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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-27932
PRAEGITZER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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OREGON 93-0790158
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1270 SE MONMOUTH CUT-OFF ROAD
DALLAS, OREGON 97338-9532 (503) 623-9273
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (REGISTRANT'S TELEPHONE
NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
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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
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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 Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at September 18, 1996: $23,825,000. For purposes of this
calculation, officers and directors are considered affiliates.
Number of shares of Common Stock outstanding at September 18, 1996:
12,064,375.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO
DOCUMENT WHICH INCORPORATED
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1996 Annual Report to Shareholders Parts II and IV
Proxy Statement for 1996 Annual Meeting of Shareholders Part III
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TABLE OF CONTENTS
Item of Form 10-K Page
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1 - Business. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 - Properties. . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 14
Item 4 - Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . 15
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5 - Market for the Registrant's Common
Equity and Related Stockholder Matters. . . . . . . . . . . 15
Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . 15
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8 - Financial Statements and Supplementary Data . . . . . . . . 18
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . 18
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 10 - Directors and Executive Officers of
the Registrant. . . . . . . . . . . . . . . . . . . . . . . 18
Item 11 - Executive Compensation. . . . . . . . . . . . . . . . . . . 18
Item 12 - Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . 18
Item 13 - Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . . . . . . . . . 19
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 19
SIGNATURES 22
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PART I
ITEM 1. BUSINESS
GENERAL
Praegitzer is a leader in the design, quick-turnaround, pre-production
and volume production of complex, rigid multilayer printed circuit boards.
Printed circuit boards perform critical functions in products in the data
communications and telecommunications, instrumentation and industrial
equipment, computers and peripherals and business systems and consumer
segments of the broad electronics market. The Company pursues long-term
relationships with rapidly growing OEM customers that are technology leaders
in their industry segments and whose product requirements generally drive the
advancement of electronic interconnect manufacturing technology. The
Company's principal customers include Compaq, DSC Communications,
Hewlett-Packard, Intel, Motorola, Solectron and Xerox. Praegitzer was
incorporated under Oregon law in 1981.
In November 1995 Praegitzer acquired Circuit Technology, Inc. ("CTI"), a
printed circuit board manufacturer with production facilities located in
Redmond, Washington. The acquisition was accomplished by a merger of CTI with
and into Praegitzer. In November 1995 Praegitzer also acquired Praegitzer
Design, Inc. ("PDI"), a provider of schematic capture and printed circuit
design services. The acquisition was accomplished by a merger of PDI with and
into Praegitzer. In April 1996 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 addition, in August 1996 Praegitzer completed the acquisition of
Trend Circuits, Inc. ("Trend"), a printed circuit board manufacturer with
production facilities located in Fremont, California. The acquisition was
accomplished by a merger of Trend with and into Praegitzer. In 1996 the
Company has also acquired four new design centers located in Irving, Texas,
San Diego and San Jose, California, and Blue Bell, Pennsylvania.
FORWARD-LOOKING STATEMENTS
From time to time the Company may issue forward-looking statements that
involve a number of risks and uncertainties. The following factors 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, delays in receipt of orders or cancellation of orders;
competitive factors, including increased competition, new product offerings by
competitors and price pressures; the availability of third party parts and
supplies at reasonable prices; changes in product mix and the mix between
product and service revenue; receipt of a significant portion of customer orders
and products shipments in the last month of each quarter; and product shipment
interruptions due to manufacturing problems. The forward-looking statements
should be considered in light of these factors.
INDUSTRY OVERVIEW
Printed circuit boards are the basic platforms used to interconnect the
integrated circuits and other essential components of electronic products and
consist of interconnected layers of etched copper patterns of electrical
circuitry that have been laminated to insulating material. According to The
Institute for
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Interconnecting and Packaging Electronic Circuits ("IPC"), the United States
printed circuit board market totaled approximately $7.1 billion in sales in
1995. Multilayer printed circuit boards, which consist of more than two layers,
accounted for approximately 70% of printed circuit board sales in 1995. The IPC
estimates sales of standard and high performance multilayer printed circuit
boards in the United States will increase at average annual rates of 9.6% and
24.3%, respectively, from 1994 through 1999.
The overall market for electronics products has grown steadily over the
past 20 years as end users increasingly seek products with attractive
price/performance characteristics and as technological advances have created
new markets. To compete in the broader electronics market, OEMs require
product components with increased functionality at lower cost per function.
The interconnect densities, signal speeds and layer counts of printed circuit
boards have increased to meet these requirements. Many of these increasingly
complex printed circuit boards are manufactured using a variety of complex
processes and equipment, further complicating the production process.
Competitive pressures and rapid technological change have shortened product
life cycles. As a result, time-to-market and time-to-volume have become
increasingly important competitive factors.
To compete in the market for increasingly complex and technologically
advanced printed circuit boards and to meet shorter time-to-market and
time-to-volume requirements, printed circuit board manufacturers must make
substantial capital investments and develop greater manufacturing
specialization and expertise. These factors have resulted in two trends in
the printed circuit board industry. As capital requirements have increased,
the industry has consolidated. According to the IPC, the number of United
States printed circuit board manufacturers has decreased from over 2,500 in
1976 to less than 700 in 1995. In addition, OEMs have increased the
outsourcing of printed circuit board production to focus resources on their
core strengths and have relied on outside suppliers to overcome increasingly
complex manufacturing challenges. According to the IPC, the independent
manufacturers' portion of the total printed circuit board market increased to
85% in 1995 from 66% in 1991. This market, however, remains highly
fragmented. The IPC estimates that in 1994 the 18 largest independent
manufacturers accounted for less than 34% of total printed circuit board
sales by independent manufacturers.
DEFINITION OF PRODUCTS AND SERVICES
The design and manufacture of printed circuit boards progress in stages:
schematic capture and circuit design, quick-turnaround prototype,
pre-production and volume production.
SCHEMATIC CAPTURE AND CIRCUIT DESIGN. Schematic capture involves the input
of an electronic schematic diagram into a high-performance computer workstation
that generates a net list of the electronic components and interconnects
required to design a printed circuit board. Circuit design is accomplished using
specialized computer-aided design ("CAD") software programs. Computer-generated
data describe the locations of holes and conductors (the "layout") which, along
with manufacturing information, may be transmitted electronically from the
designer to the manufacturer.
QUICK-TURNAROUND PROTOTYPE. Quick-turnaround is characterized by shorter
than standard lead time requirements, typically one to 10 days, and involves
producing a small quantity, usually fewer than 50 pieces. Prototype evaluation
is critical to product development and frequently requires several iterations to
finalize the design. Because time is critical, most prototypes are manufactured
on a quick-turnaround basis. Consequently, high quality and timely delivery
generally are the most important competitive factors.
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PRE-PRODUCTION. Pre-production or pilot runs involve the manufacture of
limited quantities of printed circuit boards during the transition from
prototype to volume production. Pre-production may require quick-turnaround
delivery because of overall time-to-market pressures and shorter product life
cycles or as a temporary solution in the event of volume production delay.
Accordingly, high quality and timely delivery continue to be the factors most
important to the OEM or contract manufacturer, although price is also a
significant factor.
VOLUME PRODUCTION. Volume production is characterized by longer lead
times and increased emphasis on lower cost as the product moves to full-scale
commercial production. At this stage of production, price, quality, on-time
delivery and process capability are the factors most important to the OEM or
contract manufacturer. As product life cycles grow shorter, the ability to
meet shorter lead time requirements becomes an increasingly significant
competitive factor.
Each stage of product development and production requires substantially
different capabilities and as a result most printed circuit board suppliers
specialize in only one stage. Consequently, OEMs and contract manufacturers
typically use different suppliers at each stage, which requires costly and
time consuming duplicative tooling and pre-production engineering.
Accordingly, many OEMs and contract manufacturers are establishing strategic
relationships with fewer electronic interconnect suppliers that provide a
full range of services, including design consultation and quick-turnaround
manufacturing, together with low to high volume production capability.
THE PRAEGITZER APPROACH
The Company is a leader in the design, quick-turnaround, pre-production
and volume production of complex, rigid multilayer printed circuit boards.
The Company concentrates its marketing efforts on segments of the broad
electronics market characterized by high growth, rapid technological
advances, short product development cycles and accelerated time-to-market and
time-to-volume requirements and focuses on customers that require suppliers
with advanced design and manufacturing capabilities. In response to these
customers' broadening requirements, the Company has expanded its
quick-turnaround capabilities through the recent acquisition of CTI, a
quick-turnaround and low volume production facility. This strategic
acquisition completed the Company's repositioning as an integrated solutions
provider of electronic interconnect products and services for the rigid
printed circuit board market. The Company believes its strong relationships
with pre-production and volume production customers will assist its continued
expansion into the quick-turnaround market. The Company believes larger
manufacturers with the capability to supply a broad range of products with a
diverse mix of performance characteristics will capture additional market
share in the printed circuit board industry. The Company is one of a limited
number of independent manufacturers that offers a range of integrated
electronic interconnect solutions from schematic capture and circuit design
services through high volume production. By offering this broad range of
services, the Company can provide design and manufacturing solutions for its
customers while reducing time-to-market, time-to-volume and product
development costs.
BUSINESS STRATEGY
The Company's objective is to be the leading provider of electronic
interconnect solutions ranging from schematic capture and circuit design
through high volume production. The Company's strategy to achieve this
objective includes the following elements:
PROVIDE INTEGRATED ELECTRONIC INTERCONNECT SOLUTIONS. The Company seeks
to provide an integrated range of complex electronic interconnect solutions.
The Company believes its broad range of services adds
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significant value for its customers by shortening their product development
cycles, lowering their costs through reduced custom tooling and other
manufacturing expenses and providing concentrated expertise not otherwise
generally available from a single supplier. The Company believes that by
offering design services it gains early access to additional production sales
opportunities and that its relationships with volume production customers create
additional quick-turnaround and design sales opportunities.
PURSUE LONG-TERM RELATIONSHIPS WITH HIGH-GROWTH CUSTOMERS THAT NEED THE
COMPANY'S ADVANCED CAPABILITIES AND SERVICES. The Company concentrates its
marketing efforts on segments of the broad electronics market characterized
by high growth, rapid technological advances, short product development
cycles and accelerated time-to-market and time-to-volume requirements and
focuses on customers that require suppliers with advanced design and
manufacturing capabilities. The Company seeks to develop and expand long-term
relationships with high-growth OEMs and contract manufacturers of advanced
electronics products by communicating closely with these customers throughout
the design and production process. These relationships assist the Company in
meeting its customers' design and manufacturing requirements.
