<PAGE> 1
UNITED STATES 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 JUNE 28, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-21374
THE DII GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1224426
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6273 Monarch Park Place
Niwot, Colorado 80503
(Address and zip code of principal executive offices)
(303) 652-2221
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS August 7, 1998
----- --------------
Common Stock, Par Value $0.01 24,898,129
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------- -----------------------------
JUNE 28, 1998 JUNE 29, 1997 JUNE 28, 1998 JUNE 29, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales:
Systems assembly and distribution $ 142,712 122,585 293,131 207,586
Interconnect technologies 46,123 26,711 96,831 48,911
Other 33,103 34,801 67,350 64,680
------------- ------------- ------------- -------------
Total net sales 221,938 184,097 457,312 321,177
Cost of sales:
Cost of sales 188,796 151,418 390,728 262,318
Non-recurring charges -- -- 12,844 --
------------- ------------- ------------- -------------
Total cost of sales 188,796 151,418 403,572 262,318
------------- ------------- ------------- -------------
Gross profit 33,142 32,679 53,740 58,859
Selling, general and administrative expenses 19,384 18,189 38,560 34,326
Non-recurring charges -- -- 41,156 --
Interest income (677) (156) (1,604) (398)
Interest expense 4,669 1,720 9,388 3,420
Amortization of intangibles 1,094 929 2,215 1,729
Other, net 169 581 1 674
------------- ------------- ------------- -------------
Income (loss) before income taxes 8,503 11,416 (35,976) 19,108
Income tax expense (benefit) 2,376 3,876 (10,056) 6,491
------------- ------------- ------------- -------------
Net income (loss) $ 6,127 7,540 (25,920) 12,617
============= ============= ============= =============
Earnings (loss) per common share:
Basic $ 0.24 0.31 (1.03) 0.52
Diluted $ 0.23 0.27 (1.03) 0.47
Weighted average number of common shares and equivalents outstanding:
Basic 25,044 24,482 25,110 24,270
Diluted 30,450 30,676 25,110 30,158
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 3
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 79,783 85,067
Accounts receivable, net 114,263 132,590
Inventories 65,551 74,059
Other 11,123 8,535
----------- -----------
Total current assets 270,720 300,251
Property, plant and equipment, net 187,536 207,257
Intangible assets, net 75,652 77,653
Other 7,952 7,568
----------- -----------
$ 541,860 592,729
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94,904 98,688
Accrued expenses 24,426 29,766
Accrued interest payable 4,825 4,688
Current installments of long-term financing obligations 5,381 6,491
----------- -----------
Total current liabilities 129,536 139,633
Senior subordinated notes payable 150,000 150,000
Convertible subordinated notes payable 86,247 86,250
Long-term financing obligations, excluding current installments 3,015 6,545
Other 2,926 2,953
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value; 90,000,000 shares
authorized; 25,901,258 and 25,328,914 shares issued and
24,858,758 and 25,136,414 shares outstanding 259 253
Additional paid-in capital 120,475 117,612
Retained earnings 84,183 110,103
Treasury stock, at cost; 1,042,500 and 192,500 shares (20,367) (4,209)
Cumulative foreign currency translation adjustments (4,148) (4,095)
Deferred stock compensation (10,266) (12,316)
----------- -----------
Total stockholders' equity 170,136 207,348
----------- -----------
$ 541,860 592,729
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 4
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 42,183 44,189
------------- -------------
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired -- (7,939)
Additions to property, plant and equipment (33,572) (46,156)
Proceeds from sales of equipment 3,800 916
------------- -------------
Net cash used by investing activities (29,772) (53,179)
------------- -------------
Cash flows from financing activities:
Payments to acquire treasury stock (16,158) --
Repayments of long-term financing obligations (4,643) (8,368)
Repayments of notes payable to sellers of businesses acquired -- (826)
Proceeds from line-of-credit borrowings -- 5,660
Proceeds from stock issued under stock plans 3,146 1,931
------------- -------------
Net cash used by financing activities (17,655) (1,603)
------------- -------------
Effect of exchange rate changes on cash (40) 28
------------- -------------
Net decrease in cash and cash equivalents (5,284) (10,565)
Cash and cash equivalents at beginning of year 85,067 25,010
------------- -------------
Cash and cash equivalents at end of period $ 79,783 14,445
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 5
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Financial information as of December 28, 1997 has been
derived from the audited consolidated financial statements of The DII Group,
Inc. and subsidiaries (the "Company" or "DII").
The condensed consolidated financial statements do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements as of and for the year ended December 28, 1997 included in
the annual report on Form 10-K previously filed with the Securities and
Exchange Commission (the "SEC"). In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included in the accompanying condensed consolidated
financial statements. Operating results for the six-month period ended June 28,
1998 are not necessarily indicative of the results that may be expected for the
year ending January 3, 1999.
