<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended July 1, 2000
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 15, 2000, 6,134,811 shares of registrant's common stock (par value,
$1.00) were outstanding, 700,000 of which are restricted and redeemable under
Stockholder Agreements as described in the footnotes to the financial statements
included in the registrant's most recent Annual Report on Form 10-K.
<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 1, July 3, July 1, July 3,
2000 1999 2000 1999
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 30,075 $ 30,637 $ 60,300 $ 59,010
Cost of sales 24,789 24,526 49,815 47,927
-------------- -------------- ----------- ------------
Gross profit 5,286 6,111 10,485 11,083
Selling, general and administrative expenses 4,675 4,482 8,854 8,320
-------------- -------------- ----------- ------------
Income from operations 611 1,629 1,631 2,763
Other income (expense):
Interest expense (685) (461) (1,116) (862)
Other income (expense) (148) 125 (94) (7)
-------------- -------------- ----------- ------------
Income (loss) before income taxes (222) 1,293 421 1,894
Provision for (benefit from) income taxes (89) 492 106 764
-------------- -------------- ----------- ------------
Net income (loss) $ (133) $ 801 $ 315 $ 1,130
============== ============== =========== ============
Basic earnings (loss) per share $ (0.02) $ 0.15 $ 0.06 $ 0.21
============== ============== =========== ============
Dilutive earnings (loss) per share $ (0.02) $ 0.15 $ 0.05 $ 0.21
============== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
<PAGE>
AEROVOX INCORPORATED
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 1, Jan. 1,
2000 2000
------------------ ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,646 $ 742
Accounts receivable, net 18,792 14,881
Inventories 20,344 17,511
Prepaid expenses and other current assets 2,145 2,214
------------------ ------------------
Total current assets 46,927 35,348
Property, plant and equipment, net 33,312 27,521
Goodwill, net 3,773 3,989
Deferred income taxes 3,592 3,592
Restricted cash 763 -
Other assets 228 70
------------------ ------------------
Total assets $ 88,595 $ 70,520
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,199 $ 8,285
Accrued compensation and related expenses 2,636 2,540
Other accrued expenses 2,997 2,090
Current maturities of long-term debt 6,148 7,362
Income taxes 35 47
------------------ ------------------
Total current liabilities 23,015 20,324
Deferred income taxes 4,072 4,100
Industrial revenue bond 545 800
Long-term debt less current maturities 29,360 13,571
Reserve for environmental costs and plant remediation 6,477 6,470
Deferred compensation 394 503
Redeemable common stock 2,532 2,546
Stockholders' equity:
Common stock 5,429 5,404
Additional paid-in capital 1,130 1,078
Retained earnings 16,297 15,969
Accumulated other comprehensive loss (656) (245)
------------------ ------------------
Total stockholders' equity 22,200 22,206
------------------ ------------------
Total liabilities and stockholders' equity $ 88,595 $ 70,520
================== ==================
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
<PAGE>
AEROVOX INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
July 1, July 3,
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 315 $ 1,130
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,284 2,456
Changes in operating assets and liabilities:
Accounts receivable (4,299) (3,808)
Inventories (3,185) (304)
Prepaid expenses and other current assets (298) (762)
Accounts payable 3,054 478
Accrued expenses and other liabilities 1,088 (891)
Income taxes payable 215 513
--------- --------
Net cash used in operating activities (826) (1,188)
--------- --------
Cash flows from investing activities:
Cash paid to acquire Capacitores, net of cash acquired - (1,721)
Acquisition of property and equipment (8,088) (627)
Deposit into EPA trust fund and cash interest received (763) -
Other 167 207
--------- --------
Net cash used in investing activities (8,684) (2,141)
--------- --------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit 7,607 (3,171)
Long-term borrowings 10,748 9,750
Repayment of long-term debt (3,736) (3,127)
Cash paid for debt issuance costs (195) -
Proceeds from employee stock purchase
plan and exercise of stock options 77 15
--------- --------
Net cash provided by financing activities 14,501 3,467
--------- --------
Effects of exchange rates on cash (87) 84
--------- --------
Increase in cash 4,904 222
Cash at beginning of year 742 1,149
--------- --------
Cash at end of period $ 5,646 $ 1,371
========= ========
</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 Incorporated's ("the Company") Annual Report on
Form 10-K for the fiscal year ended January 1, 2000, and the consolidated
financial statements and footnotes included therein. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments, consisting of only normal recurring accruals, necessary to
present fairly the 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 in the United States have been condensed or
omitted pursuant to Securities and Exchange Commission rules and
regulations. The consolidated balance sheet data as of January 1, 2000,
included herein, is derived from the Company's audited financial statements
as of January 1, 2000.
