<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 27, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 0-24416
ADFLEX SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3186513
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 W. CHANDLER BLVD., CHANDLER, AZ 85224
(602) 963-4584
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for the past 90 days.
Yes No X
---------- ----------
The number of shares outstanding of the issuer's common stock, as of June 30,
1999:
COMMON STOCK, $.01 PAR VALUE: 8,984,518 SHARES
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ADFLEX SOLUTIONS, INC.
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
June 27, 1999 and December 27, 1998...............................3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 27, 1999 and June 30, 1998........4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 27, 1999 and June 30, 1998..................5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..........17
Item 6. Exhibits and Reports on Form 8-K.............................17
SIGNATURES....................................................................18
EXHIBITS
(27.1) Financial Data Schedule (filed only electronically with the SEC)
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ADFlex Solutions, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 27, December 27,
1999 1998
---------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 2,641 $ 5,325
Accounts receivable, net 22,704 24,747
Other receivables 795 1,161
Inventories 9,021 9,397
Deferred tax assets -- 2,072
Other current assets 675 1,952
-------- --------
Total current assets 35,836 44,654
Property, plant & equipment, net 47,736 55,351
Intangible Assets 1,710 1,933
Deferred tax assets -- 6,326
Other assets 46 40
-------- --------
$ 85,328 $108,304
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 16,400 $ 13,000
Notes payable -- 63
Accounts payable 16,422 15,927
Accrued liabilities 9,872 7,183
Current portion of long-term debt and
capitalized leases 16,865 24,613
-------- --------
Total current liabilities 59,559 60,786
Long-term debt and capitalized leases 1,311 69
Stockholders' equity 24,458 47,449
-------- --------
$ 85,328 $108,304
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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ADFlex Solutions, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 27, June 30, June 27, June 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 34,187 $ 44,304 $ 62,825 $ 94,327
Cost of sales 29,560 43,151 58,576 82,656
-------- -------- -------- --------
Gross profit 4,627 1,153 4,249 11,671
Operating expenses:
Engineering, research & development 1,079 1,979 2,443 4,100
Selling, general & administrative 3,401 3,139 5,994 7,037
Restructuring charges 903 -- 7,806 --
Amortization of intangible assets 129 129 258 258
-------- -------- -------- --------
Total operating expenses 5,512 5,247 16,501 11,395
Operating income (loss) (885) (4,094) (12,252) 276
Interest income 22 142 58 197
Interest expense (947) (838) (1,826) (1,424)
Other income (expense), net (592) (174) (658) (360)
-------- -------- -------- --------
Income (loss) before income taxes (2,402) (4,964) (14,678) (1,311)
Income taxes -- (1,390) 8,874 (368)
-------- -------- -------- --------
Net income (loss) $ (2,402) $ (3,574) $(23,552) $ (943)
======== ======== ======== ========
Net income (loss) per share:
Basic
$ (0.27) $ (0.40) $ (2.62) $ (0.11)
======== ======== ======== ========
Diluted
$ (0.27) $ (0.40) $ (2.62) $ (0.11)
======== ======== ======== ========
Number of shares used in computing
net income (loss) per share:
Basic
8,983 8,835 8,975 8,820
======== ======== ======== ========
Diluted
8,983 8,835 8,975 8,820
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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ADFlex Solutions, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 27, June 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss) $(23,552) $ (943)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,412 4,339
Deferred taxes 8,398 391
Restructuring charges 7,806 --
Net gain/loss on disposal of assets 35 (103)
Changes in operating assets and liabilities:
Accounts receivable 2,043 7,691
Other receivables 366 219
Inventories 376 2,931
Other current assets 1,277 (236)
Accounts payable and accrued liabilities 3,184 (6,366)
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,345 7,923
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (5,415) (13,733)
(Increase)/decrease in other assets (6) 2
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (5,421) (13,731)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net activity on line of credit 3,400 (3,500)
Proceeds from issuance of long-term debt 1,600 5,000
Payments on long-term debt (7,985) --
Payments on note payable (63) (875)
Payments on capitalized lease obligations (121) (85)
Issuance of common stock, net of expenses 561 703
-------- --------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,608) 1,243
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,684) (4,565)
Cash and cash equivalents at beginning of period 5,325 9,092
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,641 $ 4,527
======== ========
</TABLE>
5
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ADFLEX SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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
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 items) considered necessary for a fair
presentation have been included. Preparing financial statements requires the use
of estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates. Operating results for the six month period ended June 27, 1999 are
not necessarily indicative of the results that may be expected for the year
ending January 2, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 27, 1998.
