<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------------
AUGUST 22, 1996
(DATE OF EARLIEST EVENT REPORTED)
THE DII GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 0-21374 84-1224426
- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER I.D. NO.)
</TABLE>
6273 MONARCH PARK PLACE, NIWOT, COLORADO 80503
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 652-2221
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 22, 1996, The DII Group, Inc. (the "DII Group") completed its
acquisition of Orbit Semiconductor, Inc., a Delaware corporation ("Orbit"),
through the merger of DII Merger Corp. ("Merger Sub"), a wholly-owned subsidiary
of the DII Group, with and into Orbit (the "Merger"), pursuant to an Agreement
and Plan of Merger, dated as of June 9, 1996 (the "Merger Agreement"), by and
among the DII Group, Merger Sub and Orbit. The Merger Agreement was approved and
adopted by the requisite votes of the stockholders of the DII Group and Orbit at
the respective special meeting of stockholders of each company held on August
22, 1996. As a result of the Merger, Orbit has become a wholly-owned subsidiary
of the DII Group, and each outstanding share of common stock, $0.001 par value,
of Orbit has been converted into the right to receive 0.45 of a share of common
stock, $.01 par value, of the DII Group (the "Exchange Ratio"). Orbit
stockholders who otherwise would be entitled to fractional shares of DII Group
common stock will receive cash in lieu thereof. In addition, as a result of the
Merger, each outstanding option to purchase Orbit common stock was assumed by
the DII Group and converted into an option to acquire the number of shares of
DII Group common stock equal to the product of the number of shares of Orbit
common stock that were issuable upon exercise of such option multiplied by the
Exchange Ratio, with an exercise price equal to the quotient determined by
dividing the exercise price of such option by the Exchange Ratio. Based upon the
number of shares of Orbit common stock outstanding on July 19, 1996, an
aggregate of approximately 3,644,856 shares of DII Group common stock will be
issued in connection with the Merger. Based upon the number of Orbit options
outstanding on July 19, 1996, approximately 1,036,065 additional shares of DII
Group common stock will be reserved for issuance to holders of Orbit options in
connection with the DII Group's assumption of such options. The Merger will be
accounted for as a pooling of interests. Mr. Gary P. Kennedy, President and
Chief Executive Officer of Orbit, has been appointed to the Board of Directors
of the DII Group. The terms of the Merger Agreement were the result of
arms'-length negotiations between representatives of the DII Group and Orbit.
Orbit provides semiconductor design, manufacturing and engineering support
services that allow system designers to manage their application specific
integrated circuit development, production, scheduling and inventory control
more effectively. Orbit's ENCORE! program allows customers to convert their
integrated circuit designs into Orbit digital gate arrays for low to moderate
volume requirements, at low non-recurring engineering costs and with short lead
times. The ENCORE! program and other Orbit programs, in conjunction with Orbit's
independent manufacturing capability, address limitations typically associated
with the use of mask programmable gate arrays and field programmable gate
arrays. Orbit also offers a mixed-signal (analog/digital) design service that
provides the rapid development of custom analog/digital ASICs. Orbit offers
additional programs based on its independent manufacturing capabilities,
including a "High Reliability Manufacturing Program" in support of medical
companies and prime contractors to United States military organizations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The following financial statements of Orbit (together with the related
independent auditors' report) were included in the DII Group's Registration
Statement on Form S-4 (Registration No. 333-6789)(the "Registration Statement"),
and are incorporated herein by reference:
i. Consolidated Statements of Income for the years ended December 31,
1995, 1994 and 1993;
ii. Consolidated Balance Sheets as of December 31, 1995 and 1994;
iii. Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993; and
iv. Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993.
2
<PAGE> 3
The following unaudited financial statements of Orbit were included in
Orbit's Quarterly Report on Form 10-Q for the period ended June 30, 1996
(Commission File No. 0-24966), and are incorporated herein by reference:
i. Condensed Consolidated Statements of Income for the three months
and six months ended June 30, 1996 and 1995 (unaudited);
ii. Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 (unaudited); and
iii. Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 (unaudited).
(b) Pro forma financial information.
The following unaudited pro forma combined condensed financial statements
of the DII Group and related notes to unaudited pro forma combined condensed
financial statements are incorporated by reference from the section captioned
"Pro Forma Combined Condensed Financial Information (Unaudited)" of the Joint
Proxy Statement/Prospectus contained in the Registration Statement:
i. Pro Forma Combined Condensed Consolidated Statement of Income for
the year ended December 31, 1995 (unaudited);
ii. Pro Forma Combined Condensed Consolidated Statement of Income for
the year ended December 31, 1994 (unaudited); and
iii. Pro Forma Combined Condensed Consolidated Statement of Income for
the year ended December 31, 1993 (unaudited).
This Report on Form 8-K includes the following unaudited pro forma combined
condensed financial statements of the DII Group:
i. Pro Forma Combined Condensed Consolidated Balance Sheet as of June
30, 1996 (unaudited);
ii. Pro Forma Combined Condensed Consolidated Statement of Income for
the three months ended June 30, 1996 (unaudited);
iii. Pro Forma Combined Condensed Consolidated Statement of Income for
the six months ended June 30, 1996 (unaudited);
iv. Pro Forma Combined Condensed Consolidated Statement of Income for
the three months ended June 30, 1995 (unaudited); and
v. Pro Forma Combined Condensed Consolidated Statement of Income for
the six months ended June 30, 1995 (unaudited).
3
<PAGE> 4
PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma combined condensed consolidated financial
statements assume a business combination between The DII Group, Inc. (the "DII
Group") and Orbit Semiconductor, Inc. ("Orbit"), accounted for on a pooling of
interests basis (the "Merger"). The unaudited pro forma combined condensed
consolidated financial statements are based on the historical consolidated
financial statements and the notes thereto of the DII Group and Orbit. The DII
Group's and Orbit's historical unaudited condensed consolidated financial
statements as of June 30, 1996 and for the three and six months ended June 30,
1996 and 1995 have been prepared on the same basis as the historical audited
consolidated financial statements and, in the opinions of the managements of the
respective companies, contain all adjustments, consisting of normal recurring
accruals, necessary for the fair presentation of the results of operations for
such periods.
The following unaudited pro forma combined condensed consolidated balance
sheet as of June 30, 1996 assumes the Merger had occurred on June 30, 1996. The
following unaudited pro forma combined condensed consolidated statements of
income for the three and six months ended June 30, 1996 and the three and six
months ended June 30, 1995 assume the Merger had occurred on January 1, 1996 and
1995, respectively. The actual Merger was consummated on August 22, 1996. The
following unaudited pro forma combined condensed consolidated financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the combined consolidated operating results or the combined
consolidated financial position that would have occurred if the Merger had been
consummated on the dates indicated, nor is it indicative of future combined
consolidated operating results or combined consolidated financial position. The
following unaudited pro forma combined condensed consolidated financial
statements do not incorporate any benefits from cost savings or synergies of
operations of the combined company.
The combined company expects to incur charges to operations for costs
currently estimated to aggregate approximately $4.1 million, of which $1.1
million has been incurred and charged to operations in the quarter ended June
30, 1996 and approximately $3 million is expected to be incurred and charged to
operations in the quarter ended September 30, 1996. The $3 million is reflected
as a reduction to retained earnings and an increase to accrued liabilities in
the following unaudited pro forma combined condensed consolidated balance sheet
as of June 30, 1996. The $3 million is not reflected in the following unaudited
pro forma combined condensed consolidated statements of income. The amount of
this charge is a preliminary estimate and is therefore subject to change.
The following unaudited pro forma combined condensed consolidated financial
statements should be read in conjunction with the historical consolidated
financial statements and the notes thereto of the DII Group and Orbit included
in their respective Forms 10-K for the fiscal year ended December 31, 1995 and
their respective Forms 10-Q for the quarterly period ended June 30, 1996.
