-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9PXE1PI1zR2W0xFuGF9JKzzPBkjbA9El9S+wghiiAl7Q3nuMAMMbRvuFQapuFQp 02eOsVnZO1GPJ04lU80v2A== 0000950135-96-001517.txt : 19960329 0000950135-96-001517.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950135-96-001517 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUGAT INC CENTRAL INDEX KEY: 0000008462 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 042022285 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06176 FILM NUMBER: 96539511 BUSINESS ADDRESS: STREET 1: 89 FORBES BLVD STREET 2: P O BOX 448 CITY: MANSFIELD STATE: MA ZIP: 02048 BUSINESS PHONE: 5085434300 10-K 1 AUGAT, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ 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 ----- ----- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 FORM 10-K ANNUAL REPORT TWELVE MONTHS ENDED DECEMBER 31, 1995 AUGAT INC.
PAGE ---- 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
i 3 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. 1 4 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 2 5 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. 3 6 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. 4 7 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. 5 8 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) --------- 1,765,000 ========= Total facilities held for sale or inactive....................... 272,000 ========= - --------------- (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. 6 9 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.
8 11
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. 9 12 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. 10 13 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 14 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 20 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
The balance of this page intentionally left blank. 32 35 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 ------ ---- ---------- ---- ------ - --------------- Note 1. Amount is net of recoveries.
33 36 ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. The balance of this page intentionally left blank. 34 37 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. The balance of this page intentionally left blank. 35 38 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.
36 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.
37 40 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
38 EX-10.(P) 2 AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT 1 Exhibit 10(p) AMENDMENT AGREEMENT NO. 1 to that certain REVOLVING CREDIT AGREEMENT dated as of July 22, 1994 This AMENDMENT AGREEMENT NO. 1 (the "Amendment"), dated as of December 31, 1995, is by and among AUGAT INC. (the "Borrower"), THE FIRST NATIONAL BANK OF BOSTON, FLEET NATIONAL BANK OF MASSACHUSETTS (formerly known as Shawmut Bank, N.A.), NATIONSBANK OF NORTH CAROLINA, N.A., NATWEST BANK NA (formerly known as National Westminster Bank USA) and such other lending institutions that are or may become parties to the Credit Agreement referred to below (collectively, the "Banks") and THE FIRST NATIONAL BANK OF BOSTON, as agent for the Banks (the "Agent"). WHEREAS, the Borrower, the Banks and the Agent are parties to that certain Revolving Credit Agreement dated as of July 22, 1995 (as amended, restated, modified or supplemented and in effect from time to time, the "Credit Agreement"), pursuant to which the Banks, upon certain terms and conditions, have made loans to the Borrower, and WHEREAS, the Borrower has requested that the Banks agree, and the Banks have agreed, on the terms and subject to the conditions set forth herein, to amend certain provisions of the Credit Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: Sec. 1. DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. Sec. 2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows: (a) Section 1.1 of the Credit Agreement is hereby amended by amending certain defined terms therein as follows: (i) The term "Applicable Margin" is hereby amended by deleting the words "(provided, that for the purpose of calculating such ratio in connection with determining the Applicable Margin, Consolidated Principal Payments on Long Term Debt shall exclude payments of principal on the Private Placement Debt)" in the second through fifth lines thereof. (ii) The term "Cash Flow Coverage Ratio" is hereby deleted in its entirety and replaced with the following new definition: 2 -2- Cash Flow Coverage Ratio. The ratio of (i) Consolidated Operating Cash Flow for any period of four consecutive fiscal quarters to (ii) the sum, for such period, of Consolidated Total Interest Expense plus Consolidated Operating Lease Expense. (iii) The term "Commitment Fee Rate" is hereby amended by deleting the words "(provided, that for the purpose of calculating such ratio in connection with determining the Commitment Fee Rate, Consolidated Principal Payments on Long Term Debt shall exclude payments of principal on the Private Placement Debt)" in the second through fifth lines thereof. (iv) The term "Consolidated Current Liabilities" is hereby amended by inserting, after the final proviso thereof, the following new proviso; ; and provided, further, that Consolidated Current Liabilities shall not include the Private