The accompanying consolidated financial statements have been prepared
on the basis that the Company will continue as a going concern. The Company has
failed to meet certain provisions of its credit agreement during the six months
ended June 27, 1999 and in June 1999, the lenders notified the Company that the
financing commitments under the existing credit facility had been terminated and
the lenders were no longer obligated to loan funds to the Company pursuant to
the credit agreement. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying consolidated
financial statements for the period ended June 27, 1999 do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
On July 1, 1999, the Company announced that it had entered into a
definitive merger agreement with Innovex, Inc. whereby Innovex's acquisition
subsidiary would commence a cash tender offer to purchase outstanding shares of
Company common stock for $3.80 per share. As of August 3, 1999, the tender offer
was successfully completed. Following the expiration of the tender offer,
Innovex's acquisition subsidiary purchased 6,804,284 shares of the Company's
issued and outstanding common stock, representing approximately 75.5% of such
shares. One member of the four members of the Company's Board of Directors,
under the provisions of the merger agreement, resigned and four persons
designated by such Innovex subsidiary were appointed as members of the Company's
Board of Directors. As a result, Innovex has voting control of the Company. At
the effective time of the merger that is subject to shareholder approval, the
Company will become a wholly-owned subsidiary of Innovex.
The tender offer and the merger are described in detail in the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 dated July 7,
1999 and filed with the Securities and Exchange Commission ("SEC") July 8, 1999,
as amended by the Company's First Amended and Restated
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC on
July 27, 1999 and as further amended by the Company's Amendment No. 2 to its
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC on
August 9, 1999.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
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(2) ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
June 27, December 27,
1999 1998
--------- ------------
<S> <C> <C>
Accounts receivable trade $ 23,944 $ 25,748
Allowance for doubtful accounts and returns (1,240) (1,001)
-------- --------
$ 22,704 $ 24,747
======== ========
</TABLE>
(3) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 27, December 27,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials $ 6,416 $ 7,437
Work-in-process 4,934 3,743
Finished goods 1,147 1,105
Allowance for obsolescence (3,476) (2,888)
------- -------
$ 9,021 $ 9,397
======= =======
</TABLE>
(4) ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
June 27, December 27,
1999 1998
-------- ------------
<S> <C> <C>
Salaries and benefits $2,187 $1,987
Accrued interest 1,003 769
Accrued severance costs 383 500
Accrued professional fees 800 --
Accrued SAP costs 408 917
Other 5,091 3,010
------ ------
$9,872 $7,183
====== ======
</TABLE>
(5) LINE OF CREDIT AND LONG-TERM DEBT
Prior to October 30, 1998, the Company's credit facility consisted of a
$35.0 million term loan and a $25.0 million revolving line of credit arranged by
BankBoston N.A. and a group of other lenders, secured by the Company's assets
and 66-2/3% of the stock of its subsidiaries. On October 30, 1998, the Company
and the banks amended the credit facility to reduce the term loan to $30.0
million, change the amortization schedule of the term loan, reduce the revolver
to $20.0 million, and change the financial covenants. In addition, a required
$5.0 million principal reduction on the term loan was paid from the revolver, as
was a required $5.0 million principal payment due January 20, 1999 and a
required $0.8 million principal payment due March 31, 1999. An additional
principal payment of $0.8 million was paid during the three month period ended
June 27, 1999 and an additional payment of $0.8 million is due next quarter
ending September 30, 1999, followed by quarterly principal payments of 1.3
million through maturity at December 31, 2002. Borrowing under the revolver is
limited to 80% of the aggregate value of eligible domestic accounts receivable
and 70% of the aggregate value of eligible foreign accounts receivable.