DEVELOP AND USE INDUSTRY LEADING PROCESS TECHNOLOGY. The Company seeks
to be a process technology leader in the electronic interconnect industry by
providing a broad range of high quality products cost-effectively and
achieving production yields among the highest in the industry. The Company
has contributed significantly to the development and implementation of
industry leading process technologies, such as liquid inner layer resist, and
has invested in precision drilling and advanced finishing technologies for
dense packaging designs. The Company believes its process capabilities
provide a competitive advantage in the manufacture of complex interconnect
solutions.
INVEST IN STATE-OF-THE-ART FACILITIES AND EQUIPMENT. Since July 1, 1987
the Company and CTI have invested approximately $59.5 million in modern
facilities and equipment, have made significant investments in production
processes and intend to continue to make such investments to meet long-term
market demands. Each of the Company's manufacturing facilities is ISO 9002
certified and Bellcore compliant. The Company has recently expanded its
Redmond facility, is expanding its White City facility and is adding
equipment in all manufacturing locations. The Company believes these
investments will result in increased capacity, operating efficiencies,
improved management control and more consistent product quality so it can
satisfy the demanding delivery, time-to-market and time-to-volume
requirements of its customers.
PURSUE ACQUISITION OPPORTUNITIES. The Company's growth strategy
includes expansion through acquisition of complementary businesses. The
Company believes that, by these acquisitions, it can capitalize on OEM
outsourcing and consolidation trends within the interconnect industry. The
Company has acquired two quick-turnaround production facilities and several
strategically located circuit design facilities. The Company, however, has no
understandings, commitments or agreements with respect to any acquisition,
and there is no assurance that the Company will complete any acquisition in
the future.
MARKETS AND MARKETING
The Company concentrates its marketing efforts on segments of the broad
electronics market characterized by high growth, rapid technological
advances, short product development cycles and accelerated time-to-market and
time-to-volume requirements and focuses on customers that require suppliers
with advanced design and manufacturing capabilities. In response to these
customers' broadening requirements, the Company has expanded its
quick-turnaround capabilities through the acquisition of CTI
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in November 1995 and Trend Circuits in August 1996, both quick-turnaround and
low volume production facilities. These strategic acquisitions completed the
Company's repositioning as an integrated solutions provider of electronic
interconnect products and services for the rigid printed circuit board
market. The Company believes its strong relationships with pre-production and
volume production customers will assist its continued expansion into the
quick-turnaround market. The Company believes larger manufacturers with the
capability to supply a broad range of products with a diverse mix of
performance characteristics will capture additional market share in the
printed circuit board industry. The Company is one of a limited number of
independent manufacturers that offers a range of integrated electronic
interconnect solutions from schematic capture and circuit design services
through high volume production. By offering this broad range of services, the
Company can provide design and manufacturing solutions for its customers
while reducing time-to-market, time-to-volume and product development costs.
The Company pursues long-term relationships with rapidly growing OEM
customers that are technology leaders in their industry segments. The
Company's customers include a diverse group of leading OEMs of data
communications and telecommunications equipment, instrumentation and
industrial equipment, computers and peripherals and business systems and
consumer electronics. These customers often use leading technologies, and
their product requirements generally drive the advancement of electronic
interconnect manufacturing technology. The Company also sells to leading
contract manufacturers and electronics distributors that provide access to a
large number of OEM customers.
The following table shows, for fiscal 1996, the Company's percentage of its
net sales for the principal end-user markets it serves.
Markets June 30, 1996
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Instrumentation/Industrial 35%
Data/Telecommunications 33%
Computers and Peripheral 22%
Business/Consumer 10%
Total Net Sales 100%
The Company markets its products primarily through direct sales
personnel located in Washington, Oregon, California, Texas, Minnesota,
Alabama, Florida and Massachusetts. The Company has expanded its direct sales
force from nine to approximately 25 personnel in 1996. Direct sales efforts
in the United States are supplemented by several independent sales
organizations, each located in a region with a large geographical territory
or large potential account base. Each division of the Company also has an
experienced inside sales and customer service organization to support its
outside sales personnel and to promote customer relationships.
The Company is pursuing the international markets with the recent executive
appointments of two individuals to pursue business development opportunities in
Asia and Canada, and eventually to Europe and South America. The Company has
opened an office in Hong Kong and has recently made sales in Singapore and is
seeking to identify other international business opportunities.
The Company is expanding its marketing activities to enhance awareness
of its broad range of products and services. In addition to paid
advertisements and promotional items, the marketing efforts include business
and technical editorials for industry publications, participation in trade
shows and industry conferences, customer newsletters and satisfaction surveys
as well as scheduled press releases.
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CUSTOMERS
The following table sets forth in alphabetical order the Company's largest
customers during fiscal 1996:
DATA COMMUNICATIONS AND TELECOMMUNICATIONS
AT&T Motorola, Inc.
ADTRAN, Inc. NEC Corporation
Digidesign, Inc. Trimble Navigation, LTD.
DSC Communications, Inc. Xylan Corporation (1)
INSTRUMENTATION AND INDUSTRIAL
Acuson Corporation (1) Nellcor Puritan
Data I/O Corporation Bennet, Inc
Hewlett-Packard Spectra-Physics, Inc.
Imed Corporation
COMPUTERS AND PERIPHERALS
Compaq Intel Corporation
Hewlett-Packard
BUSINESS SYSTEMS AND CONSUMER ELECTRONICS
In Focus Systems, Inc. Xerox Corporation
CONTRACT MANUFACTURERS AND ELECTRONICS DISTRIBUTORS (2)
AMP Packaging Systems, Inc. Micron Technology, Inc.
Avnet, Inc. SCI Systems, Inc.
Comptronix Corporation Solectron Corporation
Marshall Industries, Inc.
(1) Includes sales of Company products sold through contract manufacturers or
electronics distributors.
(2) Because the Company serves some OEM customers through contract
manufacturers and electronics distributors, some sales indicated in this
segment are also included under sales in the other listed segments.
For fiscal 1996 and fiscal 1995, sales to Hewlett-Packard accounted for
approximately 12.7% and 16.4% of the Company's revenue, respectively, and sales
to Compaq accounted for approximately 10.0% and 12.5% of the Company's revenue,
respectively. For fiscal 1996 and fiscal 1995, the Company's ten largest
customers accounted for approximately 52.7% and 56.4% of the Company's revenue,
respectively.
MANUFACTURING AND ENGINEERING PROCESSES
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The Company believes its substantial capital investment and its
manufacturing expertise in a number of specialized areas have contributed to
its position as a leader in the production of complex, rigid multilayer
printed circuit boards. To meet its customers' high density requirements, the
Company can manufacture printed circuit boards with layer counts in excess of
24 layers, blind and buried vias, buried capacitance and designs using
materials as thin as .0015(2). The Company believes its capabilities in the
following areas are of special importance:
SCHEMATIC CAPTURE AND DESIGN SERVICES. The Company works closely with
its customers to maximize design for manufacturability (DFM) to achieve
cost savings. The Company creates state-of-the-art layouts using a broad
range of advanced electronic design automation tools that are compatible with
its customers' design systems.
MULTIPLE MANUFACTURING FACILITIES. The Company's three manufacturing
facilities achieve efficiencies by specializing in different types of
production runs. The Company can also shift production among facilities as
demand warrants. Multiple facilities also reduce the risk of production
delays.
CAD/CAM. Because the Company's state-of-the-art computer aided
manufacturing (CAM) system is uniform throughout its three manufacturing
facilities, it can reduce tooling and test fixture costs across the
manufacturing process since they are incurred only once for each part number,
rather than multiple times when a customer uses more than one supplier. The
Company can receive CAD data by electronic data transmission and can use its
communications system to distribute the data to a CAM system at any of the
Company's facilities. The Company's CAM workstations perform design rule
checks on the transmitted designs, incorporate any requested customer design
modifications and perform manufacturability enhancements that increase
printed circuit board quality.
ADVANCED FINISHING CAPABILITIES FOR DENSE PACKAGING DESIGNS. The
Company provides a wide assortment of alternative surface finishes, including
hot air solder leveling, electroless nickel immersion gold, palladium and
Entek-Registered Trademark-, to address the complex requirements for
attachment of high pin count interconnect devices such as ball grid array
(BGA), Micro-BGA, Flip Chip, tape automated bonding ("TAB") and fine pitch
surface mount technology (SMT).
LIQUID INNER LAYER RESIST. The Company has developed process expertise
to implement a low cost liquid inner layer resist technology that produces
high yields on fine geometries and tolerances, including line and space
widths as small as .002(2). The Company is one of the few manufacturers
worldwide that has successfully implemented this technology.
OTHER ADVANCED PROCESS CAPABILITIES. The Company's substantial
investment in modern facilities and state-of-the-art equipment permits the
high yield fabrication of dense multilayer printed circuit boards. The
Company uses advanced drilling and plating equipment to produce
technologically advanced products with extremely tight tolerance holes as
small as .006(2) in diameter to interconnect printed circuit layers,
including controlled depth holes for blind vias. The Company produces fine
line circuitry in Class 10,000 and Class 1,000 clean room environments. In
the past five years the Company has invested in automated optical inspection
and electrical test systems, including dual-sided simultaneous testers and
in-house fixturing processes, to verify the quality of these high density
designs. The Company uses specialty materials such as GETEK-Registered
Trademark-, cyanate ester and polyimide for high temperature, fast signal
speed and other high-performance requirements.
The Company employs total quality management (TQM) techniques at all
facilities. The Company's quality management systems at each of its
manufacturing facilities have been ISO 9002
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certified since 1994. This certification is based on successful
implementation of quality assurance requirements and includes ongoing
monitoring of the Company's business and periodic compliance audits conducted
by an independent quality assessor. The Company is also Bellcore compliant, a
requirement of many telecommunications OEMs.
The Company has received numerous awards recognizing its customer
service and manufacturing excellence, including the United States Senate
Productivity award in 1990. In 1994 the Company was recognized as the best in
its class for responsiveness in the Service Excellence Award contest
sponsored by Technology Forecasters, an independent market research firm, and
PRINTED CIRCUIT FABRICATION, an industry trade journal, and CTI was
recognized as the overall winner in this contest in the medium-sized company
category. In 1995 the Company received awards for technology, quality and
value in the Service Excellence Award contest. The Company also received
customer awards for supplier excellence from Comptronix Corporation, Sequent
Computer Systems, Inc., Trimble Navigation Limited, and Verilink Corporation
in 1995.