The Company operates and reports financial results on a fiscal year of 52 or 53
weeks ending on the Sunday nearest to December 31. Accordingly, fiscal 1997
comprised 52 weeks and ended on December 28, 1997 and fiscal 1998 will comprise
53 weeks and will end on January 3, 1999. The accompanying condensed
consolidated financial statements are therefore presented as of and for the six
month periods ended June 28, 1998 and June 29, 1997.
(2) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 48,396 51,802
Work in process 21,486 24,890
Finished goods 2,294 2,839
----------- -----------
72,176 79,531
Less allowance 6,625 5,472
----------- -----------
$ 65,551 74,059
=========== ===========
</TABLE>
The Company made provisions to the allowance for inventory impairment
(including non-recurring charges, see Note 6) of $7,280 and $2,672 during the
six months ended June 28, 1998 and June 29, 1997, respectively.
<PAGE> 6
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(3) ACQUISITIONS
During the second quarter of 1997, the Company completed certain business
combinations that are immaterial to the Company's results from operations and
financial position. The cash purchase price, net of cash acquired, for these
acquisitions amounted to $7,939. The fair value of the assets acquired and
liabilities assumed from these acquisitions was immaterial. The cost in excess
of net assets acquired through these acquisitions amounted to $9,133.
These acquisitions were accounted for as purchases with the results of
operations from the acquired businesses included in the Company's results of
operations from the acquisition dates forward. Pro forma results of operations
would not be materially different from the historical results reported. The
costs of these acquisitions have been allocated on the basis of the estimated
fair value of the assets acquired and the liabilities assumed.
(4) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation and environmental matters
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997. In April 1998, the Company entered into Consent Orders with
the New York Department of Environmental Conservation concerning the
performance of a remedial investigation/feasibility study with respect to
environmental matters at a formerly owned facility in Kirkwood, New York, and a
facility that is owned and leased out to a third party in Binghamton, New York.
The ultimate outcome of the litigation and environmental matters cannot, at
this time, be predicted in light of the uncertainties inherent in these
matters. Based upon the facts and circumstances currently known, management
cannot estimate the most likely loss or the maximum loss for these matters. The
Company has accrued the minimum estimated costs, which amounts are immaterial,
associated with these matters in the accompanying condensed consolidated
financial statements.
The Company determines the amount of its accruals for environmental matters by
analyzing and estimating the range of possible costs in light of information
currently available. The imposition of more stringent standards or requirements
under environmental laws or regulations, the results of future testing and
analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can
be given that actual costs will not exceed amounts accrued or that costs will
not be incurred with respect to sites as to which no problem is currently
known. Further, there can be no assurance that additional environmental matters
will not arise in the future.
The Company has approximately $14,000 of capital commitments as of June 28,
1998.
As of June 28, 1998, the Company has an $80,000 senior secured revolving
line-of-credit which expires in June 2002. This credit facility requires
compliance with certain financial covenants and is secured by substantially all
of the Company's assets. As of June 28, 1998, there were no borrowings
outstanding under the line-of-credit, and the Company was in compliance with
all financial covenants.
<PAGE> 7
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(5) STOCKHOLDERS' EQUITY
During the first half of 1998, the Company repurchased 850,000 shares of its
common stock at a cost of $16,158. Since beginning its share repurchase plan in
December 1997, the Company has repurchased 1,042,500 shares of its common stock
at a cost of $20,367. The Company could repurchase an additional 957,500 shares
of common stock in future periods as part of its share repurchase plan. Future
common stock repurchases are subject to then existing market and general
economic conditions.
(6) NON-RECURRING CHARGES
In March 1998, the Company recognized a non-recurring charge of $54,000,
substantially all of which related to the operations of the Company's wholly
owned subsidiary, Orbit Semiconductor ("Orbit"). The charge was primarily due to
the impaired recoverability of certain sales contracts, inventory, intangible
assets and fixed assets.
The DII Group purchased Orbit in August of 1996, and supported Orbit's
previously made decision to replace its wafer fabrication facility (fab) with a
higher technology fab. The transition to this 6-inch fab was originally
scheduled for completion during the summer of 1997, but the changeover took
longer than expected and was finally completed in January 1998.
The missed plan for the changeover and running both fabs simultaneously put
pressure on the work force, with resulting quality problems. Compounding these
problems, the semiconductor industry has been characterized by excess capacity
that arose about the time Orbit was acquired, which has led larger competitors
to invade Orbit's niche market. Further, many of Orbit's customers migrated
faster than expected to a technology in excess of Orbit's fabrication
capabilities, which required Orbit to outsource more of its manufacturing
requirements than originally expected. Based upon these continued conditions
and the future outlook, the Company took this one-time charge to correctly size
Orbit's asset base to allow its recoverability based upon its current business
size.
The non-recurring charges consisted of (i) $38,258 associated with the
write-down of long-lived assets to fair value, (ii) $7,900 associated with the
impairment of sales contracts and accounts receivable as well as estimated
costs for sales returns and allowances, primarily as a result of the fab
changeover quality issues, and (iii) $7,842 primarily associated with excess
inventory created by quality issues and the downsizing of Orbit's operations.
