1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X|/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 1996
| |/ / 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 1-6176
AUGAT INC.
----------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2022285
- ------------------------------- ----------------------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
89 Forbes Boulevard, P.O. Box 448, Mansfield, Massachusetts 02048
- ----------------------------------------------------------- -----
(Address of principal executive offices) (Zip
Code)
(508) 543-4300
------------------------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
The number of shares of the Registrant's common stock outstanding on
JuneSeptember 30, 1996 was 19,967,182.20,039,443.
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AUGAT INC.
INDEX
Page No.
--------
Part I - Financial Information ......................................... 3
Financial Statements (Unaudited)
Statements of Consolidated Income - For the
Three Months Ended and SixNine Months Ended
JuneSeptember 30, 1996 and 1995 ........................................... 3
Consolidated Balance Sheets - JuneSeptember 30, 1996
and December 31, 1995 ................................................... 4 - 5
Statements of Consolidated Cash Flows For the SixNine
Months Ended JuneSeptember 30, 1996 and 1995 .................. 6
Notes to Unaudited Consolidated Financial
Statements ............................................................................. 7 - 89
Management's Discussion and Analysis of Financial
Condition and Results of
Operations ............. 9and Financial Condition ............... 10 - 1113
Part II - Other Information ....................... 12........................ 14
Signatures ........................................ 13......................................... 15
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PART I - FINANCIAL INFORMATION
Statements of Consolidated Income
For the Three Months and SixNine Months Ended June 30, 1996September 30,1996 and
1995
(In thousands, except per share data)
Three Months Ended* Six Months Ended*THREE MONTHS NINE MONTHS
ENDED* ENDED*
1996 1995 1996 1995
-------- -------- -------- ------------ ---- ---- ----
Net sales ............... $150,424 $130,550 $295,436 $265,139$145,835 $131,860 $441,271 $396,999
Cost of products sold ... 116,502 101,404 230,762 208,136113,475 105,417 344,237 313,553
-------- -------- -------- --------
Gross margin ............ 33,922 29,146 64,674 57,00332,360 26,443 97,034 83,446
Selling, general and
administrative expenses 20,998 17,840 40,580 35,84519,995 18,952 60,575 54,797
-------- -------- -------- --------
Income from operations .. 12,924 11,306 24,094 21,15812,365 7,491 36,459 28,649
Other income (expense):
Interest income, etc. (1) 349 111 473etc 565 32 676 505
Interest expense .... (1,023) (924) (2,005) (1,835)(1,730) (1,143) (3,735) (2,978)
-------- -------- -------- --------
Net ..................... (1,024) (575) (1,894) (1,362)(1,165) (1,111) (3,059) (2,473)
-------- -------- -------- --------
Income before taxes on
income ................ 11,900 10,731 22,200 19,796................. 11,200 6,380 33,400 26,176
Provision for taxes on
income ................ 4,300 3,671 8,000 6,936................. 3,400 2,170 11,400 9,106
-------- -------- -------- --------
Net income .............. $ 7,6007,800 $ 7,0604,210 $ 14,20022,000 $ 12,86017,070
======== ======== ======== ========
Earnings per share ...... $ .380.39 $ .360.21 $ .711.10 $ .660.87
Average common shares
outstanding ........... 19,961 19,691 19,907 19,616............ 20,080 19,901 19,965 19,711
Dividends paid per share.share $ .040.04 $ .040.04 $ .080.12 $ .080.12
* Unaudited
See notes to unaudited consolidated financial statements.