Fiscal 2000 consists of 52 weeks, and will end on December 30, 2000.
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the current presentation.
(2) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
July 1, 2000 January 1, 2000
-------------------------------------------------------------------------
Domestic Foreign Total Domestic Foreign Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raw materials $ 6,714 $3,543 $10,257 $ 5,948 $3,429 $ 9,377
Work in process 2,034 669 2,703 1,949 359 2,308
Finished goods 6,424 960 7,384 4,838 988 5,826
-------------------------------------------------------------------------------------------------------------
$15,172 $5,172 $20,344 $12,735 $4,776 $17,511
=============================================================================================================
</TABLE>
<PAGE>
(3) NET INCOME (LOSS) PER SHARE (BASIC AND DILUTED)
Net income (loss) per share is computed based on the weighted average
number of common and common equivalent shares outstanding during the
period, calculated under the treasury stock method.
<TABLE>
<CAPTION>
(in thousands, except for share and per share data)
-------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended For the Three Months Ended For the Six Months Ended
July 1, 2000 July 3, 1999 July 1, 2000
-------------------------------------------------------------------------------------------------------------------------------
Net Shares Per share Net Shares Per share Net Shares Per share
loss amount income amount income amount
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings
(Loss) Per $(133) 5,429,187 $(0.02) $801 5,396,722 $0.15 $315 5,420,190 $0.06
Share
-------------------------------------------------------------------------------------------------------------------------------
Dilutive Securities:
-------------------------------------------------------------------------------------------------------------------------------
Options -0- -0- 53,621
-------------------------------------------------------------------------------------------------------------------------------
Redeemable
Common Stock -0- -0- 700,000
-------------------------------------------------------------------------------------------------------------------------------
Diluted
Earnings $(133) 5,429,187 $(0.02) $801 5,396,722 $0.15 $315 6,173,811 $0.05
(Loss) Per
Share
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------
For the Six Months Ended
July 3, 1999
-------------------------------------------------------
Net Shares Per share
income amount
-------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings
(Loss) Per $1,130 5,395,263 $0.21
Share
-------------------------------------------------------
Dilutive Securities:
-------------------------------------------------------
Options -0-
-------------------------------------------------------
Redeemable
Common Stock -0-
-------------------------------------------------------
Diluted
Earnings $1,130 5,395,263 $0.21
(Loss) Per
Share
-------------------------------------------------------
</TABLE>
Options to purchase 397,750 shares of common stock at prices ranging from
$3.95 to $9.63 per share were outstanding at July 1, 2000, but were not
included in the computation of diluted earnings per share for the six
months ended July 1, 2000 because the exercise prices of the options were
greater than the average market price of common shares for the period.
Options to purchase 325,300 shares of common stock at prices ranging from
$2.44 to $3.63 were outstanding at July 1, 2000, and were included in the
calculation of diluted earnings per share because they had a dilutive
effect on earnings per share for the six months ended July 1, 2000. Under
the treasury stock method, the equivalent of 53,621 common shares were
added to the average number of outstanding common shares in computing
diluted earnings per share.
Redeemable common stock aggregating 700,000 shares are included in the
calculation of diluted earnings per share because the average fair market
value of the Company's outstanding common stock for the six months ended
July 1, 2000, exceeds the book value per common share of the Company at
July 1, 2000. The redemption agreement stipulates that these shares can be
redeemed at the book value per common share starting on April 5, 2003
through May 5, 2003, at the holders' discretion. It is presumed under
current conditions that, at the conclusion of the period of restriction,
the redeemable common stock would be registered and held or traded on the
open market, thereby diluting earnings per share.
The redeemable common stock was not included in the calculation of diluted
earnings per share for the three-month and six-month periods ended July 3,
1999 because the book value per common share exceeded the average fair
market value of the Company's outstanding common stock. Under these
conditions, it is presumed that the redeemable common stock would be
redeemed at the book value per common share and become treasury stock.