Outstanding balances bear interest at prime plus 0.5% or LIBOR plus an
applicable margin ranging from 1.5% to 2.25% based on the Company achieving
certain financial objectives at the end of each quarter. In order to obtain the
amendment, the Company granted the lenders a warrant to purchase an aggregate of
50,000 shares of common stock
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at an exercise price of $5.00 per share. The warrant is now fully vested and
expires on December 29, 2002. The lenders have customary demand and piggyback
registration rights in connection with the warrant. At June 27, 1999, $16.6
million was outstanding under the term loan (less warrant discount of $0.2
million) and the Company had $12.9 million available for borrowing based on
collateral requirements under the revolving line of credit, subject to the
discussion in the next paragraph regarding the lenders notification that the
financing commitments under the existing credit facility had been terminated,
with an outstanding balance of $16.4 million. In addition, the Company is in
default under its amended credit agreement by failing to comply with its
obligation to make a mandatory prepayment of such excess amount of revolver
borrowings over the borrowing base amount.
As of June 27, 1999, the Company was in default under certain financial
covenants of the credit facility and in June 1999, the lenders notified the
Company that the financing commitments under the existing credit facility had
been terminated and the lenders were no longer obligated to loan funds to the
Company pursuant to the credit agreement. Therefore, the Company has classified
the entire outstanding balance of the facility as a current liability. Further,
the audit of the Company's consolidated financial statements for the year ended
December 27, 1998 included a going-concern qualification from the Company's
independent auditors.
On July 1, 1999, the Company announced that it had entered into a
definitive merger agreement with Innovex, Inc. whereby Innovex's acquisition
subsidiary would commence a cash tender offer to purchase outstanding shares of
Company common stock for $3.80 per share. As of August 3, 1999, the tender offer
was successfully completed. Following the expiration of the tender offer,
Innovex's acquisition subsidiary purchased 6,804,284 shares of the Company's
issued and outstanding common stock, representing approximately 75.5% of such
shares. One member of the four members of the Company's Board of Directors,
under the provisions of the merger agreement, resigned and four persons
designated by such Innovex subsidiary were appointed as members of the Company's
Board of Directors. As a result, Innovex has voting control of the Company. At
the effective time of the merger that is subject to shareholder approval, the
Company will become a wholly-owned subsidiary of Innovex. As outlined in the
definitive merger agreement, Innovex has agreed to pay in full the Company's
indebtedness to its lenders at the effective time of the merger.
The tender offer and the merger are described in detail in the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 dated July 7,
1999 and filed with the Securities and Exchange Commission ("SEC") July 8, 1999,
as amended by the Company's First Amended and Restated
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC on
July 27, 1999 and as further amended by the Company's Amendment No. 2 to its
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC on
August 9, 1999.
