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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 PERIOD ENDED June 30, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD From ___________ to ___________.
Commission file number 005-59473
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PEMSTAR INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1771227
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3535 TECHNOLOGY DRIVE N.W.
ROCHESTER, MN 55901
(Address of principal executive officers)
(Zip Code)
(507) 288-6720
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
Common Stock, $0.01 Par Value--18,660,888 shares as of September 12, 2000.
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Index
Pemstar Inc.
<TABLE>
<CAPTION>
Part I. Condensed Consolidated Financial Information Page
<S> <C>
Item 1. Financial Statements
Condensed consolidated balance sheets - June 30, 2000 (unaudited) and March 31,
2000.............................................................................. 3
Condensed consolidated statements of income (unaudited)- Three months ended June 30,
2000 and 1999..................................................................... 4
Condensed consolidated statements of cash flows (unaudited)- Three months ended June
30, 2000 and 1999................................................................. 5
Notes to condensed consolidated financial statements (unaudited)- June 30,
2000.............................................................................. 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 9-11
Item 3. Quantitative and Qualitative Disclosure of Market Risk................................. 11
Part II. Other Information
Item 1. Legal Proceedings...................................................................... 12
Item 2. Changes in Securities and Use of Proceeds.............................................. 12
Item 3. Defaults upon Senior Securities........................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.................................... 12
Item 5. Other Information...................................................................... 12
Item 6. Exhibits and Reports on Form 8-K....................................................... 12
Signatures....................................................................................... 14
</TABLE>
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Part I. Financial Information
Pemstar Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands, except per share data)
June 30, March 31,
2000 2000
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(Unaudited) (Note A)
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 3,951 $ 2,727
Accounts receivable, net 67,791 60,061
Inventories - Note B 73,130 64,437
Other current assets 8,517 6,218
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Total current assets 153,389 133,443
Property, plant and equipment 72,843 48,954
Less accumulated depreciation (29,967) (14,021)
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42,876 34,933
Other assets 22,245 22,075
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Total assets $ 218,510 $ 190,451
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Liabilities and shareholders' equity
Current liabilities
Bank overdraft $ 8,046 $ 10,213
Accounts payable 59,192 47,138
Current maturities of long-term debt 7,438 12,930
Current maturities of capitalized lease obligations 2,827 2,299
Other current liabilities 12,153 11,214
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Total current liabilities 89,656 83,794
Long-term debt 69,545 51,114
Capital lease obligations 5,921 4,067
Other non-current liabilities 3,194 2,254
Redeemable preferred stock 26,549 26,549
Shareholders' equity
Common stock, par value $0.01 per share--authorized
150,000 shares, issued and outstanding 13,892 at June
30, 2000 and 13,819 at March 31, 2000 139 138
Additional paid-in capital 15,477 15,395
Accumulated other comprehensive loss (937) (772)
Retained earnings 11,319 11,170
Loans to shareholders (2,353) (3,258)
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23,645 22,673
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Total liabilities and shareholders' equity $ 218,510 $ 190,451
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</TABLE>
See notes to condensed consolidated financial statements.
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Pemstar Inc.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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2000 1999
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<S> <C> <C>
Net sales $ 122,604 $ 68,598
Costs of goods sold 112,696 62,429
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Gross profit 9,908 6,169
Selling, general and administrative expenses 7,520 3,936
Amortization 343 205
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Operating income 2,045 2,028
Other expense--net 236 34
Interest expense 1,863 341
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Income(loss) before income taxes (54) 1,653
Income tax (benefit)expense (203) 738
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Net income $ 149 $ 915
============ ============
Net income per common share:
Basic $ 0.01 $ 0.08
Diluted 0.01 0.06
Shares used in computing net income per common share:
Basic 13,892 11,289
Diluted 20,574 15,274
</TABLE>
See notes to condensed consolidated financial statements.
