SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 0-27932
PRAEGITZER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0790158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1270 S.E. Monmouth Cut-Off Road
Dallas, Oregon 97338-9532
(Address of principal executive offices) (Registrant's zip code)
(503) 623-9273
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the last 90 days.
Yes [x] No [ ]
Number of shares of Common Stock outstanding as of May 4, 1996: 11,064,875
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PRAEGITZER INDUSTRIES, INC.
TABLE OF CONTENTS
Page No.
--------
Part I Financial Information
Condensed Combined Balance Sheet-March 31,
1996 and June 30, 1995..........................................3
Condensed Combined Statement of Income-Three
Months and Nine Months Ended March 31, 1996 and 1995............4
Condensed Combined Statement of Cash Flows-Nine
Months Ended March 31, 1996 and 1995............................5
Notes to Condensed Combined Financial Statements................6
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................9
Part II Other Information
Item 1 Legal Proceedings.....................................12
Item 4 Submission of Matters to a Vote of Security Holders...12
Item 6 Exhibits and Reports on Form 8-K......................13
Signatures ..............................................................14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC. AND AFFILIATE
CONDENSED BALANCE SHEET
(Unaudited)
(In Thousands)
ASSETS
MARCH 31, JUNE 30,
1996 1995
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 59 $ 23
Accounts receivable, net 12,911 7,262
Inventories 6,681 4,002
Prepaid expenses 621 85
Due from related parties 382
Due from shareholder 348
----------------- -----------------
Total current assets 20,272 12,102
Property, Plant and Equipment 44,535 37,803
Accumulated depreciation and amortization (21,186) (20,673)
----------------- -----------------
23,349 17,130
Other Assets 8,379 1,120
----------------- -----------------
TOTAL $52,000 $30,352
================= =================
LIABILITIES
CURRENT LIABILITIES
Bank overdraft $ 1,988 $ 969
Notes payable 6,645 4,794
Accounts payable 4,269 5,891
Accrued payroll and related benefits 2,098 991
Other current liabilities 1,009 50
Current portion of long-term obligations 2,234 1,302
----------------- -----------------
Total current liabilities 18,243 13,997
Long-term obligations 11,645 10,188
Due to shareholders 3,577
Other Liabilities 423 468
Redeemable Common Stock 7,144
Shareholders' Equity 10,968 5,699
----------------- -----------------
TOTAL $52,000 $30,352
================= =================
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC. AND AFFILIATE
CONDENSED STATEMENT OF INCOME
(Unaudited)
(In Thousands, except share and per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------- ----------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $25,778 $13,399 $66,348 $42,014
Cost of Goods Sold 19,801 11,330 51,451 35,459
-------------- -------------- -------------- --------------
Gross Profit 5,977 2,069 14,897 6,555
Selling, general and
administrative expense 1,997 1,431 5,451 4,751
Amortization of Goodwill 263 350
-------------- -------------- -------------- --------------
Income from Operations 3,717 638 9,096 1,804
Interest Expense 523 372 1,467 1,145
Other income (expense) 20 24 133 104
Income from Continuing
Operations 3,214 290 7,762 763
Discontinued Operations:
Loss from Lawsuit (612) (612)
Net Income 2,602 290 7,150 763
Pro forma income tax expense 1,183 107 2,988 281
Pro forma tax benefits of
discontinued operations (233) (233)
-------------- -------------- -------------- --------------
Pro forma net income $ 1,652 $ 183 $ 4,395 $ 482
============== ============== ============== ==============
Pro forma net income per share
From Continuing Operations $0.22 $0.02 $0.53 $0.06
From Discontinued Operations ($0.04) ($0.04)
Net Income per share $0.18 $0.02 $0.49 $0.06
============== ============== ============== ==============
Weighted average shares outstanding 9,333,612 8,633,612 8,983,612 8,633,612
============== ============== ============== ==============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC. AND AFFILIATE
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
NINE MONTHS
ENDED MARCH 31,
------------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities
Net cash provided by operating activities $ 2,612 $ 3,654
Cash Flows from Investing Activities
