SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
_____ Exchange Act of 1934
For the quarterly period ended March 31, 1997
OR
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to __________
Commission file number: 0-28322
Asahi/America, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2621836
(State or other Jurisdiction of (I.R.S. Employer identification No.)
Incorporation or Organization)
35 Green Street, Malden, Massachusetts 02148-0005
(Address of principal executive offices) (Zip Code)
(617) 321-5409
(registrant's telephone number, including area code)
Indicate by check whether the registrant : 1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
The registrant had 3,340,000 shares of common stock
outstanding at April 30, 1997.
Asahi/America, Inc. and Subsidiary
Form 10-Q
Index
Page No.
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Part I Financial Information
Item 1 - Condensed Consolidated Financial Statements
Consolidated Balance Sheets- December 31, 1996 and
March 31, 1997 2
Consolidated Statements of Operations - Three Months
Ended March 31, 1996 and 1997 3
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information
Item 6 11
Signatures 12
1
Asahi/America, Inc. and Subsidiary
Consolidated Balance Sheets
(unaudited)
(dollars in thousands)
December 31, March 31,
1996 1997
--------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $3,028 $2,969
Accounts receivable, less reserves of $286 at March 31, 1997
and $283 at December 31, 1996 5,291 5,661
Inventories 8,673 9,438
Prepaid expenses and other current assets 230 330
-------------- ------------
Total current assets 17,222 18,398
Property and Equipment, net 9,869 9,963
Other Assets
Goodwill, net of accumulated amortization
of $1,434 at March 31, 1997 and $1,380 at
December 31, 1996 778 724
Other, net 574 567
-------------- ------------
Total other assets 1,352 1,291
============== ============
$28,443 $29,652
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Demand note payable to bank $ - $ -
Current portion of MIFA obligations 135 135
Current portion of capital lease obligations 108 110
Accounts payable 5,390 6,297
Accrued expenses 1,614 1,546
-------------- ------------
Total current liabilities 7,247 8,088
MIFA Obligations, less current portion 3,760 3,760
Capital Lease Obligations, less current portion 206 178
Deferred Income Taxes 1,026 1,026
Commitments - -
Stockholders' Equity
Common Stock 13,638 13,638
Retained Earnings 2,864 3,242
-------------- ------------
16,502 16,880
Less-Note receivable from stockholder/officer (298) (280)
-------------- ------------
Total stockholders' equity 16,204 16,600
============== ============
$28,443 $29,652
============== ============
See accompanying notes to consolidated financial statements.
2
Asahi/America, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
(dollars in thousands, except per share data)
Three months ended
March 31,
----------------------------
1996 1997
----------- -----------
Net sales $9,651 $9,123
Cost of sales 6,304 5,761
---------- ----------
Gross Profit 3,347 3,362
Selling, general and administrative expenses 2,366 2,691
---------- ----------
Income from operations 981 671
Interest expense, net 114 19
---------- ----------
Income before provision for income taxes 867 652
Provision for income taxes 359 274
========== ==========
Net Income $508 $378
========== ==========
Net income per common share and
common equivalent share $.22 $.11
========== ==========
Weighted average number of common and
common equivalent shares outstanding 2,340 3,356
========== ==========
See accompanying notes to consolidated financial statements.
3
Asahi/America, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
(dollars in thousands)
Three months ended
March 31,
------------------------------------
1996 1997
------------------ ----------------
Cash flows from operating activities
Net Income
$508 $378
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 306 332
Changes in assets and liabilities
Accounts receivable (135) (370)
Inventories (48) (765)
Prepaid expenses and other current assets (209) (100)
Accounts payable 1,126 907
Accrued expenses 193 (68)
----------------- ---------------
Net cash provided by operating activities 1,741 314
Cash flows from investing activities
Purchase of property and equipment (95) (345)
Increase in others assets (160) (20)
----------------- ---------------
Net cash used in investing activities (255) (365)
Cash flows from financing activities
Net payments on demand note payable to a bank (1,555) -
Payments on MIFA obligations (68) -
Payments on capital lease obligations (26) (26)
Payments of note receivable from stockholder/officer - 18
----------------- ---------------
Net cash used in financing activities (1,649) (8)
----------------- ---------------
Net decrease in cash and cash equivalents (163) (59)
Cash and cash equivalents, beginning of period 224 3028
================= ===============
Cash and cash equivalents, end of period $61
$2,969
================= ===============
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest $89
$7
================= ===============
Income taxes
$29 $191
================= ===============
See accompanying notes to consolidated financial statements.
