1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended June 30, 1996
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________________
Commission File Number 1-6176
AUGAT INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2022285
- ------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
89 Forbes Boulevard, P.O. Box 448, Mansfield, Massachusetts 02048
- ----------------------------------------------------------- -----
(Address of principal executive offices) (Zip
Code)
(508) 543-4300
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
The number of shares of the Registrant's common stock outstanding on June
30, 1996 was 19,967,182.
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AUGAT INC.
INDEX
Page No.
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Part I - Financial Information .................... 3
Financial Statements (Unaudited)
Statements of Consolidated Income - For the
Three Months Ended and Six Months Ended
June 30, 1996 and 1995 ....................... 3
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 ......................... 4 - 5
Statements of Consolidated Cash Flows For the Six
Months Ended June 30, 1996 and 1995 ........... 6
Notes to Unaudited Consolidated Financial
Statements ...................................... 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 9 - 11
Part II - Other Information ....................... 12
Signatures ........................................ 13
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PART I - FINANCIAL INFORMATION
Statements of Consolidated Income
For the Three Months and Six Months Ended June 30, 1996 and 1995 (In thousands,
except per share data)
Three Months Ended* Six Months Ended*
1996 1995 1996 1995
-------- -------- -------- --------
Net sales ............... $150,424 $130,550 $295,436 $265,139
Cost of products sold ... 116,502 101,404 230,762 208,136
-------- -------- -------- --------
Gross margin ............ 33,922 29,146 64,674 57,003
Selling, general and
administrative expenses 20,998 17,840 40,580 35,845
-------- -------- -------- --------
Income from operations .. 12,924 11,306 24,094 21,158
Other income (expense):
Interest income, etc. (1) 349 111 473
Interest expense .... (1,023) (924) (2,005) (1,835)
-------- -------- -------- --------
Net ..................... (1,024) (575) (1,894) (1,362)
-------- -------- -------- --------
Income before taxes on
income ................ 11,900 10,731 22,200 19,796
Provision for taxes on
income ................ 4,300 3,671 8,000 6,936
-------- -------- -------- --------
Net income .............. $ 7,600 $ 7,060 $ 14,200 $ 12,860
======== ======== ======== ========
Earnings per share ...... $ .38 $ .36 $ .71 $ .66
Average common shares
outstanding ........... 19,961 19,691 19,907 19,616
Dividends paid per share. $ .04 $ .04 $ .08 $ .08
<FN>
* Unaudited
See notes to unaudited consolidated financial statements.
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Consolidated Balance Sheets, June 30, 1996 and December 31, 1995
(In thousands)
Assets 1996* 1995*
---------- ---------
Current Assets:
Cash and cash equivalents ............. $ 58,916 $ 30,744
Accounts receivable-net ............... 95,294 85,887
Refundable income taxes ............... - 4,000
Inventories:
Finished goods ..................... 37,098 34,859
Work in process .................... 30,085 29,325
Raw materials ...................... 33,559 28,945
--------- ---------
Total inventories ................ 100,742 93,129
Deferred income taxes ................. 8,361 7,481
Prepaid expenses ...................... 2,439 1,530
--------- ---------
Total current assets ............. 265,752 222,771
Property, Plant, and Equipment:
Land .................................. 4,806 4,910
Buildings and building improvements ... 68,126 69,455
Machinery and equipment ............... 156,191 163,142
Furniture and fixtures ................ 25,367 24,457
Construction in progress - buildings
and machinery ...................... 18,271 14,496
--------- ---------
Total ............................ 272,761 276,460
Less accumulated depreciation ......... (137,348) (141,808)
--------- ---------
Property, plant, and equipment-net ...... 135,413 134,652
Other Assets:
Goodwill-net .......................... 38,290 31,697
Property held for sale-net ............ 2,183 2,183
Other ................................. 16,313 16,173
--------- ---------
Total other assets ................. 56,786 50,053
--------- ---------
Total ............................ $ 457,952 $ 407,476
========= =========
<FN>
* Unaudited
See notes to unaudited consolidated financial statements.
