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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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 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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 508-543-4300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK $.10 PAR VALUE
(TITLE OF EACH CLASS)
NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 1, 1996 was $348,226,298.
The number of shares of the Registrant's common stock outstanding on March
1, 1996 was 19,806,450.
DOCUMENTS INCORPORATED BY REFERENCE:
Information with respect to directors in Item 10 and other information
required by Items 11-13 is incorporated by reference into Part III of this Form
10-K, to the extent described in such Part III, from the Company's Proxy
Statement for its Annual Meeting of Shareholders scheduled for April 23, 1996.
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FORM 10-K ANNUAL REPORT
TWELVE MONTHS ENDED DECEMBER 31, 1995
AUGAT INC.
PAGE
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PART I
Item 1. Business.............................................................. 1
Item 2. Properties............................................................ 6
Item 3. Legal Proceedings..................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders................... 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................... 10
Item 6. Selected Financial Data............................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 11
Item 8. Financial Statements and Supplementary Data........................... 15
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.................................................. 34
PART III
Item 10. Directors and Executive Officers of the Registrant.................... 35
Item 11. Executive Compensation................................................ 35
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 35
Item 13. Certain Relationships and Related Transactions........................ 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 36
SIGNATURES.............................................................................. 38
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PART I
ITEM 1 -- BUSINESS
GENERAL
Augat Inc. ("Augat") is a Massachusetts corporation organized in 1946. As
used herein the term "Company" means Augat and, unless the context indicates
otherwise, its consolidated subsidiaries.
Augat designs and manufactures a broad range of electromechanical
components for the electronics industry. The Company's principal products are
interconnection components, including integrated circuit sockets and
accessories, coaxial cable network and fiber optic interconnection products,
packaging panels and interconnection test probes and systems. The Company also
makes terminals, custom connector assemblies, wiring harnesses and specialty
wiring systems for the automotive, communications, information processing and
business equipment markets.
INDUSTRY SEGMENTS
The Company operates within a single segment of the electronics industry
defined as the electromechanical component and subsystem sector. Although the
Company operates internally with several profit centers, the products of these
centers all have similar purposes or end uses, i.e., interconnecting or
controlling the flow of electricity among components or boards and other
assemblies within electronic equipment or systems. These products are used by
manufacturers of electronic equipment in their products to obtain specified
interconnections of components, subassemblies or subsystems.
Each profit center is responsible for the manufacture of its own products
within its own facilities. The manufacturing equipment and technology used by
each profit center, while similar, are not interchangeable because they are
customized for the particular product. However, Augat's manufacturing labor
force, for the most part, is similar and interchangeable, as are the basic
materials that make up the Company's products. Each profit center has comparable
capital-to-labor ratios, as well as labor costs as a percentage of sales, with
the exception of the Company's wire harness business, which consumes
approximately twice as much labor cost as a percentage of sales as the other
profit centers.
Products of the various profit centers, while sold to different market
segments, principally the automotive, computer, dataprocessing,
telecommunications and CATV markets, are sold across the same geographic areas
and marketed via similar methods. Augat's customers are primarily companies that
manufacture or install electronic equipment.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Company designs, manufactures and markets electromechanical products
used for the interconnection of circuits in electronic applications. Passive
components used in electronic equipment, such as resistors and capacitors, and
more complex active components, such as transistors, integrated circuits, hybrid
circuits and microprocessors, must be attached and electrically interconnected
to perform their specified functions. The Company's products principally relate
to mounting and interconnecting components, testing or controlling the flow of
electricity among components, boards and/or other assemblies within electronic
equipment or systems.
In general terms, the Company's products can be applied wherever computer
logic is used, either in business or scientific systems or in the numerous
products which incorporate computer functions. More specifically, the Company's
products are used in computers, computer-aided engineering and manufacturing
systems, industrial electronics, test equipment, medical electronics, business
equipment, and additional applications in automotive, aerospace,
telecommunications and broadband communications -- including CATV -- markets.
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PRINCIPAL PRODUCTS
The Company's products include a broad range of integrated circuit sockets,
miniature and subminiature switches, custom connector assemblies for the
automotive and telecommunications industries, packaging panels, coaxial cable
network and fiber optic products and related hardware accessories and wire
harness assemblies for the automotive industry.
Integrated circuit sockets are mechanical devices into which integrated
circuits are plugged to provide easy component replacement. The sockets are
usually soldered to printed circuit boards by customers in order to connect
integrated circuits, including microprocessors, large and very large scale
integrated circuits and other dual-in-line packages, onto boards. Several
thousand varieties of miniature and subminiature control switches of the toggle,
slide, pushbutton and lighted types for use on printed circuit boards or
elsewhere in electronic equipment are sold by the Company.
The Company provides spring loaded test probes and test fixtures for use in
conjunction with functional board and device testers and is a manufacturer of
high density discrete connectors for both conventional board mounting and
surface mounting.
The Company also designs and manufactures solutions for complex high
density electronic connectors. The Company manufactures connectors made of
silicone rubber (elastomers) for leading edge commercial, military and
integrated circuit electronics manufacturers. These connectors allow customers
to design products with finer pitches, higher operating speeds, greater
functionality, and lower cost of manufacture than conventional mechanical
connectors.
The Company also manufactures a wide range of interconnection hardware
accessories generally used on or in connection with printed circuit boards, such
as test jacks and jumpers, relay and crystal sockets, breadboards, racks and
enclosures, adaptor plugs and cable assemblies as well as marketing flat cable
and related components manufactured by others.
The Company is also a major supplier of connectors and electronic packaging
modules and wire harnesses to two major U.S. automotive manufacturers and is
actively participating in the development of interconnection components for
future automotive model years. Such automotive programs include a "mass air flow
module," an "actuating assembly" that triggers automatic seatbelts, an
"electronic search module" for a luxury car audio system and an interconnection
program that will link Powertrain Controller Module processors to critical
sensors, actuators and other controls via the main engine wire harness.
Products manufactured for the telecommunication industry include central
office distribution, remote-switching and cross-connect applications. The
Company also is a leading supplier of coaxial connector, fiber optic and
broadband products for the cable television and local area network (LAN)
markets. Specifically in the CATV market, the Company provides single-part
assemblies and connectors as well as line amplifiers to cable system operators
who, in turn, construct cable television systems that distribute signals from
the head-end to a home. In addition, the Company designs and manufactures
products -- laser transmitters and optical nodes -- that enable
telecommunications and CATV system operators to distribute quality signals on
fiber optic networks over longer distances than those permitted by traditional
transmission equipment. The Company is pursuing market opportunities for its
coaxial, broadband and fiber optic products in the rapidly evolving
communications technology marketplace.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's manufacturing operations utilize a wide variety of mechanical
components, raw materials and other supplies. It has multiple commercial sources
of supply for all materials which are important to its business.
PATENTS AND LICENSES
The Company owns a number of domestic and foreign patents and has filed a
number of additional patent applications. The Company's general policy has been
to seek patent protection for those inventions and improvements likely to be
incorporated in its products. While the Company believes that its patents and
patent applications have value, it considers that its competitive position in
the marketplace is not materially
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dependent upon patent protection and no individual patent or patent application
is considered material to future operations.
SEASONALITY
The only seasonal effect experienced by the Company is in the third quarter
of the calendar year and is principally due to vacation shutdowns at selected
Company locations and by many of its customers, particularly in Europe.
WORKING CAPITAL
The Company manufactures and markets a full line of standard catalog items
and also an extensive line of special products to meet specific customer needs.
In order to maximize its market opportunities, the Company maintains a high
level of inventory of both raw materials and finished products. Sales by the
Company are generally made on credit and customers typically take 30 to 70 days
to make payment; thus, the Company also has significant amounts of money
invested in accounts receivable. Despite the high level of accounts receivable
and inventory required, the Company has generally been able to finance these
assets from current operations. When additional working capital in excess of
that generated by the business has been required, the use of short-term
borrowings, long-term debt and equity financing have been utilized. The
Company's payment terms and the rights of return offered by it to customers and
to it by manufacturers vary among such customers and manufacturers, but do not
differ substantially from industry practice. The Company has generally allowed
credits for returns by customers under appropriate circumstances.
MARKETING
The Company sells to a broadly diversified group of customers located
primarily in the United States, Western Europe, Far East and Canada. Sales are
made to industrial and commercial customers within the computer, computer-aided
engineering and manufacturing, industrial electronics, test equipment,
telecommunications, aerospace, automotive and broadband communication markets.
The Company's products are also widely used in both industrial and institutional
research laboratories. During 1995 the Company's products and services were sold
directly to approximately 3,600 customers and a substantial number of additional
customers were served through a network of industrial electronic component
distributors. Of total sales 21% was derived from sales through a number of
distributors located throughout the world and no distributor accounted for as
much as 3% of the Company's sales. One customer, Ford Motor Company, accounted
for approximately 23% and another customer for 5% of the Company's sales in
1995; no other customer accounted for more than 4.5% of sales.
The Company markets its products and services through independent sales
representatives and direct Company sales personnel working throughout the United
States and abroad, including wholly owned marketing subsidiaries in the United
Kingdom, France, Germany, Switzerland, Sweden, Italy, Japan, Canada and
Australia and sales offices in other areas.
In 1995 the Company's international sales amounted to approximately 25% of
total sales. Approximately 52% of these sales were derived from Western Europe.
The overall net margins on international sales are somewhat less than those
obtained on sales made in the United States. The Company's international
business is subject to risks customarily encountered in foreign operations,
including fluctuations in monetary exchange rates.
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BACKLOG
The Company estimates that its backlog of unfilled orders at December 31,
1995 was $124 million compared with $119 million at December 31, 1994. Orders
tend to fluctuate during the year according to customer requirements and
business conditions, and the backlog level from quarter to quarter does not
follow a consistent pattern. Although unfilled orders can be cancelled, the
Company's experience has been that the dollar amount of cancelled orders is not
material.
Substantially all of the backlog is reasonably expected to be shipped
within twelve months.
GOVERNMENT CONTRACTS
The amount of the Company's business that may be subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
government is insignificant.
COMPETITION
The Company encounters competition in all areas of its business activity
from a number of competitors but does not compete with any one company in all
areas. Competitors range from some of the country's largest diversified
companies to small and highly specialized firms. The Company competes primarily
on the basis of technology, innovation, performance and reliability. Price and
company reputation are also important competitive factors. Although there are no
precise statistics available, the Company believes it is a principal factor in
the markets in which it competes.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company maintains a continuous program of design, development and
engineering of new products and improvement of existing products to meet the
changing needs of its customers. The Company provides engineering assistance to
its customers by designing products to fill their individual requirements. The
majority of new product development, manufacturing research, quality control
development, new equipment development and related research and development
expenditures take place in product management groups involving engineering,
marketing, manufacturing, quality control and general management personnel.
