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 September 30, 1997
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 0-27932
PRAEGITZER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0790158
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1270 S.E. Monmouth Cut-Off Road
Dallas, Oregon 97338-9532
(503) 623-9273
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
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 November 12, 1997: 12,663,930
<PAGE>
PRAEGITZER INDUSTRIES, INC.
Table of Contents
Page No.
--------
Part I Financial Information
Condensed Balance Sheet-
September 30, 1997 and June 30, 1997 ..............................3
Condensed Statement of Operations-
Three months ended
September 30, 1997 and 1996........................................4
Condensed Statement of Cash Flows-
Three months ended September 30, 1997 and 1996 ....................5
Notes to Condensed Financial Statements ...........................6
Management's Discussion and Analysis of Financial Condition
and Results of Operations .........................................8
Part II Other Information
Item 1 Legal Proceedings ......................................10
Item 2 Changes in Securities...................................10
Item 6 Exhibits and Reports on Form 8-K .......................10
Signatures.................................................................11
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(Unaudited)
(In Thousands)
ASSETS
September 30, June 30,
1997 1997
------------------ ----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 358 $ 442
Accounts receivable, net 26,361 24,453
Inventories 9,611 8,534
Prepaid expenses 871 1,083
------------------ ----------------
Total current assets 37,201 34,512
Property, plant and equipment 67,037 65,818
Less: Accumulated depreciation and amortization (27,449) (25,782)
------------------ ----------------
39,588 40,036
Other assets 12,464 12,738
================== ================
$ 89,253 $ 87,286
================== ================
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 4,055 2,042
Accounts payable 6,851 8,504
Accrued payroll and related expenses 3,013 2,879
Other current liabilities 556 491
Current portion of long-term obligations 3,610 3,565
------------------ ----------------
Total current liabilities 18,085 17,481
Long-term obligations 29,570 29,785
Deferred tax liability 2,363 2,306
Other liabilities 65 73
Common stock 41,488 41,233
Accumulated deficit (2,318) (3,592)
------------------ ----------------
Total shareholders' equity 39,170 37,641
================== ================
$ 89,253 $ 87,286
================== ================
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended
September 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenue $ 42,595 $ 29,449
Cost of sales 34,563 24,363
------------- -------------
Gross profit 8,032 5,086
Selling, general and
administrative expenses 5,355 2,993
Impairment and in-process technology
expense - 11,650
Amortization of goodwill 448 289
------------- -------------
Income (loss) from operations 2,229 (9,846)
Interest expense 726 343
Other income (expense) 98 101
------------- -------------
Income (loss) before income taxes 1,601 (10,088)
Income taxes 494 585
------------- -------------
Net income (loss) $ 1,107 $ (10,673)
============= =============
Net income (loss) per share $ 0.09 $ (0.93)
============= =============
Weighted average shares outstanding 12,930,701 11,484,938
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months
Ended September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net cash provided by (used in) operating activities $ 2,406 $ (8,418)
Cash Flows from Investing Activities:
Capital expenditures (4,352) (6,836)
Proceeds from sale of property, plant and equipment - 1,213
Business acquisitions - (5,000)
Other (191) 15
------------- -------------
Net cash used in investing activities (4,543) (10,608)
------------- -------------
Cash Flows from Financing Activities:
Increase in short-term borrowings 751 9,830
Borrowings of long-term debt - 11,814
Payments on long-term debt and capital leases (966) (3,496)
Increase in bank overdrafts 2,013 1,321
Issuances of common stock 255 -
------------- -------------
Cash provided by financing activities 2,053 19,469
------------- -------------
Increase (Decrease) in Cash and Cash Equivalents (84) 443
Cash and Cash Equivalents at Beginning of Period 442 39
============= =============
Cash and Cash Equivalents at End of Period $ 358 $ 482
============= =============
Supplemental disclosure of cash flow information: Cash paid during the
respective periods for:
Interest $ 763 $ 171
Income Taxes $ 295 $ 1,093
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
5
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
financial statements of Praegitzer Industries, Inc. (the "Company") contain all
adjustments necessary to present fairly the financial position of the Company as
of September 30, 1997, and the results of operations and cash flows for the
three months ended September 30, 1997 and 1996. The results of operations for
the three months ended September 30, 1997 are not necessarily indicative of the
results expected for the entire fiscal year ending June 30, 1998.