(6) RESTRUCTURING AND SPECIAL CHARGES
During 1998 and through the second quarter of 1999, the Company
experienced a substantial decline in sales levels which decreased capacity
utilization. In April 1999, the Company's Board approved a reorganization plan
which includes closing the Company's U.K. facility, downsizing the Company's
Mexico facility and transferring programs from Mexico to the Company's new
Thailand facility. Because of this impairment event, the Company evaluated the
ongoing value of the plant and equipment associated with its Chandler and Mexico
facilities as required by Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Based on this evaluation, the Company determined that assets
with a carrying amount of $10.9 million were impaired and wrote them down to
their fair value, as determined by an appraisal of the plant and equipment
completed in March 1999. During the three month period ended March 28, 1999, the
Company recorded restructuring charges of $6.9 million related to the write-down
of property, plant and equipment as discussed above. In addition, the Company
recorded restructuring charges of $0.9 million and special charges totaling $1.7
million during the three month period ending June 27, 1999 in connection with
the reorganization plan and certain merger-related expenses:, $0.2 million for
the U.K. facility shut down costs, $0.7 million related to the write-off of
certain obsolete property, plant and equipment, $0.5 million related to employee
termination costs, $0.4 million related to write-off of unamortized bank fees
and $0.8 million related to professional fees. As of June 27, 1999, the Company
paid and charged $0.2 million to the employee termination liability. The
remaining accrual for employee termination costs is approximately $0.3 million,
which the Company believes is adequate to cover the remaining liabilities.
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(7) INCOME TAXES
During the six month period ended June 27, 1999, the Company revised
its projection of future levels of income, and the anticipated jurisdictions in
which this income would be earned caused a reevaluation of the criteria of
future tax benefits. In the determination of management, it was no longer more
likely than not that the deferred tax assets could be fully utilized during the
carryforward period. Accordingly, the Company established a valuation reserve
for all its existing deferred tax assets which totaled $8.9 million and the
Company did not record an income tax benefit for the three and six month period
ended June 27, 1999. The effective tax rate for the three and six month period
ended June 27, 1998 was 28%.
The Internal Revenue Service (IRS) has concluded a field audit of the
Company's income tax returns for the tax year 1993. In connection with this
audit, the IRS issued a 90-day letter in January 1998 proposing adjustments to
the Company's income and tax credits for the year, which would result in an
additional assessment of $1.6 million, excluding interest. The major proposed
adjustment, which relates to the allocation of the purchase price of assets
obtained from Rogers Corporation (Rogers) pursuant to acquisition agreements
between the Company and Rogers, would extend the period over which the tax
benefit for the purchase price would be recovered. The Company and the IRS have
reached an agreement to settle all outstanding issues relating to this audit.
The terms of the agreement will require a payment of approximately $0.6 million,
excluding interest, most of which will be recoverable by amending subsequent
years' tax returns. The Company believes that the current tax accrual is
adequate to cover this liability and the final disposition of these matters will
not have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net Sales
Net sales for the three and six month periods ended June 27, 1999
decreased $10.1 million or 22.8% and $31.5 million or 33.4%, respectively, over
the same periods in 1998. The significant reduction in sales was primarily
attributable to soft demand and continued competitive pricing driven by
worldwide factory overcapacity in the flex industry. In addition, revenues were
negatively impacted due to internal technical difficulties experienced by two
customers and an inventory adjustment by a third customer during the first three
months of the six month period ended June 27, 1999.
Gross Profit
Gross profit as a percentage of net sales (gross margin) for the three
and six months ended June 27, 1999 was 13.5% and 6.8% as compared to 2.6% and
12.4%, respectively, for the same periods in 1998. The Company's increase in
gross margin during the three month period ended June 27, 1999 was primarily
attributable to cost reductions, productivity improvements and other benefits
associated with the reorganization plan. In addition, special charges of $0.5
million related to employee termination costs were incurred during the three
month period ended June 27, 1999 as compared to $1.4 million during the same
period in 1998, which related to workforce reductions and employee termination
costs associated with the closing of the two plants in Mexico. The decrease in
gross margin during the six month period ended June 27, 1999 when compared to
the same period in 1998 primarily represents the Company's ability to attain
significant leverage in periods of higher sales volume.