The allowances established in connection with the non-recurring charge have
been or are expected to be completely utilized in fiscal 1998. The original
accrual estimates approximate the current estimates of the amounts reflected in
the non-recurring charge.
(7) COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board (FASB) Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130"), at the beginning of fiscal
year 1998. SFAS 130 establishes standards for reporting and display of
comprehensive earnings and its components in general purpose financial
statements. Components of comprehensive income are net income and all other
nonowner changes in equity such as the change in the cumulative foreign
currency translation adjustments. This
<PAGE> 8
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(7) COMPREHENSIVE INCOME, CONTINUED
statement requires that an entity: (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display an amount
representing total comprehensive income for the period in that financial
statement. The adoption of this statement had no impact on the Company's net
earnings or shareholders' equity. There were no material differences between
net earnings (loss) and comprehensive income (loss) for the three and six
months ended June 28, 1998, and June 29, 1997. The Company has accumulated
other comprehensive losses at June 28, 1998 and June 29, 1997 which consisted
of foreign currency translation adjustments of $4,148 and $3,933, respectively.
(8) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
-------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BASIC EPS:
Net income (loss) $ 6,127 7,540 $ (25,920) 12,617
========= ========= ========= =========
Weighted-average common shares outstanding 25,044 24,482 25,110 24,270
========= ========= ========= =========
Basic EPS $ 0.24 0.31 $ (1.03) 0.52
========= ========= ========= =========
DILUTED EPS:
Net income (loss) $ 6,127 7,540 $ (25,920) 12,617
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible
subordinated notes 776 776 -- 1,552
Amortization (net of tax) of debt issuance cost
on convertible subordinated notes 65 65 -- 130
--------- --------- --------- ---------
Net income (loss) available to common stockholders $ 6,968 8,381 $ (25,920) 14,299
========= ========= ========= =========
Shares used in computation:
Weighted-average common shares outstanding 25,044 24,482 25,110 24,270
Shares applicable to exercise of dilutive options 741 1,424 -- 1,118
Shares applicable to deferred stock compensation 68 170 -- 170
Shares applicable to convertible subordinated
notes 4,597 4,600 -- 4,600
--------- --------- --------- ---------
Shares applicable to diluted earnings 30,450 30,676 25,110 30,158
========= ========= ========= =========
Diluted EPS $ 0.23 0.27 $ (1.03) 0.47
========= ========= ========= =========
</TABLE>
<PAGE> 9
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(8) EARNINGS (LOSS) PER SHARE, CONTINUED
For the six month period ended June 28, 1998, the common equivalent shares from
common stock options and deferred stock compensation are excluded from the
computation of diluted loss per share as their effect is antidilutive.
Additionally, the convertible subordinated notes were antidilutive for the six
month period ended June 28, 1998, and therefore not assumed to be converted for
diluted loss per share computations.
(9) PROPOSED ASSET ACQUISITION
In June 1998, the Company signed a Memorandum of Understanding with
Hewlett-Packard Company ("HP") to acquire HP's Printed Circuit Organization
("PRCO") in Boeblingen, Germany for an amount which is currently under
negotiation. Under the terms of the memorandum, the Company will acquire the
printed circuit fabrication assets including certain intellectual property
rights of the PRCO operation and offer employment to the current PRCO
employees. The aggregate purchase price will not exceed the Company's existing
cash reserves and line-of-credit availability as of June 28, 1998. If actual
funds available from these sources are less than anticipated at the time of
closing or the Company's capital needs are greater than anticipated, the
Company may seek additional equity or debt financing. The Company's increased
leverage could adversely affect its ability to obtain future financing on
acceptable terms or to otherwise withstand adverse business and economic
developments and compete effectively. The closing is subject to final purchase
price negotiations, the completion of due diligence and other terms and
conditions and is expected to occur in October 1998.
<PAGE> 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include, but are not limited
to, statements regarding contingencies, litigation, environmental matters,
liquidity and capital expenditures herein under "Part I Financial Information -
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations." Actual results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth below.
A. OVERVIEW
The Company is a leading provider of electronics design and manufacturing
services that operates through a global network of independent business units.
These business units are uniquely linked to provide the following related
products and services to original equipment manufacturers ("OEMs"): design and
manufacture of custom microelectronics; design and manufacture of printed
circuit boards; assembly of printed circuit boards; process tooling; machine
tools; process automation equipment; in-circuit and functional test hardware
and software; and final systems assembly and distribution. By offering
comprehensive and integrated design and manufacturing services, the Company
believes that it is better able to develop long-term relationships with its
customers, expand into new markets and enhance its profitability.
The Company provides the following related products and services to customers
in the global electronics manufacturing industry:
Custom Microelectronics--Through Orbit Semiconductor ("Orbit"), the
Company provides semiconductor design, manufacturing and engineering
support services to its OEM customers. Orbit provides cost-effective
gate array conversion services, mixed-signal design and production
capabilities as well as high-reliability manufacturing. Orbit utilizes
a combination of internal fabrication capabilities and external
foundry suppliers, thereby using a "fab/fabless" manufacturing
approach.