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.
This report on Form 10-Q for the quarter ended September 30, 1997, should
be read in conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997. Portions of the accompanying financial
statements are derived from the audited year-end financial statements of the
Company dated June 30, 1997.
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:(In thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
-------------- --------------
<S> <C> <C>
Raw Materials and supplies $ 3,919 $ 3,117
Work-in-progress
5,692 5,417
============== ==============
Total inventory $ 9,611 $ 8,534
============== ==============
</TABLE>
Note 3: Notes Payable
The Company has a $15 million bank line of credit, under which $13.2
million was outstanding at September 30, 1997 and $1.8 million was available for
borrowings based on eligible accounts receivable and inventory. Amounts
outstanding under the line of credit bear interest at an annual rate equal to
the prime rate (8.5% at September 30, 1997). The line of credit agreement
expires in December 1998.
6
<PAGE>
Note 4: Future Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS 128
requires all companies whose capital structures include convertible securities
and options to make a dual presentation of basic and fully diluted earnings per
share (EPS) on the face of the income statement and requires additional
disclosures regarding EPS. The new standard becomes effective for the interim
statements issued after December 15, 1997. The effect on earnings per share for
all periods reported is immaterial.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes requirements for disclosure of comprehensive income and
becomes effective for the Company's fiscal year ending June 30, 1999.
Reclassification of prior year financial statements for comparative purposes is
required.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The new standard becomes effective for the Company's fiscal year
ending June 30, 1999.
Implementation of SFAS No. 130 and SFAS No. 131 will have no material
effect on the Company's financial statements. The effects of implementation will
be disclosure only.
7
<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 Fremont facility specializes in quick-turnaround prototype
production, the Redmond facility specializes in high technology and low volume
production, the White City facility specializes in medium volume production and
the Dallas facility specializes in medium to high volume production.
This discussion and analysis is designed to be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Form 10-K for the fiscal year ended
June 30, 1997.
Results of Operations
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Revenue for the three months ended September 30, 1997 increased 44.6% to
$42.6 million from $29.4 million for the three months ended September 30, 1996.
The increase resulted primarily from increased sales volumes made possible by
several factors including capacity expansions in the Dallas and White City
facilities completed in fiscal year ended June 30, 1997 and an expansion of the
Company's sales force in September of 1996. In addition, the acquisition of
Trend Circuits, Inc. ("Trend") in August 1996 accounted for an increase of $3.7
million in revenue for the three months ended September 30, 1997.
Gross profit for the three months ended September 30, 1997 was $8.0 million
or 18.9% of revenue, compared to $5.1 million or 17.3% of revenue for the three
months ended September 30, 1996. The increase in gross margin was primarily due
improved yields in inner layer production at the Company's Dallas facility.
During the first quarter of fiscal 1997, the Company had relied on outsourcing
of inner layer production to overcome capacity restraints which resulted in
higher costs.
Selling, general and administrative expense for the three months ended
September 30, 1997 was $5.4 million or 12.6% of revenue, compared to $3.0
million or 10.2% of revenue for the three months ended September 30, 1996. The
increase primarily resulted from an expansion in the Company's sales and
management teams required to support higher levels of sales.
Goodwill amortization was $448, compared to $289 for the three months ended
September 30, 1997 and 1996 respectively. This increase resulted from the
additional goodwill that was recorded as a result of the Trend acquisition in
August of 1996.
Interest expense for the quarter ended September 30, 1997 was $726,000, an
increase of $383,000 or 111.7% from the quarter ended September 30, 1996. The
increase was the result of increased borrowings to finance the acquisition of
Trend, increased sales and equipment purchases.
8
<PAGE>
The effective income tax rate for the quarter ending September 30, 1997 was
30.8%. The Company had a positive tax expense for the quarter ended September
30, 1996 on a pre-tax book loss primarily due to the addback of goodwill and the
write off of in-process research and development tax credits which are not tax
deductible. However federal and state research and experimental tax credits
partially offset the effect of these addbacks.
During the first quarter of fiscal year 1997, the Company took a one time
write off of $11.65 million of certain goodwill associated with the CTI
acquisition and purchased research and development costs related to the
acquisition of Trend.