<PAGE>
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-month and six-month periods ended July 3,
1999.
(4) COMPREHENSIVE INCOME
The Company's comprehensive income (loss) was as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
July 1, July 3, July 1, July 3,
------- ------- ------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (133) $ 801 $ 315 $ 1,130
Foreign currency translation adjustment (313) (63) (411) (286)
--------- --------- --------- ---------
Total comprehensive income (loss) $ (446) $ 738 $ (96) $ 844
========== ========= ========= =========
</TABLE>
(5) RECENTLY ISSUED 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"). In June 1999, SFAS 137
"Deferral of the Effective Date of SFAS 133" was issued to amend the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
SFAS 133 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 SFAS 133, 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 have a material impact on the Company's historical financial
position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in
FIN 44 cover specific events that occurred after either December 15, 1998
or January 12, 2000. The Company does not expect the application of FIN 44
to have a material impact on the Company's historical financial position or
results of operations.
<PAGE>
(6) DEBT
On March 21, 2000, the Company entered into a fifteen-year financing
agreement with a bank and an investment company affiliated with the bank.
Under the terms of the agreement, the Company received $10.2 million of
adjustable rate financing collateralized by the Company's new facility in
New Bedford, Massachusetts, which includes real property and manufacturing
equipment. The Company entered into a staged interest rate swap in order to
fix the interest rate at 7.66% over fifteen years. As of July 1, 2000, $6.5
million of the $10.2 million was covered by the interest rate swap and, as
of September 1, 2000, the remaining amount borrowed will bear interest at
the same rate. Until then, the $3.7 million balance will bear interest at
the prevailing rates (6.85% at July 1, 2000). Including all amortizable
fees, the effective interest rate is 9.26%. The agreement contains a
financial covenant requiring the Company to maintain a minimum debt service
coverage ratio. The Company was in compliance with this covenant at July 1,
2000.
(7) RESTRUCTURING COSTS
In December 1999, the Company recorded charges of $5,676,000 related to the
exit costs from certain activities and asset impairments arising from the
consolidation and relocation of certain facilities. Of this amount, charges
of $4,723,000 related to the impairment of property, plant and equipment
and $344,000 related to the write-off of certain inventory were recorded in
the Company's Consolidated Statements of Operations and against the
respective assets. A charge of $609,000 related to involuntary employee
terminations was recorded in the Company's Consolidated Statement of
Operations and accrued for as of January 1, 2000. The involuntary
terminations were a result of the closure and consolidation of plants in
Mexico and the closure of foil processing operations in the United Kingdom.
As a result of these actions, 54 employees were identified for termination,
primarily from production, supervisory and manufacturing support functions.
In the six months ended July 1, 2000, the Company terminated 25 employees
and paid $286,000 of involuntary termination costs which were accrued as of
January 1, 2000. Management believes the severance accrual ($323,000 at
July 1, 2000) to be sufficient to meet the requirements for the remaining
employee termination costs.
<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 1, 2000 compared with Three Months Ended July 3, 1999.
Net sales for the second quarter of 2000 totaled $30.1 million compared with
$30.6 million for the second quarter of 1999, a decrease of $0.6 million or
1.8%. The decrease in net sales for the quarter resulted principally from the
impact of pricing concessions for capacitors sold into the motors market. For
the first six months of 2000, consolidated net sales were $60.3 million, an
increase of $1.3 million compared with $59.0 million for the first half of 1999.
This increase resulted principally from the contribution to net sales from CGE
Aerovox, acquired in April 1999, offset by the pricing concessions discussed
above.
Gross profits for the second quarter of 2000 decreased to $5.3 million or 17.6%
of net sales compared with $6.1 million or 19.9% of net sales for the same
period in 1999. Gross margin declined due in part to pricing pressures, but more
significantly as a result of costs from restructuring activities, accounting for
approximately $0.6 million of additional overhead expenses.
Selling, general and administrative expenses for the second quarter of 2000
totaled $4.7 million or 15.5% of net sales compared with $4.5 million or 14.6%
of net sales for the same period in 1999. The increase resulted from higher
personnel and recruiting costs.