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Consolidated Balance Sheets, June 30, 1996September 30,1996 and December 31, 199531,1995
(In thousands)
Assets 1996* 1995*
---------- -------------- -----
Current Assets:
Cash and cash equivalents ....................... $ 58,91645,494 $ 30,744
Accounts receivable-net ............... 95,294............ 97,882 85,887
Refundable income taxes ............... -............ 4,000
Inventories:
Finished goods ..................... 37,098.............. 36,860 34,859
Work in process .................... 30,085............. 27,473 29,325
Raw materials ...................... 33,559............... 38,614 28,945
--------- ---------
Total inventories ................ 100,742......... 102,947 93,129
Deferred income taxes ................. 8,361.............. 7,286 7,481
Prepaid expenses ...................... 2,439................... 2,686 1,530
--------- ---------
Total current assets ............. 265,752...... 256,295 222,771
Property, Plant, and Equipment:
Land .................................. 4,806............................... 4,832 4,910
Buildings and building improvements ... 68,12670,146 69,455
Machinery and equipment ............... 156,191............ 158,566 163,142
Furniture and fixtures ................ 25,367............. 25,911 24,457
Construction in progress - buildings
and machinery ...................... 18,271............... 20,068 14,496
--------- ---------
Total ............................ 272,761..................... 279,523 276,460
Less accumulated depreciation ......... (137,348)...... (139,828) (141,808)
--------- ---------
Property, plant, and equipment-net ...... 135,413... 139,695 134,652
Other Assets:
Goodwill-net .......................... 38,290....................... 37,800 31,697
Property held for sale-net ............ 2,183......... 2,831 2,183
Other ................................. 16,313.............................. 17,606 16,173
--------- ---------
Total other assets ................. 56,786.......... 58,237 50,053
--------- ---------
Total ................................................. $ 457,952454,227 $ 407,476
========= =========
* Unaudited
See notes to unaudited consolidated financial statements.
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Consolidated Balance Sheets, June 30, 1996September 30,1996 and December 31, 199531,1995
(In thousands)
Liabilities and Shareholders' Equity
1996* 1995*
-------- ------------- -----
Current Liabilities:
Notes payable ......................... $ 22,500
Current maturities of long-term debt .. $ 9,74810,015 9,362
Accounts payable ...................... 39,02041,739 36,192
Federal, state and foreign taxes
payable ............................. 5,5944,277 3,667
Accrued compensation and benefits ..... 16,25711,875 14,456
Accrued restructuring costs ........... 13,8657,462 17,322
Other accrued expenses ................ 18,94117,270 16,454
-------- --------
Total current liabilities .......... 103,425...... 92,638 119,953
Long-Term Debt .......................... 78,59174,578 25,854
Deferred Income Taxes ................... 14,10414,436 11,931
Shareholders' Equity:
Common stock .......................... 1,9982,006 1,979
Paid-in capital ....................... 83,17884,355 80,751
Retained earnings ..................... 160,597167,596 147,984
Cumulative translation adjustment ..... 17,32619,768 20,258
Treasury stock, at cost ............... (110) (110)
Other ................................. (1,157)(1,040) (1,124)
-------- --------
Shareholders' equity ................ 261,832272,575 249,738
-------- --------
Total ............................. $457,952......................... $454,227 $407,476
======== ========
* Unaudited
See notes to unaudited consolidated financial statements.
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Statements of Consolidated Cash Flows
For the SixNine Months Ended JuneSeptember 30, 1996 and 1995
(In thousands)
1996* 1995*
-------- ------------- -----
Cash Flows From Operating Activities:
Net income ................................... $ 14,20022,000 $ 12,86017,070
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 11,900 10,65118,450 16,863
(Gain) loss on the sale of property,
plant and equipment ...................... (72) 245(127) 227
Deferred federal income taxes - net ........ 1,292 5372,700 429
Amortization of restricted stock awards..... 235 202awards .... 353 328
Changes in operating assets and liabilities,
net of effects from business acquired:
Accounts receivable ........................ (9,407) 2,814(11,996) 638
Refundable income taxes .................... 4,000
Inventories ................................ (5,613) (9,508)(7,818) (13,499)
Prepaid expenses ........................... (909) (963)(1,156) (434)
Other assets ............................... (285) 104(1,610) (550)
Accounts payable ........................... 2,042 (1,736)4,761 3,631
Income taxes payable ....................... 1,927 (2,048)610 (2,794)
Accrued restructuring, compensation and
other expenses ........................... 1,962 (1,881)(8,915) (4,086)
Effect of exchange rate changes on current
assets and liabilities (other than cash).. 132 1,061 . 344 375
-------- --------
Net cash provided by operating activities....... 21,404 12,338activities ...... 21,596 18,198
-------- --------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment.... (13,823) (14,070)equipment ... (26,266) (23,463)
Proceeds from the sale of property, plant,
and equipment .............................. 643 3462,512 493
Acquisitions, net of cash acquired ........... (8,295) (7,754)(7,917)
-------- --------
Net cash used for investing activities ......... (21,475) (21,478)(32,049) (30,887)
-------- --------
Cash Flows From Financing Activities:
Cash dividends paid .......................... (1,587) (1,561)(2,388) (2,351)
Proceeds from short-term borrowings .......... 43,060 37,10080,500
Payments for short-term borrowings ........... (65,560) (29,600)(53,800)
Payments for long-term debt .................. (7,176) (7,255)(11,568) (11,765)
Proceeds from senior notes ................... 58,350
Proceeds from issuance of common stock ....... 2,178 2,1373,362 3,906
-------- --------
Net cash provided by financing activities ...... 29,265 82125,256 16,490
Effect of exchange rate changes on cash ........ (1,022) 372(53) (374)
-------- --------
Net changes in cash and cash equivalents ....... 28,172 (7,947)14,750 3,427
Cash and cash equivalents at beginning of the
period ....................................... 30,744 20,535
-------- --------
Cash and cash equivalents at end of the
period ....................................... $ 58,91645,494 $ 12,58823,962
======== ========
* Unaudited
See notes to unaudited consolidated financial statements.