4
<PAGE> 5
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
DII GROUP ORBIT ADJUSTMENTS COMBINED
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 28,395 5,995 -- 34,390
Accounts receivable, net.................... 57,004 13,297 -- 70,301
Inventories, net............................ 37,604 10,675 -- 48,279
Other....................................... 5,533 2,170 -- 7,703
-------- ------- ------- --------
Total current assets..................... 128,536 32,137 -- 160,673
Property, plant and equipment, net............ 60,777 26,142 -- 86,919
Intangible assets, net........................ 67,003 1,634 -- 68,637
Other......................................... 2,287 301 -- 2,588
-------- ------- ------- --------
$ 258,603 60,214 -- 318,817
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 33,457 4,990 -- 38,447
Accrued expenses............................ 12,838 3,287 3,000 19,125
Current installments of long-term
obligations.............................. -- 2,927 -- 2,927
Accrued interest payable.................... 1,078 12 -- 1,090
Notes payable............................... 2,876 -- -- 2,876
-------- ------- ------- --------
Total current liabilities................ 50,249 11,216 3,000 64,465
Long-term obligations, excluding current
installments................................ 86,250 9,055 -- 95,305
Other......................................... 3,338 404 -- 3,742
Stockholders' equity:
Preferred stock............................. -- -- --
Common Stock................................ 82 7 27(1) 116
Additional paid-in capital.................. 66,542 22,902 (27)(1) 89,417
Retained earnings........................... 59,776 16,645 (3,000) 73,421
Cumulative foreign currency translation
adjustments.............................. (3,897) -- (3,897)
Deferred compensation....................... (3,737) (15) -- (3,752)
-------- ------- ------- --------
Total stockholders' equity............... 118,766 39,539 (3,000) 155,305
-------- ------- ------- --------
$ 258,603 60,214 -- 318,817
======== ======= ======= ========
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements
5
<PAGE> 6
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
DII GROUP ORBIT ADJUSTMENTS COMBINED
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales........................................ $97,752 17,312 -- 115,064
Cost of sales.................................... 79,268 11,677 -- 90,945
------- ------ ------ -------
Gross profit................................ 18,484 5,635 -- 24,119
Selling, general and administrative expenses..... 8,409 3,042 -- 11,451
Merger costs..................................... 1,104 -- -- 1,104
Interest income.................................. (289) (114) -- (403)
Interest expense................................. 1,294 239 -- 1,533
Amortization of intangibles...................... 679 104 -- 783
Other, net....................................... 136 (4) -- 132
------- ------ ------ -------
Income before income taxes.................. 7,151 2,368 -- 9,519
Income tax expense............................... 2,113 800 -- 2,913
------- ------ ------ -------
Net income.................................. $ 5,038 1,568 -- 6,606
======= ====== ====== =======
Earnings per share:
Primary........................................ $ 0.61 0.17 0.54
Fully diluted.................................. $ 0.55 0.17 0.50
Weighted average number of common shares and
equivalents outstanding:
Primary........................................ 8,221 9,138 12,333
Fully diluted.................................. 10,724 9,138 14,836
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements
6
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PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
DII GROUP ORBIT ADJUSTMENTS COMBINED
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales........................................ $ 196,230 31,810 -- 228,040
Cost of sales.................................... 160,663 22,688 -- 183,351
-------- ------ ------ -------
Gross profit................................ 35,567 9,122 -- 44,689
Selling, general and administrative expenses..... 17,451 5,791 -- 23,242
Merger costs..................................... 1,104 -- -- 1,104
Interest income.................................. (679) (304) -- (983)
Interest expense................................. 2,588 484 -- 3,072
Amortization of intangibles...................... 1,313 210 -- 1,523
Other, net....................................... 175 (327) -- (152)
-------- ------ ------ -------
Income before income taxes.................. 13,615 3,268 -- 16,883
Income tax expense............................... 4,116 1,094 -- 5,210
-------- ------ ------ -------
Net income.................................. $ 9,499 2,174 -- 11,673
======== ====== ====== =======
Earnings per share:
Primary........................................ $ 1.16 0.24 0.95
Fully diluted.................................. $ 1.05 0.24 0.91
Weighted average number of common shares and
equivalents outstanding:
Primary........................................ 8,210 9,005 12,262
Fully diluted.................................. 10,715 9,005 14,767
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements
7
<PAGE> 8
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
DII GROUP ORBIT ADJUSTMENTS COMBINED
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales........................................ $83,363 16,174 -- 99,537
Cost of sales.................................... 70,021 10,169 -- 80,190
------- ------ ------ ------
Gross profit................................ 13,342 6,005 -- 19,347
Selling, general and administrative expenses..... 6,388 2,771 -- 9,159
Merger costs..................................... -- 348 -- 348
Interest income.................................. (159) (168) -- (327)
Interest expense................................. 647 136 -- 783
Amortization of intangibles...................... 555 104 -- 659
Other, net....................................... 163 (3) -- 160
------- ------ ------ ------
Income before income taxes.................. 5,748 2,817 -- 8,565
Income tax expense............................... 1,883 1,033 -- 2,916
------- ------ ------ ------
Net income.................................. $ 3,865 1,784 -- 5,649
======= ====== ====== ======
Earnings per share:
Primary........................................ $ 0.48 0.20 0.47
Fully diluted.................................. $ 0.48 0.20 0.47
Weighted average number of common shares and
equivalents outstanding:
Primary........................................ 8,058 8,816 12,025
Fully diluted.................................. 8,058 8,816 12,025
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements
8
<PAGE> 9
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
DII GROUP ORBIT ADJUSTMENTS COMBINED
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales........................................ $ 157,095 31,103 -- 188,198
Cost of sales.................................... 132,207 19,874 -- 152,081
-------- ------ ------ -------
Gross profit................................ 24,888 11,229 -- 36,117
Selling, general and administrative expenses..... 12,131 5,196 -- 17,327
Merger costs..................................... -- 348 -- 348
Interest income.................................. (310) (369) -- (679)
Interest expense................................. 1,348 226 -- 1,574
Amortization of intangibles...................... 1,018 210 -- 1,228
Other, net....................................... (15) (6) -- (21)
-------- ------ ------ -------
Income before income taxes.................. 10,716 5,624 -- 16,340
Income tax expense............................... 3,479 2,060 -- 5,539
-------- ------ ------ -------
Net income.................................. $ 7,237 3,564 -- 10,801
======== ====== ====== =======
Earnings per share:
Primary........................................ $ 0.90 0.41 0.90
Fully diluted.................................. $ 0.90 0.41 0.90
Weighted average number of common shares and
equivalents outstanding:
Primary........................................ 8,057 8,750 11,995
Fully diluted.................................. 8,057 8,750 11,995
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements
9
<PAGE> 10
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The pro forma combined condensed consolidated financial statements reflect
the issuance of 3,366,450 shares of DII Group Common Stock in exchange for an
aggregate of approximately 7,481,000 shares of Orbit Common Stock outstanding at
June 30, 1996 in connection with the Merger based upon an exchange ratio of 0.45
of a share of DII Group Common Stock for each share of Orbit Common Stock. The
actual number of shares of DII Group Common Stock to be issued will be
determined based on the exchange ratio and the number of shares of Orbit Common
Stock outstanding at the effective date of the Merger, which was August 22,
1996.
NOTE 2 PERIODS COMBINED
The unaudited pro forma combined condensed consolidated balance sheet as of
June 30, 1996 assumes the Merger had occurred on June 30, 1996. The unaudited
pro forma combined condensed consolidated statements of income for the three and
six months ended June 30, 1996 and the three and six months ended June 30, 1995
assume the Merger had occurred on January 1, 1996 and 1995, respectively.
NOTE 3 PRO FORMA EARNINGS PER SHARE
The pro forma combined earnings per share information is based on the
combined weighted average number of common and common equivalent shares of DII
Group Common Stock and Orbit Common Stock for each period presented, based upon
the exchange ratio of 0.45 of a share of DII Group Common Stock for each share
of Orbit Common Stock.
NOTE 4 MERGER TRANSACTION COSTS
The combined company expects to incur charges to operations for merger
costs currently estimated to aggregate approximately $4.1 million, of which $1.1
million has been incurred and charged to operations in the quarter ended June
30, 1996 and approximately $3 million is expected to be incurred and charged to
operations in the quarter ended September 30, 1996. The $3 million is reflected
as a reduction to retained earnings and an increase to accrued liabilities in
the unaudited pro forma combined condensed consolidated balance sheet as of June
30, 1996. The $3 million is not reflected in the unaudited pro forma combined
condensed consolidated statements of income. The amount of this charge is a
preliminary estimate and is therefore subject to change.
