<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............ to............
Commission file number 0-17743
-------
COMPTRONIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0860282
(State or Jurisdiction Of (I.R.S. Employer
Incorporation or organization) Identification no.)
COMPTRONIX CORPORATION
THREE MARYLAND FARMS
SUITE 140 37027
NASHVILLE, TENNESSEE
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (615) 377-3330
-----------------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
REPORT)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. 13,163,410 as of May 13, 1996
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED FINANCIAL STATEMENTS
COMPTRONIX CORPORATION
BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ----------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 277 $ 225
Accounts receivable, net 14,856 13,042
Inventories 15,485 18,165
Other current assets 1,361 822
--------- ---------
Total Current Assets 31,979 32,254
Property, Plant and Equipment
(Less accumulated depreciation
and amortization of $26,524 at
March 31, 1996 and $26,344 at
December 31, 1995) 14,330 14,312
Other Assets 1,144 1,145
--------- ---------
Total Assets $ 47,453 $ 47,711
========= =========
</TABLE>
See notes to financial statements.
2
<PAGE> 3
COMPTRONIX CORPORATION
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 1,559 $ 1,559
Accounts payable 9,851 8,158
Accrued payroll and related expenses 976 876
Other payables and accruals 2,284 3,270
------------ --------------
Total current liabilities 14,670 13,863
Convertible Subordinated Debentures 29,230 29,230
Long-term debt, excluding current maturities 17,516 17,098
Stockholders' Equity:
Redeemable convertible preferred stock Series A-6% no
par value per share; authorized 5,000,000 shares;
issued and outstanding, 1,899,319 shares plus $576
dividend accretion at March 31, 1996 and 1,899,319
shares plus $286 dividend accretion at December 19,570 19,279
31, 1995
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 13,298,410 shares at
March 31, 1996 and at December 31, 1995 133 133
Additional paid-in capital 29,765 29,749
Accumulated Deficit (63,431) (61,641)
------------ --------------
Total Stockholders' Equity/(Deficiency) (13,963) (12,480)
------------ --------------
Total Liabilities and Stockholders' Equity $ 47,453 $ 47,711
============ ==============
</TABLE>
See notes to financial statements.
3
<PAGE> 4
COMPTRONIX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------
March 31, April 2,
1996 1995
----------- ------------
(in thousands except per share)
<S> <C> <C>
Sales $ 23,497 $ 27,503
Cost of Sales 22,285 25,273
---------- ----------
Gross Profit 1,212 2,230
Marketing, general and administrative expense 1,463 1,360
Interest expense - net 1,011 993
Other expense (income) 237 (196)
---------- ----------
2,711 2,157
---------- ----------
Net income/(loss) (1,499) 73
Accrued dividend in kind on preferred stock 291 234
---------- ----------
Net loss applicable to common stock $ (1,790) $ (161)
========== ==========
Net loss per common share $ (.13) $ (.01)
========== ==========
Weighted average common shares 13,298 12,689
========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE> 5
COMPTRONIX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, April 2,
1996 1995
------------ ---------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (1,499) $ 73
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Loss on sale of assets 77 -
Depreciation and amortization 1,066 1,378
Allowance for doubtful accounts 87 (632)
(Increase)/decrease in accounts receivable - trade (1,901) 414
(Increase)/decrease in inventories 2,680 (428)
(Increase)/decrease in prepaid exp.and other assets (539) 100
Increase in accounts payable 1,700 853
Increase in accrued payroll and related expenses 100 186
Decrease in other payables and accruals (985) (119)
--------- --------
Net cash provided by operating activities 786 1,825
--------- --------
Cash flows from investing activities:
Capital expenditures, net (1,152) (661)
--------- --------
Net cash used in investing activities (1,152) (661)
--------- --------
Cash flows from financing activities:
Net payments on revolving line of credit 926 (859)
Principal payments on other long term debt (508) (702)
--------- --------
Net cash provided by/(used in) financing activities 418 (1,561)
--------- --------
Net increase/(decrease) in cash 52 (397)
Cash, beginning of period 225 397
--------- --------
Cash, end of period $ 277 $ 0
========= ========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with instructions to Form 10- Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements (and all other information
in this report) have not been audited by independent accountants, but in the
opinion of the Company, contain all adjustments necessary for a fair
presentation of the results for the period. The results of operations for the
three month period ended March 31, 1996 are not necessarily indicative of the
results of operations for the year ending December 31, 1996.