These expenses are included in the categories of marketing, manufacturing and
general administrative expenses. In calendar year 1995, 1994 and 1993
expenditures for such research, development and engineering were approximately
$21 million, $20 million, and $19 million, respectively.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment. The Company has spent
sufficient amounts to purchase, install, and operate containment, remediation
and other pollution control equipment and conduct appropriate environmental
audits. The Company believes that its efforts in this regard places it in
substantial compliance with existing environmental laws and regulations.
In connection with the acquisition of National Industries, Inc. in 1991,
the Company determined that actual contamination at certain National facilities
in Alabama warranted additional study. The Company informed the Alabama
Department of Environmental Management "ADEM" about the possible contamination
and its desire to voluntarily proceed with further study and, if necessary,
remediation of the possible contamination. The Company has obtained the
necessary permits and is in the process of remediating the site. ADEM has
recently informed the Company that it wants the Company to 1) expand its
investigations at both facilities and 2) enter into a binding consent order
compelling the cleanup. The Company has agreed to negotiate with ADEM on both
demands. Negotiations are continuing. The Company has recorded in its financial
statements a liability of $4.2 million for estimated environmental cleanup costs
as of December 31, 1995.
Based on a study conducted in 1995, the Company notified the Massachusetts
Department of Environmental Protection on January 20, 1996 of a release of
hazardous materials associated with its facility in Mashpee, Massachusetts. The
Company will follow-up this notice with further investigation in compliance with
State law.
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Based upon preliminary information provided by third party consultants, the
Company estimates that the cleanup costs will approximately be $1.8 million. A
liability for this amount was recorded in 1995.
EMPLOYEES
The Company had approximately 3,900 employees as of December 31, 1995. None
of the employees are covered by collective bargaining agreements and operations
have never been interrupted by a work stoppage. The Company believes that
relations with its employees are good. The Company also contracts for
manufacturing labor and as of December 31, 1995 had approximately 1,100 contract
laborers.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Certain financial information concerning domestic and international
operations and export sales can be found in Footnote number 10 to the
accompanying financial statements of the Registrant which are included under
Item 8 hereof.
Balance of this page intentionally left blank.
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ITEM 2 -- PROPERTIES
Information regarding the Company's active properties appears below:
APPROXIMATE FACILITY
SIZE DECEMBER 31, 1995
(SQUARE FEET)
----------------------
Montgomery, Alabama.............................................. 192,000(1)
Tucson, Arizona.................................................. 54,000(2)
Sanford, Maine................................................... 92,000(1)
Canton, Massachusetts............................................ 30,000(1)
Mansfield, Massachusetts......................................... 38,000(1)
Mashpee, Massachusetts........................................... 83,000(1)
North Attleboro, Massachusetts................................... 52,000(1)
Boyne, Michigan.................................................. 68,000(1)
Chesterfield, Michigan........................................... 66,000(1)
Chesterfield, Michigan........................................... 26,000(2)
Clinton, Michigan................................................ 96,000(1)
Livonia, Michigan................................................ 6,000(2)
Horseheads, New York............................................. 75,000(1)
Horseheads, New York............................................. 113,000(2)
Hatboro, Pennsylvania............................................ 16,000(2)
Kent, Washington................................................. 106,000(2)
Sydney, Australia................................................ 4,000(2)
British Columbia, Canada......................................... 5,000(2)
Mississauga, Canada.............................................. 11,000(2)
Telford, England................................................. 41,000(1)
Rungis-Cedex, France............................................. 5,000(2)
Troisdorf, Germany............................................... 11,000(2)
Milan, Italy..................................................... 4,000(2)
Kawasaki, Japan.................................................. 20,000(2)
Empalme, Sonora, Mexico.......................................... 223,000(2)
Guaymas, Sonora, Mexico.......................................... 112,000(2)
Singapore........................................................ 24,000(2)
Stockholm, Sweden................................................ 2,000(2)
Bioggio, Switzerland............................................. 188,000(1)
Zug, Switzerland................................................. 2,000(2)
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1,765,000
=========
Total facilities held for sale or inactive....................... 272,000
=========
<FN>
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(1) Company-owned facility
(2) Company-leased facility
The Company believes that its existing facilities are adequate and suitable
for the manufacture and sale of its products and have sufficient capacity to
meet its current requirements. Machine capacity is adequate although additional
machine capacity is currently being added in the business to meet increasing
demands for the Company's new products and for ongoing cost reduction programs.
The Company anticipates no difficulty in retaining occupancy of any of its
manufacturing, office or sales facilities through lease renewals prior to
expiration or through month-to-month occupancy, or in replacing them with
equivalent facilities.
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In addition to the above listed properties, the Company leases a small
amount of other office/warehouse space in the United States and foreign
countries. The amount of such space is not significant.
See Note 7 -- "Commitments and Contingencies" to the accompanying financial
statements of the Registrant which are included under Item 8 hereof for
information concerning the Company's obligations under leases.
ITEM 3 -- LEGAL PROCEEDINGS
On September 4, 1992, the Company filed suit in the United States District
Court for the District of Massachusetts against June M. Collier ("Collier").
This suit arises out of an Agreement of Merger which the Company entered into in
August 1991, and through which an Alabama manufacturing company, National
Industries, Inc. was merged into Augat National Inc., a wholly owned subsidiary
of the Company. The Company alleges that the defendant, who was the sole
stockholder of National Industries, breached certain warranties she made in
connection with the merger and misrepresented certain aspects of the financial
and operating conditions of National Industries. The suit also alleges a
violation of Mass. Gen. Laws c.93A. Collier has answered the Company's complaint
and asserted counterclaims for breach of contract, breach of the implied
covenant of good faith and fair dealing, violation of section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5, duress, misrepresentation and
violations of Mass. Gen. Laws c.93A. Both parties have brought claims for
declaratory judgements on Collier's request for indemnification for her legal
fees and costs in this case as a former officer and director of National
Industries. The Company has responded to Collier's counterclaims and has denied
all of the substantive allegations. Management believes that Collier's
counterclaims are without merit and will defend them vigorously.
The Company filed a motion for partial summary judgment on most of
Collier's counterclaims, and Collier moved for summary judgment on the Company's
claims against her. In response to the Company's motion, Collier voluntarily
dismissed her breach of contract claim, securities law claims, and part of her
misrepresentation claim.
On January 22, 1996, a Magistrate Judge recommended to the District Court
Judge that Collier's motion for summary judgment on the Company's claims be
denied to the extent it relates to obsolete inventory, tooling and
indemnification issues, and allowed to the extent it relates to excess premium
freight charges. The Magistrate Judge also recommended that the Company's motion
for partial summary judgment be denied as to all issues other than Collier's
defamation claim and that the motion be denied without prejudice to refiling
after discovery as it relates to Collier's defamation claim. The District Court
Judge accepted all recommendations of the Magistrate Judge.
Trial had been set for August 1, 1994, but did not occur. No new trial date
has been set.
There are no other material legal proceedings to which the Registrant is a
party. Routine litigation incidental to its business is immaterial.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
MANAGEMENT
The following table sets forth the names of all executive officers of the
Company and certain other information relating to the positions held by them
with the Company and other business experience.
BUSINESS EXPERIENCE
EXECUTIVE OFFICER AGE POSITION FOR THE PAST FIVE YEARS
- ------------------------ --- ------------------------------ ---------------------------------
William R. Fenoglio..... 56 President and Chief President and Chief Executive
Executive Officer Officer since December 20, 1994.
President and Chief Operating
Officer from September 6, 1994 to
December 20, 1994. Served as
President and Chief Executive
Officer with the Barnes Group
Inc. from 1991 to 1994 and as
President and Chief Operating
Officer with that Corporation
from 1985 to 1991.
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BUSINESS EXPERIENCE
EXECUTIVE OFFICER AGE POSITION FOR THE PAST FIVE YEARS
- ------------------------ --- ------------------------------ ---------------------------------
Anthony F. Lefkowicz.... 58 Vice President and Vice President, Automotive
General Manager, Business since September 1991.
Wiring Systems and From February 1991 to September
Components Business 1991 he was Vice President of
Manufacturing Operations.
Previously he was Vice President
and General Manager, Automotive
Division from May 1988 to
February 1991.
Richard J. Eaton........ 59 Vice President -- Vice President, Human Resources
Human Resources since 1984.
Daniel J. Maher, Jr..... 49 Corporate Controller Corporate Controller since 1979.
John E. Lynch, Jr....... 52 Vice President and Vice President and General
General Counsel Counsel since December, 1994.
From June 1994 to December 1994
he was General Counsel.
Previously from January, 1985 to
June 1994 he was Treasurer.
Larry E. Buffington..... 48 Vice President and Vice President and General
General Manager, Manager, Communications Products
Communications Business since August, 1991.
Products Business Previously he was Chairman of the
Board and Chief Executive Officer
of Adaptive Technologies, Inc.
from 1989 to 1991. From 1988 to
1989 he served as Vice President
and General Manager, Cook
Division of Northern Telcom.
L. Ronald Hoover........ 55 Vice President Vice President Business and
Business Technology & Technology Development since
Development August, 1994. Vice President and
General Manager, Interconnection
Products Business from December
1991 to August 1994. Previously,
he was President and Chief
Operating Officer of Diceon
Electronics, Inc. from 1989 to
1991.
Gasper Buffa............ 43 Vice President and Vice President and General
General Manager, Manager, Automotive Components
Components Division Division since January, 1994.
From August 1992 to January 1994
he was Vice President,
Engineering, Sales & Marketing
for the Wiring Systems and
Components Division. Previously,
from September 1991 to August
1992 he was Vice President &
General Manager, Components
Division and from February 1991
to September 1, 1991 he was Vice
President, Manufacturing
Operations for the Automotive and
Communications Division. From
March of 1989 to February 1, 1991
he was Vice President Operations
for the Automotive Division.
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BUSINESS EXPERIENCE
EXECUTIVE OFFICER AGE POSITION FOR THE PAST FIVE YEARS
- ------------------------ --- ------------------------------ ---------------------------------
James E. Finley......... 42 Vice President and Vice President and General
General Manager, Manager Wiring Systems Division
Wiring Systems Division since December 1995. Vice
President and General Manager
Augat Europe from March, 1992 to
December 1995. Previously Vice
President and General Manager,
European Automotive Division from
August 1991 to March 1992. From
February to August 1991, Vice
President and General Manager,
Automotive Division. From March,
1989 to February, 1991 was Vice
President, Sales and Marketing,
Automotive Division.
