SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
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 number: 0-28322
Asahi/America, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2621836
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) identification No.)
19 Green Street, Malden, Massachusetts 02148-0005
(Address of principal executive offices) (Zip Code)
(617) 321-5409
(registrant's telephone number, including area code)
Indicate by check 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 (or 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 [ ]
The registrant had 3,340,000 shares of common stock outstanding
at September 30, 1996.
1
<PAGE>
Asahi/America, Inc. and Subsidiary
Form 10-Q
Index
Page No.
Part I Financial Information
Item 1 - Condensed Consolidated Financial Statements
Consolidated Balance Sheets- September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations - Three and
Nine Months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information
(no information required to be supplied)
Signatures 12
<PAGE>
Asahi/America, Inc. and Subsidiary
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 2,481 $ 224
Short term investments 1,016 --
Accounts Receivable, less reserves of $279 at
September 30, 1996 and $245 at December 31, 1995 4,915 4,446
Inventories 8,302 8,207
Prepaid expenses and other current assets 271 678
-------- --------
Total current assets 16,985 13,555
Property and Equipment, net 9,109 7,203
Other Assets
Goodwill, net of accumulated amortization of
$1,240 at September 30, 1996 and $1,106 at
December 31, 1995 535 668
Other, net 776 1,026
-------- --------
Total other assets
1,311 1,694
-------- --------
$ 27,405 $ 22,452
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Demand note payable to bank $ -- $ 3,377
Current portion of MIFA obligations 135 130
Current portion of capital lease obligations 103 104
Accounts payable 5,357 5,210
Accrued expenses 1,261 885
-------- --------
Total current liabilities 6,856 9,706
MIFA Obligations, less current portion 3,760 3,833
Capital Lease Obligations, less current portion 223 301
Deferred Income Taxes 1,178 1,178
Commitments -- --
Stockholders' Equity
Common Stock 13,524 7,358
Retained Earnings 2,179 426
-------- --------
15,703 7,784
Less-Note receivable from stockholder/officer (315) (350)
-------- --------
Total stockholders' equity 15,388 7,434
-------- --------
$ 27,405 $ 22,452
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Asahi/America, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
(dollars in thousands, except net income per share)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 9,066 $ 9,093 $ 28,437 $ 25,351
Cost of sales 5,613 5,819 17,965 16,796
----------- ----------- ----------- -----------
Gross Profit 3,453 3,274 10,472 8,555
Selling, general and administrative expenses 2,275 2,164 7,236 6,292
----------- ----------- ----------- -----------
Income from Operations 1,178 1,110 3,236 2,263
Interest expense, net (24) (178) (222) (557)
----------- ----------- ----------- -----------
Income before provision for income taxes 1,154 932 3,014 1,706
Provision for income taxes 485 361 1,261 660
----------- ----------- ----------- -----------
Net Income $ 669 $ 571 $ 1,753 $ 1,046
----------- ----------- ----------- -----------
Net income per common share and
common equivalent share $ 0.20 $ 0.24 $ 0.61 $ 0.45
----------- ----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding 3,342,314 2,340,000 2,860,940 2,340,000
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Asahi/America, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 1,753 $ 1,046
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 925 804
Deferred income taxes -- 393
Changes in assets and liabilities
Accounts receivable (469) 23
Inventories (95) 707
Prepaid expenses and other current assets 407 (232)
Accounts payable 147 (1,263)
Accrued expenses 376 (262)
------- -------
Net cash provided by operating activities 3,044 1,216
Cash flows from investing activities
Purchase of short-term investments (1,016) --
Purchase of property and equipment (2,591) (838)
Decrease (increase) in others assets 143 (117)
------- -------
Net cash used in investing activities (3,464) (955)
Cash flows from financing activities
Borrowings under demand note payable to bank 3,650 7,780
Payments under demand note payable to bank (7,027) (7,785)
Payments on MIFA obligations (68) (64)
Payments on capital lease obligations (79) (26)
Payments of note receivable from stockholder/officer 35 --
Proceeds from issuance of common stock
net of issuance costs of $809 6,166
------- -------
Net cash provided by (used in) financing activities 2,677 (95)
------- -------
Net increase in cash and cash equivalents 2,257 166
Cash and cash equivalents, beginning of period 224 185
------- -------
Cash and cash equivalents, end of period $ 2,481 $ 351
------- -------
Supplemental cash flow disclosures: Cash paid during the year for:
Interest $ 285 $ 484
------- -------
Income taxes $ 690 $ 769
------- -------
Supplemental schedule of non-cash investing and financing activities:
Acquisition of equipment under capital lease obligations $ -- $ 234
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Asahi/America, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Presentation of Interim Information
The unaudited interim financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission and include, in the opinion of management, all adjustments which the
Company considers necessary for a fair presentation of such information. The
December 31, 1995 Balance Sheet was derived from the audited Consolidated
Balance Sheets contained in the Company's Form S-1 Registration Statement.