Construction and equipment financing in New Bedford, Massachusetts and increases
in the prime rate resulted in higher interest expense for the quarter compared
with 1999. Other income and expense for the quarter reflected a decrease in
royalty income and exchange rate related losses.
Loss before income taxes was $(0.2) million or (0.7)% compared with income of
$1.3 million or 4.2% of net sales in the second quarter of 1999. The benefit
from income taxes for the second quarter of 2000 was $89,000 or 40% of the
pretax loss, adjusting income taxes to an estimated annualized tax rate of 25%,
compared with $0.5 million or 38% of pretax income in the second quarter of
1999.
Net loss for the quarter was $(0.1) million or $(0.02) per common share, basic
and diluted, compared with net income in the second quarter of 1999 of $0.8
million or $0.15 per common share, basic and diluted.
Six Months Ended July 1, 2000 compared with Six Months Ended July 3, 1999.
For the first six months of 2000, net sales were $60.3 million, an increase of
$1.3 million compared with $59.0 million for the first half of 1999. This
increase resulted principally from the contribution to sales from CGE Aerovox,
acquired in April 1999, partially offset by pricing concessions for capacitors
sold into the motors market.
Gross profits for the first half of 2000 decreased to $10.5 million or 17.4% of
net sales compared with $11.1 million or 18.8% of net sales for the same period
in 1999. Gross margin declined due in part to pricing pressures, but more
significantly as a result of costs from restructuring activities, accounting for
<PAGE>
approximately $0.7 million of additional overhead expenses.
Selling, general and administrative expenses for the first half of 2000 totaled
$8.9 million or 14.7% of net sales compared with $8.3 million or 14.1% of net
sales for the same period in 1999. The increase resulted from higher personnel
and recruiting costs as well as the effect of the April 1999 acquisition of CGE
Aerovox.
Construction and equipment financing in New Bedford, Massachusetts, and
increases in the prime rate resulted in higher interest expense for half year
compared with 1999. Other income and expense for the six months reflected a
decrease in royalty income and exchange rate related losses.
Income before income taxes was $0.4 million or 0.7% compared with $1.9 million
or 3.2% of net sales in the first half of 1999. The provision for income taxes
for the six months ended July 1, 2000, was $0.1 million or 25% of pretax income
compared with $0.8 million, or 40% of pretax income in 1999. Projected
utilization of net operating loss carryforwards in 2000 has lowered the
provision rate from the statutory rate of 40%.
Net income for the six months was $0.3 million, or $0.06 per common share,
basic, and $0.05 per common share, diluted, compared with net income in the
first half of 1999 of $1.1 million or $0.21 per common share, basic and diluted.
Liquidity and Capital Resources
Cash and cash equivalents at the end of the second quarter of 2000 totaled $5.6
million compared with $0.7 million as of January 1, 2000. The Company's working
capital, as a result of the increase in cash equivalents and accounts receivable
offset by an increase in accounts payable, totaled $23.9 million at July 1,
2000, compared to $15.0 million at January 1, 2000. The Company's current ratio
at July 1, 2000 was 2.0:1, compared with a ratio of 1.7:1 at January 1, 2000. At
the end of the second quarter of 2000, the Company had borrowings of $36.1
million compared with $21.7 million at January 1, 2000. Of the increase, $10.2
million resulted from debt incurred to finance the Company's new facility in New
Bedford and approximately $4.2 million represents funding of operations through
the Company's revolving lines of credit.
On March 21, 2000, the Company entered into a fifteen-year financing agreement
with a bank and an investment company affiliated with the bank. Under the terms
of the agreement, the Company received $10.2 million of adjustable rate
financing collateralized by the Company's new facility in New Bedford,
Massachusetts, which includes real property and manufacturing equipment. The
Company entered into a staged interest rate swap in order to fix the interest
rate at 7.66% over fifteen years. As of July 1, 2000, $6.5 million of the $10.2
million was covered by the interest rate swap and, as of September 1, 2000, the
remaining amount borrowed will bear interest at the same rate. Until then, the
$3.7 million balance will bear interest at the prevailing rates (6.85% at July
1, 2000). Including all amortizable fees, the effective interest rate is 9.26%.