Placement Debt to the extent otherwise included in the calculation of Consolidated Current Liabilities. (v) The term "Consolidated Principal Payments on Long Term Debt" is hereby deleted in its entirety. (vi) The term "Earnings Before Interest and Taxes" is hereby amended by deleting the final period thereof and replacing it with the following proviso: ; provided that for purposes of calculating Consolidated Operating Cash Flow as used in the determination of the Cash Flow Coverage Ratio and for determining the Borrower's compliance with the covenant set forth in Sec. 8.2 hereof, there shall be added to Earnings Before Interest and Taxes for the Borrower's fiscal quarter ending December 31, 1995, the amount of the Restructuring Charge. (vii) Section 1.1 of the Credit Agreement is hereby amended by adding thereto the following new definition: Restructuring Charge. The restructuring charge or charges taken by the Borrower in the Borrower's fiscal quarter ending December 31, 1995 only as described on Schedule 2 attached hereto in an aggregate amount not to exceed $35,000,000. (b) Section 7.5.1 of the Credit Agreement is hereby amended by deleting the ratio "1.30 to 1" in the fifteenth line thereof and replacing it with the ratio "1.40 to 1". 3 -3- (c) Section 8.1 of the Credit Agreement is hereby amended by deleting the ratio "1.3 to 1" in the third line thereof and replacing it with the ratio "1.40 to 1". (d) Section 8.3 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: SEC. 8.3 CURRENT RATIO. The Borrower will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities, as at the end of any fiscal quarter of the Borrower ending during the periods set forth below, to be less than the ratio set forth opposite the applicable period: Period Ratio ------ ----- Closing Date through 12/30/95 2.00 to 1 12/31/95 through 12/30/96 1.50 to 1 12/31/96 and thereafter 2.00 to 1 (e) Section 8.5 of the Credit Agreement is hereby amended by deleting the amount "$155,000,000" in the third line thereof and replacing it with the amount "$140,000,000". (f) The Credit Agreement is hereby amended by adding thereto Schedule 2 attached hereto. SEC. 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Agent and the Banks as follows: (a) Representations and Warranties in the Credit Agreement. The representations and warranties of the Borrower contained in the Credit Agreement were true and correct when made and continue to be true and correct on and as of the date hereof as if made on the date hereof except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and to the extent that such representations and warranties relate expressly to an earlier date. No Default or Event of Default has occurred and is continuing. (b) Incorporation; Good Standing; Authorization; Enforceability. The Borrower hereby confirms that the representations and warranties of the Borrower contained in secs. 5.1.1, 5.1.2 and 5.1.3 of the Credit Agreement are true and correct on and as of the date hereof as if made on the date hereof. SEC. 4. EFFECTIVENESS. The effectiveness of this Amendment shall be subject to the satisfaction of the following conditions precedent: (a) Delivery of Amendment. This Amendment shall have been duly executed and delivered by each of the Borrower, the Majority Banks and the Agent, 4 -4- shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. The Agent shall have received a fully executive copy of this Amendment. (b) Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Amendment and all documents incident thereto shall be reasonably satisfactory in substance and form to the Agent, and the Agent shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. Sec. 5. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that this Amendment shall be a Loan Document under and as defined in the Credit Agreement, that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and the Credit Agreement shall be read and construed as one instrument. (b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. (c) This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. (d) The Borrower hereby agrees to pay the Banks and the Agent, on demand by the Banks and the Agent, all reasonable out-of-pocket costs and expense incurred or sustained by such Persons in connection with the preparation of this Amendment (including reasonable legal fees). 5 -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. AUGAT INC. By: /s/ LYNDA M. AVALLONE ------------------------------ Title: Treasurer THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: ------------------------------ Title: SHAWMUT BANK, N.A. By: ------------------------------ Title: NATIONSBANK OF NORTH CAROLINA, N.A. By: ------------------------------ Title: NATIONAL WESTMINSTER BANK USA By: ------------------------------ Title: 6 -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. AUGAT INC. By: ------------------------------ Title: THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ ------------------------------ Title: Director SHAWMUT BANK, N.A. By: ------------------------------ Title: NATIONSBANK OF NORTH CAROLINA, N.A. By: ------------------------------ Title: NATIONAL WESTMINSTER BANK USA By: ------------------------------ Title: 7 -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. AUGAT INC. By: ------------------------------ Title: THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: ------------------------------ Title: FLEET NATIONAL BANK OF MASSACHSUETTS f/k/a Shawmut Bank, N.A. By: /s/ ------------------------------ Title: Vice Preisdent NATIONSBANK OF NORTH CAROLINA, N.A. By: ------------------------------ Title: NATIONAL WESTMINSTER BANK USA By: ------------------------------ Title: 8 -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. AUGAT INC. By: ------------------------------ Title: THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: ------------------------------ Title: SHAWMUT BANK, N.A. By: ------------------------------ Title: NATIONSBANK OF NORTH CAROLINA, N.A. By: /s/ George F. Van ------------------------------ Title: Senior Vice President NATIONAL WESTMINSTER BANK USA By: ------------------------------ Title: 9 -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. AUGAT INC. By: /s/ ------------------------------ Title: THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: ------------------------------ Title: SHAWMUT BANK, N.A. By: ------------------------------ Title: NATIONSBANK OF NORTH CAROLINA, N.A. By: ------------------------------ Title: NATWEST BANK N.A. (formerly known as NATIONAL WESTMINSTER BANK USA) By: /s/ ------------------------------ Title: Vice President 10 SCHEDULE 2 ACCOUNTING FOR RESTRUCTURING COSTS The information regarding Accounting for Restructuring Costs has been supplied to the lending institutions participating in the Revolving Credit Agreement. EX-10.(Q) 3 AMENDMENT NO. 2 TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10(q) SECOND AMENDMENT TO AMENDED AND RESTATED NOTE AGREEMENT This Second Amendment to Amended and Restated Note Agreement ("Second Amendment") is entered into as of this 18th day of December, 1995, between Augat Inc., a Massachusetts corporation (the "Company"), and Principal Mutual Life Insurance Company, an Iowa corporation ("Principal Mutual"), having its home office and principal mailing address at 711 High Street, Des Moines, Iowa 50392-0800. RECITALS: The Company and Principal Mutual entered into a Note Agreement dated as of February 1, 1992, a First Amendment dated as of June 1, 1993, and an Amended and Restated Note Agreement dated July 1, 1994, as further amended by a Limited Waiver and First Amendment to Amended and Restated Note Agreement, dated as of January 30, 1995, (as so amended, the "Restated Note Agreement"), pursuant to which the Company issued its $40,000,000 of Senior Notes (the "Notes"). Principal Mutual is the holder of $20,000,000 in original principal amount of Notes. The Company has notified Principal Mutual that it may take one or more restructuring charges which would result in the Company failing to comply with certain financial covenants contained in the Restated Note Agreement as of the fiscal quarter ending December 31, 1995. Principal Mutual has agreed that the Restated Note Agreement be amended in certain particulars as set forth herein. Terms used but not defined herein shall have the meaning set forth in the Restated Note Agreement. NOW, THEREFORE, in consideration of the premises set forth above and in consideration of the mutual covenants and conditions herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged: 1. Recitals Incorporated. The Recitals set forth above are incorporated herein by reference. 2. Amendments to Note Agreement. 2.1 Section 5.6 of the Restated Note Agreement is hereby amended by deleting the final period thereof and replacing it with the following proviso: "provided, that for the purposes of calculating Consolidated Current Liabilities for the Company's fiscal quarter ending December 31, 1995, Consolidated Current Liabilities shall not include any liabilities or expenses incorporated within the definition of Restructuring Charge." 2.2 Section 5.10 of the Restated Note Agreement is hereby amended by deleting the final period thereof and replacing it with the following proviso: "provided, that for the purposes of calculating Consolidated Tangible Net Worth for the Company's fiscal quarter ending December 31, 1995, liabilities arising from or in connection with the Restructuring Charge shall not constitute liabilities deducted in the calculation of Consolidated Net Tangible Assets." 2.3 Section 8.1 of the Restated Note Agreement is hereby amended as follows: (a) by deleting the final period from the end of the definition of "Earnings Before Interest and Taxes" and replacing it with the following proviso: "provided, that for the purposes of determining the Company's compliance with the covenants set forth in Sections 5.8 and 5.9 hereof for the Company's fiscal quarter ending December 31, 2 1995 (but not for any other fiscal quarter), there shall be added to Earnings Before Interest and Taxes the amount of the Restructuring Charge." (b) by adding thereto the following new definition: "'Restructuring Charge' shall mean the restructuring charge or charges (including related charges and expenses reflected in the Company's "Other Income and Expense" and "Sales, General and Administrative Expenses" categories for accounting purposes) taken by the Company in the Company's fiscal quarter ending December 31, 1995 in an aggregate amount not to exceed $35,000,000." 