MATERIALS AND SUPPLIES
The Company orders certain materials and supplies based on purchase
orders received and seeks to minimize its inventory of other materials that
are not identified for use in filling specific orders. For example, at the
Company's request, a laminate supplier operates a warehouse near the
Company's Dallas facility to store laminates previously shipped by the
supplier from California. In addition, the Company works closely with certain
of its suppliers to improve the raw materials used in the production of
printed circuit boards. For example, the Company and Ciba-Geigy AG developed
a liquid inner layer resist system to achieve significant cost and yield
advantages, and the Company and LeaRonal, Inc. are developing chemical
strategies with respect to plating, finishing processes and solder masks. Raw
materials used in the Company's products consist primarily of inorganic
chemicals, copper foil, copper-clad epoxy/glass laminate, epoxy glass prepreg
and liquid and dry film resist.
To enhance its relationships with suppliers, in 1991 the Company
implemented a STAR Supplier program to improve key supplier performance by
measuring product quality, on-time delivery, technological support, sales
support and other criteria. The Company believes it has realized significant
benefits from the program, including lower costs of materials. The cost of
various raw materials and supplies is determined in part by annual purchase
volumes. As a result of the acquisition of CTI, the Redmond facility in
particular has benefited from lower costs for certain materials and supplies
associated with the Company's higher purchase volume.
Although the Company uses a select group of suppliers, the materials
used to manufacture printed circuit boards generally are readily available
from multiple suppliers. The Company has established strategic alliances and
stocking arrangements with key suppliers to increase protection against
shortages. Although adequate amounts of raw materials have been available in
the past, there is no assurance that raw materials will continue to be
available in the future.
COMPETITION
The printed circuit board industry is highly fragmented and
characterized by intense competition, which the Company believes will
increase. The Company competes principally in the market for complex, rigid
multilayer printed circuit boards. The Company's competitors include large
domestic manufacturers, offshore manufacturers located primarily in Asia,
small or regional domestic manufacturers and captive printed circuit board
operations of larger OEMs such as IBM. Some of the Company's competitors are
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substantially larger and have substantially greater manufacturing, financial
and marketing resources than the Company. During periods of recession in the
electronics industry, increasingly price sensitive customers may place less
value on the Company's competitive strengths, such as quick-turnaround
manufacturing and responsive customer service. In addition, OEMs with captive
printed circuit board manufacturing operations may seek open market orders to
fill excess capacity, which increases price competition. The Company may be
at a disadvantage in the lower technology segments of the printed circuit
board market when competing with manufacturers with lower cost structures,
particularly those with offshore facilities where labor and other costs may
be lower. Although capital requirements are a significant barrier to entry
for manufacturing technologically complex printed circuit boards, the basic
interconnect technology is generally not protected by patents or copyrights.
There is no assurance that the Company will be able to compete successfully
against present or future competitors or that competitive pressures faced by
the Company will not materially adversely affect the Company. The principal
independent competitors of the Company are based in the United States and
include Advanced Circuits, Inc., Hadco Corporation, Merix Corporation and
Zycon Corporation.
The Company believes the primary competitive factors in the market for
complex, rigid multilayer printed circuit boards are product quality,
responsiveness to customers, on-time delivery, lead time, volume production
capabilities, advanced manufacturing technology, engineering skills and
price. The Company believes its primary competitive strengths include its
ability to provide technologically advanced manufacturing services, respond
to customers reliably and effectively and deliver finished products on a
quick-turnaround through high volume basis while maintaining superior product
quality. During periods of recession in the electronics industry, however,
the Company's competitive advantages in these areas may be less significant
to customers that may become more price sensitive. Many of the Company's
actual and potential competitors have financial, technological and marketing
resources significantly greater than those of the Company and may have
established relationships with customers or potential customers that afford
them a competitive advantage. There is no assurance that the Company will
continue to be able to compete effectively in its markets or that competitive
pressures will not materially adversely affect the Company.
BACKLOG
The Company's backlog at June 30, 1996 was approximately $16.3 million,
compared to a backlog of approximately $15.2 million at June 30, 1995. The
Company includes in its backlog all purchase orders scheduled for delivery
within the next 12 months, although the majority of the backlog typically is
scheduled for delivery within 60 days. There are no orders in the Company's
backlog that it does not reasonably expect to have filled by June 30, 1997. For
a variety of reasons, including the timing of orders, delivery intervals,
customer and product mix and the possibility of customer changes in delivery
schedules, backlog as of any particular date may not be a reliable measure of
sales for any succeeding period. Cancellation charges generally vary depending
upon the time of cancellation and, therefore, a significant portion of the
Company's backlog may be subject to cancellation without significant penalty.
ENVIRONMENTAL MATTERS
Printed circuit board manufacturing requires the use of metals and
chemicals. Water used in the manufacturing process must be treated to remove
metal particles and other contaminates before it can be discharged into the
municipal sanitary sewer system. The Company operates and maintains effluent
water treatment systems and uses approved laboratory testing procedures at
its manufacturing facilities. The Company operates these systems under
effluent discharge permits issued by a number of governmental authorities.
These permits must be renewed periodically and are subject to revocation in
the event of violations of environmental laws. The Company believes the waste
treatment systems at its facilities are in compliance with applicable
environmental laws in all material respects. There is no assurance, however,
9
<PAGE>
that violations will not occur in the future. The Company also is subject to
environmental laws relating to the storage, use and disposal of chemicals,
solid waste and other hazardous materials, as well as air quality
regulations. Environmental laws could become more stringent over time, and
the costs of compliance with more stringent laws could be substantial.
The Company eliminated all ozone depleting compounds from its
manufacturing processes in December 1993. In 1993 the Company was also
recognized by the United Nations as an environmentally conscious
manufacturer. In 1994 the Environmental Protection Agency recognized the
Company for its participation in the 33/50 Program, a voluntary initiative
aimed at reducing emissions and disposals of toxic substances.
EMPLOYEES
At June 30, 1996, the Company had 1,114 full-time employees, including
950 in manufacturing, 70 in engineering and design services, 35 in marketing
and sales, 19 in finance, accounting and information services and 40 in
administration. None of the Company's employees is represented by a labor
union, and the Company has never experienced a work stoppage, slowdown or
strike. The Company believes it maintains good employee relations.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Praegitzer Industries and
principal occupations and employment for the last five years of the executive
officers of Praegitzer Industries. The officers are appointed by the Board of
Directors and serve at its discretion.
10
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert L. Praegitzer 64 President, Chief Executive Officer and Chairman of the Board
Matthew J. Bergeron 33 Senior Vice President, Chief Financial Officer and Director
Charles N. Hall 49 Senior Vice President and Director
Daniel J. Barnett 46 Senior Vice President and Director
Scott D. Gilbert 33 Vice President of Finance
Leslie J. Rowell 38 Vice President of Human Resources
Marty Filsinger 46 Vice President of Sales
Steven M. Smith 34 Vice President of Operations - Praegitzer Design Division
Walter E. Berry 50 Vice President of Operations - Dallas Division
Allen G. Broderick 35 Vice President of Business Operations - White City Division
Carleton Thompson 50 Vice President of Technical Operations - White City Division
Kenneth O. Stowers, Jr. 46 Vice President of Operations - Redmond Division
Robert J. Versiackas 47 Vice President of Operations - Fremont Division
Gregory F. Blount 43 Vice President of Corporate Quality
Eric M. Rogers 49 Vice President of Facilities and Environmental Resources
Sally Praegitzer 59 Secretary and Director
William L. Healey 51 Director
T. L. Stebbins 55 Director
</TABLE>
ROBERT L. PRAEGITZER founded the Company in 1981 and has been its
President, Chief Executive Officer and Chairman of the Board since that time.
He was also the founder and President of PDI, which merged into the Company
in 1995, and Praegitzer Property Group, the assets of which will be acquired
by the Company upon completion of this offering. Mr. Praegitzer is married to
Sally Praegitzer, a director and Secretary of the Company.
MATTHEW J. BERGERON joined the Company in 1990, overseeing finance,
administration and MIS. He became Senior Vice President in 1993 and a
director in November 1995. Prior to joining the Company, Mr. Bergeron was an
accountant at Johnson & Shute P.S., a public accounting firm. Mr. Bergeron is
a certified public accountant.
11
<PAGE>
ROBERT G. BALDRIDGE joined the Company as Senior Vice President and a
director in November 1995 in connection with the merger of CTI into the
Company. Prior to the merger, Mr. Baldridge was a co-president of CTI, which
he co-founded in 1984.
CHARLES N. HALL joined the Company as Senior Vice President and a
director in November 1995 in connection with the merger of CTI into the
Company. Prior to the merger, Mr. Hall was a co-president of CTI, which he
co-founded in 1984.
DANIEL J. BARNETT joined the Company as Senior Vice President and a
director in August 1996 in connection with the merger of Trend into the
Company. Prior to the merger, Mr. Barnett was the president of Trend.
SCOTT D. GILBERT joined the Company in August 1990 as Controller. In
November 1995 Mr. Gilbert was appointed Vice President of Finance.
LESLIE J. ROWELL joined the Company in 1981 and served as a plating
supervisor and later as materials manager. In 1994 Mr. Rowell was appointed
Human Resources Manager, and in November 1995 he was appointed Vice President
of Human Resources.
MARTY FILSINGER joined the Company in 1982 and served as national sales
manager. In November 1995 he was appointed Vice President of Sales.
STEVEN M. SMITH served as operations manager of PDI since June 1988.
Upon the merger of PDI into the Company in November 1995, Mr. Smith was
appointed Vice President of Operations - Praegitzer Design Division.
WALTER E. BERRY joined the Company in January 1989 and served as
operations manager of the Dallas facility until May 1993, when he was
appointed director of strategic planning and technology, a position he held
until January 1995, when Mr. Berry was reappointed operations manager of the
Dallas facility. In November 1995, Mr. Berry was appointed Vice President of
Operations - Dallas Division.
ALLEN G. BRODERICK joined the Company in January 1990 as operations
co-manager of the White City facility and was appointed Vice President of
Business Operations - White City Division in November 1995.
CARLETON THOMPSON joined the Company in January 1990 as operations
co-manager of the White City facility and was appointed Vice President of
Technical Operations - White City Division in November 1995.
KENNETH O. STOWERS, JR. joined CTI in March 1993 as operations manager
and, upon the merger of CTI into the Company in November 1995, was appointed
Vice President Operations - Redmond Division. From 1989 to March 1993 Mr.
Stowers was technical director and regional sales manager of Multiline
Technology, a printed circuit board equipment manufacturer.
ROBERT J. VERSIACKAS joined Trend in 1990 as Vice President of
Operations and upon the merger of Trend into the Company in August 1996, was
appointed Vice President of Operations - Fremont Division.
GREGORY F. BLOUNT joined the Company in 1986 as corporate quality
manager and was appointed Vice President of Corporate Quality in November
1995.
12
<PAGE>
ERIC M. ROGERS joined the Company in 1983 as facilities manager of the
Dallas facility and was appointed Vice President of Facilities and
Environmental Resources in November 1995.