Interconnect Technologies--The Company provides design and
manufacturing services for printed circuit assemblies through Design
Solutions ("DSI") and manufactures high density, complex multilayer
printed circuit boards through Multek.
Systems assembly and distribution--The Company assembles complex
electronic circuits and provides final system configuration and
distribution services (contract electronics manufacturing, or "CEM")
through Dovatron International ("Dovatron").
Process Technologies--The Company manufactures surface mount printed
circuit board solder cream stencils on a quick-turn basis through IRI
and Chemtech; designs and manufactures in-circuit and functional test
software and hardware on a quick-turn basis through TTI Testron;
manufactures depaneling systems that route individual printed circuit
boards from an assembled master panel in the final step of the
electronics assembly process through Cencorp; and manufactures process
automation equipment through PCT Automation Systems ("PCT").
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
A. OVERVIEW, CONTINUED
With the above core competencies, the Company has the ability to provide
customers with a total design and manufacturing outsourcing solution. The
Company's ability to offer fully integrated solutions with value-added front-
and back-end product and process development capabilities coupled with global
volume assembly capabilities provides customers with significant
speed-to-market and product cost improvements.
Operating results may be affected by a number of factors including the economic
conditions in the markets the Company serves; price and product competition;
the level of volume and the timing of orders; product mix; the amount of
automation existing on specific manufacturing projects; efficiencies achieved
by inventory management; fixed asset utilization; the level of experience in
manufacturing a particular product; customer product delivery requirements;
shortages of components or experienced labor; the integration of acquired
businesses; start-up costs associated with adding new geographical locations;
expenditures required for research and development; and failure to introduce,
or lack of market acceptance of, new processes, services, technologies and
products on a timely basis.
A majority of the Company's sales are to customers in the electronics industry,
which is subject to rapid technological change, product obsolescence and price
competition. The factors affecting the electronics industry (especially the
semiconductor sector) in general, or any of the Company's major customers, in
particular, could have a material adverse affect on the Company's operating
results. The electronics industry (especially the semiconductor sector) has
historically been cyclical and subject to economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and overcapacity. These factors, which may affect the
electronics industry in general, or any of the Company's major customers, in
particular, could have a material adverse effect on the Company's operating
results. The future success of the Company's businesses will depend largely
upon its ability to enhance its existing products and services or to acquire
new products and manufacturing processes in order to keep pace with changing
technology and industry standards and meet the changing needs of customers.
There can be no assurance that the Company will be able to keep pace with the
rapidly changing technology trends. The introduction by competitors of new
technologies or the emergence of new industry standards and customer
requirements could render the Company's existing products and processes
obsolete, unmarketable or no longer competitive.
The Company seeks a well balanced customer profile across most sectors of the
electronics industry in order to reduce exposure to a downturn in any
particular sector. The primary sectors within the electronics industry served
by the Company are office automation, mainframes and mass storage, data
communications, computer and peripherals, telecommunications, industrial,
instrumentation, and medical.
At any given time, certain customers may account for significant portions of
the Company's business. Hewlett Packard Company ("HP") and International
Business Machines Corporation ("IBM") accounted for approximately 10% and 11%
of net sales during the six months ended June 28, 1998, respectively. HP
accounted for 12% of net sales during the six months ended June 29, 1997. No
other customer accounted for more than 10% of net sales during the six months
ended June 28, 1998 and June 29, 1997.
<PAGE> 12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
A. OVERVIEW, CONTINUED
The Company's top ten customers accounted for approximately 50% and 47% of net
sales for the six months ended June 28, 1998 and June 29, 1997, respectively.
The percentage of the Company's sales to its major customers may fluctuate from
period to period. Significant reductions in sales to any of these customers
could have a material adverse effect on the Company's operating results.
Although management believes the Company has a broad diversification of
customers and markets, the Company has few material firm long-term commitments
or volume guarantees from its customers. In addition, customer orders can be
canceled and volume levels can be changed or delayed.
From time to time, some of the Company's customers have terminated their
manufacturing arrangements with the Company, and other customers have
significantly reduced or delayed the volume of design and manufacturing
services performed by the Company. The timely replacement of canceled, delayed
or reduced contracts with new business cannot be assured, and termination of a
manufacturing relationship or change, reduction or delay in orders could have a
material adverse effect on the Company's operating results.
The Company has actively pursued acquisitions in furtherance of its strategy to
be the fastest and most comprehensive provider of custom electronics design and
manufacturing services, ranging from microelectronics fabrication through the
final assembly of finished products for OEM customers. The Company's
acquisitions have enabled the Company to provide more integrated outsourcing
technology solutions with time-to-market and lower cost advantages.
Acquisitions have also played an important part in expanding the Company's
presence in the global electronics marketplace. By enhancing the Company's
capability to provide a wide range of related electronics design and
manufacturing services to a global market that is increasingly dependent on
outsourcing providers, these acquisitions have enabled the Company to enhance
its competitive position as a leading provider of comprehensive outsourcing
technology solutions.