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AUGAT INC.
Notes to Unaudited Consolidated Financial Statements
----------------------------------------------------
1. The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of JuneSeptember 30, 1996, the results
of operations for the three months and sixnine months ended JuneSeptember 30, 1996
and 1995 and the cash flows for the sixnine month periods then ended. During
the third quarter of 1996, the Company determined that compensation and
benefit related accruals which had been recorded through June 30, 1996,
totaling $1.8 million, would not be required. Accordingly, such accruals
were reversed. Also during the third quarter of 1996, the Company recorded
charges of $1.4 million for merger costs incurred through September 30,
1996, additional inventory reserves related to the Company's
Communications Division, and an estimate of the liability associated with
the severance payments related to the resignation of the Company's prior
Chief Executive Officer.
2. The results of operations for the sixnine month period ended JuneSeptember 30,
1996 and 1995 are not necessarily indicative of the results to be expected
for the full year. The accompanying consolidated financial statements do
not include certain footnotes and financial presentations normally
required under generally accepted accounting principles and, therefore,
should be read in conjunction with the audited financial statements
included in the Company's Annual Report on Form 10-K as at December 31,
1995.
3. Earnings per share are based on the weighted average number of shares
outstanding during each period. The exercise of all presently issued
outstanding stock options and the issuance of shares under the "Employee
Stock Purchase Plan" would have no material dilutive effect on earnings per
share.
4. The acquisition of National Industries, Inc. in 1991 included a liability
of approximately $5.4 million to cover the estimated costs of site
remediation for certain National facilities. Management estimated the
liability using third-party consultants. Costs incurred as of JuneSeptember 30,
1996 (approximately $1.3$1.4 million) represent amounts expended for
preliminary site evaluation and design and testing.testing and remediation at
Plant 1. The Company has obtainedentered into administrative Consent Orders with
the necessary permitsAlabama Department of Environmental Management ("ADEM") for continuing
remediation of Plant 1 and is ininvestigation of Plant 3. At the processconclusion of
remediating the site. TheConsent Orders, the Company is keeping the state of Alabama informed of its progress.will file final close-out and further
remediation plans with ADEM. The Company believes the recorded liability of
approximately $4.1$4.0 million at JuneSeptember 30, 1996 to be adequate.
Based on a study conductedDuring an environmental investigation in December 1995 and January 1996 in
anticipation of the disposition of its Mashpee, Massachusetts manufacturing
facility, the Company notifieddiscovered contaminated soil and groundwater which
may have been associated with the use of industrial solvents on its
property. On further investigation following notice to the Massachusetts
Department of Environmental Protection ("DEP"), contamination was
discovered off-site, including two private drinking wells. The Company has
been issued two Notices of Responsibility ("NOR") pursuant to Massachusetts
Chapter 21E by the DEP, one for its facility and a second for the private
residence where the well contamination exceeded applicable limits.
The Company has installed and is operating remediation equipment on its
property. This portion of the release of hazardous
materials associated with its facility in Mashpee, Massachusetts.is expected by the Company to be
remediated within one year. The Company will follow-up this notice with furtheris also completing its off-site
investigation in accordance
with state law. Based upon preliminary information provided by third-party
consultants,as part of its compliance efforts pursuant to the
Company estimates thatabove-referenced NORs. Remediation options for off-site contamination,
including a no action alternative, are under development for submission to
the clean-up costs will be
approximately $1.8 million. This amount was charged to SG&A in the fourth
quarter of 1995. Costs incurred as of June 30, 1996 (approximately $.1
million) represent amounts expended for preliminary site evaluation and
testing.DEP. The Company believes, based on information currently available,
that its current accrual of $1.3 million is a reasonable estimate of the
recorded liability of approximately $1.7
million at June 30, 1996likely remediation and compliance obligations pursuant to be adequate.the NORs.