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Consolidated Balance Sheets, June 30, 1996 and December 31, 1995
(In thousands)
Liabilities and Shareholders' Equity
1996* 1995*
-------- --------
Current Liabilities:
Notes payable ......................... $ 22,500
Current maturities of long-term debt .. $ 9,748 9,362
Accounts payable ...................... 39,020 36,192
Federal, state and foreign taxes
payable ............................. 5,594 3,667
Accrued compensation and benefits ..... 16,257 14,456
Accrued restructuring costs ........... 13,865 17,322
Other accrued expenses ................ 18,941 16,454
-------- --------
Total current liabilities .......... 103,425 119,953
Long-Term Debt .......................... 78,591 25,854
Deferred Income Taxes ................... 14,104 11,931
Shareholders' Equity:
Common stock .......................... 1,998 1,979
Paid-in capital ....................... 83,178 80,751
Retained earnings ..................... 160,597 147,984
Cumulative translation adjustment ..... 17,326 20,258
Treasury stock, at cost ............... (110) (110)
Other ................................. (1,157) (1,124)
-------- --------
Shareholders' equity ................ 261,832 249,738
-------- --------
Total ............................. $457,952 $407,476
======== ========
<FN>
* Unaudited
See notes to unaudited consolidated financial statements.
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Statements of Consolidated Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(In thousands)
1996* 1995*
-------- --------
Cash Flows From Operating Activities:
Net income ................................... $ 14,200 $ 12,860
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 11,900 10,651
(Gain) loss on the sale of property,
plant and equipment ...................... (72) 245
Deferred federal income taxes - net ........ 1,292 537
Amortization of restricted stock awards..... 235 202
Changes in operating assets and liabilities,
net of effects from business acquired:
Accounts receivable ........................ (9,407) 2,814
Refundable income taxes .................... 4,000
Inventories ................................ (5,613) (9,508)
Prepaid expenses ........................... (909) (963)
Other assets ............................... (285) 104
Accounts payable ........................... 2,042 (1,736)
Income taxes payable ....................... 1,927 (2,048)
Accrued restructuring, compensation and
other expenses ........................... 1,962 (1,881)
Effect of exchange rate changes on current
assets and liabilities (other than cash).. 132 1,061
-------- --------
Net cash provided by operating activities....... 21,404 12,338
-------- --------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment.... (13,823) (14,070)
Proceeds from the sale of property, plant,
and equipment .............................. 643 346
Acquisitions, net of cash acquired ........... (8,295) (7,754)
-------- --------
Net cash used for investing activities ......... (21,475) (21,478)
-------- --------
Cash Flows From Financing Activities:
Cash dividends paid .......................... (1,587) (1,561)
Proceeds from short-term borrowings .......... 43,060 37,100
Payments for short-term borrowings ........... (65,560) (29,600)
Payments for long-term debt .................. (7,176) (7,255)
Proceeds from senior notes ................... 58,350
Proceeds from issuance of common stock ....... 2,178 2,137
-------- --------
Net cash provided by financing activities ...... 29,265 821
Effect of exchange rate changes on cash ........ (1,022) 372
-------- --------
Net changes in cash and cash equivalents ....... 28,172 (7,947)
Cash and cash equivalents at beginning of the
period ....................................... 30,744 20,535
-------- --------
Cash and cash equivalents at end of the
period ....................................... $ 58,916 $ 12,588
======== ========
<FN>
* Unaudited
See notes to unaudited consolidated financial statements.
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AUGAT INC.
Notes to Unaudited Consolidated Financial Statements
----------------------------------------------------
1. The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of June 30, 1996, the results of
operations for the three months and six months ended June 30, 1996 and
1995 and the cash flows for the six month periods then ended.
2. The results of operations for the six month period ended June 30, 1996 and
1995 are not necessarily indicative of the results to be expected for the
full year.
3. Earnings per share are based on the weighted average number of shares
outstanding during each period. The exercise of all presently issued
outstanding stock options and the issuance of shares under the "Employee
Stock Purchase Plan" would have no material dilutive effect on earnings
per share.
4. The acquisition of National Industries, Inc. in 1991 included a liability
of approximately $5.4 million to cover the estimated costs of site
remediation for certain National facilities. Management estimated the
liability using third-party consultants. Costs incurred as of June 30, 1996
(approximately $1.3 million) 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 keeping the state of Alabama informed of its progress. The
Company believes the recorded liability of approximately $4.1 million at
June 30, 1996 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 $1.8 million. This amount was charged to SG&A in the fourth
quarter of 1995. Costs incurred as of June 30, 1996 (approximately $.1
million) represent amounts expended for preliminary site evaluation and
testing. The Company believes the recorded liability of approximately $1.7
million at June 30, 1996 to be adequate. The liability for environmental
matters is reported with other accrued expenses in the accompanying balance
sheets.