NOTE 5 CONFORMING ADJUSTMENTS
There have been no adjustments required to conform the accounting policies
of the merged company. Certain amounts for Orbit have been reclassified to
conform with the DII Group's consolidated financial statement presentation.
There have been no significant intercompany transactions.
10
<PAGE> 11
(c) Exhibits.
The following exhibits are filed herewith or incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ----------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and among The DII Group, Inc., DII
Merger Corp. and Orbit Semiconductor, Inc., dated as of June 9, 1996
(incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 (Registration No. 333-6789))
23.1 Consent of Deloitte & Touche LLP
99.1 Press Release, dated August 22, 1996
99.2 Consolidated Financial Statements of Orbit as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993
99.3 Condensed Consolidated Financial Statements (unaudited) of Orbit as of
June 30, 1996 and December 31, 1995 and for the three and six months
ended June 30, 1996 and 1995
</TABLE>
ITEM 8. CHANGE IN FISCAL YEAR.
On August 22, 1996, the DII Group determined to change its fiscal year end
from December 31 to the Sunday nearest to December 31, beginning with the period
ended December 29, 1996. Pursuant to Rule 13a-10 under the Securities Exchange
Act of 1934, as amended, the DII Group is not required to file a separate
transition report.
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 hereunto duly authorized.
The DII Group, Inc.
By: /s/ THOMAS J. SMACH
------------------------------------
Thomas J. Smach
Vice President -- Finance
and Corporate Controller
Date: August 27, 1996
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Merger by and among The DII Group, Inc., DII
Merger Corp. and Orbit Semiconductor, Inc., dated as of June 9,
1996 (incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 (Registration No. 333-6789))
23.1 Consent of Deloitte & Touche LLP
99.1 Press Release, dated August 22, 1996
99.2 Consolidated Financial Statements of Orbit as of December 31, 1995
and 1994 and for the years ended December 31, 1995, 1994 and 1993
99.3 Condensed Consolidated Financial Statements (unaudited) of Orbit as
of June 30, 1996 and December 31, 1995 and for the three and six
months ended June 30, 1996 and 1995
</TABLE>
13
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in the Registration Statements
of The DII Group,
Inc. (formerly DOVatron International, Inc. Nos. 33-73556, 33-79940 and 33-90572
on Form S-8 and No. 33-80175 on Form S-3 of our report dated January 31, 1996 on
the consolidated financial statements of Orbit Semiconductor, Inc. as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, which financial statements appear in Registration Statement
No. 333-6789 of The DII Group on Form S-4 and are incorporated by reference in
this Form 8-K.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Jose, California
August 27, 1996
<PAGE> 1
EXHIBIT 99.1
Contact: Carl R. Vertuca, Jr.
The DII Group, Inc. (303)
652-2221
Senior Vice President and Chief
Financial Officer
THE DII GROUP, INC. COMPLETES MERGER
WITH ORBIT SEMICONDUCTOR, INC.
Niwot, CO, August 22, 1996 -- The DII Group, Inc. (NASDAQ: DIIG) announced
today that it has completed its acquisition of Orbit Semiconductor, Inc. (Orbit)
following approval by both companies' shareholders at their respective meetings
held earlier today.
Ronald R. Budacz, Chairman and Chief Executive Officer of the DII Group
stated, "We are extremely pleased with the consummation of the merger with Orbit
Semiconductor. This acquisition is an important piece of the Company's strategic
initiative of being able to provide unparalleled value-added engineering and
manufacturing solutions to the worldwide electronics industry. DII's strategic
direction was developed several years ago and, since that time, the DII Group
has actively pursued acquisitions in order to provide integrated outsourcing
technology solutions with time-to-market and lower cost advantages. By linking
DII companies such as Multilayer Technology (Multek), a quick-turn maker of
complex printed circuit boards; Orbit Semiconductor, a quick-turn, design and
manufacturer of customer specific integrated circuits; and DOVatron
International, a contract electronics manufacturer which assembles electronics
circuits, the Company can offer powerful outsourcing solutions from front-end
product development through worldwide volume assembly."
Under the terms of the merger agreement, Orbit will become a wholly-owned
subsidiary of the DII Group. Each outstanding share of common stock of Orbit
will be converted into 45/100ths (0.45) of a share of common stock of the DII
Group (the Exchange Ratio). In addition, each outstanding option to purchase
Orbit common stock will be assumed by the DII Group and converted into an option
to acquire shares of DII Group common stock based upon the Exchange Ratio. The
DII Group's weighted average common and common equivalent shares are expected to
increase as a result of the merger by approximately 4.2 million shares,
representing a transaction value of approximately $124 million, using the DII
Group's closing stock price for August 21, 1996. This merger has been structured
as a tax-free exchange and will be accounted for as a pooling-of-interests.
**********
The D I I Group, Inc. is a leading ISO 9002 certified global supplier of a
broad range of integrated electronic manufacturing products and services with
operations in the United States, Mexico, Ireland, England, and Asia Pacific. The
Company serves the electronics manufacturing industry through its six strategic
business channels: Orbit Semiconductor, Multilayer Technology (Multek), DOVatron
Manufacturing Divisions, IRI International, Cencorp, and TTI Testron.
Fax on Demand can be reached by phoning (201) 333-3662 and the Internet
(Web) Site can be reached by accessing www.DIIgroup.com to view recent press
releases, company information, and financial data relating to The D I I Group.
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Orbit Semiconductor, Inc.:
We have audited the accompanying consolidated balance sheets of Orbit
Semiconductor, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the 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 consolidated financial statements present fairly, in
all material respects, the financial position of Orbit Semiconductor, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 31, 1996
1
<PAGE> 2
ORBIT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues:
Revenues................................................ $56,085 $45,443 $30,550
Revenues from related party............................. 5,475 4,990 3,031
------- ------- -------
Total................................................ 61,560 50,433 33,581
Cost of Sales............................................. 35,961 31,354 23,130
------- ------- -------
Gross Margin.............................................. 25,599 19,079 10,451
------- ------- -------
Operating Expenses:
Research and development................................ 5,378 3,411 2,175
Selling, general and administrative..................... 10,753 7,398 5,174
------- ------- -------
Total................................................ 16,131 10,809 7,349
------- ------- -------
Income From Operations.................................... 9,468 8,270 3,102
Other Income (Expense):
Interest income......................................... 729 452 4
Interest expense........................................ (665) (359) (354)
Minority interest in loss of subsidiary................. 12 6 --
------- ------- -------
Total................................................ 76 99 (350)
------- ------- -------
Income Before Income Taxes................................ 9,544 8,369 2,752
Provision For Income Taxes................................ 2,863 3,220 1,079
------- ------- -------
Net Income................................................ $ 6,681 $ 5,149 $ 1,673
======= ======= =======
Net Income Per Share...................................... $ 0.75 $ 0.82 $ 0.32
======= ======= =======
Weighted Average Common and Common Equivalent Shares
Outstanding............................................. 8,892 6,286 5,277
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
ORBIT SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $10,671 $ 7,798
Short term investments............................................... -- 4,845
Accounts receivable, less allowance of $397 and $241 in 1995 and
1994, respectively................................................ 10,425 7,917
Accounts receivable from related party............................... 732 1,007
Note receivable from related party................................... 1,000 1,000
Inventories.......................................................... 8,123 6,464
Prepaid expenses and other assets.................................... 388 579
Deferred income taxes................................................ 1,236 738
------- -------
Total current assets.............................................. 32,575 30,348
Property and Equipment -- net.......................................... 24,582 7,783
Goodwill -- net........................................................ 1,847 2,271
Other Assets........................................................... 338 373
------- -------
Total.................................................................. $59,342 $40,775
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables....................................................... $ 5,241 $ 3,488
Accounts payable to related party.................................... 425 412
Current portion of long-term obligations............................. 2,769 1,778
Accrued salaries, commission and benefits............................ 918 896
Other accrued liabilities............................................ 1,110 968
Income taxes payable................................................. -- 453
------- -------
Total current liabilities......................................... 10,463 7,995