Liquidity and Capital Resources
As of September 30, 1997, the Company had cash of $358,000, compared to
$442,000 as of June 30, 1997, and working capital of $19.1 million at September
30, 1997, compared to $17.0 million at June 30, 1997. Principal sources of
liquidity in the first three months of fiscal 1998 were operations and financing
under the Company's line of credit. Principal uses of liquidity during the three
months ended September 30, 1997 were property, plant and equipment expenditures
of $4.4 million related to expansions and capacity improvements of the Company's
manufacturing operations.
At September 30, 1997 borrowings of $13.2 million were outstanding on the
Company's $15 million bank line of credit and $1.8 million was available for
borrowings based on eligible accounts receivable and inventory. The Company's
bank line of credit provides that it may not, without the bank's consent, borrow
more than $20 million unless such borrowings are subordinated to the bank debt.
Under the line of credit, the company must also maintain a tangible net worth of
at least $30 million plus 50% of its positive net income, and certain financial
ratios, including an assets to liabilities ratio of 1.1 to 1, and an earnings
before interest and taxes to interest expense ratio of at least 2.0 to 1. As of
September 30, 1997 the Company was in compliance with all loan covenants.
As of September 30, 1997 the Company had $14.0 million of outstanding notes
payable to Heller Financial of $14.0 million bearing interest at annual rates
ranging from LIBOR plus 2.55% to LIBOR plus 2.75% (8.2375% to 8.4375% at
September 30, 1997) and secured by real property and miscellaneous equipment at
the Company's Dallas, Oregon and White City, Oregon facilities. The Company had
a $3.9 million note payable to Finova Capital outstanding at September 30, 1997.
The note is secured by miscellaneous equipment and bears interest at an annual
rate of 9.93%.
Although the Company has no commitments in material amounts, it expects
total capital expenditures for the fiscal year to range from 8% to 12% of
revenue for facilities expansion and equipment.
The Company believes that its existing cash and cash equivalents, funds
generated from operations, its credit facility with the bank and equipment
financings will be sufficient to fund its operations for the remainder of the
fiscal year. The Company may require additional financing for growth
opportunities, expansion and capacity enhancements to its various sites, or
strategic acquisitions.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
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. This reversal was appealed by the Company to the
Ninth Circuit Court of Appeals. On September 6, 1997 the court found in favor of
the Company.
On July 21, 1996, Pacific Communication Sciences, Inc. ("PCSI") filed a
claim in the San Diego County, California Superior Court against the Company on
account of a written guaranty of indebtedness owing by Carillon Corporation in
the amount of $500,740 plus interest and attorney fees. On September 30, 1997
the matter was settled. Under the settlement, the Company will pay PCSI $50,000
and provide $207,500 in credit against circuit boards and design services
purchased in the next three years.
Item 2: Changes in Securities
As of July 28,1997, the Company issued 200,000 shares of Common Stock in a
private placement exempt from registration under Rule 506 of the Securities Act
to the shareholders of Mosher Design Services, Inc. as consideration for the
merger of Mosher Design Services, Inc. with and into the Company.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
During the three month period ending September 30, 1997, there were no
reports on Form 8-K filed.
11
<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
Date: November 13, 1997 ROBERT L. PRAEGITZER
-----------------------------------------
(Robert L. Praegitzer, President)
(Duly Authorized Officer)
WILLIAM J. THALE
--------------------------------------
(William J. Thale)
(Principal Financial Officer)
12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 358
<SECURITIES> 0
<RECEIVABLES> 26,761
<ALLOWANCES> 400
<INVENTORY> 9,611
<CURRENT-ASSETS> 37,201
<PP&E> 67,037
<DEPRECIATION> 27,449
<TOTAL-ASSETS> 89,253
<CURRENT-LIABILITIES> 18,085
<BONDS> 29,570
0
0
<COMMON> 41,488
<OTHER-SE> (2,318)
<TOTAL-LIABILITY-AND-EQUITY> 89,253
<SALES> 42,595
<TOTAL-REVENUES> 42,595
<CGS> 34,563
<TOTAL-COSTS> 34,563
<OTHER-EXPENSES> 5,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 726
<INCOME-PRETAX> 1,601
<INCOME-TAX> 494
<INCOME-CONTINUING> 1,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,107
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
