<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended July 3, 1999
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 10, 1999, 6,099,603 shares of registrant's common stock (par value,
$1.00) were outstanding, 700,000 of which are restricted and redeemable under
Stockholders Agreements as described in the footnotes to the financial
statements.
<PAGE>
AEROVOX INCORPORATED
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 30,637 $ 32,228 $ 59,010 $ 61,756
Cost of sales 24,526 26,060 47,927 50,361
-------- -------- -------- --------
Gross profit 6,111 6,168 11,083 11,395
Selling, general and administrative expenses 4,482 4,476 8,320 8,928
-------- -------- -------- --------
Income from operations 1,629 1,692 2,763 2,467
Other income (expense):
Interest expense (461) (422) (862) (827)
Other income (expense) 125 (29) (7) 63
-------- -------- -------- --------
Income before income taxes 1,293 1,241 1,894 1,703
Provision for income taxes 492 493 764 630
-------- -------- -------- --------
Net income $ 801 $ 748 $ 1,130 $ 1,073
======== ======== ======== ========
Basic and diluted earnings per share $ 0.15 $ 0.14 $ 0.21 $ 0.20
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
2
<PAGE>
AEROVOX INCORPORATED
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 3, Jan. 2,
1999 1999
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 1,371 $ 1,149
Accounts receivable, net 18,097 14,220
Inventories:
Raw materials 10,406 9,837
Work in process 2,648 2,211
Finished goods 8,625 7,858
Prepaid expenses and other current assets 1,607 566
Total current assets 42,754 35,841
-------- --------
Property, plant and equipment, net 32,036 30,500
Goodwill, net 2,712 --
Deferred income taxes 4,146 4,146
Other assets 99 84
-------- --------
Total assets $ 81,747 $ 70,571
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,913 $ 9,490
Accrued compensation and related expenses 2,852 3,048
Other accrued expenses 2,727 2,374
Current maturities of long-term debt 6,220 7,376
Income taxes 497 84
-------- --------
Total current liabilities 22,209 22,372
Deferred income taxes 4,983 5,022
Industrial revenue bond 1,012 1,292
Long-term debt less current maturities 17,993 9,916
Environmental costs and plant remediation 6,033 6,033
Deferred compensation 452 647
Redeemable common stock 2,918 --
Stockholders' equity:
Common stock 5,398 5,393
Additional paid-in capital 1,068 1,059
Retained earnings 20,198 19,068
Accumulated other comprehensive loss (517) (231)
-------- --------
Total stockholders' equity 26,147 25,289
-------- --------
Total liabilities and stockholders' equity $ 81,747 $ 70,571
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
3
<PAGE>
AEROVOX INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
July 3, June 27,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,130 $ 1,073
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,456 2,369
Deferred income taxes -- (8)
Changes in operating assets and liabilities:
Accounts receivable (3,808) (3,897)
Inventories (304) (128)
Prepaid expenses and other current assets (762) 266
Accounts payable 478 917
Accrued expenses (611) 7
Environmental costs and plant remediation (85) (245)
Deferred executive compensation (195) (405)
Income taxes payable 513 494
-------- --------
Net cash provided by (used in) operating activities (1,188) 443
-------- --------
Cash flows from investing activities:
Cash paid to acquire Capacitores, net of cash acquired (1,721) --
Acquisition of plant and equipment (627) (564)
Other 207 118
-------- --------
Net cash used in investing activities (2,141) (446)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit (3,171) 1,557
Proceeds from issuance of term debt 9,750 --
Repayment of long-term debt (3,127) (1,095)
Proceeds from employee stock purchase
plan and exercise of stock options 15 10
-------- --------
Net cash provided by financing activities 3,467 472
-------- --------
Effects of exchange rate on cash 84 29
-------- --------
Increase in cash 222 498
Cash at beginning of year 1,149 693
-------- --------
Cash at end of period $ 1,371 $ 1,191
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
<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") Annual Report on
Form 10-K for the fiscal year ended January 2, 1999, 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 operations and cash flows of
the Company. 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.
Fiscal 1999 consists of 52 weeks, and will end on January 1, 2000.
