<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 25, 1995
COMMISSION FILE NUMBER 0-7558
ADVANCE CIRCUITS, INC.
A Minnesota Corporation
I. R. S. Identification Number 41-0917530
5929 Baker Road, Suite 470
Minnetonka, Minnesota 55345
Telephone No. (612) 988-8700
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 twelve (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_____________________
7,564,895 Shares of Common Stock (Par value $.10 per Share) outstanding on April
10, 1995
This report totals pages 7
No Exhibit Index
1
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ADVANCE CIRCUITS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
February 25 August 27
ASSETS 1995 1994
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,788,140 $ 8,694,590
Receivables 21,195,974 20,487,407
Prepaid expenses 1,474,177 1,100,892
--------------- ---------------
Inventories:
Materials 3,122,966 2,971,848
Printed circuit boards in process 7,242,017 4,800,951
--------------- ---------------
Total inventories 10,364,983 7,772,799
--------------- ---------------
Total current assets 38,823,274 38,055,688
--------------- ---------------
PROPERTY AND EQUIPMENT:
Land and building 2,701,013 2,658,041
Equipment 62,677,002 52,263,219
Leasehold improvements 5,807,173 5,205,104
Accumulated depreciation and
amortization (39,632,870) (32,967,848)
--------------- ---------------
Net property and equipment 31,552,318 27,158,516
--------------- ---------------
GOODWILL 4,400,886 784,828
OTHER ASSETS 2,954,649 3,665,917
--------------- ---------------
$ 77,731,127 $ 69,664,949
--------------- ---------------
--------------- ---------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 291,050 $ 31,913
Note payable --- 2,000,000
Accounts payable 14,967,693 12,687,854
Accrued wages 2,065,811 2,240,730
Accrued expenses 771,197 784,709
Income taxes payable 326,083 551,228
--------------- ---------------
Total current liabilities 18,421,834 18,296,434
--------------- ---------------
DEFERRED INCOME TAXES 2,093,000 2,093,000
LONG-TERM DEBT, less current maturities 39,116 50,990
--------------- ---------------
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par, 10,000,000
shares authorized, 7,564,895 and
7,319,895 shares issued 756,489 731,990
Paid-in surplus 12,995,673 10,044,051
Retained Earnings 44,851,165 40,022,759
Deferred compensation (1,426,150) (1,574,275)
--------------- ---------------
Total shareholders' investment 57,177,177 49,224,525
--------------- ---------------
$ 77,731,127 $ 69,664,949
--------------- ---------------
--------------- ---------------
</TABLE>
2
<PAGE>
ADVANCE CIRCUITS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED
------------------------------ -------------------------------
February 25 February 26 February 25 February 26
1995 1994 1995 1994
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 42,325,133 $ 33,272,081 $ 82,153,106 $ 67,778,467
COST OF SALES 35,697,176 29,055,096 69,101,715 57,117,043
-------------- --------------- --------------- ---------------
GROSS PROFIT 6,627,957 4,216,985 13,051,391 10,661,424
-------------- --------------- --------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES 1,508,341 944,450 2,719,188 2,005,033
MARKETING EXPENSES 1,395,453 1,212,332 2,787,545 2,279,849
-------------- --------------- --------------- ---------------
3,724,163 2,060,203 7,544,658 6,376,542
INTEREST AND OTHER INCOME (29,860) (201,083) (149,855) (345,701)
INTEREST EXPENSES 17,227 14,340 30,108 29,347
-------------- --------------- --------------- ---------------
3,736,796 2,246,946 7,664,405 6,692,896
INCOME TAXES 1,383,000 830,000 2,836,000 2,465,000
-------------- --------------- --------------- ---------------
NET INCOME $ 2,353,796 $ 1,416,946 $ 4,828,405 $ 4,227,896
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 7,466,000 7,204,000 7,311,000 7,196,000
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
NET INCOME PER SHARE $ 0.32 $ 0.20 $ 0.66 $ 0.59
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
DIVIDEND PER COMMON SHARE NONE NONE NONE NONE
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
</TABLE>
3
<PAGE>
ADVANCE CIRCUITS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE 6 MONTHS ENDED
-------------------------------
February 25 February 26
1995 1994
--------------- ---------------
<S> <C> <C>
Cash Flows Provided By (Used For):
Operating Activities:
Net income $ 4,828,403 $ 4,227,896
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,543,558 3,726,435
Change in current assets and
current liabilities (3,646,627) (1,498,264)
--------------- ---------------
Net cash provided by operating
activities 5,725,334 6,456,067
--------------- ---------------
Investing Activities:
Change in other assets (4,662) 258
License agreement (750,000) ---