SALLY PRAEGITZER has served as a director since November 1995. Ms.
Praegitzer has served as Secretary of the Company since 1981. Ms. Praegitzer
is married to Robert L. Praegitzer, the President, Chief Executive Officer
and Chairman of the Board of the Company.
WILLIAM L. HEALEY is the President, Chief Executive Officer and Director
of Smartflex Systems, Incorporated, a manufacturer of printed circuit boards.
and was appointed to the Board of Directors of the Company in May 1996.
T.L. STEBBINS is the Managing Director of Adams, Harkness & Hill, an
investment banking firm, and was appointed to the Board of Directors of the
Company in May 1996.
ITEM 2. PROPERTIES
The Company owns or leases approximately 301,200 square feet of
administrative, design, production, storage, and shipping space in eight
facilities. Of this space, 209,000 square feet are dedicated to manufacturing.
The Company's facilities are as follows:
<TABLE>
<CAPTION>
LOCATION OWNERSHIP STATUS SQUARE FEET
-------- ---------------- -----------
<S> <C> <C>
Dallas, Oregon Owned 130,000
Dallas, Oregon Leased 15,000
White City, Oregon Owned 64,000
Redmond, Washington Leased 42,500
Redmond, Washington Leased 2,500
Beaverton, Oregon Leased 3,100
San Jose, California Leased 7,700
Irving, Texas Leased 400
San Diego, California Leased 1,000
Fremont, California Leased 35,000
</TABLE>
___________
The Dallas manufacturing facility specializes in medium to high volume
production of complex, rigid multilayer printed circuit boards. The White
City facility specializes in medium volume production of complex, rigid
multilayer printed circuit boards. The larger Redmond facility and the
Fremont facility specialize in quick-turnaround prototype and low volume
production. The smaller Redmond facility and the Beaverton, San Diego, San
Jose and Irving facilities specialize in schematic capture and circuit design
services.
13
<PAGE>
The Dallas warehouse facility is subject to a month-to-month lease
with total monthly lease costs of approximately $6,000. The Redmond
facility is subject to two leases with total current monthly lease costs
of approximately $39,000. Each lease expires in 2000, with an option to
renew for an additional five-year period. The Fremont facility is
subject to a monthly lease cost of approximately $30,000 which expires
in 2002. The lease for the Beaverton facility provides for total current
monthly lease costs of approximately $2,300 and expires in 2000. The
lease for the San Jose facility provides for total current monthly lease
costs of $5,400 and expires in 1998, with a five-year renewal option.
A $5 million expansion program is underway to increase the
production capacity of the White City and Redmond facilities. The
expansion programs at White City and Redmond are expected to increase
production capacity by approximately 50% at both facilities. The Redmond
and White City expansion programs are expected to be completed by the
end of 1996.
ITEM 3. 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 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 the result of its
security interest.
On July 21, 1996, Pacific Communication Sciences, Inc. 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. The Company believes the claim is without merit and
intends to vigorously defend against the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended June 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
14
<PAGE>
The Company's Common Stock commenced trading on the Nasdaq National
Market on April 4, 1996 under the symbol "PGTZ". The following table
sets forth for the periods indicated, the highest and lowest closing
sales prices for the Common Stock, as reported by the Nasdaq National
Market.
Fiscal 1996 High Low
Fourth quarter (beginning April 4, 1996) $16.00 $8.125
Fiscal 1997
First quarter (through September 18, 1996) $11.625 $8.125
Based on a broker search performed by Allen Nelson and Company, Inc., there
were approximately 2,200 shareholders of record as of September 20, 1996.
Since incorporation and through April 4, 1996, the Company was
treated for state and federal income tax purposes as an S corporation.
As a result, the Company's earnings from inception through April 4, 1996
were taxed directly to the Company shareholders rather than to the
Company. In fiscal 1996 the Company paid cash dividends to its
shareholders in the aggregate amount of $5.2 million, most of which was
for the payment of the shareholders' income tax liabilities. No
dividends have been paid since April 4, 1996.
The Company expects to retain any earnings to finance the expansion
and development of its business and has no plans to pay cash dividends.
The payment of dividends is within the discretion of the Company's Board
of Directors and will depend on the earnings, capital requirements and
operating and financial condition of the Company, among other factors.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of Praegitzer
Industries. This historical data should be read in conjunction with the
Financial Statements and the related notes thereto in Item 8 and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Item 7.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
---------------------------------------------------------------
(in thousands, except per share data)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue. . . . . . . . . . . . . . $33,748 $50,447 $51,757 $58,096 $95,101
Cost of goods sold . . . . . . . . 29,140 40,332 46,244 48,343 72,941
------- ------- ------- ------- -------
Gross profit . . . . . . . . . . . 4,608 10,115 5,513 9,753 22,160
Selling, general and
administrative expense . . . . . 4,018 5,116 6,082 6,406 8,896
------- ------- ------- ------- -------
Income (loss) from operations. . . 590 4,999 (569) 3,347 3,264
Interest expense . . . . . . . . . 1,356 1,444 1,217 1,563 1,799
15
<PAGE>
Other income (expense) . . . . . . (1,452) 60 (353) 92 302
------- ------- ------- ------- -------
Income (loss) from continuing
operations . . . . . . . . . . . (2,218) 3,615 (2,139) 1,876 11,767
Income (loss) from discontinued
operations . . . . . . . . . . . (1,389) (289) (3,081) -- (612)
------- ------- ------- ------- -------
Net income (loss). . . . . . . . . $(3,607) $3,326 $(5,220) $1,876 $9,710
------- ------- ------- ------- -------
------- ------- ------- ------- -------
PRO FORMA NET INCOME (LOSS)
DATA:
Pro forma provision (benefit)
for income taxes . . . . . . . . $(1,443) $1,178 $(2,101) $691 $2,794
------- ------- ------- ------- -------
Pro forma net income
(loss) (1) . . . . . . . . . . . $(2,164) $2,148 $(3,119) $1,185 $6,916
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Pro forma net income from
continuing operations per
share (1). . . . . . . . . . . . $0.13 $0.76
------- -------
------- -------
Weighted average shares
outstanding. . . . . . . . . . . 8,824 9,110
<CAPTION>
JUNE 30,
-------------------------------------------------------------------
(IN THOUSANDS)
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) $(2,092) $(154) $(5,999) $(1,897) $10,743
Total assets 32,228 38,977 29,051 30,352 52,836
Notes payable and
current portion of
long-term obligations 8,075 8,870 9,750 6,097 871
Long-term
obligations, net of
current portion 10,645 10,603 7,496 10,188 7,695
Redeemable Common Stock -- -- -- -- --
16
<PAGE>
Shareholders' equity 8,265 11,472 4,118 5,699 34,641
</TABLE>
- ---------------------
(1) The Company was an S corporation and accordingly was not subject to
federal and state income taxes during the periods indicated. Pro forma
net income reflects federal and state income taxes as if the Company had
been a C corporation, based on the effective tax rates that would have
been in effect during these periods. See Notes 1 and 13 of Notes to
Financial Statements of Praegitzer.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of the Company's 1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders as listed in Item 14 of Part IV of
this Report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is included under
"Election of Directors" in the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this report.
Information with respect to Section 16(a) of the Securities Exchange Act is
included under "Compliance with Section 16(a) of the Exchange Act" in the
Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders
filed or to be filed not later than 120 days after the end of the fiscal year
covered by this Report and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included under
"Executive Compensation" in the Company's definitive Proxy Statement for its
1996 Annual Meeting of Stockholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management is included under "Voting Securities and Principal Shareholders"
in the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders filed or to be filed not later than 120 days after the end of the
fiscal year covered by this Report and is incorporated herein by reference.
18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
with management is included under "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for its Annual Meeting
of Stockholders filed or to be filed not later than 120 days after the end of
the fiscal year covered by this Report and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. INDEX TO FINANCIAL STATEMENTS
1996 Annual Report
To Stockholders
-------------------
Independent Auditors' Report by Deloitte & Touche 16
Balance Sheets as of June 30, 1996 and 1995 17
Statements of Income for the years ended
June 30, 1996, June 30, 1995 and
June 30, 1994 18
Statements of Cash Flows for the years ended
June 30, 1996, June 30, 1995 and
June 30, 1994 19
Statements of Shareholders' Equity for the
years ended June 30, 1996, June 30,
1995 and June 30, 1994 20
Notes to Financial Statements 21
(a)2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since they are either not required or the
information is otherwise included.
(a)3. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
- ------
3(i)* Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3(i) of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
3(i)(a)* Form of Second Amended and Restated Articles of Incorporation
(Incorporated by reference to Exhibit 3(i)(a) of the Company's
Registration Statement on Form S-1, Registration No. 333-01228)
3(ii)* Bylaws (Incorporated by reference to Exhibit 3(ii) of the Company's
Registration Statement on Form S-1)
19
<PAGE>
4.1* See Article II of Exhibit 3(i)(a) and Articles II and V of Exhibit
3(ii)
10.1* 1995 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1
of the Company's Registration Statement on Form S-1, Registration No.
333-01228)
10.2* Form of Incentive Stock Option Agreement (Incorporated by reference to
Exhibit 10.2 of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
10.3* Form of Nonstatutory Stock Option Agreement (Incorporated by reference
to Exhibit 10.3 of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
10.4* Borrowing Agreement between the Registrant and Seattle-First National
Bank dated November 17, 1995 (Incorporated by reference to Exhibit
10.4 of the Company's Registration Statement on Form S-1, Registration
No. 333-01228)
10.5* Loan Agreement between the Registrant and the State of Oregon
Department of Energy ("DOE") dated April 13, 1988 (Incorporated by
reference to Exhibit 10.6 of the Company's Registration Statement on
Form S-1, Registration No. 333-01228)
10.6* Loan Agreement between the Registrant and DOE dated December 3, 1991
(Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1, Registration No. 333-01228)
10.7* Promissory Note from the Registrant to Heller Financial, Inc.