Long-Term Obligations.................................................. 11,601 5,057
Deferred Income Taxes.................................................. 402 524
Minority Interest...................................................... 9 22
Stockholders' Equity:
Common stock: $0.001 par value; 20,000 shares authorized; 7,316 and
6,579 shares outstanding in 1995 and 1994, respectively........... 22,425 19,089
Deferred stock compensation.......................................... (29) (157)
Retained earnings.................................................... 14,471 8,220
Unrealized gain on securities available for sale..................... -- 25
------- -------
Total stockholders' equity........................................ 36,867 27,177
------- -------
Total.................................................................. $59,342 $40,775
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ORBIT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CONVERTIBLE COMMON STOCK DEFERRED SECURITIES
PREFERRED ---------------- STOCK RETAINED AVAILABLE
STOCK SHARES AMOUNT COMPENSATION EARNINGS FOR SALE TOTAL
----------- ------ ------- ------------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993.... $ 1,083 3,391 $ 365 $-- $ 1,398 $ -- $ 2,846
Common stock issued.......... -- 19 10 -- -- -- 10
Deferred stock
compensation............... -- -- 57 (57) -- -- --
Amortization of deferred
stock compensation......... -- -- -- 3 -- -- 3
Net income................... -- -- -- -- 1,673 -- 1,673
----------- ------ ------- ------------ -------- ---------- -------
Balances, December 31,
1993....................... 1,083 3,410 432 (54) 3,071 -- 4,532
Deferred stock
compensation............... -- -- 139 (139) -- -- --
Amortization of deferred
stock compensation......... -- -- -- 36 -- -- 36
Exercise of stock options and
warrants................... -- 62 33 -- -- -- 33
Net proceeds from initial
public offering of common
stock...................... -- 2,605 16,902 -- -- -- 16,902
Conversion of preferred
stock...................... (1,083) 453 1,083 -- -- -- --
Exchange of Orbit Israel
preferred stock............ -- 67 500 -- -- -- 500
Unrealized gain on
investment................. -- -- -- -- -- 25 25
Net income................... -- -- -- -- 5,149 -- 5,149
----------- ------ ------- ------------ -------- ---------- -------
Balances, December 31,
1994....................... -- 6,597 19,089 (157) 8,220 25 27,177
Amortization of deferred
stock compensation......... -- -- -- 128 -- -- 128
Tax benefit of stock option
exercises.................. -- -- 2,760 -- -- -- 2,760
Exercise of stock options.... -- 519 351 -- -- -- 351
Conversion of shareholder
note into stock............ -- 200 225 -- -- -- 225
KMOS Semiconductor, Inc. net
income for the five months
ended May 31, 1995......... -- -- -- -- (430) -- (430)
Realized gain on sale of
investment................. -- -- -- -- -- (25) (25)
Net income................... -- -- -- -- 6,681 -- 6,681
----------- ------ ------- ------------ -------- ---------- -------
Balances, December 31,
1995....................... $-- 7,316 $22,425 $ (29) $ 14,471 $ -- $36,867
======== ====== ======= ========== ======= ======== =======
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
ORBIT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Increase (Decrease) In Cash and Cash Equivalents:
Operating Activities:
Net income.................................................... $ 6,681 $ 5,149 $1,673
KMOS Semiconductor net income for the five months ended May
31, 1995................................................... (430) -- --
Adjustments to reconcile to net cash provided by operating
activities:
Deferred income taxes...................................... (770) (813) 397
Depreciation and amortization.............................. 3,787 2,115 1,850
Amortization of deferred stock compensation................ 128 36 3
Minority interest in loss subsidiary....................... (12) (6) --
Changes in:
Accounts receivable...................................... (2,233) (4,806) (1,686)
Inventories.............................................. (1,659) (1,490) (1,735)
Prepaid expenses and other assets........................ 191 (340) 272
Trade payable............................................ 1,766 315 1,131
Accrued liabilities...................................... 164 599 108
Income taxes payable..................................... 2,516 201 252
Deferred rent............................................ (87) 50 34
------- ------- ------
Net cash provided by operating activities............. 10,042 1,010 2,299
------- ------- ------
Investing Activities:
Purchase of short-term investments............................ -- (4,845) --
Maturity of short-term investments............................ 4,845 -- --
Acquisition of property and equipment......................... (10,550) (3,733) (969)
Other assets.................................................. 9 81 (18)
------- ------- ------
Net cash used for investing activities..................... (5,696) (8,497) (987)
------- ------- ------
Financing Activities:
Bank notes payable borrowings................................. 738 1,045 250
Bank notes payable repayments................................. (862) (1,050) (21)
Repayments of OIC notes payable............................... -- (1,198) (566)
Repayment of capital lease obligations........................ (1,641) (781) (1,075)
Common stock issued........................................... -- -- 10
Exercise of stock options and warrants........................ 292 33 --
Net proceeds from initial public offering..................... -- 16,902 --
------- ------- ------
Net cash provided by (used for) financing activities....... (1,473) 14,951 (1,402)
------- ------- ------
Increase (Decrease) in Cash and Cash Equivalents................ 2,873 7,464 (90)
Cash and Cash Equivalents:
Beginning of year............................................. 7,798 334 424
------- ------- ------
End of year................................................... $10,671 $ 7,798 $ 334
======= ======= ======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
ORBIT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Orbit Semiconductor, Inc. was formed in November 1991 in
connection with a management buy-out of the semiconductor subsidiary of Orbit
International Corp. (OIC) in a transaction accounted for by the purchase method.
Orbit Semiconductor, Inc. and subsidiaries (collectively "Orbit" or the
"Company") provide semiconductor manufacturing, design and engineering support
services to allow system designers to manage effectively application specific
integrated circuit development, production scheduling and inventory control. The
Company sells its products and services to designers of a wide variety of
electronic systems and products for application in the medical,
telecommunications, consumer, aerospace and military, computer and peripherals
and other industries.
CONSOLIDATION -- The consolidated financial statements include Orbit
Semiconductor, Inc. and its majority-owned subsidiaries, Orbit Israel (a 95%
owned Israeli subsidiary), Orbit Semiconductor FSC, Inc., and KMOS
Semiconductor, Inc. (KMOS), after elimination of intercompany accounts and
transactions.
FINANCIAL STATEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of assets,
liabilities, revenues and expenses as of the dates and for the periods
presented. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with a remaining maturity of 90 days or less to be cash
equivalents.
SHORT-TERM INVESTMENTS primarily represent government and corporate
obligations with maturities at the date of acquisition of more than three months
and in 1994 included an investment in common stock. Effective January 1, 1994,
the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS
115), "Accounting for Certain Investments in Debt and Equity Securities," which
was issued in May 1993, and recorded an unrealized gain of $264,000 in
stockholders' equity.
While the Company's policy is to hold debt securities to maturity, they are
classified as available-for-sale because the sale of such securities may be
required prior to maturity. Available-for-sale securities at December 31, 1994
consisted of United States Treasury Bills, stated at cost which approximates
fair market value, and an investment in common stock at its fair value of
$50,000 (stockholders' equity includes the related unrealized gain of $25,000,
net of income taxes).
INVENTORIES are stated at the lower of cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT are stated at cost and depreciated or amortized over
their estimated useful lives (five years for new assets, one to five years for
used assets) using the straight-line method. Leasehold improvements are
amortized over the shorter of the estimated useful life or the remaining lease
term.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of " effective January 1,
1995. The adoption of this statement had no effect on the Company's financial
condition or results of operations.
GOODWILL is amortized using the straight-line method over estimated useful
lives ranging from five to twenty years. Accumulated amortization is $765,000
and $339,000 at December 31, 1995 and 1994, respectively. The Company evaluates
the recoverability of goodwill based on estimated future undiscounted cash
flows.
DEFERRED RENT -- Rent expense is recognized on a straight-line basis over
the life of the lease. The difference between straight-line expense and payments
is recorded as deferred rent.
REVENUE RECOGNITION -- Revenue from product sales is recognized upon
shipment.
6
<PAGE> 7
INCOME TAXES -- The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires an asset and liability approach. Under SFAS 109, deferred
tax liabilities are recognized for future taxable amounts and deferred tax
assets are recognized for future deductions net of a valuation allowance to
reduce deferred tax assets to amounts that are more likely than not to be
realized.