The agreement contains a financial covenant requiring the Company to maintain a
minimum debt service coverage ratio. The Company was in compliance with this
covenant at July 1, 2000.
The Company's revolving credit agreement with a U.S. bank provides for a credit
line of $14.4 million and is collateralized by certain accounts receivable and
inventory. The agreement, which matures on May 31, 2002, includes several
borrowing options which, for the quarter ending July 1, 2000, had
<PAGE>
interest rates ranging from 8.02% to 9.50%. The outstanding balance of the
credit line at July 1, 2000 was $11.2 million. The Company was in compliance
with all financial covenants specified by the agreement at July 1, 2000.
BHC has an agreement with a bank which provides for (i) a ten-year mortgage on
real property in the amount of 0.5 million British pounds with an outstanding
balance at July 1, 2000 of 0.5 million British pounds ($0.7 million), (ii) a
five-year loan collateralized by machinery and equipment in the amount of 0.5
million British pounds with an outstanding balance at July 1, 2000 of 0.4
million British pounds ($0.6 million) and (iii) an "Overdraft" credit line
allowing borrowings in British pounds, euros or U.S. dollars up to the
equivalent of 2.5 million British pounds with an outstanding balance at July 1,
2000 of 1.5 million British pounds ($2.3 million). With the exception of the
five-year loan collateralized by plant and machinery, which has a fixed rate of
interest of 7.15%, interest is charged at variable rates based upon the bank
base rate. The ten-year mortgage agreement includes certain financial covenants.
At January 1, 2000 BHC was in violation of two covenants regarding interest
coverage and net worth. On February 24, 2000 the lender waived its right to
accelerate payments on this loan with respect to the violation through January
1, 2001.
BHC has an agreement with another bank which provides for a five-year loan at
8.00% per annum collateralized by machinery and equipment in the amount of 0.8
million British pounds with an outstanding balance at July 1, 2000 of 0.9
million British pounds ($1.4 million).
The Company also has a term loan with an equipment financing company with an
outstanding balance at July 1, 2000 of $7.0 million. This loan, collateralized
by equipment at the Company's New Bedford and Huntsville, Alabama facilities,
matures in 2005, and bears an annual interest rate of 7.8%. The Company was in
compliance with all financial covenants of the agreement at July 1, 2000.
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 July 1, 2000 was $1.0
million.
The Company also has two notes payable to the original shareholders of
Capacitores Unidos, S.A. de C.V. in the amounts of $1.1 million and $0.4
million, accruing interest at rates of 5.22% and 5.32% per annum, respectively,
and due April 4, 2001 and April 5, 2002, respectively.
Aerovox de Mexico, S.A. de C.V., the Company's Mexico subsidiary, has a note
payable to Compania General de Electronica, S.A. de C.V., in the amount $0.2
million which bears interest at 5.22% per annum and matures at April 1, 2001.
Management believes existing cash and short-term investments together with funds
generated from operations will be sufficient to meet operating requirements for
the next 12 months.
Other Matters
ENVIRONMENTAL STATUS
On December 2, 1999, the Company reached a final agreement with the U.S.
Environmental Protection Agency regarding the remediation of polychlorinated
biphenyls ("PCBs") present in its New Bedford facility. Under the agreement, the
Company has agreed to relocate its Belleville Avenue operations to
<PAGE>
another site within 16 months, demolish the existing building and cap the site
by November 2011.
In fiscal 1997, the Company recorded a provision of $13.0 million for
environmental costs, plant remediation and impairment of assets. The provision
included a $7.2 million reserve for environmental remediation and associated
consulting, legal and engineering costs posted as a result of the identification
of PCBs in the plant. From that date through July 1, 2000, $0.6 million was
charged to the reserve, primarily for legal and engineering expenses.
Management believes the reserve is adequate for the cost of activities described
above.
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"). In June 1999 SFAS 137 "Deferral of the
Effective Date of SFAS 133" was issued to amend the effective date of SFAS 133
to 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 historical consolidated
financial statements.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's historical financial position or results of operations.
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. 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
6 (a). Exhibits: None
6 (b). Reports on Form 8-K: None
SIGNATURES
<PAGE>
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 15, 2000 BY /S/ F. RANDAL HUNT
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F. Randal Hunt
Senior Vice President and Chief Financial Officer