("Heller") dated October 27, 1995 (Incorporated by reference to
Exhibit 10.8 of the Company's Registration Statement of Form S-1,
Registration No. 333-01228)
10.8* Promissory Note from the Registrant to Heller dated November 30, 1995
(Incorporated by reference to Exhibit 10.9 of the Company's
Registration Statement on Form S-1, Registration No. 333-01228)
10.9* Lease Agreement between CTI and Seapointe Development, Inc. dated
April 1989 and amendments thereto (Incorporated by reference to
Exhibit 10.13 of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
10.10* Lease between CTI and Redmond Quadrant Associates, LP dated June 15,
1995 (Incorporated by reference to Exhibit 10.14 of the Company's
Registration Statement on Form S-1, Registration No. 333-01228)
10.11*** Borrowing Agreement between the Registrant and Key Bank dated April
12, 1996
10.12* Lease between PDI and Amberjack, Ltd. dated July 13, 1994 and
amendment thereto (Incorporated by reference to Exhibit 10.15 of the
Company's Registration Statement on Form S-1, Registration No. 333-
01228)
10.13* Form of Property Transfer Agreement between the Registrant and Robert
Praegitzer dated December 19, 1995 (Incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
10.14* Form of Tax Indemnification Agreement (Incorporated by reference to
Exhibit 10.17 of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
10.15* Merger Agreement between the Registrant and CTI dated November 17,
1995 (Incorporated by reference to Exhibit 10.18 of the Company's
Registration Statement on Form S-1, Registration No. 333-01228)
10.16* Merger Agreement between the Registrant and PDI dated November 14,
1995 (Incorporated by reference to Exhibit 10.19 of the Company's
Registration Statement on Form S-1, Registration No. 333-01228)
10.17** Merger Agreement between the Registrant and Trend dated August 16,
1996 (Incorporated by reference to Exhibit 2.1 of the Company's Form
8-K dated August 28, 1996)
10.18* Employment Agreement between the Registrant and Robert L. Praegitzer
dated November 17, 1995 (Incorporated by reference to Exhibit 10.20 of
the Company's Registration Statement on Form S-1, Registration No.
333-01228)
20
<PAGE>
10.19* Employment Agreement between the Registrant and Robert G. Baldridge
dated November 17, 1995 (Incorporated by reference to Exhibit 10.21 of
the Company's Registration Statement on Form S-1, Registration No.
333-01228)
10.20* Employment Agreement between the Registrant and Charles N. Hall dated
November 17, 1995 (Incorporated by reference to Exhibit 10.22 of the
Company's Registration Statement on Form S-1, Registration No. 333-
01228)
10.21*** Employment Agreement between the Registrant and Daniel J. Barnett
dated August 26, 1996
13 Annual Report to Shareholders
16.1* Letter on Changes in Certifying Accountant (Incorporated by reference
to Exhibit 16.1 of the Company's Registration Statement on Form S-1,
Registration No. 333-01228)
23.1 Consent of Deloitte & Touche LLP
24.1*** Power of Attorney (Included on signature page of Form 10-K)
27 Financial Data Schedule (Electronic Filing)
* Filed as exhibits to the Company's Registration Statement on Form S-1, No.
33-01228, and incorporated by reference herein.
** Filed as exhibit to the Company's 8-K dated September 11, 1996 and
incorporated by reference herein.
*** Filed as exhibit to the Company's Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated by reference herein.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 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.
PRAEGITZER INDUSTRIES, INC.
BY: /s/ Matthew J. Bergeron
----------------------------------------------
Matthew J. Bergeron
Chief Operating Officer, Executive
Vice President, and Director
Dated: August 5, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert L. Praegitzer* Chairman of the Board, August 5, 1997
- ---------------------------- President, Chief Executive
Robert L. Praegitzer Officer
/s/ William J. Thale* Vice President and Chief August 5, 1997
- ---------------------------- Financial Officer
William J. Thale
/s/ Matthew J. Bergeron Executive Vice President, August 5, 1997
- ---------------------------- Chief Operating Officer and
Matthew J. Bergeron Director
/s/ Charles N. Hall* Director August 5, 1997
- ----------------------------
Charles N. Hall
/s/ Robert G. Baldridge* Director August 5, 1997
- ----------------------------
Robert G. Baldridge
<PAGE>
/s/ Daniel J. Barnett* Senior Vice President August 5, 1997
- ---------------------------- Director
Daniel J. Barnett
/s/ T.L. Stebbins* Director August 5, 1997
- ----------------------------
T.L. Stebbins
/s/ William Healey* Director August 5, 1997
- ----------------------------
William Healey
- ---------------------------- Director
Merrill A. McPeak
* /s/ Matthew J. Bergeron
- ----------------------------
By Matthew J. Bergeron
Attorney-in-Fact
23
<PAGE>
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Page 1
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Praegitzer was formed in July 1981 to manufacture rigid multilayer printed
circuit boards at its Dallas, Oregon facility. In 1983, the Company entered the
assembly contract manufacturing business (the Assembly Operations). In 1987, a
fire destroyed the entire Dallas facility. Much of the fiscal years ended June
30, 1988 and 1989 were spent building a new facility, installing state-of-the-
art equipment and formulating upgraded processes for operations. An affiliate of
the Company formed Praegitzer Design, Inc. (PDI) in 1988 to provide circuit
design services. In January 1990, the Company acquired its White City, Oregon,
facility. The White City facility specializes in medium-volume production of
complex, rigid multilayer printed circuit boards. The acquisition of the White
City facility was a cost-effective means for the Company to expand production
and diversify and increase its customer base. In fiscal 1994, the Company sold
the Assembly Operations. This sale was prompted by the perception by the
Company's growing base of contract assembly customers that the Company was a
competitor and the Company's desire to concentrate on its core competencies of
printed circuit board design and fabrication. In November 1995, PDI merged with
and into the Company.
To provide its customers with fully integrated electronic interconnect
solutions, the Company acquired Circuit Technology, Inc. (CTI), a printed
circuit board manufacturer in Redmond, Washington, in November 1995 for
approximately $16 million, including assumption of liabilities. The Redmond
facility specializes in quick-turnaround prototype and low- volume production.
The acquisition was accomplished by a merger of CTI with and into Praegitzer,
and was accounted for under the purchasing accounting method.
In April 1996, the Company acquired from Praegitzer Property Group, in
exchange for approximately 1,370,000 shares of Company 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.
In August 1996, the Company completed the acquisition of Trend Circuits,
Inc., a printed circuit board manufacturer located in Fremont, California, for
one million shares of Common Stock of the Company and $5 million in cash. In
addition, the Company assumed approximately $11 million in debt. The cash
obligations of the Company were funded by draws under its bank line of credit.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the Company for the
periods indicated as a percentage of revenue:
YEARS ENDED JUNE 30,
1996 1995 1994
Revenue 100.0% 100.0% 100.0%
Cost of goods sold 76.7 83.2 89.3
Gross profit 23.3 16.8 10.7
<PAGE>
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Page 2
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Selling, general and administrative expense 9.3 11.0 11.8
Income (loss) from operations 14.0 5.8 (1.1)
Interest expense 1.9 2.7 2.3
Other income (expense) 0.3 0.1 (0.7)
Income (loss) from continuing operations 12.4 3.2 (4.1)
Pro forma provision (benefit) for income taxes 4.7 1.2 (1.8)
Pro forma net income (loss) from
continuing operations 7.7% 2.0% (2.3)%
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Revenue for the fiscal year ended June 30, 1996 was $95.1 million, an
increase of $37.0 million or 63.7% from the fiscal year ended June 30, 1995. The
increase resulted primarily from a net increase of $21.9 million or 38.0% in
unit volume sales of the Company's products to contract manufacturers and
telecommunications and instrumentation OEMs and, secondarily, approximately
$15.1 million of this increase was due to the acquisition of CTI in November
1995.
Gross profit for the fiscal year ended June 30, 1996 was $22.2 million or
23.3% of revenue, compared to $9.8 million or 16.8% of revenue for the fiscal
year ended June 30, 1995. Cost of goods sold includes direct labor, materials
and manufacturing overhead costs. 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 a higher average
layer count and higher gross margin, and greater yields at the Company's
manufacturing facilities.
Selling, general and administrative expense consists of salaries, incentive
compensation and benefits for sales, marketing and administrative personnel,
advertising and promotional expenses, professional fees and commissions paid to
independent sales representatives. Selling, general and administrative expense
for the fiscal year ended June 30, 1996 was $8.9 million or 9.3% of revenue, an
increase of $2.5 million or 38.9% from the fiscal year ended June 30, 1995,
primarily as a result of increased personnel and fixed costs required to support
higher levels of sales and the acquisition of CTI. Selling, general and
administrative expense decreased as a percentage of revenue from 11.0% to 9.3%,
primarily as a result of operating efficiencies achieved by spreading fixed
costs over a larger revenue base.
Interest expense for the fiscal year ended June 30, 1996 was $1.8 million, an
increase of $236,000 or 15.1% from the fiscal year ended June 30, 1995. The
increase was the result of increased borrowing costs and increased borrowings
required to finance the acquisition of CTI and increased sales.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Revenue for fiscal 1995 was $58.1 million, an increase of $6.3 million or
12.2% from fiscal 1994. The increase resulted primarily from a net increase of
$4.3 million or 8.3% in unit volume sales of the Company's products to
telecommunications and instrumentation OEMs that was offset in part by a
decrease of 39.9% in sales to computer OEMs, and, secondarily, to changes in
product sales mix, which resulted in an increase of $1.9 million or 3.5% in
sales of higher-priced printed circuit boards with a higher average layer count.
<PAGE>
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Gross profit for fiscal 1995 was $9.8 million or 16.8% of revenue, compared
to $5.5 million or 10.7% of revenue for fiscal 1994. The increase in gross
margin was primarily the result of operating efficiencies, improved capacity
utilization, changes in product mix which resulted in increased sales of higher-
priced printed circuit boards with a higher average layer count and higher gross
margin, and greater yields at the Company's manufacturing facilities.
Selling, general and administrative expense for fiscal 1995 was $6.4 million
or 11.0% of revenue, an increase of $324,000 or 5.3% from fiscal 1994, primarily
as a result of increased employee benefits costs and consultant fees. Selling,
general and administrative expense decreased as a percentage of revenue from
11.8% to 11.0%, primarily as a result of spreading fixed costs over a larger
revenue base.
Interest expense for fiscal 1995 was $1.6 million, an increase of $346,000 or
28.4% from fiscal 1994. The increase was primarily the result of increased
borrowing costs, including increases in the prime interest rate.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and capital
expenditures with cash from operations and debt financing. Net cash provided by
operating activities for the fiscal year ended June 30, 1996 was $8.9 million,
compared to net cash provided by operating activities of $5.0 million and $2.1
million for fiscal 1995 and 1994, respectively. As of June 30, 1996, the Company
had $39,000 in cash and cash equivalents and working capital of approximately
$10.7 million.
In April 1996, the Company received net proceeds from its initial public
offering of $19,340,000. The proceeds were used to pay off the outstanding line
of credit balance at that time as well as other existing indebtedness and
accrued S corporation dividends. Also during April 1996, the Company established
a new $10.0 million line of credit, under which $985,000 was outstanding at June
30, 1996 and $9.0 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 8.25%. At June 30, 1996, the
Company was in compliance with all loan covenants. The Company also has a $10.0
million equipment line of credit which was not utilized and all of which was
available for equipment purchases as of June 30, 1996.