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 such rules and regulations. These
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto which are contained in the Company's Form
S-1 Registration Statement. Interim results are not necessarily indicative of
the results for a full year.
2. Financial Statements
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated.
3. Cash Equivalents and Short-term Investments
Cash equivalents are short-term, highly liquid investments with original
maturities of less than three months and consist of certificates of deposit.
Short term investments are investments with original maturities of greater than
three months but less than one year and consist of certificates of deposit.
4. Inventories
Inventories are stated at the lower of cost (last in first out) or market.
The components of inventory are summarized as follows:
September 30, December 31,
1996 1995
------------- ------------
Raw materials $ 659 $ 743
Work in process 40 --
Finished goods 7,715 7,946
------- -------
8,414 8,689
LIFO reserve (112) (482)
------- -------
Total $ 8,302 $8,207
======= =======
Had inventories been reported on the FIFO basis, net income for the nine months
ended September 30, 1996 and 1995 would have been approximately $1,533 and
$1,103, respectively. Net income for the three months ended September 30, 1996
an 1995 would have been approximately $542 and $590, respectively.
6
<PAGE>
5. Borrowing Arrangement
The Company and its Bank are negotiating the terms of a loan arrangement which
will provide for up to $10 million of unsecured borrowing. The new loan
arrangement, anticipated to be closed in the fourth quarter, will consist of two
facilities including a two year $5 million unsecured, Committed Revolving Line
of Credit (the Committed Line) and a one year $5 million unsecured,
Discretionary Demand Line of Credit (the Demand Line). The Committed Line
requires that the Company meet certain financial ratios and maintain specified
minimum levels of working capital and tangible net worth.
6. Net Income Per Share
Net income per common and common equivalent share is based upon the weighted
average number of common and common equivalent shares outstanding during each
period, computed in accordance with the treasury stock method. Fully diluted net
income per common and common equivalent share has not been presented as it is
not significantly different.
7. Commitments
In June 1996, in connection with its plans to expand manufacturing and
distribution capacity, the Company completed the purchase of the land and
building adjoining its existing facility in Malden, Massachusetts. The Company
estimates the total funds required for this project and related equipment
purchases will approximate $2.5 million of which $1.9 million was expended
through September 30, 1996.
8. Concentration of credit risk
Sales to the Company's major domestic customer during the third quarter of 1996
were approximately 21% of total sales as compared to 24% for the 1995 third
quarter. For the nine month periods ended September 30, 1996 and 1995, sales to
the Company's major domestic customer were approximately 24% and 23% of total
sales, respectively. Export sales as a percent of total sales during the third
quarter were approximately 4% and 5% in 1996 and 1995, respectively.
7
<PAGE>
Asahi/America, Inc. and Subsidiary
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company is a manufacturer and master distributor of thermoplastic valves,
pipe, piping systems and components for use in a wide variety of applications
across numerous industries. Manufactured products include valve actuators and
controls, specialized valve assemblies and double containment piping systems.