5
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(2) EARNINGS PER SHARE (BASIC AND DILUTED)
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.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JULY 3, 1999 JUNE 27, 1998 JULY 3, 1999 JUNE 27, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Net Shares Per share Net Shares Per share Net Shares Per share Net Shares Per share
income amount income amount income amount income amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS $801 5,396,722 $0.15 $748 5,386,013 $0.14 $1,130 5,395,263 $0.21 $1,073 5,385,468 $0.20
PER SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
DILUTIVE SECURITIES:
- -----------------------------------------------------------------------------------------------------------------------------------
Options -0- 4,380 -0- 17,071
- -----------------------------------------------------------------------------------------------------------------------------------
DILUTED
EARNINGS PER $801 5,396,722 $0.15 $748 5,390,393 $0.14 $1,130 5,395,263 $0.21 $1,073 5,402,539 $0.20
SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 771,875 shares of common stock at prices ranging from
$2.50 to $9.625 per share were outstanding at July 3, 1999, 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 during the three months ended July 3, 1999. There were no
dilutive options outstanding at July 3, 1999.
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, 1998, 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.
Redeemable common stock was issued in the acquisition of Capacitores
Unidos, S.A. de C.V. (See Note 5.) The 700,000 shares are anti-dilutive as
the Company's book value at July 3, 1999, exceeds the average market value
of its outstanding common stock for the quarter ending July 3, 1999.
6
<PAGE>
(3) COMPREHENSIVE INCOME
The Company's comprehensive earnings were as follows:
<TABLE>
<CAPTION>
(In Thousands)
For the Three Months For the Six Months
Ended Ended
July 3, June 27, July 3, June 27,
------- -------- -------- ---------
1999 1998 1999 1998
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net Income $ 801 $ 748 $ 1,130 $ 1,073
Foreign currency translation adjustment (63) (165) (286) (156)
------- ------- -------- ---------
Total comprehensive income $ 738 $ 583 $ 844 $ 917
======= ======= ======== =========
</TABLE>
(4) NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. 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. The Company will adopt SFAS 133 for its
fiscal year beginning December 31, 2000. Management estimates that the
effect of adopting SFAS 133 would not be material to the consolidated
financial statements.
(5) ACQUISITION
On April 5, 1999, the Company purchased all of the outstanding capital
stock of Capacitores Unidos, S.A. de C.V. ("Capacitores"), a corporation
organized under the laws of Mexico, pursuant to several agreements (each a
"Stock Purchase Agreement" and collectively, the "Stock Purchase
Agreements"), dated as of April 5, 1999, by and among the Company and each
of Bires Investments B.V., Hobir Holding B.V., Kasri Holding B.V., Kato
Holding B.V., Renko Investments B.V., and Tako Holding B.V., all
corporations organized under the laws of The Netherlands (collectively, the
"Sellers"). In a prior transaction, Capacitores had previously acquired the
assets of the capacitor business of Compania General Electronica S.A. de
C.V., ("CGE"), a Mexican corporation. These assets consisted primarily of
inventory and machinery and equipment related to the capacitor business of
CGE, along with an assignment of employees, and all technical know-how,
customer lists, and other intangible assets related to the business.
During 1998, the capacitor business accounted for $11.5 million of the
sales of CGE, and approximately $1.4 million of earnings before interest
and taxes. CGE purchased approximately $1.5 million of high-purity aluminum
capacitor foil from the Company during 1998 for use in AC-rated motor start
capacitors.
7
<PAGE>
The president of CGE, Enrique Sanchez Aldunate, was appointed president of
Capacitores, and has additionally assumed the title of Senior Vice
President of the Company, and was elected to the board of the Company.
After the purchase, Capacitores began operations as "CGE Aerovox".
The aggregate consideration of $7,826,643 paid for the capital stock of
Capacitores consisted of (i) the assumption of obligations of Capacitores
arising from its purchase of assets from CGE, principally three notes
totaling $3,470,000, one of which, in the amount of $1,750,000, was paid by
the Company on April 6, 1999; the remaining two notes are in the amounts of
$1,509,000 and $211,000, and bear interest at 5.10% and 5.22% per annum
respectively, and mature at April 1, 2000 and April 1, 2001 respectively,
(ii) notes of the Company aggregating $1,089,000, accruing interest at a
rate of 5.22% per annum and payable in full on April 4, 2001, (iii) notes
of the Company aggregating $350,000, accruing interest at a rate of 5.32%
per annum and payable in full on April 5, 2002, and (iv) 700,000 shares of
common stock of the Company (the "Registrant Stock"). Each of the Sellers
executed a Stockholders Agreement, dated as of April 5, 1999, with the
Company which provides for certain restrictions on the transfer of the
Registrant Stock and provides that, in certain circumstances and at a date
not earlier than April 5, 2003, nor later than May 5, 2003, the holders of
such Registrant Stock may require the Company to purchase the Registrant
Stock at the then current book value of the Company. The total of
$2,917,643 was ascribed to the Registrant Stock which was composed of the
fair market value of the stock on the date of the transaction, and the
amount ascribed to the right of the Sellers to require the Company to
repurchase the stock at a future date at the then current book value. As
of July 3, 1999, the fair value of the right of the Sellers to require the
Company to repurchase the stock was approximately $1,275,000.