Capital expenditures (4,904) (1,569)
Marketable securities
Business acquisitions (2,000) 0
Due from related parties and shareholder 259 (326)
----------------- -----------------
Net cash used in investing activities (6,645) (1,895)
Cash Flows from Financing Activities
Change in short-term borrowings 1,850 (120)
Borrowings of long-term debt 6,864
Payments of long-term debt (4,475) (1,272)
Dividends paid (281)
Other net (170) 183
----------------- -----------------
Net cash provided by (used in) financing activities 4,069 (1,490)
Increase (Decrease) in Cash and Cash Equivalents 36 269
Cash and Cash Equivalents at Beginning of Period 23 24
----------------- -----------------
Cash and Cash Equivalents at End of Period $ 59 $ 293
================= =================
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
5
<PAGE>
PRAEGITZER INDUSTRIES, INC. AND AFFILIATE
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited combined
financial statements of Praegitzer Industries, Inc. (the "Company") contain
all adjustments, which are of a normal recurring nature, necessary to
present fairly the financial position of the Company as of March 31, 1996,
the results of operations for the three months ended March 31, 1996 and
1995 and the results of operations and cash flows for the nine months ended
March 31, 1996 and 1995. The results of operations for the three months and
the nine months ended March 31, 1996 are not necessarily indicative of the
results for the entire fiscal year ending June 30, 1996.
These financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations, although the Company believes the disclosures provided are
adequate to prevent the information presented from being misleading.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Registration Statement on Form S-1 (Registration No. 333- 01228) filed on
February 9, 1996 and amendments thereto (the "Form S-1").
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market and consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 1,401,895 $ 936,087
Work-in-progress 5,279,304 3,066,307
----------- -----------
Total inventories $ 6,681,199 $ 4,002,394
=========== ===========
</TABLE>
NOTE 3. CONTINGENCIES
Litigation related to a complaint filed by a former supplier
against the Company alleging breach of contract arising from the purchase
of component parts was settled in April 1996 for $612,000. At March 31,
1996, the Company had accrued a reserve of $612,000 for this litigation.
During the year ended June 30, 1994, a former employee brought
suit against Praegitzer for wrongful discharge which resulted in a jury
verdict against the Company totaling $423,450. Praegitzer has appealed the
verdict and judgement. Management believes that the jury verdict was
excessive, however, due to the uncertainty involved in the appeal process,
the entire judgement has been accrued.
6
<PAGE>
NOTE 4. INCOME TAXES
Prior to April 9, 1996, the Company was treated for federal income
tax purposes as an S corporation under Subchapter S of the Internal Revenue
Code of 1986, as amended, and was treated as an S corporation for state
income tax purposes under comparable state tax laws. As a result, the
Company's earnings through the day preceding the termination of the
Company's S corporation status (the "Termination Date") were, for federal
and state income tax purposes, taxed directly to the Company's
shareholders, at their individual federal and state income tax rates,
rather than to the Company. Subsequent to the Termination Date, the Company
is no longer treated as an S corporation and, accordingly, is subject to
federal and state income taxes on its earnings.
Pro forma provision for income taxes included in the statement of
income for the three months and nine months ended March 31, 1996 reflects
the expected federal and state income tax expense as if the Company had
been subject to income tax as a C corporation for the periods presented, at
the prevailing tax rates.
NOTE 5. NOTES PAYABLE
The Company had a $14.8 million bank line of credit, under which
$6.6 million was outstanding at March 31, 1996 and $4.4 million was
available for borrowings based on eligible accounts receivable and
inventory. Amounts outstanding under the line of credit bore interest at an
annual rate equal to the prime rate (8.25% at March 31, 1996) plus 1.5% and
were secured by substantially all the Company's assets. This bank line of
credit was paid off and terminated in April 1996. See Note 6.