CONCENTRATION OF CREDIT RISK -- Financial instruments which may potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents, short-term investments and accounts receivable. The
majority of the Company's cash and cash equivalents are on deposit with one
financial institution. The Company places its investments only in U.S. Treasury
obligations with high credit quality financial institutions. The majority of the
Company's accounts receivable are derived from sales to designers and
manufacturers of a wide variety of electronic systems and products for
application in the medical, telecommunications, consumer, aerospace and
military, computer and peripheral and other industries. The Company performs
ongoing credit evaluations of its customers' financial condition and limits the
amount of credit extended when deemed necessary but generally requires no
collateral. The Company maintains reserves for potential credit losses, and all
such losses to date have been within management's expectations.
NET INCOME PER SHARE is based on the weighted average number of common and
common equivalent shares outstanding during the period and shares issuable upon
conversion of the KMOS convertible shareholder notes (see Note 6). Common
equivalent shares include common stock options (using the treasury stock
method), shares issuable upon exchange of the Orbit Israel ordinary shares (see
Note 2), and shares subscribed under the Employee Stock Purchase Plan. Pursuant
to the rules of the Securities and Exchange Commission, all stock issued and
stock options granted by the Company at a price less than the initial public
offering price during the 12 months preceding the November 1994 offering (using
the treasury stock method) have been included in the calculation as if they had
been outstanding for all periods presented prior to the offering. Consequently,
562,515 shares of common stock issuable in exchange for Orbit Israel's ordinary
shares have been included as outstanding for all periods presented prior to the
offering date (see Note 2).
NOTE 2 SIGNIFICANT MERGERS AND ACQUISITIONS
Orbit Israel
On July 29, 1994, the Company transferred $500,000 (consisting of cash and
a $400,000 note bearing interest at 3.5% per year) to I.S. Semiconductor Ltd. (a
related party) in exchange for 14,250,000 shares of newly issued ordinary shares
(similar to common stock), representing a 95% ownership interest, and changed
that company's name to O.S. Orbit Semiconductor Ltd. ("Orbit Israel"). Orbit
Israel was organized as an Israeli corporation in July 1993 and, prior to the
Company's acquisition, it was engaged in initial start-up activities for a
semiconductor design, manufacturing and marketing operation. Such activities
included, among other things, pursuing from the Israeli government "Approved
Enterprise" status for the planned facility under applicable Israeli law, which
provides for Orbit Israel to receive certain government grants and other
benefits.
Under the plan approved by the Israeli government, as amended, Orbit Israel
expects to receive a grant of approximately $24 million from the Israeli
government towards a portion of the cost of equipping the planned facility
subject to the Company increasing its investment in Orbit Israel by $25 million
by December 1996. During 1995, the Company advised the Israeli government that
it proposed to increase significantly the production capacity and related
operations of the manufacturing facility which will increase its cost
substantially from the original plan. Consequently, the Company is seeking
Israeli government approval for a proportionate increase in its grant; however,
there can be no assurance that such approval will be obtained. Orbit Israel is a
related party because a principal stockholder of the Company, Futurtec, L.P.
(Futurtec), was a founder of Orbit Israel and holds 750,000 shares of Orbit
Israel's outstanding ordinary shares, which represented approximately 99% of the
outstanding ordinary shares and 49% of its voting securities prior to the
Company's acquisition. Orbit Israel's 2,500 outstanding shares of Series A
preferred stock had supermajority voting rights, which represented the remaining
51% voting interest and were held by an unaffiliated stockholder. Pursuant to
Orbit Israel's Articles of Association, the Company's acquisition resulted in
the
7
<PAGE> 8
extinguishment of the Series A preferred stock supermajority voting rights.
Orbit Israel's Articles of Association also include the following provisions,
which became effective as a result of the Company's acquisition:
- The Series A preferred stock exchanges for shares of the Company's common
stock upon an initial public offering by the Company based upon a
formula. Pursuant to these exchange provisions, the Series A preferred
stockholder received 66,666 shares of the Company's common stock upon the
closing of the Company's initial public offering in November 1994. The
acquisition of this minority interest in Orbit Israel resulted in the
recording of $475,000 of goodwill in 1994.
- The 750,020 outstanding ordinary shares of Orbit Israel are exchangeable,
at the option of the stockholders, for an aggregate of 562,515 shares of
the Company's common stock, subject to certain antidilution adjustments.
In consideration of the Company's investment in Orbit Israel, among other
things, Futurtec granted the Company the right to purchase the 750,000 ordinary
shares following the receipt of Orbit Israel's audited financial statements for
the year ending December 31, 1998 for a price equal to 5% of 15 times Orbit
Israel's earnings for 1998, payable in cash or the Company's common stock, if
not previously exchanged for the Company's common stock.
The Company has accounted for this nonmonetary transaction with Futurtec at
the historical cost basis of the net assets received (approximately $60,000) and
has consolidated the operations of Orbit Israel since July 29, 1994. Orbit
Israel's results of operations were not material prior to the Company's
acquisition.
KMOS Semiconductor, Inc.
On June 28, 1995, the Company entered into an Agreement and Plan of Merger
with KMOS in which KMOS became a wholly-owned subsidiary of the Company. In
connection with the merger, the Company issued 778,279 shares of its common
stock in exchange for all of the issued and outstanding KMOS common stock and
converted all outstanding options to purchase KMOS common stock at the exchange
ratio of 0.044473 shares of Orbit common stock for each share of KMOS common
stock into options to purchase 221,721 shares of Orbit common stock. KMOS is in
the business of designing, developing and marketing high-performance
mixed-signal (analog/digital) application specific integrated circuits. The
merger has been accounted for as a pooling of interests and, accordingly, the
consolidated financial statements for all periods have been restated to reflect
the combined operations of the two companies. As the Company and KMOS have
different fiscal year ends, the consolidated statements of income combine the
Company's years ended December 31, 1995, December 31, 1994 and December 31, 1993
with KMOS's years ended December 31, 1995, May 31, 1995 and May 31, 1994,
respectively. The table shows the composition of combined net revenues and net
income for the pre-merger periods indicated (in thousands). For KMOS the periods
indicated represent the Company's reporting period into which the KMOS financial
information was combined.
8
<PAGE> 9
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------- ------------------
1995 1994 1993
---------- ------- -------
<S> <C> <C> <C>
Revenues:
Orbit...................................................... $ 26,791 $43,488 $27,298
KMOS....................................................... 4,715 7,651 6,871
Elimination of intercompany sales.......................... (403) (706) (588)
---------- ------- -------
Combined................................................... $ 31,103 $50,433 $33,581
========= ======= =======
Net Income:
Orbit...................................................... $ 3,233 $ 4,320 $ 1,295
KMOS....................................................... 544 829 378
Merger expenses (net of estimated taxes of $135)........... (213) -- --
---------- ------- -------
Combined................................................... $ 3,564 $ 5,149 $ 1,673
========= ======= =======
</TABLE>
The consolidated balance sheets at December 31, 1995 and December 31, 1994
combine the accounts of the Company as of those dates with the accounts of KMOS
as of December 31, 1995 and May 31, 1995, respectively.
NOTE 3 INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Raw materials............................................................ $1,363 $ 399
Work in progress......................................................... 5,597 4,155
Finished goods........................................................... 1,163 1,910
------ ------
Total.................................................................... $8,123 $6,464
====== ======
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Construction in progress............................................... $ 205 $ 629
Land and buildings..................................................... 2,798 --
Machinery and equipment................................................ 23,539 10,093
Furniture and fixtures................................................. 223 317
Leasehold improvements................................................. 5,090 1,271
------- -------
Total.................................................................. 31,855 12,310
Less accumulated depreciation and amortization......................... 7,273 4,527
------- -------
Total.................................................................. $24,582 $ 7,783
======= =======
</TABLE>
Included in machinery and equipment at December 31, 1995 and 1994 are
assets under capital lease agreements of $10,948,000 and $2,825,000, net of
accumulated amortization of $2,041,000 and $1,169,000, respectively.
9
<PAGE> 10
NOTE 5 LINE OF CREDIT
The Company has a $4,500,000 bank line of credit, none of which was
outstanding at December 31, 1995. Borrowings bear interest at the bank's base
rate (8.5% at December 31, 1995), are limited to 80% of eligible accounts
receivable and are collateralized by substantially all assets of the Company.