The foregoing description is qualified in its entirety by reference to the
Stock Purchase reference, and the Stockholders Agreement, a copy of which
was filed on Form 8-K on April 14, 1999.
The acquisition has been accounted for under the purchase method of
accounting; the operating results of Capacitores have been included in the
Company's consolidated statement of operations from April 5, 1999. Excess
of cost over the fair value of net assets acquired ($2,781,000) is being
amortized on a straight-line basis over ten years.
8
<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 July 3, 1999 compared to Three Months Ended June 27, 1998.
Net sales for the second quarter of 1999 totaled $30.6 million compared with
$32.2 million for the second quarter of 1998, a decrease of $1.6 million or
4.9%. The reduction in revenue for the quarter was a result of lower shipments
of electrolytic capacitors in Western Europe, and the sale of the Company's
Power Factor Systems business in the third quarter of 1998, which had generated
revenues of $1.1 million in the second quarter of 1998. These reductions were
partially offset by the acquisition of the capacitor business of Compania
General de Electronica, S.A. de C.V. ("CGE") in April 1999, which added revenues
of $2.1 million to the second quarter. Excluding the effects of the above
acquisition and divestiture, revenues from North American operations were $0.7
million less than the second quarter of 1998 due to lower prices received for
certain types of capacitors. For the first six months of 1999, consolidated net
sales were $59.0 million, as compared with $61.8 million for the first half of
1998.
Gross profits for the second quarter of 1999 totaled $6.1 million or 19.9% of
net sales compared with $6.2 million or 19.1% of net sales, for the same period
in 1998. Gross profits improved due to cost control programs within the North
American plants, improved volume in the more profitable lines of business, and
the selective reduction of business among less profitable accounts and product
lines. At the Company's UK subsidiary, BHC Aerovox Ltd., ("BHC") gross margins
were down significantly due to lower volumes of sales and production.
Selling, general and administrative expenses for the second quarter of 1999
totaled $4.5 million versus $4.5 million for the same period in 1998. Included
in these costs during the quarter was $0.5 million of selling and administrative
costs within the acquired CGE operations. Selling, general and administrative
expenses for the second quarter of 1998 included costs associated with the
conversion to new information systems, which are now operational.
Interest expense for the second quarter of 1999 was $0.5 million, compared with
$0.4 million in the same period of 1998. The increase was due mainly to
borrowings associated with the above mentioned acquisition of CGE. Other
income of $0.1 million was primarily due to foreign exchange gains.
Income before taxes was $1.3 million or 4.2% of net sales compared to $1.2
million or 3.9% of net sales for the second quarter of 1998. The provision for
income taxes for the second quarter of 1999 was $0.5 million, reflecting
statutory rates plus adjustments for certain credits, compared to the same
amount in the second quarter of 1998. Net income for the quarter was $0.8
million or $0.15 per common share -- basic and diluted, compared with net income
in the second quarter of 1998 of $0.7 million or $0.14 per common share -- basic
and diluted.
LIQUIDITY AND CAPITAL RESOURCES
Cash at the end of the second quarter of 1999 totaled $1.4 million compared with
$1.1 million as of January 2, 1999. Working capital totaled $20.5 million on
July 3, 1999, and was $13.5 million at
9
<PAGE>
January 2, 1999. Current ratio at July 3, 1999 was 1.93:1, compared with a ratio
of 1.60:1 at January 2, 1999. At the end of the second quarter of 1999, the
Company had borrowings of $25.2 million compared with $18.6 million at January
2, 1999. Of the increase, approximately $5.4 million represents notes and
increases in bank credits incurred as a result of the Capacitores acquisition.
The remainder of the increase represents normal seasonal fluctuation.
During the second quarter the Company renewed or replaced its Revolving Credit
Agreements. BHC reached agreement with a lender for a credit line of 4.0 million
British Pounds ($6.4 million at quarter-end exchange rates), consisting of term
and revolving debt. This line was executed in May 1999, and was used to pay off
the existing bank debt. At July 3, 1999, $4.2 million was outstanding under the
new BHC credit agreements and $5.3 million was outstanding at January 2, 1999,
under prior BHC credit agreements.