Ellen B. Richstone...... 44 Vice President and Vice President and Chief
Chief Financial Officer Financial Officer since November,
1992. From March, 1992 to
October, 1992 she was Senior Vice
President and Chief Financial
Officer of Rohr, Inc. Prior to
that, she was Executive Vice
President and Chief Financial
Officer of Bull H.N. Worldwide
Information Systems from 1989 to
1992.
Sam Smookler............ 56 Vice President and Vice President and General
General Manager Manager, Interconnection Products
Interconnection Products Business since February 1995.
Business Previously Vice President
Marketing/Sales --
Interconnection Products Division
from October 1994 to February
1995. From 1992 to 1994 he was
General Manager, R.F. Components
and Subsystems, M/A Comm.
Corporation.
Carey A. Paulus......... 36 Vice President and Vice President and General
General Manager, Augat Europe Manager, Augat Europe since
December 1995. Previously he was
Vice President, European
Manufacturing from April 1994 to
December 1995. From September
1991 to April 1994 he was Plant
Manager, Lugano, Switzerland and
Plant Manager, San Antonio, Texas
from December 1987 to September
1991. From 1983 to 1987 he was a
Manufacturing Engineer for the
Automotive Division.
Lynda M. Avallone....... 40 Treasurer Treasurer since July, 1994.
Previously, she was Director of
Taxes from March, 1994 to July,
1994. From 1992 to March, 1994
she was Director of Tax for the
Timberland Company and from 1983
to 1991 was in the Tax Department
for the Company.
The executive officers of the Company are elected annually.
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PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is currently traded on the New York Stock
Exchange under the symbol "AUG."
The following table sets forth the range of high and low closing prices for
its Common Stock on a quarterly basis for each of the Company's last three
fiscal years.
CLOSING PRICE RANGE
COMMON STOCK DIVIDENDS
------------------- ---------
HIGH LOW PAID
------ ------ ---------
1995
1st Quarter................................................. $19.25 $14.50 $.04
2nd Quarter................................................. 21.75 18.00 .04
3rd Quarter................................................. 24.50 17.63 .04
4th Quarter................................................. 19.38 15.00 .04
------ ------ ----
$24.50 $14.50 $.16
1994
1st Quarter................................................. $23.75 $17.50 --
2nd Quarter................................................. 21.75 18.75 --
3rd Quarter................................................. 24.38 20.25 $.04
4th Quarter................................................. 21.38 16.00 .04
------ ------ ----
$24.38 $16.00 $.08
1993
1st Quarter................................................. $13.25 $11.25 --
2nd Quarter................................................. 16.88 12.63 --
3rd Quarter................................................. 21.75 16.50 --
4th Quarter................................................. 21.25 15.50 --
------ ------ ----
$21.75 $11.25 --
The Company, in July 1994, reinstated its quarterly cash dividend. The
current quarterly amount is $.04 per share on the Company's Common Stock.
The approximate number of holders of record of the Company's Common Stock
at December 31, 1995 was 1,707.
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ITEM 6 -- SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Sales, Income and Dividends
Net sales......................... $534,873 $530,706 $420,263 $361,718 $281,602
Cost of products sold............. 423,699 420,647 328,964 287,524 219,358
Selling, general and
administrative expenses........ 75,998 66,219 63,492 60,920 62,301
Restructuring costs............... 18,700 22,000
Other expense (income) -- net..... 4,716 4,140 4,207 3,519 (463)
Income (loss) before taxes on
income......................... 11,760 39,700 23,600 9,755 (21,594)
Provision for taxes on income..... 4,160 13,500 8,000 3,169 468
Net income (loss)................. 7,600 26,200 15,600 6,586 (22,062)
Earnings (loss) per share......... .39 1.36 .83 .36 (1.21)
Cash dividends per share.......... .16 .08 .40
Net income (loss) as a percent of
net sales...................... 1.4% 4.9% 3.7% 1.8% (7.8%)
Net income (loss) as a percent of
shareholders' average equity... 3.1% 11.9% 8.1% 3.7% (11.4%)
Working Capital
Current assets.................... 222,771 198,460 176,508 157,641 154,941
Current liabilities............... 119,953 73,643 57,580 50,767 60,930
Working capital................... 102,818 124,817 118,928 106,874 94,011
Current ratio..................... 1.9 to 1 2.7 to 1 3.1 to 1 3.1 to 1 2.5 to 1
Other Data
Property, plant, and
equipment -- net............... 134,652 120,839 99,999 98,262 101,795
Total assets...................... 407,476 357,958 317,860 295,448 293,229
Long-term debt.................... 25,854 35,033 45,797 56,939 50,236
Long-term debt as a percent of
equity......................... 10.4% 14.7% 22.7% 31.4% 28.4%
Shareholders' equity.............. 249,738 237,521 201,611 181,481 176,633
Average common shares
outstanding.................... 19,727 19,280 18,789 18,370 18,182
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following
table indicates the percentage of sales that each income statement item
represents, and the percentage increase or decrease in such items for the years
indicated.
PERCENTAGE
INCREASE
(DECREASE)
FOR THE YEARS ENDED --------------
DECEMBER 31, 1995 1994
------------------------- VS. VS.
1995 1994 1993 1994 1993
----- ----- ----- ----- ----
Net sales........................................... 100.0% 100.0% 100.0% .7% 26.3%
Cost of products sold............................... 79.2 79.3 78.3 .7 27.9
Gross margin........................................ 20.8 20.7 21.7 -- 20.5
Selling, general, etc. ............................. 14.2 12.5 15.1 14.8 4.3
Restructuring costs................................. 3.5
Other expense -- net................................ .9 .8 1.0 13.9 (1.6)
Provision for taxes on income....................... .8 2.5 1.9 (69.2) 68.7
----- ----- ----- ----- ----
Net income.......................................... 1.4% 4.9% 3.7% (71.0%) 67.9%
===== ===== ===== ===== ====
11
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SALES BY MAJOR PRODUCT AREA
A breakdown of sales for calendar years 1995, 1994 and 1993 by major
product is as follows:
NET SALES
----------------------------------------------
1995 % 1994 % 1993 %
---- --- ---- --- ---- ---
(IN MILLIONS)
Interconnection Products Business........ $144 27 $131 25 $129 30
Wiring Systems and Components Business... 249 46 292 55 217 52
Communications Products Business......... 142 27 108 20 74 18
---- --- ---- --- ---- ---
Total.......................... $535 100% $531 100% $420 100%
==== === ==== === ==== ===
RESULTS OF OPERATIONS
The Company's 1995 overall sales growth was modest with operating
performance below expectations. These results reflect the continuing increase in
global market penetration in the cable television and telecommunications
markets, the improvement in servicing the worldwide information processing
industries and increased volume in domestic and European component customer
requirements. Such increases were offset by a significant decrease in domestic
automotive wiring sales due to reduction in demand for certain vehicle
platforms. Changes in foreign exchange rates increased sales by approximately
one percent. The sales improvement in 1994 over 1993 was a result of the
Company's increased participation in the fast growing U.S. cable television and
telecommunications markets, the strength of the U.S. automotive industry and the
improvement in the European market. International sales were $135 million, $109
million and $89 million for the years 1995, 1994 and 1993, respectively.
Interconnection Products Business experienced sales growth in 1995 due to
improved domestic and European markets along with the acquisition of Elastomeric
Technologies Inc. The modest sales growth for the three years ended 1995
resulted from increases in new product sales offset by reduction in sales of
mature product lines, price reductions and the de-emphasizing of certain product
lines. During these periods, this business has reorganized and reengineered its
domestic and international operations in order to be a more efficient and
competitive player in the markets it serves. As part of the restructuring
announced by the Company in December 1995, this business will be exiting from
certain low-margin, commodity product lines and closing a plant. The Company
will also be transferring certain product line production within Company
facilities. These actions will allow the business to operate with a more focused
product line strategy, concentrating on areas that have strong market share
positions.
The Wiring Systems and Components Business had a difficult sales year in
1995. Wiring sales, which management expected to decline in 1995 decreased by
30% due to the lower production run rates for both the Ford Aerostar and Mustang
car platforms. Overall this business' sales were down by only 15% as the growth
in both domestic and European automotive component markets partially offset the
weak wiring sales. In 1994, this business had significant sales growth with
domestic sales increasing 34% and European sales increasing 41%. In addition, in
1994 this business benefitted from the strong domestic automotive market demand
which included Ford's Mustang and Aerostar vehicles.
The Communications Products Business continued its stellar performance as
sales increased over 30% in 1995 with market penetration in key geographical
areas. This business serves two primary markets, cable television (CATV) and
telecommunications which are building and upgrading their systems to accommodate
new technologies and services. The Company has invested approximately $16
million and $11 million in this business for the last two years in new plant and
equipment in response to the significant sales growth. The Company is projecting
to invest approximately $18 million in capital expenditures for this business in
1996 to accommodate the anticipated customer demand. This capital commitment
reflects the Company's strategy to grow this business to be 50% of the total
Company sales.
Gross margin as a percentage of sales was approximately the same for the
last two years. The sales mix has changed year over year with the significant
increase in higher margin communications products offset by sales increases in
mature, low-margin products and underabsorption of overheads due to automotive
volume
12
15
shortfalls. In addition, gross margin was affected by selective price decreases
which were offset by increases in new product offerings (approximately $185
million and $138 million in 1995 and 1994, respectively).
Management intends to maintain selling, general and administrative expenses
(SG&A) in the 13% to 15% range of sales. During 1995, the Company invested in
future-oriented SG&A expenditures for the Communications Products Business. In
addition, SG&A in 1995 included charges for estimated environmental cleanup
costs amounting to $1.8 million for one facility which will be closed in
connection with the Company's restructuring plan. In 1994, the Company recorded
a portion of the Aegis litigation settlement proceeds (approximately $2 million)
as a credit to SG&A as such amounts represented a recovery of litigation costs
charged to SG&A in 1994 and prior periods.
In December 1995, the Company announced plans to restructure its
Interconnection Products Business and Wiring Systems and Components Business.