NOTE 6. SUBSEQUENT EVENTS
In April 1996 the Company completed an initial public offering of
2,300,000 shares of common stock and received net proceeds of approximately
$19.5 million. The proceeds of the offering were used as follows:
Dividends for previously undistributed
S corporation earnings $ 5,200,000
Debt reduction:
Finova Capital Corporation 12,656,000
Seafirst Bank 579,000
First Security Bank 549,000
-----------
TOTAL $18,984,000
===========
In April 1996 the Company also established a new $10.0 million
line of credit. Amounts outstanding under the line of credit bear interest
at an annual rate equal to the prime rate (8.25% at March 31, 1996) and are
secured by inventory and accounts receivable. The line of credit agreement
expires in April 1998.
7
<PAGE>
In April 1996 the Company acquired from Praegitzer Property Group
in exchange for 1,370,000 shares of common stock all of the real property
and improvements on which the Company's Dallas and White City, Oregon
manufacturing facilities are located and assumed related indebtedness for a
net consideration of approximately $12.1 million.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company designs and manufactures complex, rigid multilayer
printed circuit boards. The Company's design division provides schematic
capture and design services. The Redmond facility specializes in
quick-turnaround prototypes and low volume production, the White City
facility specializes in medium volume production and the Dallas facility
specializes in medium to high volume production.
In November 1995 the Company acquired Circuit Technology, Inc., a
printed circuit board manufacturer with production facilities in Redmond,
Washington ("CTI"), for approximately $16 million, including assumption of
liabilities. The acquisition was accomplished by a merger of CTI with and
into the Company, and was accounted for under the purchase accounting
method. In November 1995 the Company also acquired Praegitzer Design, Inc.
("PDI"). The acquisition was accomplished by a merger of PDI with and into
the Company. Pursuant to an agreement dated as of December 19, 1995, the
Company acquired from Praegitzer Property Group all of the real property
and improvements on which the Company's Dallas and White City, Oregon
manufacturing facilities are located.
In April 1996 the Company completed its initial public offering of
2,300,000 shares of its Common Stock. The initial public offering generated
net proceeds of approximately $19.5 million.
From time to time the Company may issue forward-looking statements
that involve a number of risks and uncertainties. The following are among
the factors that could cause actual results to differ materially from the
forward-looking statements: business conditions and growth in the
electronics industry and general economies, both domestic and
international; lower than expected customer orders; competitive factors,
including increased competition, new product offerings by competitors and
price pressures; the availability of parts and supplies at reasonable
prices; changes in product mix; receipt of a significant portion of
customer orders and product shipments in the last month of each quarter;
technological difficulties and resource constraints encountered in
developing new products; and product shipment interruptions due to
manufacturing difficulties. The forward- looking statements contained in
this document regarding industry trends, product development and
introductions, sales, marketing and manufacturing trends, litigation,
liquidity and future business activities should be considered in light of
these factors.
9
<PAGE>
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenue for the three months ended March 31, 1996 was $25.8
million, an increase of $12.4 million or 92.5%, from the three months ended
March 31, 1995. The increase resulted primarily from a net increase in
volume sales of the Company's products to contract manufacturers and
telecommunications and instrumentation OEMs and, secondarily, to changes in
product sales mix. In addition, $5.6 million of this increase was due to
the acquisition of CTI in November 1995.
Gross profit for the three months ended March 31, 1996 was $6.0
million or 23.2% of revenue, compared to $2.1 million or 15.4% of revenue
for the three months ended March 31, 1995. The increase in gross margin was
primarily the result of improved capacity utilization, changes in product
mix, which resulted in increased sales of higher-priced printed circuit
boards with higher average layer count and higher gross margin, and greater
yields at the Company's manufacturing facilities.
Selling, general and administrative expense for the three months
ended March 31, 1996 was $2.3 million or 8.8% of revenue compared to $1.4
million or 10.7% of revenue for the three months ended March 31, 1995,
primarily as a result of increased personnel and fixed costs required to
support higher sales and the amortization of goodwill related to the
acquisition of CTI. Selling, general and administrative expense decreased
as a percentage of revenue from 10.7% to 8.8%, primarily as a result of
operating efficiencies achieved by spreading fixed costs over a larger
revenue base.