The Company's Revolving Credit Agreement with a U.S. bank was renewed and
amended on June 30, 1999, providing for a credit line of $14.4 million to the
Company, secured by certain accounts receivable and inventory. The agreement,
which extends to May 31, 2002, provides for interest payable in arrears at the
bank's base rate. In addition, the Company has the option to convert from a
bank base rate loan into a Eurodollar loan at the Eurodollar (LIBOR) rate plus
2% per annum. The Company also has the option to convert up to $4.0 million of
loans to a Bankers Acceptance facility at interest rates equal to the per annum
average discount rate quoted to the bank on the date of request for such
facility, plus 1 3/4% per annum. The outstanding balance of loans at July 3,
1999, was $7.2 million. At July 3, 1999, the Company was in compliance with all
financial covenants specified in the agreements.
The Company also has a term line of credit for $12.0 million, collateralized by
certain equipment. At July 3, 1999, $8.5 million was outstanding under this
agreement, bearing interest at 7.80% annually, and with 68 remaining monthly
principal payments of $125,000. At July 3, 1999, the Company was in compliance
with all financial covenants specified in the agreement.
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 July 3, 1999, the bond balance outstanding under
this agreement was $1.5 million compared with $1.8 million on January 2, 1999.
ACQUISITION
On April 5, 1999, the Company purchased all of the outstanding capital stock of
Capacitores Unidos, S.A. de C.V. ("Capacitores"), a corporation organized under
the laws of Mexico, pursuant to several agreements (each a "Stock Purchase
Agreement" and collectively, the "Stock Purchase Agreements"), dated as of April
5, 1999, by and among the Company and each of Bires Investments B.V., Hobir
Holding B.V., Kasri Holding B.V., Kato Holding B.V., Renko Investments B.V., and
Tako Holding B.V., all corporations organized under the laws of The Netherlands
(collectively, the "Sellers"). In a prior transaction, Capacitores had
previously acquired the assets of the capacitor business of Compania General
Electronica S.A. de C.V., ("CGE"), a Mexican corporation. These assets consisted
primarily of inventory and machinery and equipment related to the capacitor
business of CGE, along with an assignment of employees, and all technical know-
how, customer lists, and other intangible assets related to the business.
During 1998, the capacitor business accounted for $11.5 million of the sales of
CGE, and approximately $1.4 million of earnings before interest and taxes. CGE
purchased approximately $1.5 million of high-purity aluminum capacitor foil from
the Company during 1998 for use in AC-rated
10
<PAGE>
motor start capacitors.
The president of CGE, Enrique Sanchez Aldunate was appointed president of
Capacitores, and has additionally assumed the title of Senior Vice President of
the Company, and was elected to the board of the Company. After the purchase,
Capacitores began operations as "CGE Aerovox".
The aggregate consideration of $7,826,643 paid for the capital stock of
Capacitores consisted of (i) the assumption of obligations of Capacitores
arising from its purchase of assets from CGE, principally three notes totaling
$3,470,000, one of which, in the amount of $1,750,000, was paid by the Company
on April 6, 1999; the remaining two notes are in the amounts of $1,509,000 and
$211,000, and bear interest at 5.10% and 5.22% per annum respectively, and
mature at April 1, 2000 and April 1, 2001 respectively, (ii) notes of the
Company aggregating $1,089,000, accruing interest at a rate of 5.22% per annum
and payable in full on April 4, 2001, (iii) notes of the Company aggregating
$350,000, accruing interest at a rate of 5.32% per annum and payable in full on
April 5, 2002, and (iv) 700,000 shares of common stock of the Company (the
"Registrant Stock"). Each of the Sellers executed a Stockholders Agreement,
dated as of April 5, 1999, with the Company which provides for certain
restrictions on the transfer of the Registrant Stock and provides that, in
certain circumstances and at a date not earlier than April 5, 2003, nor later
than May 5, 2003, the holders of such Registrant Stock may require the Company
to purchase the Registrant Stock at the then current book value of the Company.
The total of $2,917,643 was ascribed to the Registrant Stock which was composed
of the fair market value of the stock on the date of the transaction, and the
amount ascribed to the right of the Sellers to require the Company to repurchase
the stock at a future date at the then current book value. As of July 3, 1999,
the fair value of the right of the Sellers to require the Company to repurchase
the stock was approximately $1,275,000.
The foregoing description is qualified in its entirety by reference to the Stock
Purchase reference, and the Stockholders Agreement, a copy of which was filed on
Form 8-K on April 14, 1999.
