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 June 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 identification No.)
Incorporation or Organization)
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 ___ No X
--
The registrant had 3,340,000 shares of common stock outstanding
at June 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- June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations - Three and
Six Months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - Six Months
Ended June 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
2
<PAGE>
Asahi/America, Inc. and Subsidiary
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,311 $ 224
Short term investments 2,006 --
Accounts receivable, less reserves of $276 at June 30, 1996
and $245 at December 31, 1995 4,161 4,446
Inventories 8,290 8,207
Prepaid expenses and other current assets 784 678
-------------- -------------
Total current assets 16,552 13,555
Property and Equipment, net 8,449 7,203
Other Assets
Goodwill, net of accumulated amortization
of $1,195 at June 30, 1996 and $1,106 at
December 31, 1995 579 668
Other, net 817 1,026
-------------- -------------
Total other assets 1,396 1,694
-------------- -------------
$ 26,397 $ 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 4,783 5,210
Accrued expenses 1,487 885
-------------- -------------
Total current liabilities 6,508 9,706
MIFA Obligations, less current portion 3,760 3,833
Capital Lease Obligations, less current portion 250 301
Deferred Income Taxes 1,178 1,178
Commitments -- --
Stockholders' Equity
Common Stock 13,524 7,358
Retained Earnings 1,510 426
-------------- -------------
15,034 7,784
Less-Note receivable from stockholder/officer (333) (350)
-------------- -------------
Total stockholders' equity 14,701 7,434
-------------- -------------
$ 26,397 $ 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 Six months ended
June 30, June 30,
---------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 9,719 $ 8,451 $ 19,371 $ 16,258
Cost of sales 6,047 5,691 12,352 10,977
----------- ----------- ------------- -------------
Gross Profit 3,672 2,760 7,019 5,281
Selling, general and administrative expenses 2,595 2,054 4,961 4,128
----------- ----------- ------------- -------------
Income from operations 1,077 706 2,058 1,153
Interest expense, net (84) (201) (198) (379)
----------- ----------- ------------- -------------
Income before provision for income taxes 993 505 1,860 774
Provision for income taxes 417 195 776 299
----------- ----------- ------------- -------------
Net Income $ 576 $ 310 $ 1,084 $ 475
----------- ----------- ------------- -------------
Net income per common share and
common equivalent share $ 0.20 $ 0.13 $ 0.42 $ 0.20
=========== =========== ============= =============
Weighted average number of common and
common equivalent shares outstanding 2,881,387 2,340,000 2,610,694 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)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------------
1996 1995
------------------ ----------------
Cash flows from operating activities (unaudited) (unaudited)
<S> <C> <C>
Net Income $ 1,084 $ 475
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 612 538
Deferred income taxes -- 262
Changes in assets and liabilities
Accounts receivable 285 128
Inventories (83) 237
Prepaid expenses and other current assets (106) (234)
Accounts payable (427) 73
Accrued expenses 602 (261)
------------------ ----------------
Net cash provided by operating activities 1,967 1,218
Cash flows from investing activities
Purchase of short-term investments (2,006) --
Purchase of property and equipment (1,698) (459)
Decrease (increase) in others assets 138 (11)
------------------ ----------------
Net cash used in investing activities (3,566) (470)
Cash flows from financing activities
Borrowings under demand note payable to bank 3,650 5,200
Payments under demand note payable to bank (7,027) (5,755)
Payments on MIFA obligations (68) (64)
Payments on capital lease obligations (52) (19)
Payments of note receivable from stockholder/officer 17 --
Proceeds from issuance of common stock
net of issuance costs of $809 6,166 --
------------------ ----------------
Net cash provided by (used in) financing activities 2,686 (638)
------------------ ----------------
Net increase in cash and cash equivalents 1,087 110
Cash and cash equivalents, beginning of period 224 184
------------------ ----------------
Cash and cash equivalents, end of period $ 1,311 $ 294
================== ================
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest $ 138 $ 300
================== ================
Income taxes $ 475 $ 483
================== ================
Supplemental schedule of non-cash investing
and financing activities:
Acquisition of equipment under capital lease obligations $ -- $ (119)
================== ================
</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:
June 30, December 31,
1996 1995
-------- ------------
Raw materials $ 680 $ 743
Work in process 57 --
Finished goods 7,885 7,946
------- -------
8,622 8,689
LIFO reserve (332) (482)
------- -------
Total $ 8,290 $8,207
======= =======
Had inventories been reported on the FIFO basis, net income for the six months
ended June 30, 1996 and 1995 would have been approximately $1,000 and $513,
respectively. Net income for the three months ended June 30, 1996 an 1995 would
have been approximately $530 and $329, respectively.
6
<PAGE>
5. 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.
6. 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.