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Pemstar Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 149 $ 915
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 2,509 1,278
Amortization 343 161
Deferred revenue (105) (186)
Deferred income taxes (357)
Other (58) 137
Change in operating assets and liabilities:
Accounts receivable (7,853) (6,578)
Inventories (8,733) (5,499)
Prepaid expenses and other (2,688) (886)
Accounts payable 12,097 8,211
Accrued expenses and other 2,074 2,069
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Net cash used in operating activities (2,265) (735)
Cash flows from investing activities:
Decrease in restricted cash 213 320
Business acquisitions, net of cash acquired (39,385)
Purchases of property and equipment (7,613) (965)
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Net cash used in investing activities (7,400) (40,030)
Cash flows from financing activities:
Bank overdrafts (2,165) 3,688
Proceeds from sale/exercise of stock options 988 6
Proceeds from private placement offering 18,000
Principal payments on long-term borrowings (6,689) (1,257)
Proceeds from long-term borrowings 19,038 23,247
Increase of intangibles (308) (750)
Other (34) -
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Net cash provided by financing activities 10,830 42,934
Effect of exchange rate changes on cash 59 (6)
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Net increase in cash and cash equivalents 1,224 2,163
Cash and cash equivalents:
Beginning of period 2,727 827
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End of period $ 3,951 $ 2,990
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</TABLE>
See notes to condensed consolidated financial statements.
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Pemstar Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
(In thousands, except per share data)
Note A--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 Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended June 30, 2000,
are not necessarily indicative of the results that may be expected for the year
ending March 31, 2001.
The balance sheet at March 31, 2000 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Pemstar Inc. Registration Statement on Form
S-1, effective on August 7, 2000.
Note B--Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
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In Thousands
<S> <C> <C>
Raw materials $ 58,390 $ 49,948
Work in process 10,787 8,675
Finished goods 4,769 6,387
Less allowance for inventory obsolescence (816) (573)
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$ 73,130 $ 64,437
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</TABLE>
Note C--Acquisitions
In June 1999, the Company acquired Quadrus, Inc., a division of Bell
Microproducts, Inc. Quadrus is a provider of electronic manufacturing services
to original equipment manufacturers. The purchase price of $34,966 was funded
through the issuance of Series B redeemable preferred stock in the aggregate of
$18,000 to certain of the Company's existing investors, with the remaining
amount funded by borrowings under the Company's operating line of credit.
On August 1, 2000 the Company purchased the common stock and business of Turtle
Mountain Corporation (a provider of electronic manufacturing services to
original equipment manufacturers) for $20,201, including assumed debt of $3,819,
financed by borrowings on bank facilities.
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The pro forma unaudited results of operations for the three months ended June
30, 2000 and 1999, assuming consummation of the purchases of Quadrus and Turtle
Mountain Corporation and existence of the additional related indebtedness as of
April 1, 1999, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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2000 1999
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In Thousands, except
per share data
<S> <C> <C>
Net sales $134,814 $90,369
Net income (loss) 430 (1,308)
Per share data:
Basic earnings $ 0.03 $(0.11)
Diluted earnings 0.02 (0.11)
</TABLE>
Note D--Comprehensive Income
Total comprehensive (loss)income was $(17) and $957 for the three months ended
June 30, 2000 and 1999. Comprehensive (loss)income differs from net income due
to unrecognized currency gains and losses.
Note E--Earnings Per Share Data
The following table set forth the computation of basic and diluted earnings per
share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------
2000 1999
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In Thousands, except
per share data
<S> <C> <C>
Basic:
Net income $ 149 $ 915
Average shares outstanding 13,892 11,289
Basic EPS $ 0.01 $ 0.08
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Diluted:
Net income $ 149 $ 915
Average shares outstanding 13,892 11,289
Net effect of dilutive stock options--based on the
treasury stock method 1,972 1,550
Assumed conversion of redeemable preferred stock 4,710 2,435
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Totals 20,574 15,274
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Diluted EPS $ 0.01 $ 0.06
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</TABLE>
During the first quarter of fiscal 2001, employees exercised stock options to
acquire 91,050 shares at an average exercise price of $0.91 per share.
Note F--Subsequent Events
In August, 2000, the Company completed it's initial public offering of its
common stock raising $95.2 million in aggregate net proceeds for the issuance of
9,280 new common shares. Concurrent
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with this offering, all of the outstanding Series A and B preferred stock
automatically convert to 4,710 shares of common stock.
The cash proceeds were used to repay borrowings under the USBank and IBM
facilities outstanding at that time. As a result of this offering and
negotiations supporting requirements for the Turtle Mountain Corporation
acquisition, the Company has amended its borrowing arrangements for its working
capital lines of credit. In addition, the Company has set up a new term loan
agreement with IBM Credit Corporation, providing $9.5 million, to be repaid on a
four year quarterly payment schedule. The term loan bears interest at prime plus
2% and is collateralized by assets of Turtle Mountain Corporation. Changes to
the USBank line of credit, related to the completion of the public offering,
include the reduction of available credit to $45 million, lowering of the
interest rate spread above the applicable base rates by 1.5% and resetting of
the covenant restrictions to reflect the proceeds of the stock offering.