Distributed products consist principally of thermoplastic valves, pipe and
fittings which are purchased from two major foreign suppliers under long term
supply agreements. The Company distributes its products through an extensive
network of domestic and foreign distributors which are supported by Company
sales, marketing and engineering personnel. Substantially all of the Company's
purchases of valves are made from its Japanese supplier and are transacted in
Japanese yen. As a result, the Company is exposed to fluctuations in foreign
currency exchange rates. The Company may use hedging procedures including
forward contracts and currency options in managing the fluctuations in foreign
currency exchange rates.
The Company completed its initial public offering on May 15, 1996.
Results of Operations
The following table sets forth, for the periods indicated, the Company's net
sales as well as certain income and expense items, expressed as a percentage of
sales:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- -----------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.9% 64.0% 63.2% 66.3%
Gross Profit 38.1% 36.0% 36.8% 33.7%
Selling, general and administrative expenses 25.1% 23.8% 25.4% 24.8%
Income from operations 13.0% 12.2% 11.4% 8.9%
Interest expense, net -0.3% -1.9% -0.8% -2.2%
Income before provision for income taxes 12.7% 10.3% 10.6% 6.7%
Provision for income taxes 5.3% 4.0% 4.4% 2.6%
Net income 7.4% 6.3% 6.2% 4.1%
</TABLE>
8
<PAGE>
Net Sales
Net sales for the quarter ended September 30, 1996 of $9.1 million were
unchanged from the third quarter of 1995 as higher sales volume of distributed
products offset a decline in manufactured product sales. Manufactured product
sales were adversely affected by the timing of construction project orders. Year
to date sales through September 30, 1996 were $3.1 million higher than the
corresponding period of 1995 principally due to increased volume of distributed
products and the impact of a price increase implemented in July 1995.
Export sales for the three and nine month periods ended September 30, 1996 were
$345,000 and $1.2 million respectively compared to $491,000 and $1.5 million for
the corresponding periods of 1995. Sales to the Company's largest single
customer were approximately 24% and 23% of total sales for the nine month
periods ended September 30, 1996 and 1995, respectively.
Gross Profit
Gross profit as a percentage of sales (gross margin) for the third quarter of
1996 improved 2.1 percentage points from third quarter 1995 to 38.1%. Gross
margin for the nine months ended September 30, 1996 increased 3.1 percentage
points over the corresponding prior year period to 36.8%. Gross margins for both
periods improved, despite a less favorable sales mix associated with lower sales
of manufactured product, due mainly to lower product costs attributed to
favorable movement of the US dollar against the Japanese yen, reduced freight
costs on foreign purchases, and the integration of certain contract
manufacturing into in-house manufacturing. Gross profit for the 1996 third
quarter included foreign currency gain of $45,000 as compared to a $416,000
foreign currency gain for the 1995 third quarter. Gross margin for the nine
month period ended September 30, 1996 also benefited from a July 1995 price
increase.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and nine month
periods ended September 30, 1996 increased $111,000 and $944,000, respectively,
over the corresponding periods of 1995 due to increased personnel and
infrastructure to support plans for long-term growth. Higher direct selling and
warehousing costs associated with improved sales also contributed significantly
to the nine month increase in 1996 as compared to 1995.
9
<PAGE>
Interest Expense and Income Taxes
Interest expense was approximately $109,000 and $260,000 lower in the respective
three and nine month periods of 1996 as compared to 1995. The Company paid down
the entire balance of its bank line of credit following the initial public
offering in May 1996 and there have been no additional bank borrowings since
that time. Lower average borrowing and lower interest rates prior to the initial
public offering also contributed to lower year to date expense in 1996 as
compared to 1995.
Income taxes increased $124,000 in the third quarter of 1996 and $601,000 for
the nine months ended September 30, 1996 as compared to 1995. The increases were
mainly due to higher income before income taxes.