Note receivable --- (1,500,000)
Capital expenditures, net (6,318,887) (4,960,130)
--------------- ---------------
Net cash used in investing activities (7,073,549) (6,459,872)
--------------- ---------------
Financing Activities:
Forfeiture of restricted common stock (33,726) ---
Principal payment on long-term debt (1,452,342) (92,221)
Proceeds from issuance of common stock --- 17,500
Cash deficit from acquisition of AAI (72,170) ---
--------------- ---------------
Net cash from in financing activities (1,558,238) (74,721)
--------------- ---------------
Net change in cash (2,906,453) (78,526)
Cash:
Beginning of period 8,694,590 7,096,805
--------------- ---------------
End of period $ 5,788,137 $ 7,018,279
--------------- ---------------
--------------- ---------------
Supplemental Disclosures of Cash Used For
Interest $ 28,380 $ 29,336
Income taxes 3,050,298 3,128,585
--------------- ---------------
--------------- ---------------
Schedule of noncash financing activities:
Common stock issued for acquisition of AAI $ 2,970,000 $ ---
Retirement of note receivable in
acquisition of AAI 1,500,000 ---
--------------- ---------------
--------------- ---------------
</TABLE>
4
<PAGE>
ADVANCE CIRCUITS, INC.
Notes to Condensed Consolidated Financial Statements
February 25, 1995
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and disclosures necessary for a fair presentation of
results of operations, financial position and changes in cash flows in
conformity with generally accepted accounting principles. The condensed
statements of income for the six month periods ended February 25, 1995 and
February 26,1994 reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation of
the results of operations for these periods.
NOTE 2 - Acquisition of Acsist Associates, Inc.
On December 2, 1994, the Company acquired Acsist Associates, Inc. (AAI) a
manufacturer of complex multilayer circuit boards and multi-chip modules for
240,000 common shares. The transaction was accounted for by the purchase method
of accounting. The cost of the acquisition exceeded the basis in its assets by
$4,070,180, which amount is being amortized over a period of 15 years. The
operations of AAI have been included in the financial statements from the date
of acquisition. Proforma results of operations as if the acquisition had
occurred at the beginning of the period for each of the fiscal years are as
follows:
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
February 25, 1995 February 26, 1994
------------------ ------------------
<S> <C> <C>
Sales $84,710,000 $ 74,047,000
Net income before extraordinary item 3,788,000 4,085,000
Net income 3,788,000 4,558,000
Per Share
Net income before extraordinary item $ .51 $ .55
Net income .51 .61
</TABLE>
NOTE 3 - Net Income Per Share
Net income per common share is computed by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding.
NOTE 4 - Restricted Stock Plan
In 1990, the Board of Directors approved a restricted stock plan and
reserved 312,500 common shares for granting under the plan. The Board of
Directors approved an increase of 187,500 shares in August, 1993 and the
increase was approved by the Companys shareholders at its annual meeting on
December 14, 1993. During the first six months of fiscal 1995, 25,000 shares
were granted in accordance with the plan and 20,000 shares were forfeited. As of
February 25, 1995, the Board of Directors has granted 336,250 shares without
charge to certain key employees. Shares granted pursuant to the plan vest seven
years after the grant date. However, if the Company earns $1.50 per share for
three consecutive years, up to 50 percent of the shares will vest. The shares
are subject to forfeiture if the employee leaves the Company.
5
<PAGE>
NOTE 5 - Incentive Stock Option Plan
During the first six months of fiscal 1995, no common shares were issued
upon exercise of options granted in accordance with the Companys incentive stock
option plan. No options were granted during the period and no shares were
forfeited. As of February 25, 1995, there were options outstanding to purchase
56,000 shares at $8.38 per share.
In connection with the acquisition of AAI, existing options and warrants
for AAI shares were converted into options to acquire 5,018 shares at $16.64 per
share and 20,396 shares at $24.96 per share of the Companys common shares. The
options expire in various amounts to 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales for the three-month period ended February 25, 1995 were $42,325,000,
an increase of $9,053,000 (27.2%) from sales of $33,272,000 for the second
quarter of fiscal 1994. Sales for the six-month period ended February 25, 1995
totaled $82,153,000 an increase of $14,375,000 (21.2%) from sales of $67,778,000
for the comparable period in fiscal 1994.