The Company's loan agreements with Heller Financial, Inc. and Key Bank
contain covenants pertaining to maintenance of tangible net worth and
maintenance of certain financial ratios. These agreements provide that the
Company must maintain a ratio of current assets to current liabilities of 1.1 to
1.0, and tangible net worth of $18 million plus 50% of its cumulative positive
net income beginning March 31, 1996. They also provide that the Company can not
(i) borrow money or incur other debt except for debt subordinated to the
Company's obligations to these lenders and certain previously contemplated
equipment leases, (ii) acquire any business for a purchase price of more than $3
million, or (iii) grant other security interests without the lenders' consent,
in addition to other customary covenants. The Company was not in violation of
any covenants at June 30, 1996.
Capital expenditures were $7.5 million for the fiscal year ended June 30,
1996, and $3.7 million and $4.0 million in fiscal 1995 and 1994, respectively.
These capital expenditures were primarily for the purchase of manufacturing
equipment and plant modernization. Although the Company has no commitments in
material amounts, it expects capital expenditures for the next 12 months to
range from $8 million to $12 million for facilities expansion and equipment.
The Company intends to pursue acquisitions as part of its growth strategy.
Although the Company has no understandings, commitments or agreements with
respect to any acquisition, the Company anticipates that one or more potential
acquisition opportunities may become available in the future. The Company
believes its existing cash and cash equivalents, credit facilities and cash from
operations, will be sufficient to fund its operations for at least the next 12
months.
INDEPENDENT AUDITORS' REPORT
<PAGE>
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The Board of Directors and Shareholders
Praegitzer Industries, Inc.
We have audited the accompanying balance sheets of Praegitzer Industries,
Inc. as of June 30, 1996 and 1995, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 financial statements present fairly, in all material
respects, the financial position of Praegitzer Industries, Inc. as of June 30,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
August 16, 1996
BALANCE SHEETS
Praegitzer Industries, Inc.
<TABLE>
<CAPTION>
June 30,
1996 1995
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 38,687 $ 23,060
Receivables, net of allowance for doubtful accounts
of $265,000 and $150,000 at June 30, 1996
and 1995, respectively 13,073,861 7,262,151
Due from related parties (Note 12) -- 381,807
Due from shareholder (Note 12) -- 347,852
Inventories (Note 4) 6,211,755 4,002,394
Prepaid expenses 206,129 84,932
Current deferred tax asset (Note 13) 394,000 --
Total current assets 19,924,432 12,102,196
Property, Plant, and Equipment, Net (Note 5) 24,795,705 17,130,246
Restricted Cash (Note 6) 305,956 303,625
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
Other Assets (Note 7) 7,809,968 815,856
Total $ 52,836,061 $ 30,351,923
LIABILITIES AND EQUITY
Current Liabilities:
Bank overdraft $ 530,817 $ 969,087
Notes payable (Note 8) -- 4,794,672
Taxes payable 943,000 --
Accounts payable 5,157,913 5,891,228
Accrued payroll and related benefits 1,623,439 991,395
Other current liabilities 55,045 50,633
Current portion of long-term obligations 870,874 1,301,842
Total current liabilities 9,181,088 13,998,857
Long-Term Obligations, Net of current portion (Notes 9 and 10) 7,694,590 10,187,726
Deferred Tax Liability (Note 13) 896,000 --
Contingencies and Commitments (Note 16) 423,450 423,450
Deferred Gain, Net of current portion -- 43,271
Shareholders' Equity:
Preferred stock; 500,000 shares authorized, no shares
issued and outstanding -- --
Common stock, 50,000,000 shares authorized and
11,061,875 shares issued and outstanding at
June 30, 1996 and 8,086,875 at June 30, 1995 29,932,049 4,308,916
Retained earnings 4,708,884 1,389,703
Total shareholders' equity 34,640,933 5,698,619
Total $ 52,836,061 $ 30,351,923
</TABLE>
See notes to financial statements.
STATEMENTS OF OPERATIONS
Praegitzer Industries, Inc..
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Revenue $ 95,101,170 $ 58,096,178 $ 51,757,135
Cost of goods sold 72,941,213 48,343,022 46,244,144
Gross profit 22,159,957 9,753,156 5,512,991
Selling, general, and administration expense 8,283,048 6,405,667 6,082,006
Amortization of goodwill 612,500 -- --
Income (loss) from operations 13,264,409 3,347,489 (569,015)
Interest expense 1,798,914 1,562,790 1,217,002
Other income (expense) 301,642 91,689 (353,110)
Income (loss) from continuing operations
before income taxes 11,767,137 1,876,388 (2,139,127)
Provision for income taxes 1,445,000 -- --
Income from continuing operations 10,322,137 1,876,388 (2,139,127)
Discontinued operations (Note 3):
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C> <C>
Loss on disposal of assembly division,
including provision of $5,065,199 in 1994
for operating losses during phase-out period (612,000) --
(3,081,159)
Net income (loss) $ 9,710,137 $ 1,876,388 $ (5,220,286)
Pro forma net income (loss) data (Note 13) (Unaudited):
Income (loss) from continuing operations
before income taxes, as reported $ 11,767,137 $ 1,876,388 $ (2,139,127)
Pro forma (provision) benefit for income taxes (4,472,000) (690,865) 919,463
Discontinued operations, as reported (612,000) -- (3,081,159)
Pro forma tax benefit of discontinued operations 233,000 -- 1,181,933
Pro forma net income (loss) $ 6,916,137 $ 1,185,523 $ (3,118,890)
Pro forma net income per share (Note 19)
(Unaudited) from:
Continuing operations $ 0.80 $ 0.13
Discontinued operations (0.04) --
$ 0.76 $ 0.13
Pro forma weighted average shares outstanding
(Note 19) (Unaudited) 9,110,233 8,823,717
</TABLE>
See notes to financial statements.
STATEMENTS OF CASH FLOWS
Praegitzer Industries, Inc.
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,710,137 $ 1,876,388 $ (5,220,286)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,911,279 3,704,780 3,714,157
Gain on sale of fixed assets (111,730) (177,844) (57,300)
Gain on disposal of assembly division assets -- -- (1,984,040)
Deferred taxes 502,000 -- --
Provision for doubtful accounts 292,354 64,518 53,932
Recognition of deferred gain (43,271) (18,547) --
Loss on discontinued operations 612,000 -- --
Changes in operating assets and liabilities:
Receivables (3,361,233) (1,132,447) 2,048,049
Inventory (688,624) 76,265 3,605,243
Other current assets (89,664) (20,892) 29,144
Accounts payable (2,684,743) 446,285 (343,774)
Income taxes payable 943,000 -- --
Accrued payroll and related benefits 288,645 252,468 (224,516)
Other current liabilities (1,336,809) (67,269) 435,920
Net cash provided by operating activities 8,943,341 5,003,705 2,056,529
Cash flows from investing activities:
Additions to property, plant, and equipment (7,525,631) (3,663,114) (3,951,359)
Proceeds from sale of assembly division assets -- -- 6,864,443
Additions to other assets -- (372,897) --
Proceeds from sale of property, plant, and equipment 217,955 371,821 372,970
Acquisition of Circuit Technology, Inc. (2,000,000) -- --
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C> <C>
Net (additions to) reductions in amounts due from
related parties and shareholders (2,594,714) (138,050) 120,533
Deposits refunded -- -- 154,403
Change in restricted cash (2,331) (13,946) (139,679)
Net cash provided by (used in) investing activities (11,904,721) (3,816,186) 3,421,311
Cash flows from financing activities:
Net additions to (reductions in) short-term borrowings (5,199,771) (2,887,768) 251,867
Borrowing of long-term debt 3,880,409 4,496,890 2,000,000
Payments on long-term debt (7,713,451) (2,401,743) (4,022,783)
Proceeds from initial public offering, net of expenses 19,340,185 -- --
Capital contributions -- 497,153 2,197,306
Dividends paid (6,783,635) (793,095) (4,330,772)
Payments on capital leases (108,460) (169,576) (1,267,184)
Increase (decrease) in bank overdrafts (438,270) 69,595 (305,819)
Net cash provided by (used in) financing activities 2,977,007 (1,188,544) (5,477,385)
Increase (decrease) in cash and cash equivalents 15,627 (1,025) 455
Cash and cash equivalents at beginning of year 23,060 24,085 23,630
Cash and cash equivalents at end of year $ 38,687 $ 23,060 $ 24,085
Supplemental disclosure of cash flow information-
Cash paid during the year for interest $ 1,789,375 $ 1,553,460 $ 1,179,881
</TABLE>
Noncash investing and financing activities:
During the year ended June 30, 1994, the Company acquired $811,591 of
property, plant, and equipment under capital leases related to the assembly
division.
During the year ended June 30, 1994, the Company recorded a deferred gain of
$92,727 for equipment which was sold and subsequently leased back.
During the year ended June 30, 1994, the Company distributed $194,953 of
property to a related party in exchange for a note receivable.
During the year ended June 30, 1996, the Company used $526,720 of operating
lease deposits toward the purchase of equipment.
During the year ended June 30, 1996, the Company distributed dividends of
$468,087 to a shareholder by reducing amounts due from shareholder.
See notes to financial statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
Praegitzer Industries, Inc.
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC.
TOTAL
COMMON STOCK
RETAINED
NUMBER EARNINGS
OF SHARES AMOUNT (DEFICIT)
<S> <C> <C> <C> <C>
Balances, July 1, 1993
as previously reported 6,717,000 $ 2,074,037 $ 4,887,213 $ 6,961,250
Effect of Praegitzer Property Group merger
(Note 2) 1,369,875 4,510,675 -- 4,510,675
Balances, July 1, 1993, as restated 8,086,875 6,584,712 4,887,213 11,471,925
Net earnings June 30, 1994 -- 68,158 (5,288,444) (5,220,286)
Contributions -- 2,197,306 -- 2,197,306
Dividends -- (4,330,772) -- (4,330,772)
Balances, June 30, 1994 8,086,875 4,519,404 (401,231) 4,118,173
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C> <C> <C>
Net earnings June 30, 1995 -- (705,390) 2,581,778 1,876,388
Contributions -- 497,153 -- 497,153
Dividends -- (2,251) (790,844) (793,095)
Balances, June 30, 1995 8,086,875 4,308,916 1,389,703 5,698,619
Acquisition of Circuit Technology, Inc. 700,000 7,143,714 -- 7,143,714
Net earnings June 30, 1996 -- (392,679) 10,102,816 9,710,137
Initial public offering, net of expenses 2,275,000 19,340,185 -- 19,340,185
Dividends -- (468,087) (6,783,635) (7,251,722)
Balances, June 30, 1996 11,061,875 $ 29,932,049 $ 4,708,884 $ 34,640,933
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS-- Praegitzer Industries, Inc. (the Company or
Praegitzer) is incorporated under the laws of the State of Oregon, and its
principal business is the manufacture and sale of electronic circuit boards.