4
Asahi/America, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Presentation of Interim Information
The unaudited interim financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission and include, in the opinion of management, all adjustments which the
Company considers necessary for a fair presentation of such information. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These statements
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto which are contained in the Company's Form 10-K.
Interim results are not necessarily indicative of the results for a full year.
2. Financial Statements
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated.
3. Cash Equivalents
Cash equivalents are short-term, highly liquid investments with original
maturities of less than three months and consist primarily of treasury notes.
4. Inventories
Inventories are stated at the lower of last-in, first-out (LIFO) cost or market.
The components of inventory are summarized as follows:
December 31, March 31,
1996 1997
------------ ---------
Raw materials $ 606 $ 644
Finished goods 8,104 8,756
------- -------
8,710 9,400
LIFO (reserve) surplus (37) 38
------- -------
Total $ 8,673 $ 9,438
======= =======
5
5. Net Income Per Share
Net income per common and common equivalent share is based upon the weighted
average number of common and common equivalent shares outstanding during each
period, computed in accordance with the treasury stock method. Fully diluted net
income per common and common equivalent share has not been presented as it is
not significantly different.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which is
effective for interim and annual periods beginning after December 15, 1997. SFAS
No. 128 revises the calculation and presentation of earnings per share (EPS).
Basic EPS excludes the dilutive effect of stock options. Diluted EPS will
include the dilutive effect of stock options. The proforma amounts shown below
do not differ from the amounts shown in the Statement of Operations due to
rounding. Had SFAS No. 128 been effective for the periods currently presented,
basic and diluted earnings per share would have been as follows:
March 31,
1996 1997
-------------------------------
Basic earnings per share $.22 $.11
Diluted earnings per share $.22 $.11
6. Revolving Credit Lines
In January 1997, the Company and its bank executed a loan agreement that
provides for a $5,000,000 committed unsecured revolving credit line and a
$5,000,000 discretionary unsecured revolving credit line. Interest on the credit
lines is based on the Prime Rate or LIBOR plus 1.65%, as elected by the Company
at each borrowing date. The Company is required to maintain certain financial
ratios, including, among others, minimum working capital and tangible net worth,
as defined in the agreements. There were no amounts outstanding under either
credit line at March 31, 1997.
7. Concentration of Credit Risk
Sales to the Company's major domestic customer during the first quarter of 1997
were approximately 28.7% of total sales as compared to 32.5% for the 1996 first
quarter. Export sales as a percent of total sales during the first quarter were
approximately 10.0% and 3.7% in 1997 and 1996, respectively.
8. Acquisition of Plastic Flow Meter Division
On May 1, 1997, the Company acquired the plastic flow meter division of
Universal Flow Monitors, Inc. Included in the purchase were the inventory, fixed
assets and intellectual property associated with the product line. The total
purchase price of $3.0 million was paid with cash and through borrowings on the
Company's revolving credit line. The Company accounted for the acquisition as a
purchase. Proforma information has not been presented due to immateriality.
6
Asahi/America, Inc. and Subsidiary
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company is a manufacturer and master distributor of thermoplastic valves,
pipe, piping systems and components for use in a wide variety of applications
across numerous industries. Manufactured products include valve actuators and
controls, specialized valve assemblies and double containment piping systems.
Distributed products consist principally of thermoplastic valves, pipe and
fittings which are purchased from two major foreign suppliers under long term
supply agreements. The Company also realizes revenue for the rental and sale to
contractors and end user customers of specialized welding equipment that is used
in connection with the installation of the Company's piping systems.