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Item 2--Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $54.0 million, or 79.0%, to $122.6 million for the three
months ended June 30, 2000, from $68.6 million for the comparable three months
of the prior fiscal year. Internal growth, which excludes net sales from
operations acquired in the preceding twelve months, accounted for 39.0% of this
growth and 61.0% of this growth in net sales was the result of operations
acquired in fiscal 2000.
For the quarter ended June 30, 2000, our gross profit as a percentage of sales
was 8.1% compared to 9.0% in the comparable quarter of the prior fiscal year.
This decrease was a result of the planned phase-out and ultimate completion in
June 2000 of a higher margin manufacturing program for a component no longer
used by a customer.
Selling, general and administrative expenses as a percentage of net sales were
6.1% for the three months ended June 30, 2000 compared to 5.7% for the
comparable period of the prior fiscal year. The increased cost was primarily a
result of existing selling, general and administrative costs from acquisitions
for the full period, compared to only a partial period in the prior fiscal year.
The increases as a percentage of net sales results from additional selling and
administrative expenses to support our growth.
Amortization increased $0.1 million to $0.3 million for the three months ended
June 30, 2000 from $0.2 million for the comparable period of the prior fiscal
year. This increase was a result of amortization of goodwill arising out of the
acquisitions included for the full reporting period in the current fiscal year.
Other expense was $234,000 for the three months ended June 30, 2000 compared to
$34,000 for the comparable period of the prior fiscal year. This increase is a
result of exchange losses in certain international operations.
Our interest expense increased $1.6 million to $1.9 million for the three months
ended June 30, 2000, from $0.3 million for the comparable period of the prior
fiscal year. This increase was primarily a result of increased borrowings
required to fund acquisitions made in the prior year and working capital
requirements from growth in business with new and existing customers.
Income tax benefits recorded in the current fiscal year result principally from
tax credits earned that are more likely than not to be realized.
Liquidity and Capital Resources
Subsequent to June 30, 2000, the Company completed it's initial public offering
of it's common stock, raising $95.2 million in net aggregate proceeds, which
substantially changes the liquidity and capital resources.
Our principal historic sources of liquidity have been cash provided by
operations, borrowings under our various credit facilities and debt instruments
and private sales of equity. Our principal uses of cash have been to finance
working capital, acquisitions, new operations, and capital
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expenditures and to fulfill debt service requirements. We anticipate these uses
will continue to be our principal uses of cash in the future.
Net cash used in operating activities for the three months ended June 30, 2000
was $2.3 million compared to $.7 million for the comparable period of the prior
fiscal year. Fluctuations in net cash used in operating activities were
attributable to reduced net income and increased working capital needs.
Net cash used in investing activities for the three months ended June 30, 2000
was $7.4 million compared to $40.0 million for the comparable period of the
prior fiscal year. Capital expenditures, totaling $10.7 million, including $3.0
million in additions to capital leases, in the three months ended June 30, 2000,
were incurred principally for approximately $5.5 million of printed circuit
board assembly equipment, purchased for our Tianjin, China facility, and an
investment of $2.1 million in general equipment and information technology
upgrades across all our facilities.
Net cash provided by financing activities for the three months ended June 30,
2000 was $10.8 million compared to $42.9 million for the comparable period of
the prior fiscal year. Our principal source of cash from financing activities in
the three months ended June 30, 2000 was proceeds from additional borrowing
under credit facilities.
As of June 30, 2000, we had unrestricted cash and cash equivalents of $4.0
million and total borrowings of approximately $85.7 million. Of these
borrowings, we had approximately $48.5 million outstanding under our USBank
revolving credit facility and $19.0 million outstanding under our IBM Credit
Corporation credit facility. On May 5, 2000, we entered into a new credit
facility with IBM Credit Corporation, which provides for borrowings up to $40.0
million, and amended our USBank credit facility to reduce our available
borrowings from $65.0 million to $55.0 million. At the time of our initial
public offering our USBank credit facility was amended to reduce our available
borrowings from $55.0 million to $45.0 million. We also have a $3.2 million
credit facility serving our Netherlands operations. As of June 30, 2000, we had
$2.8 million outstanding under our Netherlands credit facility. Each credit
facility bears interest on outstanding borrowings at variable interest rates,
which as of June 30, 2000 were 10.3% for the USBank facility, 10.5% for the IBM
facility and 5.75% for the Netherlands facility. At the time of the initial
public offering the applicable spread over base rates of our variable interest
rates for the USBank credit facility were reduced by 1.5%. All of these credit
facilities are secured by substantially all of our assets.