The loan agreement requires the Company to maintain certain financial covenants,
including quick assets to current liabilities (less subordinated debt) of at
least 1.25:1.0, total liabilities (less subordinated debt) to tangible net worth
of less than 1.0:1.0, and net income plus depreciation to current debt of
1.5:1.0. In addition, the Company must maintain net income on a quarterly basis
and may not pay or declare dividends without the bank's consent. The Company was
in compliance with these covenants at December 31, 1995.
KMOS has a line of credit with a bank that expires November 30, 1996, none
of which was outstanding at December 31, 1995. Under the terms of the agreement,
borrowings are limited to $500,000, bear interest at the bank's prime rate (8.5%
at December 31, 1995) plus 1%, and are collateralized by substantially all
assets of KMOS. The agreement contains a number of restrictive covenants which
require, among other things, that KMOS maintain working capital of not less than
$500,000 and a total debt to tangible net worth ratio of not greater than .75 to
1. KMOS was in compliance with these covenants at year end.
NOTE 6 LONG-TERM OBLIGATIONS
Long-term obligations consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- ------
<S> <C> <C>
Bank notes payable...................................................... $ 1,451 $1,325
Line of credit borrowings (see Note 5).................................. -- 250
KMOS convertible shareholder notes (converted in 1995).................. -- 225
Additional purchase obligation.......................................... 2,135 2,135
Capital lease obligations (Note 9)...................................... 10,719 2,748
Deferred rent........................................................... 65 152
------- ------
Total................................................................... 14,370 6,835
Current portion......................................................... 2,769 1,778
------- ------
Long-term portion....................................................... $11,601 $5,057
======= ======
</TABLE>
The Company has $750,000, $427,000 and $209,000 outstanding under three
bank notes payable at December 31, 1995, that are subject to the same security
agreements as the line of credit (see Note 5) and bear interest at 9.05%, 8.05%
and 7.95%, respectively, per year with principal payments of $16,666, $10,416
and $3,865, respectively, plus interest payable monthly through September 1999,
May 1999 and June 2000, respectively. The Company also has a $45,000 bank note
payable to an Israeli bank at December 31, 1995. This note bears interest at
Israeli prime rate (15.2% at December 31, 1995) plus 2% per year with principal
payments of $1,250 plus interest (denominated in New Israeli Shekels) payable
monthly through December 1997. The recorded carrying amount of the bank notes
payable approximates their fair values based on the borrowing rates currently
available to the Company for similar notes.
The additional purchase obligation arose from the November 1991 management
buy-out (see Note 1) and is due on March 31, 1997 if the Company achieves
certain cumulative earnings amounts. The Company recorded the additional
purchase obligation in prior years when it became probable that the Company
would become obligated for such additional consideration.
Future payments of long-term obligations, excluding capital lease
obligations and deferred rent are $386,000 in 1996, $2,521,000 in 1997, $371,000
in 1998, $248,000 in 1999 and $23,000 in 2000.
10
<PAGE> 11
NOTE 7 STOCKHOLDERS' EQUITY
COMMON STOCK -- In November and December 1994, the Company sold 2,605,000
shares of common stock at $7.50 per share in its initial public offering with
net proceeds to the Company of $16,902,000. In connection with this offering,
all shares of convertible preferred stock converted into 453,750 shares of
common stock and all outstanding shares of Orbit Israel Series A preferred stock
were converted into 66,666 shares of common stock (see Note 2).
EMPLOYEE STOCK PURCHASE PLAN -- In 1995, the Company adopted the 1995
Employee Stock Purchase Plan, which permits eligible employees to purchase up to
an aggregate of 600,000 shares of common stock of the Company. Under the
Company's Employee Stock Purchase Plan, employees may purchase from the Company
a designated number of shares through payroll deductions at a price equal to 85%
of the lesser of the fair value of the Company's common stock as of the first
day or the last day of each six-month purchase period. As of December 31, 1995,
no shares have been issued under this plan.
STOCK OPTION PLANS -- Under the Company's stock option plan (the "Plan"),
incentive and nonqualified stock options, stock appreciation rights and
restricted stock awards may be granted to key employees, directors and
consultants for up to 2,250,000 shares of common stock of the Company. Options
are generally granted at the fair market value of the Company's common stock at
the date of grant. Options are immediately exercisable (subject to certain
repurchase rights discussed below) and are for terms not to exceed ten years
from the date of grant (five years if the option holder also holds 10% or more
of the voting stock of the Company).
Under the KMOS stock option plan (the "KMOS Plan"), incentive and
nonqualified stock options to purchase KMOS common stock have been granted to
key KMOS employees, directors and consultants. The KMOS options were generally
granted at fair value (as determined by the KMOS Board of Directors) at the date
of grant and generally vest and become exercisable over a five year period and
expire up to 10 years from the date of grant. Pursuant to the terms of the KMOS
Plan, all outstanding options became fully vested and exercisable upon the
merger with the Company (see Note 2). As a result of the merger, the outstanding
KMOS options have been exchanged for options exercisable for the Company's
common stock, subject to their original terms (as adjusted for the merger
exchange ratio).
Stock option activity for these plans is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS TOTAL
OUTSTANDING EXERCISE PRICE AMOUNT
----------- -------------- ----------
<S> <C> <C> <C>
Balance, January 1, 1993.......................... 510,562 $0.53 - $ 1.12 $ 292,601
Granted......................................... 949,691 0.53 - 1.60 723,587
Cancelled....................................... (18,750) 0.53 (10,000)
Exercised....................................... (18,750) 0.53 (10,000)
----------- -------------- ----------
Balance, December 31, 1993........................ 1,422,753 0.53 - 1.60 996,188
Granted......................................... 140,596 2.25 - 3.80 329,465
Cancelled....................................... (9,375) 1.60 (15,000)
Exercised....................................... (24,750) 0.53 (13,200)
----------- -------------- ----------
Balance, December 31, 1994........................ 1,529,224 0.53 - 3.80 1,297,453
Granted......................................... 1,446,312 7.63 - 14.50 11,682,605
Cancelled....................................... (127,375) 1.60 - 14.50 (1,505,775)
Exercised....................................... (518,777) 0.53 - 3.80 (351,233)
----------- -------------- ----------
Balance, December 31, 1995........................ 2,329,384 $0.53 - $14.50 $11,123,050
========= ============ ==========
</TABLE>
At December 31, 1995, no shares of common stock were available for future
grant under the Plan.
Unvested shares issued to employees under the Plan are subject to
repurchase by the Company at the original purchase price upon termination of
employment. The Company's repurchase right expires ratably over
11
<PAGE> 12
a vesting period determined by the Board of Directors, which is typically three
to four years from the date of grant. Options to purchase 1,035,000 shares of
common stock were exercisable at December 31, 1995.
COMMON STOCK RESERVED FOR ISSUANCE -- The Company has reserved shares of
common stock for issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Issuance under stock option plans
(423,575 subject to final stockholder approval)............ 2,329,384
Exchange of ordinary shares for Orbit Israel (see Note 2).... 562,515
Issuance under Employee Stock Purchase Plan.................. 600,000
------------
Total........................................................ 3,491,899
==========
</TABLE>
DEFERRED STOCK COMPENSATION -- In connection with the grant of certain
stock options to employees in 1994 and 1993, the Company recorded deferred stock
compensation for the difference between the deemed fair value for accounting
purposes and the option price as determined by the Board at the date of grant.
Deferred stock compensation of $106,000 has been recorded in stockholders'
equity in 1994. Such amount is being amortized over the vesting periods of the
related stock options.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair value method of accounting for stock options and other equity instruments,
such as stock purchase plans. Under this method, compensation cost is measured
based on the fair value of the stock award when granted and is recognized as an
expense over the service period, which is usually the vesting period. This
standard will be effective for the Company beginning in 1996, and requires
measurement of awards made beginning in 1995. The new standard permits companies
to continue to account for equity transactions with employees under existing
accounting rules, but requires disclosure in a note to the financial statements
of the pro forma net income and earnings per share as if the company had applied
the new method of accounting. The Company intends to follow these disclosure
requirements for its employee stock plans. As a result, adoption of the new
standard will not impact reported earnings or earnings per share, and will have
no effect on the Company's cash flows.