The Company distributes its products through an extensive network of domestic
and foreign distributors which are supported by Company sales, marketing and
engineering personnel. Substantially all of the Company's purchases of valves
are made from its Japanese supplier and are transacted in Japanese yen. As a
result, the Company is exposed to fluctuations in foreign currency exchange
rates. The Company may use hedging procedures including foreign exchange forward
contracts and currency options in managing the fluctuations in foreign currency
exchange rates. The Company also purchases pipe and fittings from an Austrian
supplier. Since August 1995, purchases from the Company's Austrian supplier have
been denominated in United States dollars.
The Company completed its initial public offering on May 15, 1996.
Results of Operations
The following table sets forth, for the periods indicated, the Company's net
sales as well as certain income and expense items, expressed as a percentage of
sales:
Three months ended
March 31,
-----------------------------
1996 1997
------------- --------------
Net sales 100.0% 100.0%
Cost of sales 65.3% 63.1%
Gross Profit 34.7% 36.9%
Selling, general and administrative expenses 24.5% 29.5%
Income from operations 10.2% 7.4%
Interest expense, net 1.2% .2%
Income before provision for income taxes 9.0% 7.2%
Provision for income taxes 3.7% 3.0%
Net income 5.3% 4.2%
7
Net Sales
Net sales for the quarter ended March 31, 1997 were $9.1 million as compared to
the $9.7 million in the 1996 first quarter. The shortfall was attributed to
decreased sales of piping products mainly due to a general slowdown in dual
containment pipe sales to the military and semiconductor markets coupled with a
related decrease in welding equipment revenues. This decrease more than offset
an increase in distributed valve and actuation product sales resulting from the
continued ability of the Company to be price competitive, so as to further
penetrate certain markets, due to lower product costs associated with the
strengthening of the United States dollar against the Japanese yen.
Export sales for the three month period ended March 31, 1997 were $931,000
compared to $359,000 for the corresponding period of 1996. Sales to the
Company's largest single customer were approximately 28.7% of total sales for
the three month period ended March 31, 1997 compared to 32.5% for the three
month period ended March 31, 1997.
Gross Profit
Gross profit as a percentage of sales (gross margin) improved 2.2 percentage
points to 36.9% in the 1997 first quarter as compared to 34.7% for the
corresponding quarter of 1996. Gross margin improved, despite a decrease in
higher margin dual containment pipe and welding equipment revenues. The increase
resulted primarily from lower average product costs associated with the
continued favorable movement of the Japanese yen versus the United States
dollar, which is reflected forthwith on cost of goods sold due to the Company's
LIFO method of costing inventory.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 1997
increased $325,000 or 13.7% over 1996 due in part to higher operating costs to
support the approximate 38,000 square foot expansion in office, plant and
warehouse capacity and higher general and administrative expenses associated
with being a public company. Selling, general and administrative expenses were
also negatively impacted in the 1997 first quarter due to several one time
expenses associated with due diligence costs related to an unrealized
acquisition and non-capitalizable costs incurred in connection with the
continued renovation and set-up of the Company's expanded office, plant and
warehouse.
8
Interest Expense and Income Taxes
Interest expense was $95,000 lower in the three month period ended March 31,
1997 as compared to the corresponding period of 1996. The entire outstanding
balance of the Company's line of credit was paid down immediately following the
initial public offering in May 1996 and there have been no additional borrowings
under the line from that time through March 31, 1997.
Income taxes decreased $85,000 in the first quarter of 1997 as compared to 1996.
The decrease was due to lower income before income taxes.
Liquidity and Capital Resources
Prior to 1996, the Company financed its operations through the sale of equity
securities, bank borrowings under a line of credit, an Industrial Revenue Bond
financing in March 1994 and cash generated from operations. In addition, the
Company has benefited from favorable payment terms under a $6 million open
account arrangement for the purchase of Japanese valve products, with the
majority of its purchases are receiving 180 day payment terms.
The Company completed its initial public offering on May 15, 1996 through the
sale of one million shares of common stock generating net proceeds of
approximately $6.2 million. A portion of the proceeds, $2.3 million, was used to
pay down the entire balance of the Company's bank line of credit, which expired
on August 31, 1996.