However, as the investigation and remediation activities proceed, the
estimated costs may change and, accordingly, the ultimate obligations may
exceed the amounts currently accrued. The liability for environmental
matters is reported with other accrued expenses in the accompanying balance
sheets.
Claims and/or notices of intent to sue have been formally or informally
communicated to the Company by the Town of Mashpee (for reimbursement of
response costs) and certain individual property owners. No judicial actions
have been filed; however, the Company is engaged in early settlement
discussions with certain claimants. While the Company believes that
portions of certain claims may be valid and that reasonable settlement is
possible, the Company believes that it is premature to predict whether any
or all claims will be settled or to estimate the total cost to the Company
for settling with the various third party claimants. Additionally, on
September 25, 1996, the Company was notified that 117 employees of its
Mashpee facility filed charges with the Massachusetts Commission Against
Discrimination alleging age discrimination. The ultimate outcome of the
issues discussed in this paragraph cannot presently be determined.
Accordingly, no provision for any liability that may result upon resolution
of these issues has been made in the financial statements.
5. In June 1996, the Company completed a private placement of $85.0 million of
senior notes. These notes replaced the $40.0 million of senior notes issued
in 1992 which had a remaining balance of approximately $26.7 million. The
$58.3 million net proceeds
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5. In June 1996, the Company completed a private placement of $85.0 million of
senior notes. These notes replaced the $40.0 million of senior notes
issued in 1992 which had a remaining balance of approximately $26.7
million. The $58.3 million net proceeds from the new issuance of senior
notes were used to pay off the approximately $24.9 million outstanding
balance under the Company's revolving credit line, and approximately
$33.4 million has been invested in short term deposits. As of June 30,
1996, $8.9 million of the senior notes is classified as current and the
balance of $76.1 million as long-term. The note agreement includes
certain financial convenants and limitations on dividends, investments,
indebtedness, and the sale of certain assets, none of which the Company
considers restrictive. The long-term portions of the senior notes bear
interest at rates ranging from 7.31% to 8.61% and are
payable in the following years:
Year Dollars in millions
---- -------------------
1997 ............................... $ 8.9
1998 ............................... 8.8
1999 ............................... 4.2
2000 ............................... 33.4
2001 and beyond ....................from the new issuance of senior notes were used to pay off approximately
$24.9 million outstanding under the Company's revolving credit line, and
the remaining $33.4 million was invested in short term deposits. As of
September 30, 1996, $8.9 million of the senior notes is classified as
current and the balance of $71.7 million as long-term. The note agreement
includes certain financial covenants and limitations on dividends,
investments, indebtedness, and the sale of certain assets, none of which
the Company considers restrictive. The long-term portions of the senior
notes bear interest at rates ranging from 7.31% to 8.61% and are payable in
the following years:
Year Dollars in millions
---- -------------------
1998 .......................... 8.9
1999 .......................... 4.4
2000 .......................... 4.2
2001 .......................... 33.4
2002 and beyond ............... 20.8
6. During the first quarter of 1996, the Company acquired the fiber optics
business of Porta Systems Corporation for cash consideration of
approximately $8.2 million. The acquisition has been accounted for by the
purchase method of accounting. Preliminary goodwill of approximately $7.4
million has been recorded and is being amortized on a straight-line basis
over 20 years. The operating results of this acquisition are included in
the Company's consolidated results of operations from the date of
acquisition. Pro-forma results of the Company including this acquisition,
assuming it had been made at the beginning of the periods presented, would
not be materially different from the results reported.