The acquisition has been accounted for under the purchase method of accounting;
the operating results of Capacitores have been included in the Company's
consolidated statement of operations from April 5, 1999. Excess of cost over
the fair value of net assets acquired ($2,781,000) is being amortized on a
straight-line basis over ten years.
OTHER MATTERS
PLANT CONSOLIDATION
On August 5, 1999, the Company disclosed its plans to consolidate its Mexican
manufacturing operations. The Company announced that it will consolidate its
Juarez maquiladora operations into the larger of its two existing plants there.
In addition, capacity for the production of AC motor start capacitors and
certain AC film capacitors for lighting applications will be expanded at CGE
Aerovox, in Mexico City.
YEAR 2000 ISSUE
Many currently installed computer systems, software products and other equipment
utilizing microprocessors are coded to accept only two-digit entries in the date
code's "year" field. These date code fields will need to accept four digit
entries to distinguish twenty-first century dates from twentieth century dates.
This is commonly referred to as the "Year 2000" or "Y2K" issue.
11
<PAGE>
The Company commenced a program in 1997 to identify, remediate, test and develop
contingency plans for the Year 2000 issue. As part of this program, the Company
has completed implementation of a state-of-the-art and Y2K-compliant enterprise
resource planning ("ERP") system at all Company locations. The ERP system
includes the principal accounting, manufacturing, and customer service
information processing systems for the Company. Additional projects are
underway to upgrade or replace other equipment or software identified in its
review. All such identified equipment and software is expected to be in
compliance with Y2K software by September 30, 1999. In addition, the Company is
continually evaluating the software and systems of the Company's customers and
third party suppliers. The Company's products have no date-oriented
functionality and, therefore, pose no risks to customers with respect to the
Year 2000 issue.
Satisfactorily addressing the Year 2000 issue is dependent on many factors, some
of which are not completely within the Company's control. Should the Company's
internal systems or the internal systems of one or more significant suppliers
fail to achieve Year 2000 compliance, the Company's business and its results of
operations could be adversely affected.
ENVIRONMENTAL STATUS
As a result of the identification of polychlorinated biphenyl (PCB)
contamination in the New Bedford plant, operations in that facility will have to
be relocated, the existing facility razed, and all contaminated building
materials disposed of in a legally compliant manner. A reserve of $7.2 million
was established as of December 28, 1997, to cover the cost of the remediation
and related legal and engineering costs. From that date through July 3, 1999,
$0.6 million was charged to the reserve, primarily for legal and engineering
expenses.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. 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. The Company will adopt SFAS 133
for its fiscal year beginning December 31, 2000. Management estimates that the
effect of adopting SFAS 133 would not be material to the consolidated financial
statements.
SAFE HARBOR STATEMENT
This form 10-Q contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include expectations regarding the
Company's expenditures and improved operations resulting from the Millennium
Project and Mexican plant consolidation. Such statements are based on
management's current expectations and are subject to a number of uncertainties
and risks that could cause actual results to differ materially from those
described in the forward-looking statements. Such risks include, but are not
limited to, complications resulting the lack of preparedness of its vendors,
suppliers, and/or customers.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
6 (a). Exhibits: None
6 (b). Reports on Form 8-K: On March 8, 1999, the Company filed Form 8-K
relating to the agreement in principle to acquire the capacitor business of
Compania General de Electronica, S.A. de C.V. of Mexico City. On April 14, 1999,
the Company filed Form 8-K with exhibits relating to the successful purchase of
the capacitor business of Compania General de Electronica, S.A. de C.V.
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 17, 1999 BY /s/ JEFFREY A. TEMPLER
----------------------------------------
Jeffrey A. Templer
Senior Vice President/Finance
13
<TABLE> <S> <C>
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<S> <C> <C>
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<FISCAL-YEAR-END> JAN-01-2000 JAN-01-2000
<PERIOD-START> APR-04-1999 JAN-03-1999
<PERIOD-END> JUL-03-1999 JUL-03-1999
<CASH> 1,371 1,371
<SECURITIES> 0 0
<RECEIVABLES> 19,183 19,183
<ALLOWANCES> 1,086 1,086
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<CURRENT-ASSETS> 42,754 42,754
<PP&E> 70,564 70,564
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<CURRENT-LIABILITIES> 22,209 22,209
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0 0
0 0
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<OTHER-SE> 20,749 20,749
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<SALES> 30,637 59,010
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<CGS> 24,526 47,927
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<INCOME-CONTINUING> 801 1,130
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