Sales for the quarter and for the first six months of the fiscal year
represent records for the Company and are the result of utilization of
increased capacity from the addition of new capital equipment and the inclusion
of the sales of Acsist Associates, Inc. (AAI) in the consolidated results from
its acquisition on December 2, 1994. The industry remained strong during the
period and pricing was stable. The February 25, 1994 sales backlog was
$68,309,000 compared to $52,953,000 at February 28,1994.
Gross margin for the second quarter in fiscal 1995 was 15.6% compared to
16.1% in the prior quarter and 12.6% for the comparable period in fiscal 1993.
The decrease in margins for the quarter compared to the prior quarter is the
result of the additional volume from AAI which had a very low gross margin and
lower gross margin than expected at Targ-It-Tronics, its Florida based
subsidiary. Margins are up from the same period in 1994 which was overall a
very disappointing quarter for the Company with poor margins in all of its
segments. Margins in the current year are also impacted by the increase of lower
gross margin commercial and assembly work as a percent of total company sales.
Operating expenses for the quarter and six month periods ended February
25, 1995 increased $747,000 (34.6%) and $1,212,000 (28.5%) from the
corresponding periods in fiscal 1994. The increases in both dollar amount and
percent to sales were due to the addition of AAI and the operating expenses
related to its operations. The increase in marketing expenses was due to
increased costs associated with higher level of sales and increased personnel in
the sales force. Interest and other income decreased due to lower commission
income at Targ-It-Tronics and lower cash balances the effect of which was
partially offset by improved interest rates.
The Company's income tax provision has been computed at 37 percent which is
the expected effective rate for the fiscal year.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $7,000,000 line of credit with its bank, none of which
has been drawn as of February 25, 1995. The credit line has an interest rate
equal to the bank's base rate and is secured by accounts receivable. The Company
believes that the current cash balances, cash flow generated from operations and
available borrowing capacity under the line of credit, will be sufficient to
fund operations and capital requirements for 1995.
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the registrant's shareholders was held on
Tuesday, December 13, 1994.
(b) At the Annual meeting a proposal to set the number of directors at five
was adopted by a vote of 5,694,163 shares in favor, with 5,854 shares against,
and 32,315 shares abstaining.
(c) Proxies for the Annual meeting were solicited pursuant to Regulation
14A under the Securities Exchange Act of 1934, there was no solicitation in
opposition to management's nominees, and the following persons were elected
directors of the Registrant to serve until the next annual meeting of
shareholders and until their successors shall have been duly elected and
qualified:
<TABLE>
<CAPTION>
NOMINEE NUMBER OF VOTES FOR NUMBER OF VOTES WITHHELD
<S> <C> <C>
Robert W. Heller 5,637,797 56,366
Thomas I. Mueller 5,638,165 55,998
Thomas F. Leahy 5,647,632 46,531
David C. Malmberg 5,642,141 52,022
Stephen G. Shank 5,640,451 53,712
</TABLE>
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) During the three month period ended February 25, 1995, no reports
on 8-K were filed.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCE CIRCUITS, INC. (the "Registrant")
Date: April 10, 1995 By /s/ Robert W. Heller
--------------------
Robert W. Heller
President & CEO
Date: April 10, 1995 By /s/ Thomas I. Mueller
---------------------
Thomas I. Mueller
Executive Vice President & CFO
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCE
CIRCUITS, INC FEBRUARY 25, 1995 BALANCE SHEET AND INCOME STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-26-1995
<PERIOD-START> NOV-27-1994
<PERIOD-END> FEB-25-1995
<CASH> 5,788,140
<SECURITIES> 0
<RECEIVABLES> 21,195,974
<ALLOWANCES> 0
<INVENTORY> 10,364,983
<CURRENT-ASSETS> 38,823,274
<PP&E> 71,185,188
<DEPRECIATION> 39,632,870
<TOTAL-ASSETS> 77,731,127
<CURRENT-LIABILITIES> 18,421,834
<BONDS> 0
<COMMON> 756,489
0
0
<OTHER-SE> 56,420,688
<TOTAL-LIABILITY-AND-EQUITY> 77,731,127
<SALES> 82,153,106
<TOTAL-REVENUES> 82,153,106
<CGS> 69,101,715
<TOTAL-COSTS> 5,506,733
<OTHER-EXPENSES> (149,855)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,108
<INCOME-PRETAX> 7,664,405
<INCOME-TAX> 2,836,000
<INCOME-CONTINUING> 4,828,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,828,405
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
