compared
to $693,000 as of December 27, 1997. Working capital totaled $18,547,000 on
June 27, l998, and was $15,216,000 at
<PAGE>
December 27, 1997. Current ratio of 1.96:1, compared to a ratio of 1.8:1 at
December 27, l997. Expenditures for equipment during the first six months of
1998 were $564,000 compared to $1,723,000 during the first six months of 1997.
At the end of the second quarter of 1998, the Company had borrowings of
$19,059,000 compared to $18,632,000 at December 27, 1997.
The Company maintains a Revolving Credit Agreement, which as amended
provides a credit line of approximately $22 million to the Company, including
4,400,000 British pounds sterling ($3,718,700 at quarter-end exchange rates)
line to BHC Aerovox Ltd., the Company's wholly owned subsidiary in England. On
June 27, l998, total borrowings outstanding under that Agreement were
approximately $14,215,000 compared to approximately $12,693,000 on December 27,
l997. At June 27, 1998, the Company was in violation of a financial covenant
for which it received a waiver from the lender.
The Company also has a term line of credit. This line of $10,000,000,
collateralized by certain equipment, has annual interest rates ranging from
7.57% to 8.5% and matures at various dates through the year 2002. At June 27,
l998, borrowings outstanding under this agreement were $2,874,000 compared to
$3,764,000 outstanding at the end of December 27, 1997.
An Industrial Revenue Bond was issued in July 1982 to finance the
acquisition of equipment. Principal and interest, at an annual rate of 7.42%,
are payable monthly to July 1, 2002. On June 27, 1998 the bond balance
outstanding under this agreement was $1,970,000 compared to $2,175,000 on
December 27, 1997.
On July 29, 1998 the Company sold its Power Factor Corrections Systems
("PFC") business to a unit of General Electric Company. The PFC unit
manufactured and sold equipment used to enhance the efficient use of power by
large industrial plants.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
6 (a). The Company's Annual Meeting of Stockholders was held on Monday, May
11, 1998, in Boston, MA. Proxies for the meeting were solicited pursuant to
Regulation 14A.
6 (b). There was no solicitation in opposition to the nominees listed in the
proxy statement and all such nominees were elected.
6 (c). At the Annual Meeting of Stockholders, the following two Class III
Directors were elected to serve until the Annual Meeting in the year 2001. The
total vote for each nominee follows:
<TABLE>
<CAPTION>
Total Vote for Each Total vote Withheld from each
Director Director
<S> <C> <C>
John F. Brennan 4,432,140 670,791
Dennis Horowitz 4,438,368 664,563
</TABLE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
6 (a). Exhibits: None
6 (b). Reports on Form 8-K: None filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AEROVOX INCORPORATED
DATE August 11, l998 BY /S/ JEFFREY A. TEMPLER
--------------------------
Jeffrey A. Templer
Senior Vice President/Finance
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-26-1998 DEC-27-1997
<PERIOD-START> DEC-28-1997 DEC-29-1996
<PERIOD-END> JUN-27-1998 JUN-28-1997
<CASH> 1,191 762
<SECURITIES> 0 0
<RECEIVABLES> 18,830 20,283
<ALLOWANCES> 733 704
<INVENTORY> 18,253 19,305
<CURRENT-ASSETS> 37,915 44,267
<PP&E> 64,686 74,767
<DEPRECIATION> 34,384 35,172
<TOTAL-ASSETS> 73,629 85,682
<CURRENT-LIABILITIES> 19,368 20,394
<BONDS> 0 0
0 0
0 0
<COMMON> 5,387 5,379
<OTHER-SE> 19,307 30,672
<TOTAL-LIABILITY-AND-EQUITY> 73,629 85,682
<SALES> 32,228 34,185
<TOTAL-REVENUES> 32,228 34,185
<CGS> 26,060 29,318
<TOTAL-COSTS> 30,536 33,175
<OTHER-EXPENSES> 29 (93)
<LOSS-PROVISION> 0 59
<INTEREST-EXPENSE> 422 491
<INCOME-PRETAX> 1,241 553
<INCOME-TAX> 493 213
<INCOME-CONTINUING> 748 340
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 748 340
<EPS-PRIMARY> 0.14 0.06
<EPS-DILUTED> 0.14 0.06
</TABLE>