NOTE 2 - LONG TERM DEBT
In November 1993, the Company obtained a new credit facility with The CIT
Group/Business Credit, Inc. The credit facility, as amended, consists of a
$34.0 million revolving line of credit secured by accounts receivable and
inventory maturing in November 1998 and $6.0 million five-year term loan
secured by equipment. The borrowings under the revolving line of credit are
limited to 85% of the Company's eligible accounts receivable and 50% of the
Company's eligible inventory (a total availability of $14.9 million at March
31, 1996 and $15.2 million at December 31, 1995 and total borrowings of $15.0
million and $14.1 million, respectively). The credit facility has various
financial covenants which limit the Company's ability to incur additional
indebtedness, purchase and dispose of equipment and declare or pay cash
dividends. The Company is also required to maintain certain financial
covenants. As of March 31, 1996, the Company was required to maintain EBITDA
(earnings before interest, taxes, depreciation and amorization) of $500,000.
As of March 31, 1996, the Company was in compliance with all covenants, and its
actual measure under the EBITDA covenant was $578,000. The quarterly financial
covenants for the remainder of 1996 are as follows:
<TABLE>
<CAPTION>
Six Months Nine Months Year Ending
Ending Ending Ending
June 30, 1996 Sept. 30, 1996 Dec. 31, 1996
------------- -------------- -------------
<S> <C> <C> <C>
EBITDA $2.0 million $4.0 million N/A
Fixed charge coverage ratio N/A N/A 1.0 to 1
</TABLE>
Based on the Company's current projections and business plan, management
currently believes that the Company will meet the covenants for the year ending
December 31, 1996. However, because several significant customers in the
telecommunication industry have reduced their near-term production schedules
and increased schedules in the third and fourth quarters of 1996 in an effort
to reduce their current finished goods inventory levels, there exists the risk
that the Company's second quarter sales will be less than first quarter sales
and that the Company will not meet the covenants for the six months ending June
30, 1996. To address this risk, the Company has implemented certain measures
to make productivity improvements and cost adjustments, including the reduction
of headcount by 15% since the beginning of 1996 and reduced overhead expenses.
Nevertheless, if the Company does not comply with these covenants, the Company
will be required to seek a waiver or amendment to the CIT Credit Agreement in
order to continue borrowing under such agreement and to avoid potential
acceleration of the indebtedness outstanding. Management also has identified
other contingent plans to reduce expenses, if necessary, to remain in
compliance with these covenants.
The Company believes that cash generated from operations and with borrowings
under its credit facility described above should be sufficient for the Company
to meet its obligations during 1996, including debt settlement and trade
creditor obligations.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
GENERAL
Comptronix Corporation provides manufacturing services to original equipment
manufacturers ("OEMs") in the electronics industry, including producers of
computers, computer peripherals, industrial instruments, communications
equipment, medical devices and test equipment. The Company operates facilities
in Guntersville, Alabama, and in Empalme, Sonora, Mexico.
The Company has incurred operating losses during the last seven years.
Management has implemented various operating plans and strategies intended to
increase sales, gross margins and profitability and to further control expenses
while improving operating efficiencies. Operating results are generally
affected by a number of factors, including the relative mix of high
volume/lower margin business and lower volume/higher margin business, price
competition, raw material costs, labor efficiencies, the degree of automation
that can be used in the assembly process and the efficiencies achieved by the
Company in managing inventories and fixed assets. The Company's future success
will depend, in part, on its ability to continue to provide quality, on-time
products and services to its customers, on its ability to meet its ongoing
obligations to its suppliers and on its ability to maintain its lending
relationships.