This $18.7 million restructuring charge represented the costs to close certain
manufacturing operations in its Interconnection Products and Wiring Systems
Businesses, as well as the costs associated with exiting several low-margin,
commodity interconnect product lines. The cash requirements associated with the
restructuring will be paid over the next two years, and are expected to be less
than $4 million after taxes. The restructuring charge includes $9.3 million
related to redundant or excess facilities and equipment costs which are being
closed or abandoned. Operating expenses related to such facilities and equipment
up to the time of closure or abandonment were not included in the restructuring
charge. Additionally, $5.5 million of the restructuring charge related to
employee severance costs for approximately 800 employees who will be terminated.
The charge does not include salaries and wages to be paid to such employees up
to their termination date. The remaining $3.9 million of the restructuring
charge related to products which have been eliminated from the Company's product
lines. The Company expects the savings from this restructuring plan will be
approximately $7 million per year, however, such savings cannot be assured.
Other income (expense) has remained relatively constant as a percentage of
sales for the three years ended 1995. In 1995, other income (expense) included
the write-down of assets held for sale and facility costs amounting to $1
million. In 1994, other income (expense) included the write-down of assets held
for sale and lease termination costs of approximately $1 million. In addition,
approximately $1 million gain from the Aegis litigation settlement was recorded
under this caption in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's statements of cash flows for the periods indicated are
summarized below:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
Net cash provided by operating activities............ $34,501 $40,469 $ 8,468
Net cash used for investing activities............... 35,053 29,702 19,970
Net cash provided by (used for) financing
activities......................................... 10,990 238 (7,642)
Effect of exchange rate changes on cash.............. (229) 990 (639)
------- ------- --------
Increase (decrease) in cash.......................... $10,209 $11,995 $(19,783)
======= ======= ========
Net cash flows provided by operating activities were $34.5 million during
1995 compared with $40.5 million during 1994. The difference was primarily due
to a decrease in net income. Cash provided by operating activities was $40.5
million in 1994 compared with $8.5 million in 1993. This increase was due to an
increase in net income coupled with a decrease in inventories due to improved
inventory management during 1994.
The Company's investing activities included principally capital
expenditures for property, plant and equipment. In addition, such activities in
1995 included the cash expenditures for the acquisition of two businesses,
Photon Systems Corp. and Elastomeric Technologies Inc. for approximately $8
million. Capital expenditures were $20.4 million, $31.5 million and $29.7
million for the years ended December 31, 1993, 1994 and 1995 respectively. The
Company used these expenditures to purchase, modernize or upgrade production
13
16
equipment, maintain facilities and comply with environmental regulations.
Capital expenditures for 1996 are expected to be approximately $30 to $35
million, principally related to improvements in (i) operating efficiencies and
reliability, (ii) product quality, (iii) safety and working conditions and (iv)
environmental practices. The costs of these capital projects are expected to be
funded out of the Company's operating cash flow.
Net cash flows used for financing activities were $7.6 million for 1993.
Net cash flows provided by financing activities were $.2 million and $11.0
million for 1994 and 1995, respectively.
The Company maintains sufficient liquidity and has the resources to fund
its operations under current business conditions. In 1994, the Company amended
its revolving credit agreement with three banks to increase its maximum
borrowing availability to $100 million through July 1997. As of December 31,
1995, the Company had $22.5 million in outstanding borrowings under this credit
facility. Although the Company has the ability to finance these borrowings on a
long-term basis under its revolving credit agreement, it is management's
intention to repay these borrowings during 1996 out of available working
capital, and accordingly, the $22.5 million has been reported in the
accompanying financial statements as a current liability.
As a result of the restructuring charge in 1995, the Company would have
violated certain requirements of its private placement senior note agreement
relating to failure to maintain certain minimum financial ratios had the
agreement not been amended during the fourth quarter of 1995. If the agreement
is not renegotiated or refinanced, or if additional amendments are not received,
the Company will be in default at March 31, 1996. The Company, which is
currently investigating various long-term financing alternatives, has the
ability to prepay the notes utilizing proceeds from its revolving credit
agreement. Accordingly, the private placement senior notes have been classified
as noncurrent at December 31, 1995. During 1995, the Company made payments under
its long-term debt totaling $13.2 million. Although the Company had
approximately $31 million in cash at December 31, 1995, a substantial portion of
this amount is maintained outside the United States. These international cash
balances may not be repatriated to the United States without incurring a
significant tax cost. Therefore, the Company elected to borrow under its
domestic revolving credit agreement in 1995 to support domestic operations and
also to invest approximately $8 million in two acquisitions, Photon Systems
Corp. and Elastomeric Technologies Inc.
At December 31, 1995, the percentage of long-term debt to equity was 10.4%
of equity compared with 14.7% in 1994. Cash flow generated from operations along
with available credit facilities is sufficient to cover expected growth in the
next few years.
Since 1992, the Company has spent approximately $1.2 million associated
with environmental site remediation for certain facilities (see Note 7 to the
Consolidated Financial Statements). At December 31, 1995, the Company had a
liability for estimated environmental evaluation, assessment and remediation
costs totaling approximately $6.0 million which is expected to be paid in equal
amounts over the next fourteen years.
The net after-tax cash impact of the 1995 restructuring program is
approximately $4 million over the next two years.
The Company, in July, 1994, reinstated its quarterly common stock dividend.
The current quarterly amount is $.04 per share.
The book value of the Company's common stock at December 31, 1995 was
$12.63.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," is
effective for financial statements for fiscal years beginning after December 15,
1995. This standard, among other things, requires entities to review long-lived
assets for impairment whenever events or changes in circumstances indicate that
their carrying value may not be recoverable. Based upon current facts and
circumstances, adoption of this standard is not expected to have a material
effect on the Company's financial condition, results of operations or cash
flows.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, a fair value based
method of accounting for employee stock options or similar equity instruments.
As permitted under the new standard, the Company anticipates that it will
14
17
continue to account for employee stock options as it has in the past under APB
No. 25. The pro-forma disclosures required by this standard will be adopted for
the year ended December 31, 1996.
RECENT DEVELOPMENTS
In March 1996, the Company was notified by Ford Motor Company that Ford is
proceeding with a plan to consolidate its suppliers. The first expected impact
from this process to Augat is not until 1998 for various wiring cable porducts.
Although the Company cannot at this time predict with certainty the future
impact of the Ford consolidation plans, at the present time this could
represent a reduction of approximately $15-20 million in sales volume in 1998.
As part of this supplier base consolidation, Augat will also be discontinued as
the harness supplier for the Mustang car platform effective in the fiscal year
2001. Similarly, the Mustang harnesses could represent approximately $30-40
million on a full year basis in reduced sales in 2002. The Company believes
there may be some impact in 2001 but is unable at this time to quantify the
magnitude of such impact. The Company has continued to implement programs
within the automotive business to diversify both its products and customer base
for the long term.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and financial statement schedules are
submitted herewith:
PAGES
-----
Financial Statements:
Independent Auditors' Report..................................................... 16
Consolidated Balance Sheets at December 31, 1995 and 1994........................ 17
Statements of Consolidated Income for the years ended
December 31, 1995, 1994 and 1993............................................... 18
Statements of Consolidated Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993............................................... 19
Statements of Consolidated Cash Flows for the years ended
December 31, 1995, 1994 and 1993............................................... 20
Notes to Consolidated Financial Statements....................................... 21
Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts................................. 33
The balance of this page intentionally left blank.
15
18
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of
Augat Inc.:
We have audited the accompanying consolidated balance sheets of Augat Inc.
and its subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed at Item 8. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Augat Inc. and its subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 30, 1996
16
19
AUGAT INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
(IN THOUSANDS EXCEPT
SHARE AMOUNTS)
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 30,744 $ 20,535
Accounts receivable -- less allowance for doubtful accounts, $1,205 in 1995
and $1,276 in 1994......................................................... 85,887 89,521
Refundable income taxes...................................................... 4,000
Inventories:
Finished goods............................................................. 34,859 33,359
Work in process............................................................ 29,325 20,894
Raw materials.............................................................. 28,945 28,698
--------- ---------
Total inventories............................................................ 93,129 82,951
Deferred income taxes........................................................ 7,481 2,873
Prepaid expenses............................................................. 1,530 2,580
--------- ---------
Total current assets.................................................. 222,771 198,460
--------- ---------
Property, Plant, and Equipment:
Land......................................................................... 4,910 3,826
Building and building improvements........................................... 69,455 63,365
Machinery and equipment...................................................... 163,142 137,978
Furniture and fixtures....................................................... 24,457 22,590
Construction in progress -- buildings and machinery.......................... 14,496 13,543
--------- ---------
Total........................................................................ 276,460 241,302
Less accumulated depreciation................................................ (141,808) (120,463)
--------- ---------
Property, plant, and equipment -- net.......................................... 134,652 120,839
--------- ---------
Other Assets:
Goodwill -- net.............................................................. 31,697 25,454
Property held for sale -- net................................................ 2,183 4,829
Other........................................................................ 16,173 8,376
--------- ---------
Total other assets.................................................... 50,053 38,659
--------- ---------
Total................................................................. $ 407,476 $ 357,958
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable................................................................ $ 22,500
Current maturities of long-term debt......................................... 9,362 $ 10,884
Accounts payable............................................................. 36,192 32,744
Federal, state and foreign taxes payable..................................... 3,667 4,963
Accrued compensation and benefits............................................ 14,456 13,258
Accrued restructuring costs.................................................. 17,322
Other accrued expenses....................................................... 16,454 11,794
--------- ---------
Total current liabilities............................................. 119,953 73,643
--------- ---------
Long-Term Debt................................................................. 25,854 35,033
Deferred Income Taxes.......................................................... 11,931 11,761
Commitments and Contingencies
Shareholders' Equity:
Common stock -- par value $.10 per share:
Authorized 60,000,000 shares:
Issued and outstanding, 19,795,003 in 1995 and 19,467,467 in 1994.......... 1,979 1,947
Paid-in capital.............................................................. 80,751 75,730
Retained earnings............................................................ 147,984 143,526
Cumulative translation adjustment............................................ 20,258 17,088
Treasury stock, at cost:
16,700 shares at 1995 and 1994............................................. (110) (110)
Other........................................................................ (1,124) (660)
--------- ---------
Shareholders' equity........................................................... 249,738 237,521
--------- ---------
Total................................................................. $ 407,476 $ 357,958
========= =========
See notes to consolidated financial statements.
17
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AUGAT INC.