NOTE 8 INCOME TAXES
The provision for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Currently payable:
Federal......................................................... $3,588 $3,175 $524
State........................................................... 45 747 117
------- ------- -------
Total........................................................... 3,633 3,922 641
------- ------- -------
Deferred:
Federal......................................................... 391 (581) 428
State........................................................... (1,161) (121) 10
------- ------- -------
Total........................................................... (770) (702) 438
------- ------- -------
Total............................................................. $2,863 $3,220 $1,079
====== ====== ======
</TABLE>
12
<PAGE> 13
The components of the net deferred asset (liability) consist of (in
thousands):
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Deferred tax assets:
Inventory reserves and basis differences.................................. $ 197 $ 217
Nondeductible accruals and reserves....................................... 703 422
Tax credit carryforwards (expiring in 2003)............................... 255 --
Other..................................................................... 81 116
----- -----
Total..................................................................... 1,236 755
----- -----
Deferred tax liability:
Depreciation and amortization............................................. (402) (541)
----- -----
Net deferred tax asset (liability).......................................... $ 834 $ 214
===== =====
</TABLE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Computed at 35% in 1995 and 1994; 34% in 1993..................... $3,340 $2,930 $ 936
Research and development tax credits.............................. (257) (56) (72)
State manufacturing investment tax credit......................... (1,087) -- --
State income taxes................................................ 836 458 152
Foreign subsidiary's loss with no current benefit................. (86) (45) --
Other............................................................. 117 (67) 63
------ ------ ------
Total............................................................. $2,863 $3,220 $1,079
====== ====== ======
</TABLE>
NOTE 9 LEASES AND COMMITMENTS
The Company's principal manufacturing and administrative facilities are
leased under operating leases expiring in June 1999. Future minimum annual
payments under capital and operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
------- ---------
<S> <C> <C>
1996..................................................................... $ 3,204 $ 1,182
1997..................................................................... 2,805 1,258
1998..................................................................... 2,654 1,257
1999..................................................................... 2,386 1,219
2000..................................................................... 1,782 975
Thereafter............................................................... -- --
------- ---------
Total minimum lease payments............................................. 12,831 $ 5,891
=======
Less amounts representing interest rates ranging from 5.2% to 15.8%...... 2,112
-------
Present value of minimum lease payments.................................. 10,719
Current portion.......................................................... 2,409
-------
Long-term portion........................................................ $ 8,310
======
</TABLE>
Rent expense was $932,000, $1,879,000 and $1,820,000 in 1995, 1994 and 1993,
respectively.
13
<PAGE> 14
NOTE 10 EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan whereby all employees
meeting certain age and service requirements may contribute up to 15% of their
eligible compensation (up to a maximum allowed under IRS rules). Contributions
may be made by the Company at the discretion of the Board of Directors. The
Company made contributions to the Plan of $27,000, $69,000 and $34,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 11 SIGNIFICANT CUSTOMER AND RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company own common stock in a
customer of the Company, Exar Corporation (Exar) which purchased Startech
Semiconductor, Inc. (Startech). Accounts receivable from Startech were $732,000
and $1,007,000 at December 31, 1995 and 1994, respectively. Sales and sublease
income from Startech are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Sales............................................................. $5,475 $4,990 $3,031
Sublease income................................................... $ 50 $ 54 $ 47
</TABLE>
The note receivable from related party resulted from the conversion of $1.0
million of accounts receivable from Startech into a note which is due on April
1, 1996, bears interest at 5% per annum, and is secured by substantially all of
Startech's assets.
A director of the Company is an officer and director of Photronics, Inc.
("Photronics"), a stockholder of the Company, from which the Company purchases
services. Purchases from Photronics were $2,533,000, $3,117,000 and $1,730,000
in the years ended December 31, 1995, 1994 and 1993, respectively. Trade
payables due to Photronics were $425,000 and $412,000 at December 31, 1995 and
1994, respectively. Pro Associates, a partner of which is related to an officer
and significant stockholder of the Company, is a manufacturing representative
and received commissions from the Company in the amount of $875,000, $571,000
and $440,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
(IN THOUSANDS)
Interest paid..................................................... $ 658 $ 366 $ 358
====== ====== ======
Income taxes paid................................................. $ 552 $3,817 $ 405
====== ====== ======
Noncash investing and financing activities:
Additional purchase price obligation (Note 1)................... $ -- $1,135 $1,000
====== ====== ======
Property acquired under capital lease........................... $9,612 $2,203 $ 694
====== ====== ======
Deferred stock compensation..................................... $ -- $ 139 $ 57
====== ====== ======
Conversion of shareholder note to common stock.................. $ 225 $ -- $ --
====== ====== ======
Exchange of common stock for Orbit Israel Series A Preferred
Stock........................................................ $ -- $ 500 $ --
====== ====== ======
Conversion of preferred stock to common stock................... $ -- $1,083 $ --
====== ====== ======
</TABLE>
NOTE 13 LITIGATION
The Company's wholly-owned subsidiary, KMOS Semiconductor, Inc., is
currently a party to an arbitration proceeding being conducted in the State of
California. In the arbitration, Universal Semiconductor,
14
<PAGE> 15
Inc. (Universal) has alleged that KMOS breached a contract between KMOS and a
predecessor company of Universal and violated such company's intellectual
property rights relating to certain technology. Universal is seeking an
unspecified amount of damages. The Company believes that the claims set forth by
Universal in the arbitration are without merit and intends to continue to defend
such claims vigorously. In the event of an unfavorable outcome to this matter,
the Company is entitled to limited indemnification from certain former KMOS
shareholders. Accordingly, management believes that the ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position or results of operations.
In an arbitration action brought by the Company against Power Max
Enterprises, Inc. (Powermax), Powermax counteracted by filing an arbitration
proceeding in the State of California alleging breach of contract,
misappropriation of trade secrets and unfair competition by Orbit and is seeking
an unspecified amount of damages. The Company believes that the claims set forth
by Powermax in the arbitration are without merit and intends to continue to
defend such claims vigorously. Accordingly, management believes that the
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
The Company is party to a securities class action filed in the United
States Court for the Northern District of California on behalf of purchasers of
the Company's common stock between April 20, 1995 and October 6, 1995. The
complaint alleges that the Company (along with several of its officers and
directors) mislead the market for its common stock, by issuing a number of
allegedly false or misleading statements. The complaint, which is purportedly
brought on behalf of a class consisting of all purchasers of the Company's
common stock between April 20, 1995 and October 6, 1995, alleges claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule
10b-5 promulgated thereunder. There has been no discovery and the court has not
set a trial date. The Company believes that the claims set forth are without
merit and intends to defend such claims vigorously. Accordingly, management
believes that the ultimate resolution of this matter will not have a material
adverse effect on the Company's financial position or results of operations.
15
<PAGE> 16
NOTE 14 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected unaudited quarterly financial data is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1995 QUARTER ENDED 1994 QUARTER ENDED
------------------------------------- -------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $14,929 $16,174 $13,516 $16,941 $10,750 $12,275 $13,164 $14,244
Cost of Sales........... 8,413 8,892 8,235 10,421 6,923 7,980 8,115 8,336
------- ------- ------- ------- ------- ------- ------- -------
Gross Margin.......... 6,516 7,282 5,281 6,520 3,827 4,295 5,049 5,908
------- ------- ------- ------- ------- ------- ------- -------
Operating Expenses:
Research and
development........ 1,293 1,277 1,259 1,549 641 656 968 1,146
Selling, general and
administrative..... 2,530 3,223 2,351 2,649 1,571 1,731 1,795 2,301
------- ------- ------- ------- ------- ------- ------- -------
Total.............. 3,823 4,500 3,610 4,198 2,212 2,387 2,763 3,447
------- ------- ------- ------- ------- ------- ------- -------
Income from
Operations............ 2,693 2,782 1,671 2,322 1,615 1,908 2,286 2,461
Interest Income
(Expense) and Other,
net................... 115 35 20 (94) 123 53 (65) (12)
------- ------- ------- ------- ------- ------- ------- -------
Income Before Income
Taxes................. 2,808 2,817 1,691 2,228 1,738 1,961 2,221 2,449
Provision for Income
Taxes................. 1,027 1,033 622 181 690 775 842 913
------- ------- ------- ------- ------- ------- ------- -------
Net Income.............. $ 1,781 $ 1,784 $ 1,069 $ 2,047 $ 1,048 $ 1,186 $ 1,379 $ 1,536
======= ======= ======= ======= ======= ======= ======= =======
Net Income Per Share.... $ 0.21 $ 0.20 $ 0.12 $ 0.23 $ 0.18 $ 0.20 $ 0.23 $ 0.21
======= ======= ======= ======= ======= ======= ======= =======
Stock Prices:*
High.................. $15 1/2 $23 1/2 $26 1/2 $18 1/4 -- -- -- $ 9 1/4
Low................... $ 6 3/4 $14 7/8 $18 3/4 $ 7 5/8 -- -- -- $ 7 3/8
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
* The Company's common stock commenced trading on November 16, 1994. These
prices represent the range of high and low closing prices as reported by
The Nasdaq Stock Market.