The financial information and the discussion below should be read in
conjunction with the unaudited financial statements and notes thereto included
in this Form 10-Q. This discussion will also address certain factors which are
anticipated to effect the Company's 1996 results and financial condition.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1996 and April 2, 1995
The following table sets forth for the period indicated, the percentage of
sales of certain items in the Statement of Operations.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------
March 31, April 2,
1996 1995
---------- ----------
(%) (%)
<S> <C> <C>
Sales 100.0 100.0
Cost of Sales 94.8 91.9
----- -----
Gross profit 5.2 8.1
Marketing, general and administrative expense 6.2 4.9
Interest expense - net 4.3 3.6
Other income 1.0 (.7)
----- -----
Net income/(loss) (6.3) .3
</TABLE>
Sales for the first quarter of 1996 were $23.5 million, a decrease of 14.6% as
compared to first quarter 1995 sales of $27.5 million. The decrease in sales
predominantly relates to unusually severe winter weather, which impacted seven
production days during the first quarter of 1996.
Gross profit for the first quarter of 1996 was $1.2 million, 5.2% of sales, as
compared to a gross profit of $2.2 million, 8.1% of sales, for the first
quarter of 1995. Beginning in the last half of 1995 and continuing through
the first quarter of 1996, gross profit has declined as compared to the first
quarter of 1995 due to the inefficiencies associated with the consolidation of
the Colorado Springs division into the Company's two facilities in
Guntersville, Alabama. The Company's ongoing efforts to control costs and
improve productivity, however, have resulted in improved gross margins from
4.7% in the fourth quarter of 1995 to 5.2% in the first quarter of 1996,
resulting in a 13.7% increase in gross profit dollars as a percentage of sales.
7
<PAGE> 8
Marketing, general and administrative expenses increased slightly to $1.5
million for the first quarter of 1996, as compared to $1.4 million for the
first quarter of 1995 due to continuing marketing efforts targeted to expand
the Company's business. Marketing, general and administrative expenses
increased to 6.2% of sales for the first quarter of 1996, as compared to 4.9%
of sales for the first quarter of 1995 reflecting the lower sales base in the
first quarter of 1996.
Interest expense was at $1.0 million for the first quarter of 1996 and for the
first quarter of 1995.
Other expense was $.2 million for the first quarter of 1996 as compared to
other income of $.2 for the first quarter of 1995. Other income for 1995
includes amortization expense of deferred financing costs which was more than
offset by the reversal of reserves relating to previous non-cash charges
reserving for bad debts that were subsequently collected. Other expense for
1996 includes amortization expense of deferred financing costs.
The Company's net loss was $1.8 million for the first quarter of 1996 as
compared to a net loss of $161,000 for the first quarter of 1995. Net loss per
common share was $0.13 (based upon a weighted average of 13,298,000 shares
outstanding) in the first quarter of 1996, compared to net loss per common
share $0.01 (based upon a weighted average of 12,689,000 shares outstanding) in
the first quarter of 1995.
CERTAIN CURRENTLY IDENTIFIABLE FACTORS ANTICIPATED TO AFFECT REMAINING 1996
RESULTS
Based upon the Company's current assessment of its business, there are several
currently identifiable factors which are likely to affect the remainder of 1996
operating results. In addition, factors which are likely to affect the
Company's liquidity and uses of funds during the remainder of 1996 are
discussed below under "Liquidity and Capital Resources".
The Company believes that it has taken several important steps which will
improve its results of operations through 1996. First, the Company made the
strategic decision to sell its San Jose division to reduce the level of fixed
costs that the Company's revenue base must absorb. The sale was completed in
late 1994 and significantly reduced the Company's fixed costs throughout 1995.
During 1995, the Company consolidated its Colorado Springs division with the
Guntersville facilities, further reducing the Company's fixed costs during the
later half of 1995. Further, the Company has taken steps to diversify its
customer base to reduce, to some extent, the vulnerability it experienced as a
result of decreased shipments to the personal computer and medical capital
equipment industries beginning in late 1994. It has been the Company's
experience that a substantial portion of its revenues comes from its customer
base on a recurring basis, but that new business is an important source of
revenue to couteract negative conditions that may affect that recurring base of
revenue. In January 1996, the Company opened its Empalme, Sonora, Mexico
facility. The opening of an offshore contract manufacturing facility will
allow the Company to compete in a lower labor cost market.