7. In December 1995, the Company recorded estimated restructuring costs of
$18.7 million. These costs included $9.3 million related to redundant or
excess facilities and equipment; $5.5 million for employee severance costs
and $3.9 million related to the cost to exit low-margin product lines. The
Company expects that the restructuring program will be substantially
completed during the fourth quarter of 1996. The following table reflects
the status of the 1996 restructuring charges by component:
1995 Balance
Restructuring June 30,
(inSeptember
(In millions) Charges Incurred to Date 30, 1996
- ---------------------------------- ------------- ---------------- --------
Operating assets to
be sold/disposed of ... $ 9.3 $2.4 $ 6.9$9.3 $7.2 $2.1
Employee severance
costs .............................. 5.5 .8 4.72.3 3.2
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1995 Balance
Restructuring September 30,
(In millions) Charges Incurred to Date 1996
- ------------- ------------- ---------------- -------------
Low-margin product
lines to be sold/
disposed of ................ 3.9 1.6 2.31.7 2.2
----- ----- ----
-----
Total .... $18.7 $4.8 $13.9$11.2 $7.5
===== ===== ==== =====
-8-8. Subsequent Events. On October 7, 1996, the Company entered into an
Agreement and Plan of Merger with Thomas & Betts Corporation (T&B), a
New York Stock Exchange listed company providing for the merger (the
"Merger") of the Company with a wholly-owned transitory subsidiary of T&B.
T&B is a leading producer of connectors and components for worldwide
electrical and electronics markets. In the Merger, each outstanding share
of Augat common stock will be converted into 0.68 share of T&B common
stock, subject to exchange ratio adjustments should the price of T&B's
stock fall below a certain minimum or exceed a certain maximum level. The
exchange ratio will be adjusted if the average closing price of T&B's
shares for the 20 trading days ending three trading days before the
Company's special shareholders' meeting to approve the Merger falls
outside the range of $37.50 to $41.50. Below an average price of $37.50,
the exchange ratio would be increased to maintain a minimum of $25.50 worth
of T&B's stock received in exchange for each Augat share. Above a $41.50
average price the exchange ratio would be reduced to limit the monetary
value of T&B's stock received to $28.22 for each Augat share. If the
average price is below $32.00 per share, T&B has the right to terminate the
Agreement and Plan of Merger and abandon the Merger. The Merger is subject
to approval by shareholders of each of T&B and the Company and certain
other conditions. The transaction has been structured to be a tax-free
exchange for the Company's shareholders, and is intended to be accounted
for under the "pooling-of-interests" method. Under certain conditions, if
the Merger Agreement is terminated at any time prior to its consummation,
the Company will pay T&B a fee of $15 million plus reasonably documented
out-of-pocket expenses not to exceed $1.5 million.
On October 8, 1996, the Company was informed that the U.S. Securities and
Exchange Commission (the "SEC") was conducting an informal inquiry which
relates to securities trading by unknown persons. On October 16, 1996, the
SEC informed the Company that it was conducting an informal inquiry which
relates to certain of the Company's accounting policies, especially as
such policies relate to the Communications Division. The Company is
cooperating with the SEC in connection with these matters.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.OPERATIONS
NET SALES: Net sales by product group for the quarter and sixnine months ended
JuneSeptember 30, 1996 (dollars inand for the comparable prior year periods are shown below
(In thousands):
- --------------------------------------------------------------------------------
Quarter Ended JuneSeptember 30,
1996 1995
-------------- ----------------------------- ----------------
Product Group %$ % $ %
Total $ Total
- ---------------------------------- ------------------------------------ ------ ----- ------- -------------------------- -----
InterconnectionCommunications Products 32,871 21.9 36,080 27.645,841 31.4 35,096 26.6
Wiring Systems and Components 74,547 49.5 59,462 45.6
Communications66,316 45.5 59,803 45.4
Interconnection Products 43,006 28.6 35,008 26.833,678 23.1 36,961 28.0
------- ----- ------- -----
Total 150,424145,835 100.0 130,550131,860 100.0
======= ===== ======= =====
- ------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
1996 1995
---------------- ----------------
Product Group $ % $ %
Total Total
- ----------------------------- ------- ----- ------- --------------------
Six Months Ended June 30,
1996 1995
-------------- -------------
Product Group % %
$ Total $ Total
- ---------------------------------- ------- -----
------- --------------------
InterconnectionCommunications Products 65,510 22.2 69,334 26.1131,584 29.8 105,838 26.7
Wiring Systems and Components 144,183 48.8 125,063 47.2
Communications210,499 47.7 184,151 46.3
Interconnection Products 85,743 29.0 70,742 26.799,188 22.5 107,010 27.0
------- ----- ------- -----
Total 295,436441,271 100.0 265,139396,999 100.0
======= ===== ======= =====
- ------------------------------------------- ----- ------- ----------------------------------------------------------------------------------------------------
NetQUARTERLY COMPARISON
Augat Inc. sales for boththe third quarter of 1996 increased 11 percent versus the
same period a year earlier. Net income increased 85 percent for the third
quarter to $7.8 million. Earnings per share for the quarter and six months ended June 30, 1996,were $0.39 compared
to $0.21 last year.