16
<PAGE> 1
EXHIBIT 99.3
ORBIT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
----------------- -----------------
JUNE JUNE JUNE JUNE
30, 30, 30, 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Revenues................................................ $17,312 $14,539 $31,079 $28,023
Revenues from related party............................. -- 1,635 731 3,080
------- ------- ------- -------
Total................................................ 17,312 16,174 31,810 31,103
Cost of Sales............................................. 9,989 8,892 19,258 17,305
------- ------- ------- -------
Gross Margin.............................................. 7,323 7,282 12,552 13,798
------- ------- ------- -------
Operating Expenses:
Research and development................................ 1,688 1,277 3,430 2,569
Selling, general and administrative..................... 3,146 2,875 6,001 5,406
Merger expenses......................................... -- 348 -- 348
------- ------- ------- -------
Total................................................ 4,834 4,500 9,431 8,323
------- ------- ------- -------
Income From Operations.................................... 2,489 2,782 3,121 5,475
Other Income (Expense):
Interest and other income............................... 114 168 304 369
Interest expense........................................ (239) (136) (484) (226)
Minority interest in loss of subsidiary................. 4 3 7 6
------- ------- ------- -------
Total................................................ (121) 35 (173) 149
------- ------- ------- -------
Income Before Income Taxes and Extraordinary Item......... 2,368 2,817 2,948 5,624
Provision For Income Taxes................................ 800 1,033 975 2,060
------- ------- ------- -------
Income Before Extraordinary Item.......................... 1,568 1,784 1,973 3,564
Extraordinary Gain from Early Retirement of Debt (Net of
Income Taxes of $119)................................... -- -- 201 --
------- ------- ------- -------
Net Income................................................ 1,568 1,784 2,174 3,564
======= ======= ======= =======
Per Share Data:
Income Before Extraordinary Item........................ $ 0.17 $ 0.20 $ 0.22 $ 0.41
Extraordinary Gain From Early Retirement of Debt........ -- -- 0.02 --
------- ------- ------- -------
Net Income.............................................. $ 0.17 $ 0.20 $ 0.24 $ 0.41
======= ======= ======= =======
Weighted Average Common and Common Equivalent Shares
Outstanding............................................. 9,138 8,816 9,005 8,750
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 2
ORBIT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 5,995 $ 10,671
Accounts receivable, less allowance of $397 in 1996 and 1995...... 13,297 10,425
Accounts receivable from related party............................ -- 732
Inventories....................................................... 10,675 8,123
Prepaid expenses and other assets................................. 934 388
Note receivable from related party................................ -- 1,000
Deferred income taxes............................................. 1,236 1,236
------- -------
Total current assets........................................... 32,137 32,575
Property and Equipment -- net....................................... 26,142 24,582
Goodwill -- net..................................................... 1,634 1,847
Other Assets........................................................ 301 338
------- -------
Total............................................................... $60,214 $ 59,342
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables.................................................... $ 4,556 $ 5,241
Accounts payable to related party................................. 434 425
Current portion of long-term obligations.......................... 2,927 2,769
Accrued salaries, commission and benefits......................... 964 918
Other accrued liabilities......................................... 1,292 1,110
Income taxes payable.............................................. 1,043 --
------- -------
Total current liabilities...................................... 11,216 10,463
Long-Term Obligations............................................... 9,055 11,601
Deferred Income Taxes............................................... 402 402
Minority Interest................................................... 2 9
Stockholders' Equity:
Common stock: $0.001 par value; 20,000 shares authorized; 7,481
and 7,315 shares outstanding in 1996 and 1995, respectively.... 22,909 22,425
Deferred stock compensation....................................... (15) (29)
Retained earnings................................................. 16,645 14,471
------- -------
Total stockholders' equity..................................... 39,539 36,867
------- -------
Total............................................................... $60,214 $ 59,342
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
ORBIT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Increase (Decrease) In Cash and Cash Equivalents:
Operating Activities:
Net income............................................................. $ 2,174 $ 3,564
KMOS Semiconductor net income for the five months ended May 31, 1995... -- (430)
Extraordinary gain from early retirement of debt....................... (201)
Adjustments to reconcile to net cash provided by operating activities:
Deferred income taxes............................................... -- (963)
Depreciation and amortization....................................... 2,337 1,037
Amortization of deferred stock compensation......................... 14 210
Minority interest in loss of subsidiary............................. (7) (7)
Changes in:
Accounts receivable............................................... (1,140) (627)
Inventories....................................................... (2,552) (669)
Prepaid expenses and other assets................................. (546) (46)
Trade payables.................................................... (676) 443
Accrued liabilities............................................... 228 (128)
Income taxes payable.............................................. 924 1,880
Deferred rent..................................................... -- (1)
------- -------
Net cash provided by operating activities...................... 555 4,263
------- -------
Investing Activities:
Maturities of short-term investments................................... -- 4,845
Acquisition of property and equipment.................................. (3,684) (6,097)
Decrease in other assets............................................... 37 54
------- -------
Net cash (used for) provided by investing activities................ (3,647) (1,198)
------- -------
Financing Activities:
Bank notes payable borrowings.......................................... 1,090 883
Bank notes payable repayments.......................................... (105) (100)
Repayment of OIC royalty obligation.................................... (1,815) --
Repayment of capital lease obligations................................. (1,238) (626)
Employee stock purchase plan and exercise of stock options............. 484 128
------- -------
Net cash (used for) provided by financing activities................ (1,584) 285
------- -------
Increase (decrease) in Cash and Cash Equivalents......................... (4,676) 3,350
Cash and Cash Equivalents:
Beginning of period.................................................... 10,671 7,798
------- -------
End of period.......................................................... $ 5,995 $ 11,148
======= =======
Supplemental disclosures of cash flow information:
Acquisition of equipment under capital lease........................... $ -- $ 2,083
======= =======
Tax benefit from stock transactions.................................... $ -- $ 2,333
======= =======
Deferred stock compensation............................................ $ -- $ 97
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
ORBIT SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. QUARTERLY FINANCIAL STATEMENTS
The condensed consolidated financial statements for the three and six
months ended June 30, 1996, and 1995 are unaudited but include all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
results of operations of the Company for interim periods. The results of
operations for the three months and six months ended June 30, 1996 are not
necessarily indicative of the operating results to be expected for the full
year. The information included in this report should be read in conjunction with
the Company's annual consolidated financial statements and notes thereto for the
year ended December 31, 1995 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
NOTE 2. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
JUN. 30 DEC. 31,
1996 1995
------- --------
<S> <C> <C>
Raw materials..................................................... $ 1,591 $1,363
Work in progress.................................................. 6,449 5,597
Finished goods.................................................... 2,635 1,163
------- ------
Total................................................... $10,675 $8,123
======= ======
</TABLE>
NOTE 3. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period and Orbit Israel
shares. Common equivalent shares include common stock options and warrants
(using the treasury stock method) and shares subscribed under the Employee Stock
Purchase Plan.
NOTE 4. MERGER WITH DII
On June 9, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which DII Merger Corp., a wholly-owned
subsidiary of The DII Group, Inc. (the "DII Group"), will be merged with and
into Orbit, with the result that Orbit will become a wholly-owned subsidiary of
the DII Group. In the proposed merger, each outstanding share of common stock of
Orbit will be converted into the right to receive 45/100ths (0.45) of a share of
common stock of the DII Group. Stockholders of the Company and the DII Group
will vote upon the merger on August 22, 1996.
4