In January, 1997, the Company and its bank executed a new loan agreement which
provides for up to $10 million of unsecured borrowing. The loan agreement
consists of two facilities including a $5 million committed unsecured revolving
credit line (the Committed Line) and a $5 million discretionary unsecured
revolving credit line (the Revolving Line). Interest under both facilities is
payable monthly and is based on either the Prime Rate or LIBOR plus 1.65%, as
elected by the Company at each borrowing date. The Committed Line includes a
1/4% facility fee on unused borrowings and requires principal repayment not
later than September 30, 1998. Borrowings under the Revolving Line are payable
upon demand. The Revolving Line extends through September 30, 1997. There were
no amounts outstanding under either facility at March 31, 1997.
In July 1996, with additional funds made available through the Company's initial
public offering, the Company completed the purchase of the facility adjacent to
its original facility in Malden, Massachusetts for a purchase price of $1.25
million. During 1996, the Company also completed the construction of a warehouse
connecting its two facilities. The Company estimates the total funds required
for this project and the related
9
equipment and renovation costs will approximate $2.9 million, of which,
approximately $2.8 million had been expended as of March 31, 1997.
At March 31, 1997 cash and cash equivalents were $3.0 million.
The Company generated $314,000 of cash flow from operations during the three
months ended March 31, 1997 as compared to $1.7 million for the comparable 1996
period. This decrease is primarily due to the operating cash flow impact
associated with changes in inventory and accounts payable from December 31, 1995
to March 31, 1996 as compared to December 31, 1996 to March 31, 1997.
Inventories at March 31, 1997 increased $765,000 from December 31, 1996, mainly
due to the shortfall in sales for the quarter coupled with the Company's
intention to stock inventory, due to long lead times required to receive
inventory from the Company's Japanese supplier, in preparation for the Company's
typically stronger second and third quarter sales levels. Accounts payable, at
March 31, 1997, increased $907,000 from December 31, 1996, primarily due to the
increase in inventory. For the comparative 1996 period, inventory increased
$48,000 and accounts payable increased $1.1 million. The increase in accounts
payable resulted from an increase in inventory purchases during the quarter to
support the increased sales volume. Receivables at March 31, 1997 increased
$370,000 from December 31, 1996 mainly due to the timing of shipments at quarter
end.
The Company's industrial revenue bonds funded through the Massachusetts
Industrial Finance Agency (MIFA) are secured by a letter of credit issued by a
bank which is secured by substantially all the assets of the Company. The bonds
consist of six separate series each with differing interest rates and
maturities. Interest rates range from 4.2% to 5.1% and are subject to adjustment
in 1999, 2004 and 2009. The maximum principal payable in any one year is
$320,000 payable in 2014.
On May 1, 1997, the Company acquired the plastic flow meter division of
Universal Flow Monitors, Inc. Included in the purchase were the inventory, fixed
assets and intellectual property associated with the product line. The total
purchase price of $3.0 million was paid with cash and through borrowings on the
Company's revolving credit line. The Company accounted for the acquisition as a
purchase.
The Company believes that its current funds, together with cash generated by
operations will be sufficient to fund the Company's operations, debt service and
capital requirements at least through the next 12 months.
10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11.1 Computation of Weighted Average Number of Common
and Common Equivalent Shares Outstanding
27 Financial Data Schedule
b) Reports on Form 8-K
The Company did not file any reports on Form 8-k during the
quarter ended March 31, 1997.
This Form 10Q contains certain forward-looking statements. The phrase "typically
stronger" is intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those presently anticipated or projected.
Asahi/America, Inc. cautions readers not to place undo reliance on any forward
looking statements, which speak only as to management's expectations on the date
hereof.
11
Signatures
Pursuant to the requirements of the securities exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASAHI/AMERICA, INC.
Dated: May 14, 1997 By: /s/ Leslie B. Lewis
-------------------
Leslie B. Lewis, President and Principal
Executive Officer
By: /s/ Kozo Terada
----------------
Kozo Terada, Vice President, Principal
Financial Officer and Treasurer
12