Liquidity and Capital Resources
The Company has financed its operations through the sale of equity securities,
bank borrowings under a line of credit, an Industrial Revenue Bond financing in
March 1994 and cash from operations. In addition, the Company enjoys favorable
payment terms under a $6 million open account line of credit for the purchase of
Japanese valve products, which the majority of its purchases are at 180 day
payment terms.
At September 30, 1996 cash and cash equivalents were $2.5 million while short
term investments were $1.0 million.
The Company generated $3.0 million of cash flow from operations during the nine
month period ended September 30, 1996 as compared to $1.2 million for the same
period of 1995. Receivables at September 30, 1996 increased $469,000 from
December 31, 1995 mainly due to slower collections associated with construction
project shipments.
The Company completed its initial public offering on May 15, 1996 through the
sale of one million shares of common stock at $7.50 per share. After
underwriting discounts, commissions and expenses related to the offering, the
Company received $6.2 million from the sale of its shares. Immediately following
the offering, the Company used $2.3 million to pay down the entire balance of
its bank line of credit, which remained unused through September 30, 1996.
The Company and its Bank are negotiating the terms of a loan arrangement which
will provide for up to $10 million of unsecured borrowing. The new loan
arrangement, anticipated to be closed in the fourth quarter, will consist of two
facilities including a two year $5 million unsecured, Committed Revolving Line
of Credit (the Committed Line) and a one year $5 million unsecured,
Discretionary Demand Line of Credit (the Demand Line).
10
<PAGE>
In June 1996, in connection with its plans to expand manufacturing and
distribution capacity, the Company completed the purchase of the land and
building adjoining its existing facility in Malden, Massachusetts at an
aggregate purchase price of $1.25 million. The Company estimates the total funds
required for this project and the related equipment purchases will approximate
$2.5 million. Of this amount, approximately $1.9 million had been expended at
September 30, 1996.
The Company's industrial revenue bonds funded through the Massachusetts
Industrial Finance Agency (MIFA) are secured by a letter of credit issued by a
bank which is secured by substantially all the assets of the Company. The bonds
consist of six separate series each with differing interest rates and
maturities. Interest rates range from 4.2% to 5.1% and are subject to adjustment
in 1999, 2004 and 2009. The maximum principal payable in any one year is
$320,000 payable in 2014.
The Company believes that its current funds, together with cash generated by
operations will be sufficient to fund the Company's operations, debt service and
capital requirements at least through the next 12 months.
11
<PAGE>
Signatures
Pursuant to the requirements 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.
ASAHI/AMERICA, INC.
Dated: November 14, 1996 By: /s/ Leslie B. Lewis
----------------------------
Leslie B. Lewis, President and Chief
Executive Officer
By: /s/ Kozo Terada
-----------------------------
Kozo Terada, Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000906873
<NAME> ASAHI/AMERICA, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.0
<CASH> $2,481
<SECURITIES> $0
<INVENTORY> $8,302
<RECEIVABLES> $5,194
<ALLOWANCES> $279
<CURRENT-ASSETS> $16,985
<PP&E> $12,470
<DEPRECIATION> $3,361
<TOTAL-ASSETS> $27,405
<CURRENT-LIABILITIES> $6,856
<BONDS> $3,760
$0
$0
<COMMON> $13,524
<OTHER-SE> $1,864
<TOTAL-LIABILITY-AND-EQUITY> $27,405
<SALES> $28,437
<TOTAL-REVENUES> $28,437
<CGS> $17,965
<TOTAL-COSTS> $17,965
<OTHER-EXPENSES> $7,186
<LOSS-PROVISION> $50
<INTEREST-EXPENSE> $222
<INCOME-PRETAX> $3,014
<INCOME-TAX> $1,261
<INCOME-CONTINUING> $0
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $1,753
<EPS-PRIMARY> $0.61
<EPS-DILUTED> $0.61
</TABLE>