The Company has also identified certain factors which are likely to effect cost
of sales during the remainder of 1996. As described above, the Company has
significantly reduced costs and will continue to improve and reduce the overhead
component of cost of sales during 1996. The Company believes that its operating
expense control and reorganization of its material purchasing and control
functions will have a positive impact on cost of sales. In the first quarter of
1996, the Company experienced favorable purchase prices for materials in
comparison to amounts charged by suppliers from previous periods during 1995.
Although the Company has experienced some component shortages or higher than
projected costs from time to time related to the components market, the Company
believes that it has been able to maintain the quality of its products and meet
its customer schedules to date; however, there can be no assurance that the
Company will continue to do so in the future. The Company also believes that the
implementation of management information systems to identify areas for
improvement in operating efficiencies will facilitate more accurate and timely
management decisions.
The Company's backlog of orders on March 31, 1996 totaled approximately $55
million compared to $75 million at the end of 1995. Backlog consists of firm
purchase orders which typcially are to be filled within three to twelve months.
Since backlog orders may be rescheduled or canceled by payment of cancellation
charges, backlog does not necessarily reflect future sales levels.
8
<PAGE> 9
In March and April of 1996, several significant customers in the
telecommunication industry have reduced their near-term production schedules
and increased schedules in the third and fourth quarters of 1996 in an effort
to reduce their current finished goods inventory levels. Because of this
reduction, there exists the risk that the Company's second quarter will be
adversely affected.
In addition to these factors which are anticipated to affect the results of
operations, the Company continually monitors its liquidity and financial
position. The Company's primary lender, The CIT Group/Business Credit Inc.
("CIT"), became the Company's primary lender in late 1993 and continues to
provide the Company's working capital financing. Because of the factors
described above which have affected the results of operations during that
period, the Company has had to seek waivers of certain of the covenants
contained in the credit agreement with CIT to continue to borrowing under such
agreement and to avoid potential acceleration of the indebtedness outstanding.
During early 1996, the Company and CIT reached an agreement on a new set of
quarterly and annual financial covenants which are based upon the Company's
1996 business plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company has made significant progress in reducing its accounts receivable
and inventory balances to more acceptable levels, and used the excess working
capital to reduce debt. The Company reduced total long-term indebtedness (other
than convertible debt) from $44.0 million at December 31, 1992 to $17.5 million
at March 31, 1996. Management of the Company recognizes the strategic
importance of generating greater working capital from operations and is
focusing on improving inventory turns, reducing work in process cycle times and
improving asset utilization to measure the Company's future success in this
area.
The Company's net cash flows provided by operating activities were $.7 million
and $1.8 million in the first three months of 1996 and 1995, respectively.
Principally, the 1996 amount reflects lower levels of inventory as compared to
the first quarter of 1995.
The Company's net cash flows used in investing activities were $1.2 million and
$.7 million in the first three months of 1996 and 1995, respectively. These
uses principally relate to additions of machinery and equipment.
The Company's net cash flows provided by financing activities were $.4 million
for the first three months of 1996 and principally related to increased levels
on the revolving line of credit. The net cash flows used by financing
activities were $1.6 million in the first three months of 1995 and principally
related to payments on bank debt and settlement and restructuring costs.