USE OF ESTIMATES-- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Actual results could differ from those estimates.
DISCONTINUED OPERATIONS-- In July 1993, the Company adopted a plan for the
disposition of its assembly division (see Note 3).
REVENUE RECOGNITION-- Revenue is recognized when goods are shipped to the
customer.
INVENTORIES are stated at the lower of cost (determined on a first-in, first-
out basis) or market.
CASH AND CASH EQUIVALENTS includes all cash and short-term debt instruments,
including nonrestricted certificates of deposit, purchased with an original
maturity of three months or less.
PROPERTY AND EQUIPMENT-- Depreciation of property and equipment is provided
on the straight-line method based on the estimated useful lives of the
individual assets, primarily 5 to 10 years for equipment and 31 years for
buildings. The Company records the assets and the related obligations of capital
leases at amounts based upon the cash purchase price of the assets involved at
the beginning of the lease term. Depreciation and amortization expense also
includes amortization of equipment recorded under capital leases provided on the
basis of the estimated useful lives of the individual assets, primarily 5 years,
on the straight-line method.
LOAN FEES-- Other assets include loan fees incurred by the Company. These
fees are being amortized straight-line over the terms of the loans.
GOODWILL-- The Company amortizes costs in excess of fair value of net assets
of businesses acquired using the straight-line method over a period of eight
years. Management reviews, on an ongoing basis, the continuing appropriateness
of the remaining amortizable life and the net realizable value of the
unamortized balance.
INCOME TAXES-- The Company elected to be taxed under the S corporation
provisions of the Internal Revenue Code through the effective date of the
initial public offering by Praegitzer of common stock (the Offering). Under
those provisions, the Company did not pay federal or state corporate income
taxes on its taxable income. Instead, the shareholders were liable for federal
and state income taxes on the Company's taxable income.
Actual and pro forma income taxes have been provided for under Statement of
Financial Accounting Standards (FASB) No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are recognized based on
differences between financial statement and tax basis of assets and liabilities
using presently enacted tax rates.
S CORPORATION DIVIDENDS-- Historically, the Company has paid dividends to its
shareholders in amounts which approximate the federal and state income taxes
that are due as a result of the Company electing to be taxed as an S corporation
as discussed above. In connection with the Offering, the Company distributed to
its former shareholders substantially all of the undistributed cumulative income
that had been taxed or was taxable to its former shareholders. This dividend was
paid from the proceeds of the Offering.
COMMON STOCK-- In November 1995, in anticipation of its Offering, the Board
of Directors declared a
<PAGE>
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650,294-for-1 stock split of its common stock. All per share information in the
accompanying financial statements has been retroactively adjusted to reflect
this stock split.
2. ACQUISITIONS
On November 15, 1995, Praegitzer acquired Circuit Technology, Inc. (CTI), a
circuit board manufacturing company. The acquisition was accomplished by a
merger of CTI with and into Praegitzer. The purchase price included $2,000,000
of cash and 700,000 shares of Praegitzer's common stock which was valued at
$10.21 per share.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of CTI have been included in
the Company's combined financial statements since the date of acquisition. The
estimated fair market value of assets and liabilities acquired was approximately
$8,000,000 and $7,300,000, respectively. The excess of the aggregate purchase
price over the fair market value of net assets acquired of $8,400,000 was
recognized as goodwill and is being amortized over eight years.
The following unaudited pro forma results of operations assume the
acquisition occurred on July 1, 1994:
YEAR ENDED JUNE 30,
1996 1995
Revenue $ 103,755,000 $ 76,157,000
Net income 6,851,000 1,167,000
Net income per share 0.71 0.12
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the CTI acquisition been
consummated as of July 1, 1994, nor is it necessarily indicative of future
operating results.
In November 1995, Praegitzer Design, Inc. (PDI) merged with and into
Praegitzer. As the entities were commonly controlled, the transaction was
accounted for in a manner similar to a pooling of interests. The impact on the
financial statements was insignificant.
In April 1996, Praegitzer acquired all the assets and the related liabilities
of Praegitzer Property Group (PPG) for net consideration of $12,120,000.
Praegitzer issued 1,369,875 shares of its common stock to the sole proprietor of
PPG. As the entities are commonly controlled, the transaction was accounted for
in a manner similar to a pooling of interests. The impact of accounting for the
transaction on the financial statements was insignificant.
On August 16, 1996, Praegitzer acquired Trend Circuits, Inc. (Trend), a
circuit board manufacturing company. The acquisition was accomplished by a
merger of Trend with and into Praegitzer. The purchase price included $5,000,000
of cash and $1,000,000 shares of Praegitzer's common stock valued at $10.65 per
share. The acquisition will be accounted for under the purchase method of
accounting and, accordingly, the operating results of Trend will be included in
the Company's financial statements after the date of acquisition. The excess of
the aggregate purchase price over the fair market value of the net assets
acquired will be recognized as goodwill and will be amortized over eight years.
3. DISCONTINUED OPERATIONS
On July 1, 1993, the Company adopted a formal plan to sell its assembly
contract manufacturing division. On April 25, 1994, the sale of substantially
all of the assets of the assembly division was completed. The assets sold
consisted primarily of inventory, property, plant and equipment. The selling
price was $7,084,661, resulting in a gain of $1,984,040. The $3,081,159 net loss
from discontinued operations for the year ended June 30, 1994 represents the
$1,984,040 gain on the disposal of assembly division inventory, property, plant
and equipment and a $5,065,199 loss incurred in 1994 on the assembly division
operations. In connection with the assembly division sale, the Company agreed
not to solicit any of the assembly division customers or employees for periods
of five and two years, respectively.
At June 30, 1994, the remaining assets of the assembly division were accounts
receivable of $530,000 and inventory of $630,060, both of which are stated at
net realizable value. These assets were disposed of in 1995 at no gain or loss.
During 1996, the Company paid $612,000 in settlement of a prior contingency
related to the assembly division. This amount was recorded as a loss from
discontinued operations.
The results of operations for the assembly division have been presented as
discontinued operations in the accompanying financial statements. The assets of
the assembly division sold in April 1994 consisted of the following:
<PAGE>
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Inventories $ 484,661
Equipment, at cost 6,179,835
Less accumulated depreciation (3,826,305)
Total equipment, net 2,353,530
Building, at cost 1,801,530
Less accumulated depreciation (209,701)
Total building, net 1,591,829
Land, at cost 450,383
Total $ 4,880,403
Revenue for the assembly division for the year ended June 30, 1994 was
$15,927,588.
4. INVENTORIES
Inventories consist of the following:
1996 1995
Raw materials and supplies $ 1,824,463 $ 936,087
Work-in-process 4,387,292 3,066,307
Total inventories $ 6,211,755 $ 4,002,394
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
USEFUL LIFE JUNE 30,
<S> <C> <C> <C>
Land -- $ 489,729 $ 489,729
Buildings and leasehold improvements 10 to 31 10,752,978 9,276,851
Equipment 3 to 10 34,393,561 27,446,118
Office furniture and fixtures 5 to 7 537,190 532,759
Deposits on equipment -- 743,078 57,782
46,916,536 37,803,239
Less accumulated depreciation and amortization (22,120,831) (20,672,993)
Property and equipment $ 24,795,705 $ 17,130,246
</TABLE>
At June 30, 1996 and 1995, the company had equipment of $347,208 and zero,
respectively, financed with capital leases. The total accumulated amortization
at June 30, 1996 and 1995 was $31,568 and zero, respectively.
6. RESTRICTED CASH
Restricted cash at June 30, 1996 and 1995 consists of a $150,000 certificate
of deposit maintained as collateral for a note payable and $155,956 and
$153,625, respectively, reserved for payment of medical insurance claims that
may arise subsequent to termination of the Company's current insurance contract.
The Company has renewed the insurance contract through June 30, 1998.
7. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Equipment lease deposits $ -- $ 526,720
Loan fees, net of accumulated amortization of $20,088 and $97,953
at June 30, 1996 and 1995, respectively 22,468 289,136
Goodwill, net of accumulated amortization of $612,500
at June 30, 1996 7,787,500 --
Total other assets $ 7,809,968 $ 815,856
8. NOTES PAYABLE
1996 1995
Note payable to Finova Capital Corporation under a
$14,800,000 line of credit, paid April 1996 $ -- $ 4,794,672
</TABLE>
9. LONG-TERM NOTES PAYABLE
<PAGE>
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<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable to Finova Capital Corporation, paid April 1996 $ -- $ 3,990,827
Mortgage payable to SeaFirst Mortgage Corporation, 8% at June 30, 1996,
rate varies based on six-month certificates of deposit plus 2.75%, payable
in monthly installments of $26,813 including interest, collateralized by
plant facilities 3,054,815 3,091,567
Note payable to MetLife Capital Corporation, 7.67% at June 30, 1996,
interest rate varies at 30-day commercial paper rate plus 2.35%, payable
in monthly installments of $7,622 including interest, collateralized by a
$150,000 certificate of deposit and a deed of trust on PPG facilities
located in White City, Oregon 943,783 960,621
Notes payable to Heller Financial, Inc., 10.10% at June 30, 1996,
interest rate varies at highest defined rate announced by The First
National Bank of Chicago plus 1.85%, due in monthly installments of
$47,207 plus interest, collateralized by machinery and equipment and
personally guaranteed by a shareholder 1,333,374 --
Note payable to First Security Bank of Idaho, paid April 1996 -- 881,367
Notes payable to Oregon Department of Energy, 7.4% to 9.95%, due in
monthly installments of $22,489 including interest, unpaid principal and
interest due June 1, 1998 through January 1, 2007, collateralized by
equipment and a second deed of trust on PPG land and facilities located
in Dallas, Oregon and personally guaranteed by a shareholder 1,936,902 2,035,145
Note payable to U.S. National Bank of Oregon, paid November 1995 -- 500,000
Note payable, 9.00%, due in semi-annual installments of $6,090 including
interest, collateralized by equipment 20,541 30,041
Note payable to PacifiCorp, 7.06%-8.25% at June 30, 1996 83,611 --
Line of credit of $10,000,000 payable to Key Bank, 8.25% at June 30, 1996,
collateralized by inventory and accounts receivable, expires April 12, 1998 984,592 --
Subtotal 8,357,618 11,489,568
Less current portion (767,227) (1,301,842)
Total long-term notes payable $ 7,590,391 $ 10,187,726
</TABLE>
The Company's loan agreements with Heller Financial, Inc. and Key Bank
contain covenants pertaining to maintenance of tangible net worth and
maintenance of certain financial ratios. The Company was not in violation of any
covenants at June 30, 1996.