Communications sales increased primarily31 percent over the past year's third quarter due
to increased deliveriesstrong demand by the domestic cable television (CATV) market and continued
growth in the Far East. Sales of Wiring Systems and Components to the automotive
industry for the quarter were 11 percent higher than the comparable prior year
period primarily on the continued strength of increased domestic automotive
demand. The Interconnection Products Division (IPD) sales were 9 percent lower
than the third quarter of 1995 as a result of continued lower demand from the PC
industry.
The company's non-U.S. sales for the third quarter of 1996 decreased 18 percent
from the prior year primarily due to softness in key European and Asian markets
for IPD products. Non-U.S. sales represented 21 percent of the Company's total
third quarter sales in 1996 compared to 29 percent for fiscal 1995.
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BACKLOG AND ORDERS: The backlog at September 30, 1996 was $132 million, compared
to $126 million at September 30, 1995. Incoming orders for the third quarter of
1996 were $148 million, compared with $134 million in the same period of fiscal
1995.
GROSS MARGIN: Higher gross margins in the third quarter of 1996 are directly
related to higher sales volume and, as an improved percentage of revenues (22
percent versus 20 percent), reflect the cost savings arising from the
restructuring programs implemented during the fourth quarter of fiscal 1995.
This overall improvement was partially offset by operational problems within
the Communications Division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: These expenses for the third
quarter of 1996 increased approximately $1.0 million, or 6 percent, over the
comparable prior year period primarily to support the growth of the
Communications business with additional sales and marketing programs. In
addition, the accrual of estimated severance payments related to the
resignation of the Company's prior Chief Executive Officer increased expense in
this year's third quarter. SG&A, as a percentage of sales declined from the
prior year's 14.4 percent to 13.7 percent as a result of increased sales in the
Wiring Systems and Components division which typically operates with relatively
lower expense to sales ratios.
OTHER INCOME (EXPENSE): Other expenses increased versus the comparable quarter
last year due to higher interest expense resulting from higher average
outstanding borrowings. This expense was offset by higher interest income earned
on the higher cash balance arising from the partial proceeds of a private
placement of $85 million of senior notes.
INCOME TAXES: The Company's effective tax rate was 30.4 percent for the quarter,
compared to the previous year's rate of 34 percent. This reduction was due to a
year-to-date adjustment in the tax rate to reflect greater contributions from
subsidiaries with lower tax rates.
YEAR-TO-DATE COMPARISON
NET SALES: Sales for the first nine months of 1996 were up 11 percent versus the
comparable period last year. Net income improved 29 percent, and earnings per
share increased to $1.10 from $0.87.
Communications products sales were up 24 percent over last year driven by the
demand from domestic and Far Eastern cable television markets. Wiring Systems
and Components products sales rose 14 percent due to increased demand from the
domestic automotive industry; sales of Communications products also
increased in both periods on the basis of strength in its Asian markets. However, sales ofThe Interconnection products sales were 7 percent
lower than last yearthe comparable period for 1996 as a result of continued weakness in
demand from-11-
12
its non-U.S. markets and the PC and cellular telephone
industries as well as by the previously announced decision to exitexiting of certain low margin commodity-type
products.
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10
The Company's non-U.S.Non-U.S. sales for the second quarter and six months ofyear-to-date September 1996 period increased 75 percent and 19 percent, respectively,
compared to the like periods
of the prior year.same period a year earlier. These non-U.S. sales represent
approximately 2524 percent of the Company'scompany's total sales for the six months ended June 30, 1996 compared to 24
percent in the comparable prior yearthis period.
BACKLOG AND ORDERS: The backlog at June 30, 1996 was $130 million compared with
$124 million at June 30, 1995. Incoming orders for the second quarter and six
months of 1996 were $158 million and $301 million, respectively compared to
$131 million and $269 million for the same periods of the prior year.