Interest expense for the three months ended March 31, 1996 was
$523,000, an increase of $151,000 or 40.6% from the three months ended March
31, 1995. The increase was the result of increased borrowings required to
finance the acquisition of CTI.
Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1995
Revenue for the nine months ended March 31, 1996 was $66.3
million, an increase of $24.3 million or 57.9% from the nine months ended
March 31, 1995. The increase resulted primarily from a net increase in
volume sales of the Company's products to contract manufacturers and
telecommunications and instrumentation OEMs and, secondarily, to changes in
product sales mix. In addition, approximately $9.0 million of this increase
was due to the acquisition of CTI in November 1995.
Gross profit for the nine months ended March 31, 1996 was $14.9
million or 22.5% of revenue, compared to $6.6 million or 15.6% of revenue
for the nine months ended March 31, 1995. The increase in gross margin was
primarily the result of improved capacity utilization, changes in product
mix, which resulted in increased sales of higher-priced printed circuit
boards with higher average layer count and higher gross margin, and greater
yields at the Company's manufacturing facilities.
Selling, general and administrative expenses for the nine months
ended March 31, 1996 was $5.8 million or 8.7% of revenue, an increase of
$1.0 million or 22% from the nine months ended March 31, 1995, primarily as a
result of increased personnel and fixed costs required to support higher
sales and the amortization of goodwill related to the acquisition of CTI.
Selling, general and
10
<PAGE>
administrative expense decreased as a percentage of revenue from 11.3% to
8.7%, primarily as a result of operating efficiencies achieved by spreading
fixed costs over a larger revenue base.
Interest expense for the nine months ended March 31, 1996 was $1.5
million, an increase of $320,000 or 28% from the nine months ended March
31, 1995. The increase was the result of increased borrowings required to
finance the acquisition of CTI.
Liquidity and Capital Resources
The Company financed its operations and capital expenditures
during the nine months ended March 31, 1996 primarily through cash from
operations and debt financing. Net cash provided by operating activities
for the nine months ended March 31, 1996 was $2.6 million, compared to net
cash provided by operating activities of $3.7 million for the nine months
ended March 31, 1995. As of March 31, 1996, the Company had $59,000 in cash
and cash equivalents and working capital of approximately $2.0 million.
In addition to cash from operations, the Company's principal
source of liquidity is a $14.8 million bank line of credit, under which
$6.6 million was outstanding at March 31, 1996 and $4.4 million was
available for borrowings based on eligible accounts receivable and
inventory and which is subject to periodic review. Amounts outstanding
under the line of credit bear interest at an annual rate equal to the prime
rate (8.25% at March 31, 1996) plus 1.5% and are secured by substantially
all of the Company's assets. This bank line of credit was paid off and
terminated in April 1996, at which time a new $10.0 million line of credit
was established with another bank. Amounts outstanding under the new line
of credit bear interest at an annual rate equal to the prime rate (8.25% at
March 31, 1996) and are secured by inventory and accounts receivable. The
new line of credit agreement expires in April 1998. The Company also has a
$2.5 million equipment line of credit, under which approximately $1.7
million was outstanding at March 31, 1996 and $800,000 was available for
equipment purchases.
Capital expenditures were $4.9 million in the nine months ended
March 31, 1996 and $1.7 million in the nine months ended March 31, 1995.
These capital expenditures were primarily for the purchase of manufacturing
equipment and plan modernization.
In April 1996 the Company completed an initial public offering of
2,300,000 shares of Common Stock and received net proceeds of approximately
$19.5 million.