Acquisitions involve numerous risks including difficulties in assimilating the
operations, technologies, and products and services of the acquired companies,
the diversion of management's attention from other business concerns, risks of
entering markets in which the DII Group has no or limited direct prior
experience and where competitors in such markets have stronger market
positions, and the potential loss of key employees of the acquired company.
There can be no assurance that the Company will be able to successfully
integrate newly acquired businesses. Such failures could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company also continues to experience rapid internal growth and
expansion, and with continued expansion, it may become more difficult for the
Company's management to manage geographically dispersed operations. The
Company's failure to effectively manage growth could have a material adverse
effect on the Company's results of operations.
B. RESULTS OF OPERATIONS
Total net sales for the three months ended June 28, 1998 increased $37,841 (21%)
to $221,938 from $184,097 for the comparable period in 1997. Total net sales for
the six months ended June 28, 1998 increased $136,135 (42%) to $457,312 from
$321,177 for the comparable period in 1997. The electronics industry is
currently believed to be in a downturn, as evidenced by diminished product
demand, accelerated erosion of average selling prices and over-capacity, the
impact of which could reduce the historical growth rates experienced from the
Company's existing customer base. Without the continuation of adding additional
customers, the Company's results could be adversely affected.
<PAGE> 13
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
B. RESULTS OF OPERATIONS, CONTINUED
Systems assembly and distribution, which represented 64% of net sales for the
three months ended June 28, 1998, increased $20,127 (16%) to $142,712 from
$122,585 for the comparable period in 1997. Systems assembly and distribution,
which represented 64% of net sales for the six months ended June 28, 1998,
increased $85,545 (41%) to $293,131 from $207,586 for the corresponding period
in 1997. These increases are primarily the result of the Company's ability to
expand sales to its existing customer base as well as sales to new customers.
Interconnect technologies, which represented 21% of net sales for the three
months ended June 28, 1998, increased $19,412 (73%) to $46,123 from $26,711 for
the comparable period in 1997. Interconnect technologies, which represented 21%
of net sales for the six months ended June 28, 1998, increased $47,920 (98%) to
$96,831 from $48,911 for the corresponding period in 1997. These increases are
primarily attributable to the August 1997 acquisition of the IBM Austin printed
circuit board fabrication facility.
Net sales for the Company's other products and services for the three months
ended June 28, 1998 decreased $1,698 (5%) to $33,103 from $34,801 for the
comparable period in 1997. This decrease is primarily attributable to an
electronics industry downturn (especially in the semiconductor industry),
characterized by diminished product demand, accelerated erosion of average
selling prices and over capacity. Net sales for the Company's other products
and services for the six months ended June 28, 1998 increased $2,670 (4%) to
$67,350 from $64,680 for the comparable period in 1997.
Gross profit for the three months ended June 28, 1998 increased $463 to $33,142
from $32,679 for the comparable period in 1997. Excluding non-recurring
charges, gross profit for the six-month period ending June 28, 1998, increased
$7,725 to $66,584 from $58,859 for the comparable period in 1997. The gross
margin decreased to 14.9% for the three months ended June 28, 1998 as compared
to 17.8% for the three months ended June 29, 1997. Excluding non-recurring
charges, gross margin decreased to 14.6% for the six month period ended June
28, 1998 from 18.3% for the six month period ended June 29, 1997. The gross
margin decreases were primarily the result of (i) the increase in the contract
electronics manufacturing revenues which generate lower margins than the
Company's other products and service offerings; (ii) delayed orders from
several Multek customers which resulted in lower asset utilization; (iii) the
incremental production from the Multek Austin high volume printed circuit board
fabrication facility which carries lower gross margins than historical Multek
quick-turn, high margin business; (iv) inefficiencies and yield problems at
Orbit; and (v) an electronics industry downturn (especially in the
semiconductor industry), characterized by diminished product demand,
accelerated erosion of average selling prices and over capacity.
Selling, general and administrative (SG&A) expense increased $1,195 to $19,384
for the three months ended June 28, 1998 from $18,189 for the comparable period
in 1997. The percentage of SG&A expense to net sales decreased to 8.7% for the
three months ended June 28, 1998 from 9.9% for the three months ended June 29,
1997. The increase in absolute dollars was primarily attributable to: (i) the
continued expansion of the Company's sales and marketing, finance, and other
general and administrative infrastructure necessary to support the Company's
growth; (ii) the addition of Multek's August 1997 acquisition of a high volume
printed circuit board fabrication facility in Austin, Texas; and (iii) the
increased SG&A associated with a 21% increase in net sales in the three months
ended June 28, 1998 versus the comparable period in 1997. The percentage of
SG&A expense to net sales decreased during the three months ended June 28, 1998
versus June 29, 1997 due to better absorption from the increase in revenues.