STATEMENTS OF CONSOLIDATED INCOME
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales.................................................. $534,873 $530,706 $420,263
Cost of products sold...................................... 423,699 420,647 328,964
-------- -------- --------
Gross margin............................................... 111,174 110,059 91,299
Selling, general and administrative expenses............... 75,998 66,219 63,492
Restructuring costs........................................ 18,700
-------- -------- --------
Income from operations..................................... 16,476 43,840 27,807
Other income (expense):
Interest and other income (expense)...................... (541) 71 386
Interest expense......................................... (4,175) (4,211) (4,593)
-------- -------- --------
Other income (expense) -- net.............................. (4,716) (4,140) (4,207)
-------- -------- --------
Income before taxes on income.............................. 11,760 39,700 23,600
Provision for taxes on income.............................. 4,160 13,500 8,000
-------- -------- --------
Net income................................................. 7,600 26,200 15,600
-------- -------- --------
Earnings per share......................................... $ .39 $ 1.36 $ .83
======== ======== ========
See notes to consolidated financial statements.
18
21
AUGAT INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
---------------------------------------------------------------
COMMON STOCK
----------------------
NUMBER OF CUMULATIVE
SHARES PAID-IN RETAINED TRANSLATION
OUTSTANDING AMOUNT CAPITAL EARNINGS ADJUSTMENT
----------- ------ ------- -------- -----------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1992............ 18,422 $1,842 $62,442 $103,278 $14,121
Common stock issued under employee
benefit plans.................... 611 61 6,820
Net income.......................... 15,600
Foreign currency translation
adjustment....................... (2,198)
------ ------ ------- -------- -------
BALANCE, DECEMBER 31, 1993............ 19,033 1,903 69,262 118,878 11,923
Common stock issued under employee
benefit plans.................... 435 44 5,475
Tax benefit from exercise of stock
options.......................... 993
Net income.......................... 26,200
Dividends paid...................... (1,552)
Foreign currency translation
adjustment....................... 5,165
------ ------ ------- -------- -------
BALANCE, DECEMBER 31, 1994............ 19,468 1,947 75,730 143,526 17,088
Common stock issued under employee
benefit plans.................... 327 32 4,247
Tax benefit from exercise of stock
options.......................... 774
Net income.......................... 7,600
Dividends paid...................... (3,142)
Foreign currency translation
adjustment....................... 3,170
------ ------ ------- -------- -------
BALANCE, DECEMBER 31, 1995............ 19,795 $1,979 $80,751 $147,984 $20,258
====== ====== ======= ======== =======
See notes to consolidated financial statements.
19
22
AUGAT INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS) 1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 7,600 $ 26,200 $ 15,600
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 21,819 18,421 15,758
Amortization of restricted stock awards............... 400 304 169
Provision for non-current asset write-down............ 500 635 600
Loss (gain) on the sale of property, plant, and
equipment........................................... 219 (226) (97)
Deferred income taxes -- net.......................... (5,246) 98 2,055
Increase (decrease) in cash from changes in assets and
liabilities:
Accounts receivable................................. 4,480 (15,888) (20,549)
Refundable income taxes............................. (4,000) 138 (25)
Inventories......................................... (9,205) 3,611 (13,196)
Prepaid expenses.................................... 1,072 499 (324)
Other assets........................................ (1,372) (1,629) (703)
Accounts payable.................................... 2,786 4,391 7,337
Income taxes payable................................ (624) 2,604 1,991
Accrued restructuring, compensation and other
expenses......................................... 15,964 323 545
Effect of exchange rate changes on current assets
and liabilities (other than cash)................ 108 988 (693)
-------- -------- --------
Net cash provided by operating activities.................. 34,501 40,469 8,468
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment............... (29,682) (31,452) (20,377)
Proceeds from the sale of property, plant, and
equipment............................................. 2,546 1,750 407
Acquisitions, net of cash acquired....................... (7,917)
-------- -------- --------
Net cash used for investing activities..................... (35,053) (29,702) (19,970)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid...................................... (3,142) (1,552)
Proceeds from short-term borrowings...................... 93,800 70,000 29,700
Payments for short-term borrowings....................... (71,300) (71,000) (32,600)
Payments for long-term debt.............................. (13,203) (2,010) (11,302)
Common stock issued under employee benefit plans......... 4,835 4,800 6,560
-------- -------- --------
Net cash provided by (used for) financing activities....... 10,990 238 (7,642)
-------- -------- --------
Effect of exchange rate changes on cash.................... (229) 990 (639)
-------- -------- --------
Net changes in cash and cash equivalents................... 10,209 11,995 (19,783)
Cash and cash equivalents beginning of year................ 20,535 8,540 28,323
-------- -------- --------
Cash and cash equivalents end of year...................... $ 30,744 $ 20,535 $ 8,540
======== ======== ========
See notes to consolidated financial statements.
20
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all majority-owned domestic and foreign subsidiaries. Foreign
subsidiaries are included on the basis of fiscal years ended November 30.
Material intercompany transactions and balances have been eliminated.
BUSINESS
The Company designs, manufactures and markets globally a broad range of
electromechanical components and subsystems that provide solutions for the
electronic connector needs of the automotive, communications and information
processing industries worldwide.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of sales and expenses during the
period. Significant estimated liabilities included restructuring costs and
environmental accruals.
INVENTORIES
Inventories are stated at the lower of cost (principally, first-in, first-out
method) or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is recorded at cost. For financial reporting
purposes, depreciation is provided using the straight-line method based on the
estimated useful lives of the various classes of assets. The estimated useful
lives for buildings and improvements are 5 to 40 years; for machinery and
equipment 3 to 10 years; and for furniture and fixtures 3 to 10 years.
Maintenance, repairs and minor improvements are charged to expense as incurred,
while additions, major improvements and renewals of fixed assets are
capitalized. The cost of property retired or sold together with the accumulated
depreciation is removed from the respective accounts and any difference, less
proceeds from sale, is charged or credited to income.
REVENUE RECOGNITION
Sales are recognized at the time of shipment.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), effective January 1, 1993. The
cumulative effect on prior years at the date of adoption was not material to the
results of operations or the financial position of the Company.
SFAS 109 uses an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally requires the
Company to consider all expected future events other than enactments of changes
in the tax law or rates.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Such costs amounted to
approximately $21,000, $20,000 and $19,000, in 1995, 1994 and 1993,
respectively.
21
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of foreign operations are translated at year-end exchange
rates. Revenues and expenses are translated using average exchange rates. The
resulting translation adjustment is reported as a separate component of
shareholders' equity. Gains and losses from foreign currency transactions are
not material and are reflected in net income.
OTHER ASSETS
The excess of the purchase price of acquired companies over the fair value of
net identifiable assets at dates of acquisition has been recorded as goodwill
and is being amortized on a straight-line basis over various periods not
exceeding twenty-five years. The Company periodically reviews goodwill to assess
recoverability, based upon expectations of nondiscounted cash flows and
operating income for each subsidiary having a material goodwill balance.
Impairments would be recognized in operating results if a permanent diminution
in value were to occur. Accumulated amortization at December 31, 1995 and 1994
was $6,321 and $4,803, respectively. Amortization of goodwill was $1,518, $1,305
and $1,292 in 1995, 1994 and 1993, respectively.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares outstanding
during each year. The exercise of all presently outstanding stock options and
the issuance of shares under the "Employee Stock Purchase Plan" would have no
material dilutive effect on earnings per share.
SHAREHOLDERS' EQUITY
Shareholders' equity at December 31, 1995, 1994 and 1993 included reductions of
$478, $660 and $245, respectively, related to unearned compensation on
restricted stock awards, and $646 at December 31, 1995 related to a minimum
pension liability adjustment. Compensation expense relating to the restricted
stock awards is recognized over the vesting period.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. During 1995, the
Company entered into a capital lease in the amount of $1,600 to finance the
acquisition of property and equipment.
Cash payments during the years ended 1995, 1994 and 1993 included interest of
$4,286, $4,391 and $4,510, and income taxes of $12,851, $11,326 and $4,112,
respectively. At December 31, 1995, the Company had approximately $25 million in
cash equivalents in foreign locations which can not be repatriated to the United
States without a significant tax cost.
OTHER MATTERS
Other income (expense) in 1995 included an additional $1 million related to the
write-down of assets held for sale and facility costs. During 1994, the Company
received a cash settlement in connection with the Aegis litigation. A portion of
the settlement (approximately $2 million) was recorded as a credit to selling,
general and administrative expenses (SG&A), as such amounts represented a
recovery of litigation costs charged to SG&A in the current and prior periods.
Other income (expense) in 1994 included approximately $1 million of the above
settlement and the write-down of assets held for sale and lease termination
costs of approximately $1 million.
22
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
OFF-BALANCE-SHEET RISK -- The Company enters into forward foreign exchange and
commodity contracts to hedge foreign currency and inventory purchases,
respectively, when deemed appropriate for periods consistent with its committed
exposures. This hedging minimizes the impact of foreign exchange rate movements
on the Company's operating results as gains and losses on contracts are offset
by losses and gains on the assets, liabilities, and transactions being hedged.
These financial instruments are with major financial institutions and expose the
Company to market and credit risks and may at times be concentrated with certain
counterparties or groups of counterparties. The credit worthiness of
counterparties is subject to continuing review and full performance is
anticipated. The foreign exchange and commodity contracts generally have
maturities which do not exceed one year. Gains and losses on contracts which
hedge specific foreign currency denominated commitments are deferred and
recognized in the period in which the transaction is completed. As of December
31, 1995 and 1994, the Company had $22,400 and $7,100, respectively, of foreign
exchange and commodity contracts outstanding. Amounts deferred at December 31,
1995 and 1994 were not material.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of temporary
cash investments and trade receivables.
The Company places its temporary cash investments with high credit qualified
financial institutions. The investment policy limits the Company's exposure to
concentrations of credit risk. Except for major domestic automotive
manufacturers, credit risk with respect to trade receivables is limited due to
the large number of customers comprising the Company's customer base, and its
dispersion across many different industries and geographies. Sales to major
domestic automotive manufacturers represent approximately 27%, 37% and 35% of
total sales in 1995, 1994 and 1993, respectively. Accounts receivable from these
major domestic automotive manufacturers represent approximately 24% and 30% of
total accounts receivable at December 31, 1995 and 1994, respectively.
The Company's financial instruments include cash, accounts receivable and
payable, notes payable and long-term debt at December 31, 1995 and 1994. The
carrying amounts of the Company's financial instruments generally approximate
their fair values at December 31, except that, on the borrowing rates currently
available to the Company, management believes the fair value of long-term debt
was approximately $27,532 and $37,663 at December 31, 1995 and 1994,
respectively.