Maturities on the notes payable as of June 30, 1996 were as follows:
YEAR ENDING JUNE 30,
1997 $ 767,227
1998 2,232,098
1999 1,301,408
2000 215,076
2001 230,178
Thereafter 3,611,631
Total $ 8,357,618
10. OBLIGATIONS UNDER CAPITAL LEASES
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Leases payable, 10.4% to 12.75% imputed interest, due in monthly
installments ranging from $705 to $6,517 including interest $ 207,846 $ --
Less current portion 103,647 --
Total $ 104,199 $ --
</TABLE>
11. OPERATING LEASES
Praegitzer leases equipment under operating lease agreements which expire at
various times. Future minimum rentals at June 30, 1996 under these agreements
are as follows:
<PAGE>
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YEAR ENDING JUNE 30,
1997 $ 1,521,704
1998 1,300,968
1999 916,669
2000 551,417
2001 261,550
Total $ 4,552,308
Several of Praegitzer's operating leases contain renewal options.
Rent expense relating to the equipment leases totaled $796,642, $1,072,481,
and $880,824 for the years ended June 30, 1996, 1995, and 1994, respectively.
12. RELATED-PARTY TRANSACTIONS
The amounts due from shareholder of $347,852 at June 30, 1995 represents
demand notes receivable due from Robert L. Praegitzer, a shareholder, bearing
interest at 8%. All amounts due have been repaid.
Praegitzer has sold printed circuit boards to Carillon Corporation, an Oregon
corporation in which Robert L. Praegitzer is a 50% shareholder. Prior to
August 17, 1994, Robert L. Praegitzer was the sole shareholder of Carillon
Corporation. Sales to Carillon Corporation which related to the assembly
division were $981,630 for the year ended June 30, 1994. Sales to Carillon
Corporation for the years ended June 30, 1996 and 1995 were insignificant.
The amounts due from Carillon Corporation of $313,407 at June 30, 1995
represents the excess of advances made by Praegitzer over repayments made by
Carillon Corporation. All amounts due have been repaid.
At June 30, 1995, the accompanying balance sheet includes $68,400 due from
Virtual Image Displays, Inc., a corporation in which Praegitzer has a 50%
ownership interest. Sales to Virtual Image Displays, Inc. for the years ended
June 30, 1996 and 1995 were insignificant.
During the year ended June 30, 1996, the Company had notes payable to
shareholders of $3,337,960. The notes payable represented the undistributed
cumulative income that had been taxed or was taxable to the previous
shareholders of PDI and CTI, who are now shareholders of Praegitzer. The notes
payable were repaid in April 1996.
13. INCOME TAXES
The following information reflects income taxes on the Company's earnings
from the date of the Offering to June 30, 1996. At the date of the Offering, the
Company terminated its S corporation election and is now taxed as a C
corporation.
Current:
Federal $ 891,000
State 52,000
943,000
Deferred:
Federal 466,000
State 36,000
502,000
$ 1,445,000
The income tax provision on earnings from continuing operations subsequent to
the date of the Offering which are subject to income taxes differs from the
statutory federal income tax rate due to the following:
Federal income taxes at the statutory rate $ 1,402,000
State income taxes, net of federal benefit 67,000
State tax credits (23,000)
Other (1,000)
$ 1,445,000
The significant items comprising the Company's net deferred tax liability
are disclosed below with the pro forma information. The following unaudited
information reflects pro forma income taxes as if the Company's earnings from
<PAGE>
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continuing operations had been subject to federal and state income taxes as a C
corporation for all periods presented:
YEAR ENDED JUNE 30,
1996 1995 1994
Current:
Federal $ 4,278,000 $ 946,858 $ (680,279)
State 742,000 -- 134,338
5,020,000 946,858 (545,941)
Deferred:
Federal (595,000) (299,874) (35,240)
State 47,000 43,881 (338,282)
(548,000) (255,993) (373,522)
$ 4,472,000 $ 690,865 $ (919,463)
The pro forma income tax provision on earnings from continuing operations
subject to income taxes differs from the statutory federal income tax rate due
to the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994
<S> <C> <C> <C>
Federal income taxes at the statutory rate $ 4,118,000 $ 637,972 $ (727,303)
State income taxes, net of federal benefit 323,000 81,811 (93,266)
State tax credits (171,000) (39,084) (112,189)
Other 202,000 10,166 13,295
$ 4,472,000 $ 690,865 $ (919,463)
</TABLE>
Pro forma income taxes related to discontinued operations differs from the
statutory rate primarily due to state income taxes, net of federal benefit.
The pro forma tax effect of significant items comprising the Company's net
deferred tax liability are as follows:
YEAR ENDED JUNE 30,
1996 1995
Allowance for doubtful accounts $ 117,000 $ 57,540
Accrued expenses 376,000 18,745
State income taxes - credits 117,000 151,273
State NOL -- 100,154
Property, plant, and equipment (1,112,000) (1,377,876)
$ (502,000) $ (1,050,164)
Net deferred tax assets and liabilities are included in the following balance
sheet accounts at June 30, 1996:
Current deferred tax asset $ 394,000
Deferred tax liability (896,000)
Net deferred tax liability $ (502,000)
14. MAJOR CUSTOMERS
During the years ended June 30, 1996, 1995, and 1994, the Company recognized
23%, 29%, and 46% of total revenue, respectively, from two customers.
15. EMPLOYEE BENEFIT PLAN
In April 1990, Praegitzer instituted a 401(k) plan which covers all employees
and permits discretionary contributions by the participants. The Company has
contributed approximately $251,188 to the plan for the year ended June 30, 1996.
The Company had not contributed to the plan on behalf of the employees prior to
June 30, 1995.
16. CONTINGENCIES AND COMMITMENTS
<PAGE>
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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 judgment.
Management believes that the jury verdict was excessive; however, due to the
uncertainty involved in the appeal process, the entire judgment has been
accrued.
The Company is involved as a defendant in litigation in the ordinary course
of business, the outcome of which cannot be predicted with certainty. Management
believes that any ultimate liability with respect to such litigation will not
materially affect the financial position or results of operations of the
Company.
17. STOCK INCENTIVE PLAN AND STOCK WARRANTS
Praegitzer's Board of Directors and shareholders adopted and approved the
1995 Stock Incentive Plan (the Stock Incentive Plan) on December 19, 1995. Under
the Stock Incentive Plan, the Board of Directors may grant incentive and non-
qualified options, stock bonuses, restricted stock, stock appreciation rights,
and cash bonus rights to employees and directors to purchase up to 1,500,000
shares of common stock. The Stock Incentive Plan shall continue in effect until
all shares available for issuance have been issued. However, the Board of
Directors can suspend or terminate the Stock Incentive Plan at any time except
with respect to options and shares subject to restrictions then outstanding
under the Stock Incentive Plan. Options to purchase a total of 667,000 shares of
common stock with an exercise price of $9.50 - $12.00 per share have been
granted and are outstanding. None of such options have been exercised. Such
options generally vest at the rate of 25% per year and expire ten years from
date of grant.
In connection of the acquisition of CTI (see Note 2), Praegitzer issued stock
warrants to purchase 46,333 shares of common stock to the former shareholders of
CTI. The warrants can be exercised at $12 per share and expire in 2006.
At June 30, 1996, no shares had been purchased under the stock warrants.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, receivables, payables, accrued
liabilities, and short-term borrowings approximates fair value because of the
short-term maturity of these instruments.
The fair value of long-term debt has been estimated by discounting projected
future cash flows, using a current rate at which similar loans would be made to
borrowers with similar credit ratings and for the same maturities. Current
maturities of long-term debt were included and capital lease obligations were
excluded. The fair value of the Company's long-term debt is estimated to be
$8,400,289, or 100.5% of the carrying value of $8,357,617 at June 30, 1996.
19. PRO FORMA EARNINGS PER SHARE (UNAUDITED)
Pro forma net income per share is based on the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares from
stock options (using the treasury stock method). The shares outstanding for all
periods give effect to the stock split described in Note 1 as well as the
following pro forma adjustments:
YEAR ENDED JUNE 30,
1996 1995
Average outstanding shares 7,161,872 6,717,000
Common stock equivalents - net 40,024 --
Shares deemed issued for S corporation dividend 538,462 736,842
Shares issued for merger of PPG 1,369,875 1,369,875
Pro forma average shares 9,110,233 8,823,717
Common and common equivalent shares issued during the 12-month period prior
to the proposed offering have been included in the calculation using the
treasury stock method as if they were outstanding for all periods presented.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
In the opinion of management, this unaudited quarter financial summary
includes all adjustments, which are of a normal and recurring nature,
necessary to present fairly the financial position, the results of
operations, and of cash flows of the Company for the periods represented (in
thousands, except per share amounts):
<PAGE>
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Page 15
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Net sales $ 17,951 $ 22,618 $ 25,778 $ 28,754
Gross profit 3,954 4,966 5,977 7,263
Increase from operations 2,540 2,839 3,717 4,168
Income before taxes 2,103 2,445 2,602 4,005
Pro forma net income 1,262 1,480 1,653 2,521
Pro forma earnings per share 0.14 0.16 0.22 0.23
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Net sales $ 14,291 $ 14,324 $ 13,399 $ 16,082
Gross profit 2,306 2,180 2,069 3,198
Increase from operations 645 521 638 1,543
Income before taxes 336 137 290 1,113
Pro forma net income 217 82 183 703
Pro forma earnings per share 0.02 0.01 0.02 0.08
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-07533, 333-07535, and 333-9319 of Praegitzer Industries, Inc. on
Form S-8 of our report dated August 16, 1996, incorporated by reference in
this Annual Report on Form 10-K/A of Praegitzer Industries, Inc. for the year
ended June 30, 1996.
DELOITTE & TOUCHE LLP
Portland, Oregon
August 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 39
<SECURITIES> 0
<RECEIVABLES> 13,339
<ALLOWANCES> 265
<INVENTORY> 6,212
<CURRENT-ASSETS> 19,924
<PP&E> 46,917
<DEPRECIATION> 22,121
<TOTAL-ASSETS> 52,836
<CURRENT-LIABILITIES> 9,181
<BONDS> 0
0
0
<COMMON> 29,932
<OTHER-SE> 4,709
<TOTAL-LIABILITY-AND-EQUITY> 52,836
<SALES> 95,101
<TOTAL-REVENUES> 95,101
<CGS> 72,941
<TOTAL-COSTS> 72,941
<OTHER-EXPENSES> 8,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,799
<INCOME-PRETAX> 11,767
<INCOME-TAX> 4,472
<INCOME-CONTINUING> 7,295
<DISCONTINUED> 379
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,916
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