<PAGE> 14
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
B. RESULTS OF OPERATIONS, CONTINUED
SG&A expense increased $4,234 to $38,560 for the six months ended June 28, 1998
from $34,326 for the comparable period in 1997. The percentage of SG&A expense
to net sales decreased to 8.4% for the six months ended June 28, 1998 from
10.7% for the six months ended June 29, 1997. These dollar increases are
related to (i) the continued expansion of the Company's sales and marketing,
finance, and other general and administrative infrastructure necessary to
support the Company's growth; (ii) the addition of the Multek Austin facility;
and (iii) the increased SG&A associated with a 42% increase in net sales in the
six months ended June 28, 1998 versus the comparable period in 1997. The
percentage of SG&A expense to net sales decreased during the six months ended
June 28, 1998 versus June 29, 1997 due to better absorption from the increase
in revenues.
In March 1998, the Company recognized a non-recurring charge of $54,000,
substantially all of which related to the operations of the Company's wholly
owned subsidiary, Orbit Semiconductor. The non-recurring charges consisted of
(i) $38,258 associated with the write-down of long-lived assets to fair value;
(ii) $7,900 associated with the impairment of sales contracts and accounts
receivable as well as estimated costs for sales returns and allowances,
primarily as a result of the fab changeover quality issues; and (iii) $7,842
primarily associated with excess inventory created by quality issues and the
downsizing of Orbit's operations.
Interest expense increased $2,949 to $4,669 for the three months ended June 28,
1998 from $1,720 for the comparable period in 1997. Interest expense increased
$5,968 to $9,388 for the six months ended June 28, 1998 from $3,420 for the
comparable period in 1997. This increase is primarily associated with the
Company's issuance of $150,000 of 8.50% senior subordinated notes in September
1997.
Amortization expense increased $165 to $1,094 for the three months ended June
28, 1998 from $929 for the comparable period in 1997. Amortization expense
increased $486 to $2,215 for the six months ended June 28, 1998 from $1,729 for
the six months ended June 29, 1997. These increases are attributable to the
amortization of debt issue costs associated with the senior subordinated notes
issued in September 1997 and the amortization of the goodwill associated with
the DSI and PCT acquisitions.
Other expense (net) decreased $412 for the three months ended June 28, 1998 and
$673 for the six months ended June 28, 1998 from the comparable periods in
1997, due primarily to increased net gains realized on foreign currency
transactions and reduced provisions for doubtful accounts.
The Company's estimated effective income tax rate differs from the U.S.
statutory rate due to domestic income tax credits and lower effective income
tax rates on foreign earnings considered permanently invested abroad. The
effective tax rate for a particular year will vary depending on the mix of
foreign and domestic earnings, income tax credits and changes in previously
established valuation allowances for deferred tax assets based upon
management's current analysis of the realizability of these deferred tax
assets. As foreign earnings considered permanently invested abroad increase as
a percentage of consolidated earnings, the overall consolidated effective
income tax rate will usually decrease because the foreign earnings are
generally taxed at a lower rate than domestic earnings. The mix of foreign and
domestic income from operations before income taxes, the recognition of income
tax loss and tax credit carryforwards and management's current assessment of
the required valuation allowance resulted in an estimated effective income tax
rate of 28% for the three and six month periods ended June 28, 1998. The
Company's effective income tax rate was 34% for the three and six month periods
ended June 29, 1997.
<PAGE> 15
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
C. ACQUISITIONS
During the second quarter of 1997, the Company completed certain business
combinations that are immaterial to the Company's results from operations and
financial position. The cash purchase price, net of cash acquired for these
acquisitions, was $7,939. The fair value of the assets acquired and liabilities
assumed from these acquisitions were immaterial. The cost in excess of net
assets acquired from these acquisitions amounted to $9,133.
The acquisitions were accounted for as purchases with the results of operations
from the acquired businesses included in the Company's results of operations
from the acquisition dates forward. Pro forma results of operations would not
be materially different from the historical results reported. The costs of
these acquisitions have been allocated on the basis of the estimated fair value
of the assets acquired and the liabilities assumed.
D. FOREIGN CURRENCY EXPOSURE
The Company conducts a significant amount of its business and has a number of
operating facilities in countries outside of the United States. As a result, the
Company may experience transaction and translation gains and losses because of
currency fluctuations. In order to minimize foreign exchange transaction risk,
the Company selectively hedges certain of its foreign exchange exposures through
forward exchange contracts, principally relating to nonfunctional currency
monetary assets and liabilities. The strategy of selective hedging can reduce
the Company's vulnerability to certain of its foreign currency exposures, and
the Company expects to continue this practice in the future. To date, the
Company's hedging activity has been immaterial, and there were no open foreign
exchange contracts as of June 28, 1998 or June 29, 1997.
E. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
At June 28, 1998, the Company had working capital of $141,184 and a current
ratio of 2.1x compared to working capital of $160,618 and a current ratio of
2.2x at December 28, 1997. Cash and cash equivalents at June 28, 1998 were
$79,783, a decrease of $5,284 from $85,067 at December 28, 1997. This decrease
resulted primarily from cash used by financing and investing activities of
$29,772 and $17,655, respectively, offset by cash provided from operations of
$42,183.