7. Concentration of credit risk
Sales to the Company's major domestic customer during the second quarter of 1996
were approximately 19% of total sales as compared to 26% for the 1995 second
quarter. For the six month periods ended June 30, 1996 and 1995, sales to the
Company's major domestic customer were approximately 26% and 23% of total sales,
respectively. Export sales as a percent of total sales during the second quarter
were approximately 5% and 3% 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 Six months ended
June 30, June 30,
------------------------------- ------------------------------
1996 1995 1996 1995
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 62.2% 67.3% 63.8% 67.5%
Gross Profit 37.8% 32.7% 36.2% 32.5%
Selling, general and administrative expenses 26.7% 24.3% 25.6% 25.4%
Income from operations 11.1% 8.4% 10.6% 7.1%
Interest expense, net -0.9% -2.4% -1.0% -2.3%
Income before provision for income taxes 10.2% 6.0% 9.6% 4.8%
Provision for income taxes 4.3% 2.3% 4.0% 1.8%
Net income 5.9% 3.7% 5.6% 3.0%
</TABLE>
8
<PAGE>
Net Sales
Net sales for the quarter ended June 30, 1996 were $1.3 million higher than net
sales for the second quarter of 1995. Net sales for the six months ended June
30, 1996 of $19.4 million were $3.1 million greater than sales of the comparable
1995 six month period. The quarterly and year to date increases were mainly due
to improved sales volume of both distributed and manufactured products. A price
increase implemented in July 1995 and higher revenues from the rental and sale
of installation equipment also contributed to the increased second quarter and
six month year to date sales in 1996 as compared to 1995.
Export sales for the three and six month periods ended June 30, 1996 were
$488,000 and $847,000 respectively compared to $247,000 and $1.0 million for the
corresponding periods of 1995. Sales to the Company's largest single customer
were approximately 26% and 23% of total sales for the six month periods ended
June 30, 1996 and 1995, respectively.
Gross Profit
Gross profit as a percentage of sales (gross margin) improved 5.1 percentage
points to 37.8% in the 1996 second quarter as compared to 32.7% for the
corresponding quarter of 1995. Gross margin for the six months ended June 30,
1996 increased 3.7 percentage points to 36.2% from 32.5% for the comparable
period of 1995. The improvement for both periods resulted mainly from increased
average selling prices, following the July 1995 price increase and lower average
product costs, attributed mainly to favorable movement of the Japanese yen
versus the US dollar. Gross margins for the three month and six month periods of
1996 also benefited from lower freight costs on foreign purchases resulting from
favorable rate negotiations and reduced use of air shipments, which have higher
freight rates than items shipped by ocean vessel. Cost reductions from
integrating certain contract manufacturing into the Company's in-house
manufacturing also benefited the 1996 gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the second quarter of 1996
increased $541,000 or 26.3% over 1995 due in part to higher selling and
distribution costs in support of increased sales. Selling, general and
administrative expenses as a percentage of sales increased from 24.3% in the
1995 second quarter to 26.7% in the 1996 second quarter due mainly to increased
sales commissions and additional expenses in connection with the launch of the
industrial filtration line. The increased sales commissions were largely due to
the timing of direct shipments to foreign customers. Such shipments are invoiced
to the end users at end-user prices and commissions are paid to the
distributors.
9
<PAGE>
Although these shipments normally provide the same level of operating profit
dollars, the commission payments cause higher selling expenses as a percentage
of net sales as well as higher gross margins.
Despite the second quarter increase, selling, general and administrative
expenses for the six months ended June 30, 1996 were 25.6% of net sales;
substantially unchanged from the same period of 1995.
Interest Expense and Income Taxes
Interest expense was $103,000 and $157,000 lower in the respective three and six
month periods ended June 30, 1996 as compared to the corresponding periods of
1995. The decreases were caused by reduced average borrowings and lower average
interest rates on the Company's bank line of credit. The entire outstanding
balance of the line was paid down immediately following the initial public
offering in May 1996 and there have been no additional borrowings under the line
since that time.
Income taxes increased $222,000 in the second quarter of 1996 and increased
$477,000 for the six months ended June 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 June 30, 1996 cash and cash equivalents were $1.3 million while short term
investments were $2.0 million.
The Company generated $2.0 million of cash flow from operations during the six
months ended June 30, 1996 as compared to $1.2 million for the comparable 1995
period. Receivables at June 30, 1996 decreased $285,000 from December 31, 1995
mainly due to improved collection results while inventories remained relatively
unchanged.
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 June 30, 1996. Also
following the offering, the Company negotiated an interim
10
<PAGE>
extension of its line of credit to August 31, 1996 with a reduced availability
of $3 million. During the third quarter, the Company expects to finalize
arrangements for an increased, unsecured line of credit to meet future working
capital needs.
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 $1.4 million had been expended at
June 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: August 9, 1996 By: /s/ Leslie B. Lewis
-------------------------------------
Leslie B. Lewis, President and Chief
Executive Officer
By: /s/ Kozo Terada
-------------------------------------
Kozo Terada, Vice President, Principal
Financial Officer and Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000906873
<NAME> ASAHI/AMERICA, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Jun-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,311
<SECURITIES> 0
<RECEIVABLES> 4,437
<ALLOWANCES> 276
<INVENTORY> 8,290
<CURRENT-ASSETS> 16,552
<PP&E> 11,577
<DEPRECIATION> 3,128
<TOTAL-ASSETS> 26,397
<CURRENT-LIABILITIES> 6,508
<BONDS> 3,760
0
0
<COMMON> 13,524
<OTHER-SE> 1,177
<TOTAL-LIABILITY-AND-EQUITY> 26,397
<SALES> 19,371
<TOTAL-REVENUES> 19,371
<CGS> 12,352
<TOTAL-COSTS> 12,352
<OTHER-EXPENSES> 4,911
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 1,860
<INCOME-TAX> 776
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,084
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