In the normal course of its business activities, the Company is required under
certain contracts to provide letters of credit which may be drawn down in the
event the Company fails to perform under the contracts. Outstanding letters of
credit amounted to $2,129 at December 31, 1995.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 121 -- Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, requires impairment losses on long-lived
assets to be recognized when an asset's book value exceeds its expected future
cash flows (undiscounted). SFAS No. 121 also requires that long-lived assets to
be disposed of be reported at the lower of the carrying amount or fair value
less cost to sell. The Company anticipates adopting this standard on January 1,
1996 and does not expect that adoption will have a material impact on the
financial position or results of operations of the Company.
SFAS NO. 123 -- Accounting for Stock-Based Compensation, encourages, but does
not require, a fair value based method of accounting for employee stock options
or similar equity instruments. As permitted under the new standard, the Company
anticipates that it will continue to account for employee stock options as it
has in the past under APB No. 25. The pro-forma disclosures required by this
standard will be adopted for the year ended December 31, 1996.
23
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2. ACQUISITIONS
In 1995 the Company acquired two companies for approximately $8,000 in cash;
Photon Systems Corp., a designer and manufacturer of systems that enable
telecommunications and cable companies to distribute signals over fiber optic
networks and Elastomeric Technologies Inc., a manufacturer of customized
interconnection technology used in communications and portable electronics.
These acquisitions have been accounted for by the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on the estimated fair value at the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired, $7,700 has been recorded as goodwill, and is being
amortized over twenty years.
The operating results of these acquisitions are included in the Company's
consolidated results of operations from the date of acquisition. Pro-forma
results of operations have not been presented because the effects of these
acquisitions were not significant.
3. DEBT AND AVAILABLE CREDIT FACILITIES
Long-term debt at December 31, 1995 and 1994, exclusive of current maturities,
consisted of the following:
1995 1994
------- -------
Private placement senior notes due 1997-1999 at interest rate of
8.61%.......................................................... $22,200 $31,100
Industrial development and pollution control revenue bonds at
interest rates ranging from 4.0% to 8.4%, due 1997-2009........ 2,400 3,800
Obligations under capital leases at rates ranging from 7.2% to
9.0% due 1997-2000............................................. 1,254 133
------- -------
Total.................................................. $25,854 $35,033
======= =======
Long-term borrowing maturities in each of the five years subsequent to December
31, 1996 are as follows: 1997, $9,320; 1998, $9,287; 1999, $4,725; 2000, $122
and 2001 and thereafter, $2,400. The industrial development and pollution
control revenue bonds are collateralized by buildings and equipment with a net
book value of approximately $1,616, and are guaranteed by a letter of credit at
December 31, 1995.
The obligations under capital leases are collateralized by the leased properties
which had a net book value of $1,472 at December 31, 1995.
The private placement senior note agreement includes certain financial covenants
and restrictions upon dividends, investments, indebtedness, and the sale of
certain assets. The aggregate amount of dividends paid for the period from
January 1, 1993 to and including the date the dividend payment is made ($4,694
at December 31, 1995) cannot exceed the sum of $9,800 plus 50% of cumulative
consolidated net income ($24,700 at December 31, 1995) for such period. Had the
agreement not been amended during the fourth quarter of 1995, the Company would
have violated certain requirements of the agreement relating to failure to
maintain certain minimum financial ratios as a result of the restructuring
charge in 1995. If the agreement is not renegotiated or refinanced, or if
additional amendments are not received, the Company will be in default at March
31, 1996. The Company, which is currently investigating various long-term
financing alternatives, has the ability to prepay the notes utilizing proceeds
from its revolving credit agreement. Accordingly, the private placement senior
notes have been classified as noncurrent at December 31, 1995.
The Company has an unsecured $100 million revolving credit agreement with
several banks. The agreement, which expires no sooner than July 1, 1997,
requires a commitment fee of approximately one-twentieth percent per annum,
payable on any available and unused portion. At December 31, 1995, the Company's
borrowings under the revolving credit facility totaled $22.5 million, which was
borrowed for working capital purposes. Interest on the working capital
borrowings are at a variable base rate, ranging from 6.1% to 6.4% at
24
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 1995. Although the Company has the ability to finance these
borrowings on a long-term basis under the revolving credit agreement, it is
management's intention to repay these borrowings during 1996 out of available
working capital, and accordingly, the $22.5 million has been reported in the
accompanying financial statements as a current liability. At December 31, 1994,
there were no borrowings under the revolving credit facility.
4. INCOME TAXES
The geographic components of income before taxes on income were as follows:
1995 1994 1993
------- ------- -------
United States......................................... $(1,496) $28,455 $21,364
Foreign............................................... 13,256 11,245 2,236
------- ------- -------
Income before taxes on income............... $11,760 $39,700 $23,600
======= ======= =======
The components of the provision for taxes on income were as follows:
1995 1994 1993
------- ------- -------
CURRENT:
United States....................................... $ 3,334 $ 8,509 $ 1,607
Foreign............................................. 4,982 3,107 1,452
State............................................... 1,090 1,786 838
------- ------- -------
Total current............................... 9,406 13,402 3,897
======= ======= =======
DEFERRED:
United States....................................... (5,250) (86) 3,611
Foreign............................................. (91) 184 492
State............................................... 95
------- ------- -------
Total deferred.............................. (5,246) 98 4,103
------- ------- -------
Provision for taxes on income............... $ 4,160 $13,500 $ 8,000
======= ======= =======
Deferred income taxes result from timing differences in the recognition of
revenues and expenses for financial statement and income tax purposes. Included
in the deferred amounts for 1995, 1994 and 1993 are the benefits of operating
losses of $151, $740 and $882, respectively and an increase (decrease) in the
valuation allowance of $943, ($1,496) and ($513), respectively.
A reconciliation of the Company's provision for taxes on income and the amount
computed by applying the statutory federal income tax rate to income before
taxes is as follows:
% OF PRETAX INCOME
-------------------------
1995 1994 1993
----- ----- -----
Statutory federal tax rate.................................. 35.0 35.0 35.0
State income taxes -- net................................... 6.6 2.9 2.3
Foreign income taxed at different rates, losses not tax
benefitted, or earnings of foreign subsidiaries expected
to be remitted............................................ 1.0 1.8 9.0
Utilization of domestic and foreign losses and tax
credits................................................... (7.4) (6.4) (12.8)
Non-deductible expenses..................................... 1.9 .8 .6
Other items -- net.......................................... (1.7) (.1) (.2)
---- ---- -----
Effective tax rate.......................................... 35.4 34.0 33.9
==== ==== =====
25
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The components of the deferred tax assets and liabilities as of December 31,
1995 and 1994 were as follows:
1995 1994
-------- --------
DEFERRED TAX ASSETS:
CURRENT:
Accrued liabilities............................................ $ (4,185) $ (3,621)
Restructuring costs............................................ (4,396)
-------- --------
Current deferred tax assets.................................... (8,581) (3,621)
Valuation allowance............................................ 1,100 748
-------- --------
Current deferred tax assets -- net............................. $ (7,481) $ (2,873)
-------- --------
NON-CURRENT:
Pension costs.................................................. $ (2,138) $ (3,339)
Other liabilities.............................................. (3,007) (2,349)
Restructuring costs............................................ (1,703)
Foreign operating loss carryforwards........................... (6,412) (6,065)
Foreign tax credit carryforwards............................... (409) (1,192)
-------- --------
Non-current deferred tax assets................................ (13,669) (12,945)
Valuation allowance............................................ 7,454 6,863
-------- --------
Non-current deferred tax assets -- net......................... $ (6,215) $ (6,082)
======== ========
1995 1994
-------- --------
DEFERRED TAX LIABILITIES:
NON-CURRENT:
Depreciation & amortization.................................... $ 18,146 $ 17,843
-------- --------
Non-current deferred tax liabilities........................... $ 18,146 $ 17,843
======== ========
The change in the deferred tax assets and liabilities relating to foreign
currency translation was $808 in 1995 and $474 in 1994.
The accumulated earnings of foreign subsidiaries on which federal income taxes
have not been provided amounted to $56,626 through December 31, 1995. The
Company's intention is to permanently reinvest these earnings at least until
such time as they can be repatriated without a material incremental tax cost.
At December 31, 1995 the Company had foreign net operating losses amounting to
approximately $19,089, of which $15,876 can be carried forward indefinitely and
the balance expires at various dates through 2002. Additionally, there were
available foreign tax credits of $409 that will expire at various dates through
2000.
5. RESTRUCTURING COSTS
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 which are being closed or abandoned. Operating expenses
related to such facilities and equipment up to the time of closure or
abandonment were not included in the restructuring costs. Additionally, $5.5
million of the restructuring costs related to employee severance costs for
approximately 800 employees who prior to year end were notified that they will
be terminated. The remaining $3.9 million related to the cost to exit low-margin
product inventory which have been eliminated from the Company's product lines.
26
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
6. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company sponsors noncontributory defined benefit pension plans that cover
substantially all eligible U.S. employees. Benefits are based on employees'
years of service and compensation during employment. The principal plan is
funded on a current basis, in compliance with the requirements of the Employee
Retirement Income Security Act.
The following table sets forth the plan's funded status and amounts recognized
in the consolidated financial statements at December 31:
1995 1994
-------- --------
Plan's funded status:
Plan assets at fair value...................................... $18,289 $16,737
Projected benefit obligation:
Vested....................................................... 16,372 11,481
Nonvested.................................................... 629 603
Effect of future compensation increases...................... 6,403 4,276
------- -------
Plan assets in excess of (less than) projected benefit
obligation................................................... (5,115) 377
Unrecognized net (gain) or loss................................ 4,452 (1,747)
Unrecognized net transition asset being recognized over 15
years........................................................ (1,375) (1,604)
------- -------
Accrued pension liability...................................... $(2,038) $(2,974)
------- -------
Pension cost -- net:
Service cost-benefits earned during year....................... $ 1,383 $ 1,663
Interest cost on projected benefit obligation.................. 1,477 1,262
Actual return on plan assets................................... (1,163) (1,007)
Net amortization and deferral.................................. (746) (416)
------- -------
Pension cost -- net............................................ $ 951 $ 1,502
------- -------
The accrued pension liabilities, as calculated above, are included in accrued
compensation and benefits on the December 31, 1995 and 1994 consolidated balance
sheets.
In addition to the above plan, the Company also has a Supplemental Employee
Retirement Plan (SERP) which is a non-qualified plan providing certain elected
officers with additional defined pension benefits. The actuarial present value
of accumulated benefit obligations related to this plan totaled $2,793 and
$5,183 at December 31, 1995 and 1994, respectively. Pursuant to the provisions
of SFAS No. 87, "Employers' Accounting for Pensions," the Company recorded an
additional minimum pension liability adjustment of $2,242 at December 31, 1995.