The Company believes its existing cash and cash equivalents,
credit facilities and cash from operations, together with the net proceeds
of its initial public offering, will be sufficient to fund its operations
for at least the next 12 months.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 6, 1993, Karl J. Tadsen, a former employee, filed a
complaint in the Circuit Court of the State of Oregon for the County of
Jackson against the Company for employment discrimination and wrongful
discharge that resulted in a verdict against the Company in the amount of
approximately $423,450. The Company appealed the verdict to the Oregon
Court of Appeals and its appeal was denied. The Company appealed the
verdict to the Oregon Supreme Court, which has accepted the case for
review. The entire verdict amount was expensed in fiscal 1994.
On October 28, 1993, Spectrum Electronics, Inc., a former
supplier, filed a complaint against the Company in the United States
District Court for the District of Oregon alleging breach of contract
arising from the Company's purchase of component parts for cellular
telephones. The complaint sought damages and interest of approximately $1.3
million. Litigation relating to this complaint was settled in April 1996
for $612,000. At March 31, 1996, the Company had accrued a reserve of
$612,000 for this litigation.
On August 10, 1994, Virtual Vision, Inc., a former customer, filed
an adversary proceeding in the United States Bankruptcy Court for the
Western District of Washington against the Company and another creditor, D.
Blech & Company Incorporated ("Blech"), each of which held a security
interest in the customer's accounts receivable, inventory and equipment, to
determine the extent, validity and priority of each party's security
interest. On October 19, 1994 the court entered a default judgment in favor
of the Company. Blech appealed the decision to the United States District
Court for the Western District of Washington, which reversed the bankruptcy
court's denial of a motion to vacate the default judgment. The Company
intends to appeal this decision. If the district court's decision is
upheld, a trial will be held on the merits, and the Company could be found
liable to Blech for up to approximately $500,000, which represents the
amount received by the Company as a result of its security agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 18, 1996, by consent resolution, the holders of the
Company's outstanding Common Stock took the actions described below. At
March 18, 1996, 7,417,000 shares of Common Stock were issued and
outstanding.
1. The shareholders elected each of Robert L. Praegitzer, Matthew J.
Bergeron, Robert G. Baldridge, Charles N. Hall and Sally Praegitzer to the
Company's Board of Directors, by the votes indicated below, to serve for
the ensuing year.
7,417,000 shares in favor
0 shares against or withheld
0 abstentions
0 broker nonvotes
12
<PAGE>
2. The shareholders approved, by the vote indicated below, the
Company's 1995 Stock Incentive Plan.
7,417,000 shares in favor
0 shares against or withheld
0 abstentions
0 broker nonvotes
3. The shareholders approved, by the vote indicated below, the
Company's Second Amended and Restated Articles of Incorporation, which
increased the number of authorized shares of Common Stock and updated the
Company's Restated Articles of Incorporation.
7,417,000 shares in favor
0 shares against or withheld
0 abstentions
0 broker nonvotes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three
months ended March 31, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PRAEGITZER INDUSTRIES, INC.
(Registrant)
Date May 17, 1996 ROBERT L. PRAEGITZER
-----------------------------------
(Robert L. Praegitzer, President)
(Duly Authorized Officer)
MATTHEW J. BERGERON
-----------------------------------
(Matthew J. Bergeron)
(Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME OF
PRAEGITZER INDUSTRIES, INC. AS OF MARCH 31, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 13,296
<ALLOWANCES> 385
<INVENTORY> 6,681
<CURRENT-ASSETS> 20,272
<PP&E> 44,535
<DEPRECIATION> 21,186
<TOTAL-ASSETS> 52,000
<CURRENT-LIABILITIES> 18,243
<BONDS> 0
0
0
<COMMON> 7,144
<OTHER-SE> 10,968
<TOTAL-LIABILITY-AND-EQUITY> 52,000
<SALES> 25,778
<TOTAL-REVENUES> 25,778
<CGS> 19,801
<TOTAL-COSTS> 19,801
<OTHER-EXPENSES> 2,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 523
<INCOME-PRETAX> 2,602
<INCOME-TAX> 950
<INCOME-CONTINUING> 1,652
<DISCONTINUED> 612
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,652
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