GROSS MARGIN: Higher gross margins were mainlyare directly related to higher sales. Gross
margins,sales volume
and as aan improved percentage of sales, showed a slightrevenues (22 percent versus 21 percent) reflect
the cost savings arising from the restructuring programs implemented during the
fourth quarter of fiscal 1995. This overall improvement in the quarter
and year-to-date over the prior year periods. Overall improvement in the second
quarter was moderated by
operational problems at a west coast facility
producingwithin the Communications products.Division. The Company generally
offsets continued increases in material and wage costs by enhanced productivity and
on-going cost reduction programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: These expenses were 14.0 percent
of sales infor the second quarternine months
of 1996 compared to 13.7increased approximately $5.8 million, or 11 percent, inover the comparable
quarter of the prior year. For the six months ended June 30, 1996,
these expenses were 13.7 percent of sales compared to 13.5 percent of sales in
the comparableyear period of the prior year. Expenses have increased, in part,
as a result of the Company's decisionprimarily to support the growth of the Communications
business with additionalbusiness. SG&A, as a percentage of sales, and marketing programs,
primarily overseas.declined slightly from the prior
year's 13.8 percent to 13.7 percent.
OTHER INCOME (EXPENSE): Interest income decreased in 1996 versus 1995 due to
lower average cash balances in the current periods over the comparable prior
year periods and, for the second quarter, due to a gain of approximately $.4
million in the second quarter of 1995 from the early extinguishment of debt.
InterestOther expense has increased in the 1996 periods compared to the same periods
in 1995period
of last year due to higher interest expense resulting from the increase in
average outstanding borrowings in 1996 when
compared to 1995.borrowings.
INCOME TAXES: The effective income tax rate for the Company was 36 percent for
the second quarter and six months ended June 30, 1996. The tax rate for the
Company in the second quarter of 1995 was 34 percent and for the six months
ended June 30, 1995 wasapproximates last year's
corresponding rate of 35 percent.
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NET INCOME: Net income was $7.6 million and $14.2 million for the three months
and six months ended June 30, 1996 respectively, compared to net income of $7.1
million and $12.9 million in the same periods of the prior year. The increase in
net income for the second quarter and six months ended June 30, 1996 resulted
principally from increased sales.
LIQUIDITY AND CAPITAL RESOURCES:RESOURCES
The Company continues to maintain sufficient liquidity and has adequate
resources to fund its operations under current business conditions. The
Company believes that the income generated from operations, along with the cash
on hand and established bank credit facilities, are sufficient to finance
expected working capital growth and planned capital expenditure programs.
In connection with the proposed Merger (See Note 8 to Notes to Unaudited
Consolidated Financial Statements), the Company will be required to pay merger
costs, legal, accounting and investment advisory fees aggregating approximately
$5.3 million. In addition, upon consummation of the Merger, the Company may be
required to make cash payments of up to $18 million for change of control and
related employee benefit costs to key employees of the Company.
During the second quarter ended June 30, 1996 the Company completed a
refinancing of its long-term debt and increased the amount outstanding by
approximately $58.3 million. Covenants under the debt agreement were modified to
provide Augatthe Company with greater flexibility. See Note 5 to
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the Notes to Unaudited Consolidated Financial Statements for further discussion.
In March 1996, the Company was notified by Ford Motor Company that it was
proceeding with a plan to consolidate its suppliers. The financial impact to
AugatCompany of this consolidation is not expected until 1998 at which time the
Company will cease manufacturing various wiring cable products currently
manufactured for Ford will cease production.Ford. Although the Company cannot at this time predict with
certainty the future impact of the Ford consolidation plans, at the present, time thissuch
supplier base consolidation could represent a reduction of approximately $15-20
million in sales volume infor 1998. As part of this supplier base consolidation,
AugatFord will also be discontinueddiscontinue the Company as the harness supplier for theFord's Mustang
car platform effective in the year 2001. The Mustang harnesses could represent
approximately $30-40 million in reduced sales in 2002. The Company believes
there may be some impactreduction in sales in 2001, but it is unable at this time to
quantify the magnitude of such impact. The Company has continued to implement
programs within the automotive businessits Automotive Business to diversify both its products and
customer base for the long term.
-11-This Form 10-Q contains certain forward-looking statements within the meaning
of Section 27A of the Securities Exchange Act of 1934, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. Actual events and
results could differ materially from those set forth in such forward-looking
statements. Certain factors that may cause such differences include worldwide
economic and political conditions, industry specific factors, the Company's
ability to maintain access to external financing sources and its financial
liquidity, the Company's ability to timely develop and produce commercially
viable products at competitive prices, the availability and cost of components,
the Company's ability to manage expense levels, the Company's ability to manage
growth, the continued financial strength of the Company's dealers and
distributors, and the Company's ability to accurately anticipate customer
demand.