The additional liability has been offset by an intangible asset to the extent of
previously unrecognized prior service cost. The amount in excess of previously
unrecognized prior service cost is recorded as a reduction of shareholders'
equity in the amount of $646, representing the after-tax impact. Assets related
to this plan are reported as other assets in the accompanying balance sheets and
totaled $9,729 and $6,910 at December 31, 1995 and 1994, respectively.
1995 1994
---- ----
Actuarial assumptions:
Discount rate.......................................................... 7.5% 8.5%
Long-term rate of compensation increases............................... 5.0% 5.0%
Long-term rate of return on plan assets................................ 8.5% 8.5%
Domestic pension expense was $1,286, $2,032 and $1,155 in 1995, 1994 and 1993,
respectively.
27
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company's foreign defined contribution pension plans are consistent with
local practice and are principally funded through insurance programs. Pension
expense in 1995, 1994 and 1993 for the foreign plans was $916, $695 and $800,
respectively.
SAVINGS AND RETIREMENT PLAN
The Company sponsors the Augat Inc. Savings and Retirement Plan which covers
substantially all eligible U.S. employees and allows employees to contribute
from one to fourteen percent of salary through salary reduction, up to the
Internal Revenue Service limit on salary reduction contributions. The Company
will make matching contributions of 25% of the employees' contributions of up to
6% of salary in the form of Company common stock. Company contributions will
vest 20% after two years of service increasing by 20% per year up to 100% after
six years of service. The Plan will permit participants to elect to invest their
contributions in a variety of savings and investment funds. For the years 1995,
1994 and 1993, the Company contributed 28,354, 19,621 and 17,390 shares,
respectively, of Company common stock to the Plan at a cost of $533, $397 and
$245, respectively.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company and its subsidiaries are obligated under facility and equipment
leases which expire at various dates through 2002. These leases generally
provide extension privileges and are exclusive of real estate taxes, insurance
and other expenses. Rent expense in 1995, 1994 and 1993 was $8,493, $7,184 and
$6,765, respectively. Annual minimum future rentals are $6,851, $4,787, $1,743,
$1,235 and $1,169 for the years 1996 through 2000, and aggregate to $3,206 for
all the years subsequent to 2000.
CONTINGENCIES
The acquisition of National Industries, Inc. in 1991 included a liability of
approximately $5,400 to cover the estimated costs of environmental site
remediation for certain National facilities. Management estimated the liability
using third-party consultants. Costs incurred through December 31, 1995
(approximately $1,200) represent amounts expended for preliminary site
evaluation and design and testing. The Company has obtained the necessary
permits and is in the process of remediating the site. The Company is currently
negotiating with the state for agreement on remediation procedures. The Company
believes the recorded liability of approximately $4,200 at December 31, 1995 to
be adequate.
Based on a study conducted in 1995, the Company notified the Massachusetts
Department of Environmental Protection of the release of hazardous materials
associated with its facility in Mashpee, Massachusetts. The Company will
follow-up this notice with further investigation in accordance with state law.
Based upon preliminary information provided by third-party consultants, the
Company estimates that the clean-up costs will be approximately $1,800. This
amount was charged to SG&A in the fourth quarter of 1995.
8. COMMON STOCK
In 1988, the Company's Board of Directors adopted a Shareholder Rights Plan and
declared a dividend distribution of one Right for each outstanding share of
common stock. Pursuant to the Plan, the Rights become exercisable when certain
triggering events occur that involve an entity's attempt to acquire, or the
acquisition of, at least 20 percent of the Company's Common Stock or announces a
tender or exchange offer that would result in such entity owning 30 percent or
more of the Company's Common Stock. Such percentages may, at the Board's
discretion, be lowered.
If any entity becomes the beneficial owner of 25 percent or more of the Common
Stock (except pursuant to a tender or exchange offer for all shares at a fair
price as determined by the independent members of the
28
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Board), if a 20 percent or more shareholder consolidates or merges into or
engages in certain self-dealing transactions with the Company, or if there
occurs any reclassification, merger, or other transaction or transactions which
increases by more than one percent of the proportionate share of the Company's
outstanding Common Stock held by a 20 percent or more shareholder, then each
holder of a Right will be entitled to purchase that number of shares of the
Company's Common Stock which equals the exercise price of the Right divided by
one-half of the current market price of such Common Stock at the date of the
occurrence of the event. In addition, if the Company is involved in a merger or
other business combination transaction with another entity in which it is not
the surviving corporation or in connection with which its Common Stock is
changed or converted, or it sells or transfers 50 percent or more of its assets
or earning power to another entity, each Right that has not previously been
exercised will entitle its holder to purchase the number of shares of common
stock of such other person which equals the exercise price of the Right divided
by one-half of the current market price of such Common Stock at the date of the
occurrence of the event. The Company will generally be entitled to redeem the
Rights at $.02 per Right at any time until the tenth day following a public
announcement that a 20 percent stock position has been acquired and in certain
other circumstances. The Rights will expire on August 23, 1998, unless earlier
redeemed or exchanged.
9. STOCK OPTION AND STOCK PURCHASE PLANS
STOCK OPTIONS, APPRECIATION RIGHTS AND RESTRICTED STOCK
The Company has three Stock Option and Appreciation Rights Plans, the 1987, the
1989 and the 1994 Plans, pursuant to which stock options and appreciation rights
have been granted and will be granted in the future. In addition, restricted
stock awards may be granted under the 1989 and 1994 Plans.
All Plans provide for the issuance of stock options and tandem appreciation
rights to key employees of the Company and to directors of the Company. The
options may be either incentive stock options or non-qualified options. No more
than a total of 2,350,000 shares of common stock may be issued under all of the
Plans. The period over which options must be exercised is determined on the date
of grant and may not be later than 10 years or 10 years and 30 days in the case
of incentive and non-qualified options, respectively.
Under the Plans, incentive stock options will be granted at fair market value as
of the date of grant and may not be exercised until 12 months after the date of
grant. Non-qualified options must equal at least 90% of the fair market value on
the date of grant.
Stock appreciation rights may also be granted to holders of options. Upon
exercise of such rights, the holder will receive shares of common stock or a
combination of cash and common stock at the election of the Board of Directors
equal to the increase in the fair market value of the number of shares of common
stock subject to such rights. Under the Plan, when both an option and an
appreciation right are granted, the exercise of one cancels the other.
Restricted stock awards may be issued under the 1989 and the 1994 Plans and
entitle the participant to purchase common stock from the Company under terms
which provide for vesting over a specified number of years and a right of
repurchase by the Company of non-vested stock when the recipient's relationship
with the Company terminates. The price of the awards may be less than fair
market value but not less than par value ($.10 per share). Compensation expense
resulting from the grant of awards is recognized over the period from the award
date to the date the forfeiture provisions lapse. Stock awards were issued in
1995, 1994 and 1993 amounting to 14,000, 33,000 and 26,500 shares, respectively,
with a total value of $234, $719 and $321, respectively. In 1995, 1,000 shares
were repurchased. None were repurchased in 1994 or 1993. The compensation
expense recognized in 1995, 1994 and 1993 related to the restricted stock awards
was $400, $304 and $169, respectively.
The Compensation Committee of the Board of Directors administers all of the
Plans.
29
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
A summary of options under the Plans is as follows:
OPTION PRICE
NUMBER OF SHARES PER SHARE
---------------- ---------------
Outstanding, December 31, 1992....................... 1,731,791
Granted............................................ 328,525 $ .10 - 16.88
Exercised.......................................... (567,935) .10 - 14.50
Cancelled or expired............................... (254,293) 9.38 - 15.00
--------- -------------
Outstanding, December 31, 1993....................... 1,238,088 9.38 - 18.38
Granted............................................ 579,000 .10 - 23.75
Exercised.......................................... (358,413) .10 - 14.00
Cancelled or expired............................... (75,150) 9.38 - 16.88
--------- -------------
Outstanding, December 31, 1994....................... 1,383,525 9.38 - 23.75
Granted............................................ 459,400 .10 - 23.50
Exercised.......................................... (255,052) .10 - 21.75
Cancelled or expired............................... (114,166) .10 - 22.38
--------- -------------
Outstanding, December 31, 1995....................... 1,473,707 9.38 - 23.75
--------- -------------
Options exercisable at December 31, 1995........... 436,872 $9.38 - 23.75
--------- -------------
Options available for future grant at December 31,
1995............................................ 13,021
---------
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan which allows employees to
purchase shares of common stock of the Company at a 15% discount from market
value (subject to a minimum price and a maximum contribution per employee)
pursuant to annual offerings. The maximum number of shares available for
issuance under the current plan is 600,000 shares over a five-year period ending
in 1997. Employees purchased 44,130, 56,666 and 25,818 shares in 1995, 1994 and
1993, respectively.
10. BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company operates within a single segment of the electronics industry defined
as the electromechanical component and subsystem sector. The Company designs,
manufactures and markets a broad range of electromechanical components and
subsystems.
The sales and marketing operations outside the United States are conducted
through marketing/warehousing subsidiaries in Australia, Canada, France,
Germany, Italy, Japan, Singapore, Sweden, Switzerland, the United Kingdom and
sales offices in other areas. The foreign manufacturing operations are in
Mexico, Singapore, Switzerland and the United Kingdom. The products manufactured
in Switzerland are sold to the parent company for further processing or to the
foreign marketing/warehousing subsidiaries for further finishing or resale in
local markets.
30
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Financial information concerning the Company's operations by major geographical
area is as follows:
1995 1994 1993
-------- -------- --------
Net Sales:
United States:
Sales excluding export sales............................. $399,899 $421,858 $331,200
Export sales............................................. 9,836 7,873 9,181
Intersegment sales....................................... 34,710 24,488 18,464
-------- -------- --------
Total............................................ 444,445 454,219 358,845
======== ======== ========
Western Europe:
Sales excluding export sales............................. 69,501 55,761 44,979
Export sales............................................. 2,738 1,568 1,282
Intersegment sales....................................... 7,246 3,986 5,301
-------- -------- --------
Total............................................ 79,485 61,315 51,562
======== ======== ========
Other Areas:
Sales excluding export sales............................. 52,563 43,646 33,621
Export sales............................................. 336
Intersegment sales....................................... 10,439 10,302 3,942
-------- -------- --------
Total............................................ 63,338 53,948 37,563
======== ======== ========
Total...................................................... 587,268 569,482 447,970
-------- -------- --------
Less eliminations........................................ 52,395 38,776 27,707
-------- -------- --------
Total...................................................... $534,873 $530,706 $420,263
======== ======== ========
Operating Income:
United States............................................ $ 31,736 $ 47,713 $ 37,740
Western Europe........................................... 10,269 2,970 (135)
Other Areas.............................................. 7,972 4,507 771
-------- -------- --------
Total............................................ $ 49,977 $ 55,190 $ 38,376
======== ======== ========
Identifiable Assets:
United States............................................ $291,483 $253,342 $230,322
Western Europe........................................... 77,335 72,338 58,027
Other Areas.............................................. 38,658 32,278 29,511
-------- -------- --------
Total............................................ $407,476 $357,958 $317,860
======== ======== ========
Operating income by geographical area does not include corporate expenses,
restructuring costs and other charges, other income or expense, or income taxes.