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5. In June 1996, the Company completed a private placement of $85.0 million of
senior notes. These notes replaced the $40.0 million of senior notes
issued in 1992 which had a remaining balance of approximately $26.7
million. The $58.3 million net proceeds from the new issuance of senior
notes were used to pay off the approximately $24.9 million outstanding
balance under the Company's revolving credit line, and approximately
$33.4 million has been invested in short term deposits. As of June 30,
1996, $8.9 million of the senior notes is classified as current and the
balance of $76.1 million as long-term. The note agreement includes
certain financial convenants and limitations on dividends, investments,
indebtedness, and the sale of certain assets, none of which the Company
considers restrictive. The long-term portions of the senior notes bear
interest at rates ranging from 7.31% to 8.61% and are
payable in the following years:
Year Dollars in millions
---- -------------------
1997 ............................... $ 8.9
1998 ............................... 8.8
1999 ............................... 4.2
2000 ............................... 33.4
2001 and beyond .................... 20.8
6. During the first quarter of 1996, the Company acquired the fiber optics
business of Porta Systems Corporation for cash consideration of
approximately $8.2 million. The acquisition has been accounted for by the
purchase method of accounting. Preliminary goodwill of approximately $7.4
million has been recorded and is being amortized on a straight-line basis
over 20 years. The operating results of this acquisition are included in
the Company's consolidated results of operations from the date of
acquisition. Pro-forma results of the Company including this acquisition,
assuming it had been made at the beginning of the periods presented, would
not be materially different from the results reported.
7. In December 1995, the Company recorded estimated restructuring costs of
$18.7 million. These costs included $9.3 million related to redundant or
excess facilities and equipment; $5.5 million for employee severance costs
and $3.9 million related to the cost to exit low-margin product lines.
The following table reflects the status of the 1996 restructuring charges
by component:
1995 Balance
Restructuring June 30,
(in millions) Charges Incurred to Date 1996
- --------------------- ------------- ---------------- --------
Operating assets to
be sold/disposed of ... $ 9.3 $2.4 $ 6.9
Employee severance
costs ................. 5.5 .8 4.7
Low-margin product
lines to be sold/
disposed of ........... 3.9 1.6 2.3
----- ---- -----
Total $18.7 $4.8 $13.9
===== ==== =====
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
NET SALES: Net sales by product group for the quarter and six months ended June
30, 1996 (dollars in thousands):
- --------------------------------------------------------------------------------
Quarter Ended June 30,
1996 1995
-------------- -------------
Product Group % %
$ Total $ Total
- ---------------------------------- ------- ----- ------- --------------------
Interconnection Products 32,871 21.9 36,080 27.6
Wiring Systems and Components 74,547 49.5 59,462 45.6
Communications Products 43,006 28.6 35,008 26.8
------- ----- ------- -----
Total 150,424 100.0 130,550 100.0
======= ===== ======= =====
- ---------------------------------- ------- ----- ------- --------------------
Six Months Ended June 30,
1996 1995
-------------- -------------
Product Group % %
$ Total $ Total
- ---------------------------------- ------- ----- ------- --------------------
Interconnection Products 65,510 22.2 69,334 26.1
Wiring Systems and Components 144,183 48.8 125,063 47.2
Communications Products 85,743 29.0 70,742 26.7
------- ----- ------- -----
Total 295,436 100.0 265,139 100.0
======= ===== ======= =====
- ------------------------------------------- ----- ------- --------------------
Net sales for both the quarter and six months ended June 30, 1996, increased
primarily due to increased deliveries of Wiring Systems and Components products
to the domestic automotive industry; sales of Communications products also
increased in both periods on the basis of strength in its Asian markets.
However, sales of Interconnection products were lower than last year as a
result of continued weakness in demand from the PC and cellular telephone
industries as well as by the previously announced decision to exit certain
low margin commodity-type products.
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The Company's non-U.S. sales for the second quarter and six months of 1996
increased 7 percent and 19 percent, respectively, compared to the like periods
of the prior year. These non-U.S. sales represent approximately 25 percent of
the Company's total sales for the six months ended June 30, 1996 compared to 24
percent in the comparable prior year period.
BACKLOG AND ORDERS: The backlog at June 30, 1996 was $130 million compared with
$124 million at June 30, 1995. Incoming orders for the second quarter and six
months of 1996 were $158 million and $301 million, respectively compared to
$131 million and $269 million for the same periods of the prior year.