3. Representations of the Company. The Company, by its execution and delivery of this Second Amendment, hereby represents and warrants to Principal Mutual as follows: 3.1 As of the date of this Second Amendment, no Default or Event of Default under the Restated Note Agreement, or under any other agreement to which the Company is subject, exists or is continuing, after giving effect to the amendment set forth herein. 3.2 The Representations and Warranties of the Company referred to in Section 3 of the Restated Note Agreement are true and correct in all material respects as if made on the date hereof, except as to those Representations and Warranties made as of a specific date, which are true and correct and materially complete as of such date. 3.3 No dissolution proceedings with respect to the Company have been commenced or are contemplated, and, except as disclosed to Principal Mutual, there has been no material adverse change in the business, condition or operations (financial or otherwise) of the Company since July 22, 1994. 3.4 The Second Amendment has been duly authorized and executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company. 4. Miscellaneous. 4.1 Except as expressly set forth in this Second Amendment, the terms of this Second Amendment shall not operate as a waiver by Principal Mutual of any of the provisions of, or otherwise prejudice, remedies or powers under the Restated Note Agreement, the Notes or applicable law and shall not operate as a waiver of or otherwise prejudice any rights Principal Mutual may have against any other Person. Except as expressly set forth in this Second Amendment, none of the terms or provisions of either the Restated Note agreement or the Notes shall be deemed to be modified hereby, and each of the Restated Note Agreement and the Notes, as modified herein, shall continue in full force and effect. 4.2 All headings and captions preceding the text of the several sections of this Second Amendment are intended solely for convenience of reference and shall not constitute a part of this Second Amendment, nor shall they affect its meaning, construction or effect. 4.3 This Second Amendment embodies the entire agreement and understanding between the Company and Principal Mutual with regard to the matter set forth herein, and supersedes all prior agreements and undertakings relating to such matters. 4.4 This Second Amendment shall be governed by and construed in accordance with Massachusetts law. 4.5 This Second Amendment may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. 4.6 This Second Amendment shall not become binding until the conditions set forth in Section 7.1 of the Restated Note Agreement have been satisfied. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their authorized officers as of the date first written above. AUGAT INC. By: Lynda M. Avallone ------------------------------------------- Its: Treasurer ------------------------------------------- PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: Frederick A. Bell ------------------------------------------- Its: Director-Securities Investment ------------------------------------------- By: Austin Ramzy ------------------------------------------- Its: Assistant Director-Securities Investment ------------------------------------------- 3 4 AUGAT INC. SECOND AMENDMENT RE: AMENDED AND RESTATED NOTE AGREEMENT DATED AS OF JULY 1, 1994 Dated as of December 18, 1995 Allstate Life Insurance Company 3100 Sanders Road, Suite J2A Northbrook, Illinois 60062 Attention: Private Placement Department Ladies and Gentlemen: Reference is made to the Amended and Restated Note Agreement, dated as of July 1, 1994, as amended by a First Amendment dated as of January 23, 1994 but actually executed as of January 23, 1995 (as so amended, the "Note Agreement"), pursuant to which Augat Inc., a Massachusetts corporation (the "Company"), issued $40,000,000 principal amount of its Senior Secured Notes, Due February 1, 1999. Capitalized terms used herein and not otherwise defined shall have the meanings given thereto in the Note Agreement. The Company requests that you agree to amend certain provisions of the Note Agreement to read as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, the Company agrees with you as follows: SECTION 1. AMENDMENT OF NOTE AGREEMENT. 1.1 Section 5.6 of the Restated Note Agreement is hereby amended by deleting the final period thereof and replacing it with the following proviso: "provided, that for the purposes of calculating Consolidated Current Liabilities for the Company's fiscal quarter ending December 31, 1995, Consolidated Current Liabilities shall not include any liabilities or expenses incorporated within the definition of Restructuring Charge." 1.2 Section 5.10 of the Restated Note Agreement is hereby amended by deleting the final period thereof and replacing it with the following proviso: "provided, that for the purposes of calculating Consolidated Tangible Net Worth for the Company's fiscal quarter ending December 31, 1995, liabilities arising from or in connection with the Restructuring Charge shall not constitute liabilities deducted in the calculation of Consolidated Net Tangible Assets." 