Intersegment sales represent transfers between geographic areas which are made
at negotiated selling prices. One customer accounted for approximately 23%, 32%
and 28% of sales and 21%, 23% and 26% of net receivables for 1995, 1994 and
1993, respectively.
31
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
11. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
NET EARNINGS
NET GROSS INCOME (LOSS)
1995 SALES MARGIN (LOSS) PER SHARE
- ------------------------------------------------- -------- -------- ------- ---------
1st Quarter...................................... $134,589 $ 27,857 $ 5,800 $ .30
2nd Quarter...................................... 130,550 29,146 7,060 .36
3rd Quarter...................................... 131,860 26,443 4,210 .21
4th Quarter...................................... 137,874 27,728 (9,470) (.48)
-------- -------- ------- -----
$534,873 $111,174 $ 7,600 $ .39
1994
- -------------------------------------------------
1st Quarter...................................... $127,403 $ 26,422 $ 5,700 $ .30
2nd Quarter...................................... 134,399 29,555 6,950 .36
3rd Quarter...................................... 127,709 27,304 6,400 .33
4th Quarter...................................... 141,195 26,778 7,150 .37
-------- -------- ------- -----
$530,706 $110,059 $26,200 $1.36
1993
- -------------------------------------------------
1st Quarter...................................... $101,155 $ 21,545 $ 2,900 $ .16
2nd Quarter...................................... 106,295 23,313 3,600 .19
3rd Quarter...................................... 100,014 22,421 4,100 .22
4th Quarter...................................... 112,799 24,020 5,000 .26
-------- -------- ------- -----
$420,263 $ 91,299 $15,600 $ .83
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SCHEDULE II
AUGAT INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
ADDITIONS
---------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS -- DEDUCTIONS -- AT END
DESCRIPTION OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR
- ----------------------------------- ---------- -------- ---------- ---------------- -------
1995
VALUATION ACCOUNTS DEDUCTED FROM
ASSETS TO WHICH THEY APPLY --
- -- Allowance for doubtful
accounts......................... $1,276 $410 Bad Debts $481(1) $1,205
- -- Reserve for assets held for
resale........................... $1,235 $500 $1,735
------ ---- ---------- ---- ------
1994
VALUATION ACCOUNTS DEDUCTED FROM
ASSETS TO WHICH THEY APPLY --
- -- Allowance for doubtful
accounts......................... $1,129 $326 Bad Debts $179(1) $1,276
- -- Reserve for assets held for
resale........................... $ 600 $635 $1,235
------ ---- ---------- ---- ------
1993
VALUATION ACCOUNTS DEDUCTED FROM
ASSETS TO WHICH THEY APPLY --
- -- Allowance for doubtful
accounts......................... $1,451 $272 Bad Debts $594(1) $1,129
- -- Reserve for assets held for
resale........................... $600 $ 600
------ ---- ---------- ---- ------
<FN>
- ---------------
Note 1. Amount is net of recoveries.
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ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning directors is incorporated
herein by reference pursuant to Rule 12b-23 to the Company's Proxy Statement
dated March 25, 1996 with respect to the Annual Meeting of Shareholders to be
held April 23, 1996.
ITEMS 11 AND 12 -- EXECUTIVE COMPENSATION AND SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by these items is incorporated herein by reference
pursuant to Rule 12b-23 to the Company's Proxy Statement dated March 25, 1996
for the Annual Meeting of Shareholders to be held April 23, 1996. The sections
entitled "Compensation Committee Report" and "Stock Performance Graph" in the
1996 Proxy Statement are not incorporated herein by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The Financial Statements listed below appear in Part II, Item 8 hereof.
FINANCIAL STATEMENTS:
Independent Auditors' Report
Consolidated Balance Sheets
Statements of Consolidated Income
Statements of Consolidated Shareholders' Equity
Statements of Consolidated Cash Flows
Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedule listed below appears in Part II, Item 8 hereof.
Schedule II- Valuation and Qualifying Accounts
Schedules not included with this additional financial data have been omitted
because of the absence of conditions under which they are required or because
the required financial information is included in the financial statements
submitted.
(a) 3. EXHIBITS
(3) Articles of Incorporation and By-Laws
(a) Restated Articles of Organization, as amended. Incorporated by reference
to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989.
(b) By-Laws, as amended. Incorporated by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1987.
(4) Instruments Defining the Rights of Security Holders, Including Indentures
(a) Specimen certificate representing shares of the Registrant's $.10 par
value common stock. Incorporated by reference to Exhibit 4(a) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
(b) Trust Indenture dated as of August 2, 1988 between Augat Inc. and The
Chase Manhattan Bank, N.A. as Trustee. Incorporated by reference to
Exhibit 2 of the Registrant's Registration Statement on Form 8-A dated
August 2, 1988.
(10) Material Contracts
(a) 1994 Stock Plan. Incorporated by reference to Exhibit 10 (a) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993.
(b) Employment Agreement dated August 29, 1994 between the Registrant and
William R. Fenoglio. Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1994.
(c) 1987 Stock Option and Appreciation Right Plan. Incorporated by reference
to Exhibit A to the Registrant's Proxy Statement dated March 25, 1987 for
the Annual Meeting of the Registrant's Shareholders held on April 28,
1987.
(d) 1989 Stock Plan. Incorporated by reference to Exhibit 10(d) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.
(e) Supplementary Employee Retirement Plan. Incorporated by reference to
Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986.
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39
(f) Augat Inc. Savings and Retirement Plan. Incorporated by reference to
Exhibit 10(h) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988.
(g) Rights Agreement dated as of August 2, 1988 between Augat Inc. and The
Chase Manhattan Bank, N.A., Rights Agent. Incorporated by reference to
Exhibit 1 of the Registrant's Registration Statement on Form 8-A dated
August 2, 1988.
(h) Severance Agreements. Incorporated by reference to Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1989.
(i) Deferred Compensation Plan. Incorporated by reference to Exhibit 10(1) to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1989.
(j) Supplemental Disability Income Plan. Incorporated by reference to Exhibit
10(m) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989.
(k) Supplemental Survivor Benefit Plan. Incorporated by reference to Exhibit
10(n) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989.
(l) Agreement of Merger among Augat Inc., National Industries, Inc. and June
M. Collier dated August 30, 1991. Incorporated by reference to Exhibit 2
to the Registrants' Form 8-K filed September 16, 1991.
(m) Note Agreement between Augat Inc., as Borrower and Principal Mutual Life
Insurance Company and Allstate Life Insurance Company, as Lenders, dated
as of February 1, 1992. Incorporated by reference to Exhibit 10(p) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
(n) Revolving Credit Agreement among Augat Inc., The First National Bank of
Boston, Shawmut Bank, N.A., Nations Bank of North Carolina, N.A., National
Westminster Bank USA and The First National Bank of Boston, as agent,
dated as of July 22, 1994. Incorporated by reference to Exhibit 10(b) to
the Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994.
(o) 1993 Employee Stock Purchase Plan. Incorporated by reference to Exhibit
10(r) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
(p) Amendment No. 1 to the Revolving Credit Agreement among Augat Inc., The
First National Bank of Boston, Fleet National Bank of Massachusetts
(formerly known as Shawmut Bank, N.A.), Nations Bank of North Carolina,
N.A., NatWest Bank NA (formerly known as National Westminster Bank USA)
and The First National Bank of Boston, as agent, dated as of December 31,
1995.
(q) Amendment No. 2 to the Amended and Restated Note Agreement among Augat
Inc., Principal Mutual Life Insurance Company and Allstate Life Insurance
Company, dated as of December 18, 1995.
(21) Subsidiaries of the Registrant. Exhibit 21.
(23) Independent Auditors' Consent. Exhibit 23.
(b) THE FOLLOWING REPORT ON FORM 8-K WAS FILED DURING THE LAST QUARTER OF CALENDAR
YEAR 1994:
(1) On December 21, 1995, the Registrant filed Form 8-K in Item 5 (Other
Events) stating that it plans to restructure its Interconnection Products
and Automotive Divisions and that results for the Fourth Quarter ended
December 31, 1995 will include a restructuring charge and other charges
totaling $23 million pretax. Also, the Registrant announced it has signed
a letter of intent to acquire certain electronic assets of Lindsay
Specialty Products.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AUGAT INC.
(Registrant)
By: /s/ WILLIAM R. FENOGLIO
------------------------------------------
William R. Fenoglio
President & Chief Executive Officer
By: /s/ ELLEN B. RICHSTONE
------------------------------------------
Ellen B. Richstone
Vice President & Chief Financial Officer
and Principal Accounting Officer
Date March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- --------- ---------------
/s/ WILLIAM R. FENOGLIO Director March 27, 1996
- ---------------------------------------------
William R. Fenoglio
/s/ MARCEL P. JOSEPH Director March 27, 1996
- ---------------------------------------------
Marcel P. Joseph
/s/ VERNON R. ALDEN Director March 27, 1996
- ---------------------------------------------
Vernon R. Alden
/s/ BRUCE L. CROCKETT Director March 27, 1996
- ---------------------------------------------
Bruce L. Crockett
/s/ JOHN D. CURTIN, JR. Director March 27, 1996
- ---------------------------------------------
John D. Curtin, Jr.
Director March , 1996
- ---------------------------------------------
Samuel S. Dennis 3d
/s/ JERALD G. FISHMAN Director March 27, 1996
- ---------------------------------------------
Jerald G. Fishman
Director March , 1996
- ---------------------------------------------
Thomas L. King
Director March , 1996
- ---------------------------------------------
John N. Lemasters
Director March , 1996
- ---------------------------------------------
Thomas C. McDermott
/s/ DAVID V. RAGONE Director March 27, 1996
- ---------------------------------------------
David V. Ragone
Director March , 1996
- ---------------------------------------------
Alan J. Zakon
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