GROSS MARGIN: Higher gross margins were mainly related to higher sales. Gross
margins, as a percentage of sales, showed a slight improvement in the quarter
and year-to-date over the prior year periods. Overall improvement in the second
quarter was moderated by operational problems at a west coast facility
producing Communications products. The Company generally offsets continued
increases in material and wage costs by enhanced productivity and on-going
cost reduction programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: These expenses were 14.0 percent
of sales in the second quarter of 1996 compared to 13.7 percent in the
comparable quarter of the prior year. For the six months ended June 30, 1996,
these expenses were 13.7 percent of sales compared to 13.5 percent of sales in
the comparable period of the prior year. Expenses have increased, in part,
as a result of the Company's decision to support the growth of the
Communications business with additional sales and marketing programs,
primarily overseas.
OTHER INCOME (EXPENSE): Interest income decreased in 1996 versus 1995 due to
lower average cash balances in the current periods over the comparable prior
year periods and, for the second quarter, due to a gain of approximately $.4
million in the second quarter of 1995 from the early extinguishment of debt.
Interest expense increased in the 1996 periods compared to the same periods
in 1995 due to the increase in average outstanding borrowings in 1996 when
compared to 1995.
INCOME TAXES: The effective income tax rate for the Company was 36 percent for
the second quarter and six months ended June 30, 1996. The tax rate for the
Company in the second quarter of 1995 was 34 percent and for the six months
ended June 30, 1995 was 35 percent.
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NET INCOME: Net income was $7.6 million and $14.2 million for the three months
and six months ended June 30, 1996 respectively, compared to net income of $7.1
million and $12.9 million in the same periods of the prior year. The increase in
net income for the second quarter and six months ended June 30, 1996 resulted
principally from increased sales.
LIQUIDITY AND CAPITAL RESOURCES: The Company continues to maintain sufficient
liquidity and has adequate resources to fund its operations under current
business conditions. The income generated from operations along with the cash on
hand and established bank credit facilities are sufficient to finance expected
working capital and planned capital expenditure programs.
During the second quarter ended June 30, 1996 the Company completed a
refinancing of its long-term debt and increased the amount outstanding by
approximately $58.3 million. Covenants under the debt agreement were modified
to provide Augat with greater flexibility. See Note 5 to the Notes to
Unaudited Consolidated Financial Statements for further discussion.
In March 1996, the Company was notified by Ford Motor Company that it was
proceeding with a plan to consolidate its suppliers. The financial impact to
Augat of this consolidation is not until 1998 at which time various wiring
cable products currently manufactured for Ford will cease production. 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 year 2001. The Mustang
harnesses could represent approximately $30-40 million in reduced sales in
2002. The Company believes there may be some impact in 2001, but it is unable
at this time to quantify the magnitude of such impact. The Company has
continued to implement programs within the automotive business to diversify
both its products and customer base for the long term.
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PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Shareholders held on April 23, 1996
(b) Shareholders approved the following proposals:
1. The 1996 Stock Plan authorizing the Company to make awards of
restricted stock and to grant incentive and non-statutory options to
employees and directors of the Company to purchase up to 1,000,000
shares of common stock by a vote of 11,578,706 shares in favor,
2,188,469 shares opposed and 143,930 shares abstaining.
2. The 1996 Stock Retainer Plan for Nonemployee Directors requiring the
Company to make awards of cash and common stock to nonemployee
directors of the Company in the amount of $15,000 per year for each
individual by a vote of 12,644,387 shares in favor, 1,125,448 shares
opposed and 141,271 shares abstaining.
3. The 1996 Stock Bonus Plan for Senior Executives providing that half of
any bonus payable to a senior executive shall be paid in the form of
cash and half shall be paid in the form of common stock by a vote of
12,738,944 shares in favor, 1,024,794 shares opposed and 147,368
shares abstaining.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Material Contracts
(a) Note Agreement among Augat Inc., as Borrower and
Principal Mutual Life Insurance Company and Allstate Life
Insurance Company, as Lenders, dated as of May 15, 1996.
(27) Financial Data Schedule
(b) Reports on 8-K - None
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AUGAT INC.
----------------------------------------------
(Registrant)
/s/ F. Gordon Bitter
----------------------------------------------
F. Gordon Bitter
Vice President and
Chief Financial Officer
Date: August 12, 1996
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