In November 1993, the Company obtained a new credit facility with CIT. The
credit facility, as amended, consists of a $34.0 million revolving line of
credit secured by accounts receivable and inventory maturing in November 1998
and $6.0 million five-year term loan secured by equipment. The borrowings
under the revolving line of credit are limited to 85% of the Company's eligible
accounts receivable and 50% of the Company's eligible inventory (a total
availability of $14.9 million at March 31, 1996 and $15.2 million at December
31, 1995 and total borrowings of $15.0 million and $14.1 million,
respectively). The credit facility has various financial covenants which limit
the Company's ability to incur additional indebtedness, purchase and dispose of
equipment and declare or pay cash dividends. The Company is also required to
maintain certain financial covenants. As of March 31, 1996, the Company was
required to maintain EBITDA (earnings before interest, taxes, depreciation and
amorization) of $500,000. As of March 31, 1996, the Company was in compliance
with all covenants, and its actual measure under the EBITDA covenant was
$578,000. The quarterly financial covenants for the remainder of 1996 are as
follows:
9
<PAGE> 10
<TABLE>
<CAPTION>
Six Months Nine Months Year Ending
Ending Ending Ending
June 30, 1996 Sept. 30, 1996 Dec. 31, 1996
------------- -------------- -------------
<S> <C> <C> <C>
EBITDA $2.0 million $4.0 million N/A
Fixed charge coverage ratio N/A N/A 1.0 to 1
</TABLE>
Based on the Company's current projections and business plan, management
currently believes that the Company will meet the covenants for the year ending
December 31, 1996. However, because several significant customers in the
telecommunication industry have reduced their near-term production schedules
and increased schedules in the third and fourth quarters of 1996 in an effort
to reduce their current finished goods inventory levels, there exists the risk
that the Company's second quarter sales will be less than first quarter sales
and that the Company will not meet the covenants for the six months ending June
30, 1996. To address this risk, the Company has implemented certain measures
to make productivity improvements and cost adjustments, including the reduction
of headcount by 15% since the beginning of 1996 and reduced overhead expenses.
Nevertheless, if the Company does not comply with these covenants, the Company
will be required to seek a waiver or amendment to the CIT Credit Agreement in
order to continue borrowing under such agreement and to avoid potential
acceleration of the indebtedness outstanding. Management also has identified
other contingent plans to reduce expenses, if necessary, to remain in
compliance with these covenants.
In November 1993, the Company's bank lenders agreed to retain a four (4) year
term loan of $3.0 million secured by one of the Company's manufacturing
facilities in Guntersville, Alabama. At March 31, 1996 the amounts outstanding
under the term loan were $2.2 million.
EBITDA
The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $.6 million and $2.5 million for the first
quarter of 1996 and 1995, respectively. The Company presents EBITDA as a
supplement to the discussion of the Company's operating income and cash flow
from operations analysis because the Company believes that certain parties find
it to be a useful tool for measuring the Company's performance and ability to
service debt. EBITDA is not a substitute for GAAP operating and cash flow
data. Management, however, believes that EBITDA does supplement this
information for several reasons. First, EBITDA supplements data regarding the
Company's cash flow because EBITDA is the principal performance covenant in the
CIT Credit Agreement. In addition, the Company also has made significant
investments in capital equipment, primarily through borrowings. Therefore, the
Company is incurring a significant amount of depreciation on this equipment
reflected in its results of operations. As a result, the Company believes that
information with respect to EBITDA should be read in conjunction with the
discussion of results of operations and the discussion of liquidity and capital
resources.
10
<PAGE> 11
Part II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
11
<PAGE> 12
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.
COMPTRONIX CORPORATION
(Registrant)
Date: May 15, 1996
By: /s/ E. Townes Duncan
-----------------------------
E. Townes Duncan
Chairman of the Board
By: /s/ Joseph G. Andersen
-----------------------------
Joseph G. Andersen
Chief Financial Officer
12
<PAGE> 13
INDEX TO EXHIBITS
27 - Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COMPTRONIX CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 277
<SECURITIES> 0
<RECEIVABLES> 15,108
<ALLOWANCES> 252
<INVENTORY> 15,485
<CURRENT-ASSETS> 31,979
<PP&E> 40,854
<DEPRECIATION> 26,524
<TOTAL-ASSETS> 47,453
<CURRENT-LIABILITIES> 14,670
<BONDS> 29,230
19,570
0
<COMMON> 133
<OTHER-SE> (33,666)
<TOTAL-LIABILITY-AND-EQUITY> 47,453
<SALES> 23,497
<TOTAL-REVENUES> 23,497
<CGS> 22,285
<TOTAL-COSTS> 23,748
<OTHER-EXPENSES> 237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,011
<INCOME-PRETAX> (1,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,790)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