The Company's net cash flows used by investing activities amounted to $29,772
and $53,179 for the six months ended June 28, 1998 and June 29, 1997,
respectively. Capital expenditures amounted to $33,572 and $46,156 for the six
months ended June 28, 1998 and June 29, 1997, respectively. The Company
continues to invest in state-of-the-art, high-technology equipment which
enables it to accept increasingly complex and higher-volume orders. The Company
received proceeds of $3,800 and $916 from the sale of property, plant and
equipment during the six months ended June 28, 1998 and June 29, 1997,
respectively, to allow for the potential replacement of older property, plant
and equipment with state-of-the-art, high-technology equipment.
As described above in Section C, Acquisitions, during the second quarter of
1997, the Company completed certain business combinations that are immaterial to
the Company's results from operations and financial position. The cash purchase
price, net of cash acquired for these acquisitions, was $7,939.
<PAGE> 16
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
E. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS, CONTINUED
The Company's net cash flows used by financing activities amounted to $17,655
and $1,603 for the six months ended June 28, 1998 and June 29, 1997,
respectively. The Company repaid $4,643 and $8,368 in long-term financing
obligations in the six months ended June 28, 1998 and June 29, 1997,
respectively. The Company received $3,146 and $1,931 in proceeds from stock
issued under its stock plans in the six months ended June 28, 1998 and June 29,
1997, respectively.
During the six months ended June 28, 1998, the Company repurchased 850,000
shares of its common stock at a cost of $16,158. Since beginning its share
repurchase plan in December 1997, the Company has repurchased 1,042,500 shares
of its common stock at a cost of $20,367. The Company could repurchase an
additional 957,500 shares of common stock in future periods as part of its
share repurchase plan. Future common stock repurchases are subject to then
existing market and general economic conditions.
In June 1998, the Company signed a Memorandum of Understanding with
Hewlett-Packard Company ("HP") to acquire HP's Printed Circuit Organization
("PRCO") in Boeblingen, Germany for an amount which is currently under
negotiation. Under the terms of the memorandum, the Company will acquire the
printed circuit fabrication assets including certain intellectual property
rights of the PRCO operation and offer employment to the current PRCO
employees. The aggregate purchase price will not exceed the Company's existing
cash reserves and line-of-credit availability as of June 28, 1998. If actual
funds available from these sources are less than anticipated at the time of
closing or the Company's capital needs are greater than anticipated, the
Company may seek additional equity or debt financing. The Company's increased
leverage could adversely affect its ability to obtain future financing on
acceptable terms or to otherwise withstand adverse business and economic
developments and compete effectively. The closing is subject to final purchase
price negotiations, the completion of due diligence and other terms and
conditions and is expected to occur in October 1998.
At June 28, 1998, the Company has an $80,000 senior secured revolving
line-of-credit which expires in June 2002. This credit facility requires
compliance with certain financial covenants and is secured by substantially all
of the Company's assets. There were no borrowings outstanding under the
line-of-credit, and the Company was in compliance with all financial covenants
as of June 28, 1998. For the six months ended June 29, 1997, the Company
borrowed $5,660 from its line-of-credit.
Management believes that cash generated from operations, existing cash
reserves, leasing capabilities, and the line-of-credit availability will be
adequate to fund the Company's current capital expenditure plan for fiscal
1998. The Company intends to continue its acquisition strategy and it is
possible that future acquisitions may be significant. If available resources
are not sufficient to finance the Company's acquisitions, the Company would be
required to seek additional equity or debt financing.
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to the use, storage, discharge and disposal of
hazardous chemicals used during its manufacturing processes. The Company
believes that it is currently operating in compliance with applicable
regulations and does not believe that costs of compliance with these laws and
regulations will have a material effect upon its capital expenditures, results
from operations or competitive position.
The Company determines the amount of its accruals for environmental matters by
analyzing and estimating the range of possible costs in light of information
currently available. The imposition of more stringent standards or requirements
under environmental laws or regulations, the results of future testing and
analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can
be given that
<PAGE> 17
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
E. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS, CONTINUED
actual costs will not exceed amounts accrued or that costs will not be incurred
with respect to sites as to which no problem is currently known. Further, there
can be no assurance that additional environmental matters will not arise in the
future.
See Note 4 to the condensed consolidated financial statements for a description
of commitments, contingencies and environmental matters.
F. YEAR 2000 ISSUE
The year 2000 date conversion issue is the result of computer programs being
written using two digits rather than four to define the applicable year. This
issue affects computer systems that have time-sensitive programs that may not
properly recognize the year 2000. This could result in major system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in normal business activities.