As of August 11, 2000, we received $86.2 million of net proceeds resulting from
the sale of 8.4 million shares in our initial public offering of our common
stock. We used these net proceeds to pay down the USBank facility by $44.2
million, the IBM Credit Corporation facility by $36.5 million, and approximately
$0.2 million under a non-interest bearing note issued to Rochester Area Economic
Development, Inc. The $9.5 million term loan arrangement with IBM Credit
Corporation, with scheduled payments over four years, initially included a
requirement to repay 25% of the loan upon receipt of the public offering
proceeds. IBM Credit Corporation has subsequently waived this requirement. As of
September 5, 2000, we received $9.0 million of net proceeds resulting from the
complete exercise of the underwriters' over-allotment option in accordance with
the initial public offering. The net proceeds from the over-allotment exercise
were used to pay down $8.9 million on the USBank facility.
As a part of normal business practice, we regularly review potential
acquisitions and additional new operations opportunities, as well as major new
manufacturing program opportunities with
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new or existing customers, any of which may require us to sell additional equity
or secure additional financing during this period. As such, situations may
occur, wherein, financing arrangements may not be available in amounts or on
terms acceptable to us.
Item 3--Quantitive and Qualitative Disclosure of Market Risk
Not applicable.
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Part II. Other Information
Item 1--Legal Proceedings
During the period covered by this report, there were no legal proceedings
instituted that are reportable.
Item 2--Changes in Securities and Use of Proceeds
During the period covered by this report, there were no material changes in
securities and use of proceeds. As previously disclosed in the Company's
Registration Statement on Form S-1, effective August 7, 2000, the company sold
9,280,000 of its common shares in it's initial public offering. That sale also
triggered the automatic conversion of all outstanding classes of preferred
shares into 4,709,898 common shares. Proceeds of the offering were used to pay
down the USBank facility by $53.1 million, the IBM Credit Corporation facility
by $36.5 million, and approximately $0.2 million under a non-interest bearing
note issued to Rochester Area Economic Development, Inc.
Item3--Default on Senior Securities
There have been no events of default on the Company's senior securities
agreements
Item 4--Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on June 14, 2000 at the main offices
of the Company at 3535 Technology Drive NW, Rochester, Minnesota. The
stockholders took the following actions (with voting tallies, from eligible
voting shares, as noted):
i. Amended the articles of incorporation, including provisions for (a)
limitation of director's liability, (b) super-majority voting
requirements for certain corporate actions, (c) staggered-terms for
members of the Board of Directors, (d) increasing the maximum number of
directors, and (e) amending the Company's articles of incorporation and
bylaws. (Votes for-17,592,009, against-24,903, abstained-30,600)
ii. Amended and restated the Company's bylaws to include customary public
company requirements pertaining to advance notice of shareholder
proposals at annual or special meetings of shareholders and procedures
for nominating persons for election to the Board of Directors. (Votes
for-17,647,512, against-0, abstained-0)
iii. Approved the Company's 2000 Stock Option Plan. (Votes for-17,594,712,
against-45,300, abstained-7,500)
iv. Approved the Company's Employee Stock Purchase Plan. (Votes for-
17,640,012, against-0, abstained-7,500)
v. Elected directors as disclosed in the Company's Registration Statement on
Form S-1, effective August 7, 2000. (Votes for-17,639,109, against-
8,103, abstained-300)
Item 5--Other Information
No information is required in response to this requirement.
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Item 6--Exhibits and Reports on Form 8-K
(a) Exhibit 27--Financial Data Schedule (submitted in electronic format for use
of Commission only)
(b) The registrant did not file any reports on Form 8-K during the three months
ended June 30, 2000.
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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.
Pemstar Inc.
Date: August 20, 2000 \s\ Allen J. Berning
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Allen J. Berning
Chairman and Chief Executive Officer
Date: August 20, 2000 \s\ William J. Kullback
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William J. Kullback
Vice President and Chief Financial Officer