1.3 Section 8.1 of the Restated Note Agreement is hereby amended as follows: (a) by deleting the final period from the end of the definition of "Earnings Before Interest and Taxes" and replacing it with the following proviso: "provided, that for the purposes of determining the Company's compliance with the covenants set forth in Sections 5.8 and 5.9 hereof for the Company's fiscal quarter ending December 31, 1995 (but not for any other fiscal quarter), there shall be added to Earnings Before Interest and Taxes the amount of the Restructuring Charge." (b) by adding thereto the following new definition: "'Restructuring Charge' shall mean the restructuring charge or charges (including related charges and expenses reflected in the Company's "Other Income and Expense" and "Sales, General and Administrative Expenses" categories for accounting purposes) taken by the Company in the 5 Company's fiscal quarter ending December 31, 1995 in an aggregate amount not to exceed $35,000,000." SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants that no Default or Event of Default has occurred and is continuing. SECTION 3. MISCELLANEOUS. 3.1. HEADINGS. The headings of the sections of this Second Amendment are for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof. 3.2 GOVERNING LAW. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Massachusetts. 3.3 REFERENCES TO NOTE AGREEMENTS. Any and all notices, requests, certificates and other instruments executed concurrently with or after the execution of the Second Amendment may refer to the Note Agreement without making specific reference to this Second Amendment, but nevertheless all such references shall be deemed to include this Second Amendment unless the context shall otherwise require. 4.4 RATIFICATION. Except to the extent expressly hereby modified or amended, the Note Agreement is in all respects hereby ratified, confirmed, and approved by the parties hereto. 4.5 EFFECTIVE DATE OF SECOND AMENDMENT. This Second Amendment shall be effective from and after the date on which the Company has obtained the consent of the holders required to consent to such amendment pursuant to the provisions of Section 7.1 of the Note Agreement. Please signify your consent to this amendment of the Note Agreement between you and the Company by signing and returning this Second Amendment. AUGAT INC. /s/ Lynda Avallone By.................................. Its Treasurer Accepted as of the date first above written. ALLSTATE LIFE INSURANCE COMPANY By.................................. By.................................. 2 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 AUGAT INC. SUBSIDIARIES OF REGISTRANT The subsidiaries listed below have been included in the consolidated financial statements filed herewith.
JURISDICTION OF PERCENTAGE SUBSIDIARIES OF THE REGISTRANT INCORPORATION OWNED - ------------------------------------------------------------------ --------------- ---------- Augat Components GmbH............................................. Germany 100 Augat AB.......................................................... Sweden 100 Augat AG.......................................................... Switzerland 100 Augat Communication Products Inc.................................. Washington 100 Augat Canada Inc.................................................. Canada 100 Augat International Ltd........................................... Virgin Islands 100 Augat KK.......................................................... Japan 100 Augat Limited..................................................... England 100 Augat PTE Limited................................................. Singapore 100 Augat Pty Limited................................................. Australia 100 Augat Realty Inc.................................................. Massachusetts 100 Augat SA.......................................................... France 100 Augat SA de CV.................................................... Mexico 100 Augat SRL......................................................... Italy 100 Augat Wiring Systems Inc.......................................... Alabama 100 AUG-ISO Inc....................................................... New Jersey 100 Augat Manufacturing SA............................................ Switzerland 100 LRC Electronics, Inc.............................................. New York 100 Reliable Electronic Finishing Company, Inc........................ Massachusetts 100 Augat Photon Systems Inc.......................................... Canada 100 Elastomeric Technologies Inc...................................... Pennsylvania 100
39 EX-23 5 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS Augat Inc.: We consent to the incorporation by reference in Registration Statement Nos. 33-16549, 33-37833, 33-65590, and 33-56117 of Augat Inc. all on Form S-8 of our report dated January 30, 1996 appearing in this Annual Report on Form 10-K of Augat Inc. for the year ended December 31, 1995. DELOITTE & TOUCHE LLP Boston, Massachusetts March 27, 1996 40 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AUGAT INC. FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1 30,744 0 87,092 (1,205) 93,129 222,771 276,460 (141,808) 407,476 119,953 25,854 0 0 1,979 247,759 407,476 534,873 534,873 423,699 423,699 94,829 410 4,175 11,760 4,160 7,600 0 0 0 7,600 0.39 0.39
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