Additional examples of such uncertainties include, but are not limited to:
changes in customer demand for various Company products that could affect its
overall product mix, margins, plant utilization levels and asset valuations;
economic slowdown in the U.S. (contrary to the Company's expectations of
continued economic growth in the second half of 1996) or economic slowdowns in
the Company's major offshore markets, effects of significant changes in
monetary and fiscal policies in the U.S. and abroad which could result in
currency fluctuations in the significant foreign currencies including British
Pound Sterling, Italian Lira, Japanese Yen, Swiss Franc, and German Deutschmark;
inflationary pressures which could raise interest rates and consequently
the Company's cost of funds; unforeseen difficulties in completing identified
restructuring actions begun in 1995, including disposal of idle facilities,
geographic shifts of production locations and integration of new distribution
facilities; availability and pricing of commodities and materials needed for
production of the Company's products; increased downward pressure on selling
prices for the Company's products; unforeseen difficulties and associated costs
arising from environmental regulations and policies that could impact
projections of remediation expenses and identification of unknown environmental
issues; the ultimate outcome of legal and other proceedings; unforeseen
difficulties in connection with increasing competitive pressures arising from
the continued consolidation of the Company's primary market; significant changes
in governmental policies domestically and abroad that could create trade
restrictions, patent enforcement issues, tax rate changes and changes in tax
treatment of such items as tax credits, withholding taxes, transfer pricing and
other income and expense recognition for tax purposes.
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PART II - OTHER INFORMATION
Item 41 - Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Shareholders held on April 23,Legal Proceedings
On September 25, 1996,
(b) Shareholders approved the following proposals:
1. The 1996 Stock Plan authorizing the Company to make awardswas notified that 117 employees of restricted stock and to grant incentive and non-statutory options to
employees and directors ofits
Mashpee facility filed charges with the Massachusetts Commission Against
Discrimination ("MCAD") alleging age discrimination. To date, the Company
to purchase up to 1,000,000
shares of common stock by a vote of 11,578,706 shares in favor,
2,188,469 shares opposed and 143,930 shares abstaining.
2. The 1996 Stock Retainer Plan for Nonemployee Directors requiringhas not received any notice that the Company to make awards of cash and common stock to nonemployee
directors of the Company in the amount of $15,000 per year for each
individual by a vote of 12,644,387 shares in favor, 1,125,448 shares
opposed and 141,271 shares abstaining.
3. The 1996 Stock Bonus Plan for Senior Executives providing that half ofcharges have been docketed with MCAD
or any bonus payable to a senior executive shall be paid in the form of
cash and half shall be paid in the form of common stock by a vote of
12,738,944 shares in favor, 1,024,794 shares opposed and 147,368
shares abstaining.other administrative agency or court.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Agreement and Plan of Merger, by and among the Registrant, Thomas &
Betts Corporation and EG Acquisitions Corp., dated as of October 7,
1996.
(10) Material Contracts
(a) NoteEmployment Agreement, among Augat Inc., as Borrower and
Principal Mutual Life Insurancedated July 17, 1996, between the Company
and Allstate Life
InsuranceJohn N. Lemasters.
(b) Change of Control Agreement dated July 17, 1996 between the
Company as Lenders,and John N. Lemasters.
(c) Employment Agreement, dated asJuly 17, 1996, between the Company
and Marcel P. Joseph.
(d) Change of May 15, 1996.Control Agreement dated July 17, 1996 between the
Company and Marcel P. Joseph.
(e) Amendment to the Registrant's 1993 Employee Stock Purchase Plan.
(f) Amendment to the Registrant's 1996 Stock Plan.
(27) Financial Data ScheduleSchedule.
(b) ReportsThe following report on Form 8-K - None
-12-was filed during the Third Quarter of 1996:
(1) On July 26, 1996 the Registrant filed Form 8-K in Item 6 for
Resignation of Registrant's Directors.
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SIGNATURES
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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 thereto duly authorized.
AUGAT INC.
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(Registrant)
/s/ F. Gordon Bitter
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F. Gordon Bitter
Vice President and
Chief Financial Officer
Date: August 12,November 4, 1996
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