Management has initiated a company-wide program to prepare its financial,
manufacturing and other critical systems and applications for the year 2000. The
program involves the Company's upper management as well as individuals from each
of its operating companies. The focus of the program is to identify affected
software and hardware, develop a plan to correct that software or hardware in
the most effective manner and implement and monitor that plan. The program also
includes communications with the Company's significant suppliers and customers
to determine the extent to which the Company is vulnerable to any failures by
them to address the Year 2000 issue. As of June 28, 1998, the Company had not
expensed material amounts related to the Year 2000 issue. Although the Company's
Year 2000 program is in various stages of completion across its operating
companies, the Company anticipates it will have all modifications and
replacements in place before the end of 1999. However, at this time, the Company
is not able to determine the estimated impact on the operations of the Company
should it or one of its suppliers or customers be unable to successfully address
the Year 2000 issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1997, two related complaints, as amended, were filed in the District Court
of Boulder, Colorado and the U.S. District Court for the District of Colorado
against the Company and certain of its officers. The lawsuits purport to be
brought on behalf of a class of persons who purchased the Company's common
stock during the period from April 1, 1996, through September 8, 1996, and
claim violations of Colorado and federal laws based on allegedly false and
misleading statements made in connection with the offer, sale or purchase of
the Company's common stock at allegedly artificially inflated prices, including
statements made prior to the Company's acquisition of Orbit. The complaints
seek compensatory and other damages as well as equitable relief. The Company
filed motions to dismiss both amended complaints. The motion to dismiss the
state court complaint has been denied, and the Company has filed its answer
denying that it misled the securities market. The motion to dismiss the federal
court complaint is still pending. Both actions were brought by the same
plaintiffs' law firm as the Orbit action discussed below. The Company believes
that the claims asserted in both actions are without merit and intends to
defend against such claims vigorously. Discovery has commenced in the state
court action and a trial date has been set for May 1999. No trial date has been
set in the federal court action.
<PAGE> 18
ITEM 1. LEGAL PROCEEDINGS, CONTINUED
A class action complaint (as amended in March 1996) for violations of federal
securities law was filed against Orbit and three of its officers in 1995 in the
U.S. District Court for the Northern District of California. The amended
complaint was dismissed on November 12, 1996, with leave to amend only as to
certain specified claims relating to the statements made by securities
analysts. In January 1997, a second amended complaint was filed. The second
amended complaint alleges that Orbit and three of its officers are responsible
for actions of securities analysts that allegedly misled the market for Orbit's
then existing public common stock. The second amended complaint seeks relief
under Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated
thereunder. The second amended complaint seeks compensatory and other damages
as well as equitable relief. In September 1997, Orbit filed its answer to the
second amended complaint denying responsibility for the actions of securities
analysts and further denying that it misled the securities market.
A trial date has been set for January 1999.
In addition to the above matters, the Company is involved in certain other
litigation arising in the ordinary course of business.
Although management is of the opinion that these matters will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company, the ultimate outcome of these matters cannot, at
this time, be predicted in light of the uncertainties inherent in litigation.
See Note 11 of the 1997 Consolidated Financial Statements included in Part II,
Item 8 of the Company's Form 10-K Annual Report for the fiscal year ended
December 28, 1997 for contingencies and environmental matters.
<PAGE> 19
ITEM 6(a). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23.1 Report of Independent Accountants - Deloitte & Touche LLP.
27 Financial Data Schedule.
- ----------------
ITEM 6(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
<PAGE> 20
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.
THE DII GROUP, INC.
Date: August 11, 1998 By:/s/Carl R. Vertuca, Jr.
--------------- -----------------------
Carl R. Vertuca, Jr.
Executive Vice President - Finance,
Administration and Corporate
Development
Date: August 11, 1998 By:/s/Thomas J. Smach
--------------- ------------------
Thomas J. Smach
Chief Financial Officer
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT LOCATION OF EXHIBIT IN
NUMBER DESCRIPTION SEQUENTIAL NUMBERING SYSTEM
- ------- ----------- ---------------------------
<S> <C>
23.1 Report of Independent Accountants - Deloitte & Touche LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
The DII Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of The
DII Group, Inc. and subsidiaries (the "Company") as of June 28, 1998, and the
related condensed consolidated statements of operations and cash flows for the
thirteen weeks and twenty six weeks ended June 28, 1998 and June 29, 1997.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The DII Group, Inc. and
subsidiaries as of December 28, 1997, and the related consolidated statements
of income, stockholders' equity, and cash flows for the 52 weeks then ended
(not presented herein); and in our report dated January 22, 1998, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 28, 1997 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Denver, Colorado
August 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 79,783
<SECURITIES> 0
<RECEIVABLES> 117,691
<ALLOWANCES> 3,428
<INVENTORY> 65,551
<CURRENT-ASSETS> 270,720
<PP&E> 263,415
<DEPRECIATION> 75,879
<TOTAL-ASSETS> 541,860
<CURRENT-LIABILITIES> 129,536
<BONDS> 236,247
0
0
<COMMON> 259
<OTHER-SE> 169,877
<TOTAL-LIABILITY-AND-EQUITY> 541,860
<SALES> 457,312
<TOTAL-REVENUES> 457,312
<CGS> 403,572
<TOTAL-COSTS> 403,572
<OTHER-EXPENSES> 79,859
<LOSS-PROVISION> 469
<INTEREST-EXPENSE> 9,388
<INCOME-PRETAX> (35,975)
<INCOME-TAX> (10,055)
<INCOME-CONTINUING> (25,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,920)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