Operating Expenses
Engineering, research & development expenses were $1.1 million and $2.4
million for the three and six month period ended June 27, 1999, respectively,
compared with $2.0 million and $4.1 million for the same periods in 1998,
respectively. The decrease in engineering, research & development expenses
primarily stem from the decrease in sales volume for those same periods as well
as cost-containment efforts and work force reduction. Sales, general &
administrative expenses were $3.4 million and $6.0 million for the three and six
month period ended June 27, 1999, respectively, compared with $3.1 million and
$7.0 million for the same periods in 1998, respectively. The Company's benefits
from workforce reductions, cost-containment efforts and general reductions in
discretionary spending during the three and six month period ending June 27,
1999 were primarily offset by charges of $0.8 million for professional fees
incurred which relate to the definitive merger agreement with Innovex, Inc.
9
<PAGE> 10
In connection with the acquisition of Hana's 20% interest in ADFlex
Thailand Limited (ATL) in September 1997, the Company recorded goodwill which is
being amortized over its estimated useful life of five years. Amortization of
intangible assets was $0.1 million, or 0.4% of net sales, for the three month
period ended June 27, 1999.
Interest and Other Income (Expense)
For the three month periods ended June 27, 1999 and June 30, 1998,
interest expense includes $0.9 million and $0.8 million of interest expense,
respectively, related to borrowings under the line of credit, the term loan and
capital lease obligations. Outstanding balances on the line of credit and term
loan bear interest at prime plus 0.5% or LIBOR plus an applicable margin ranging
from 1.5% to 2.25% based on the Company achieving certain financial objectives
at the end of each quarter. During the six month period ended June 27, 1999, the
weighted average interest rate increased from 8.25% to 10.25% reflecting a
higher rate incurred due to the Company's default status. Other income (expense)
for both periods represents the net impact of bank fees and exchange gains and
losses realized on the settlement of transactions associated with the Company's
foreign subsidiaries. Exchange gains and losses associated with short-term
forward foreign currency exchange contracts are also included in other income
(expense) for the three month period ended June 27, 1999. No foreign currency
exchange contracts were entered into during the three month period ended June
30, 1998.
For the six month periods ended June 27, 1999 and June 30, 1998,
interest expense includes $1.8 million and $1.4 million, respectively, related
to borrowings under the line of credit, term loan and capital lease obligations.
Other income (expense) for both periods represents the net impact of bank fees
and exchange gains and losses realized on the settlement of transactions
associated with the Company's foreign subsidiaries. Exchange gains and losses
associated with short-term forward foreign currency exchange contracts are also
included in other income (expense) for the six month periods ended June 27, 1999
and June 30, 1998.
Restructuring and Special Charges
During 1998 and through the second quarter of 1999, the Company
experienced a substantial decline in sales levels which decreased capacity
utilization. In April 1999, the Company's Board approved a reorganization plan
which includes closing the Company's U.K. facility, downsizing the Company's
Mexico facility and transferring programs from Mexico to the Company's new
Thailand facility. Because of this impairment event, the Company evaluated the
ongoing value of the plant and equipment associated with its Chandler and Mexico
facilities as required by Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Based on this evaluation, the Company determined that assets
with a carrying amount of $10.9 million were impaired and wrote them down to
their fair value, as determined by an appraisal of the plant and equipment
completed in March 1999. During the three month period ended March 28, 1999, the
Company recorded restructuring charges of $6.9 million related to the write-down
of property, plant and equipment as discussed above. In addition, the Company
recorded restructuring charges of $0.9 million and special charges totaling $1.7
million during the three month period ending June 27, 1999 in connection with
the reorganization plan and certain merger-related expenses:, $0.2 million for
the U.K. facility shut down costs, $0.7 million related to the write-off of
certain obsolete property, plant and equipment, $0.5 million related to employee
termination costs, $0.4 million related to write-off of unamortized bank fees
and $0.8 million related to professional fees. As of June 27, 1999, the Company
paid and charged $0.2 million to the employee termination liability. The
remaining accrual for employee termination costs is approximately $0.3 million,
which the Company believes is adequate to cover the remaining liabilities.
Fluctuations in Operating Results
The Company has experienced substantial fluctuations in its quarterly
and annual operating results in the past, and the Company's future operating
results could vary substantially from quarter to quarter. The Company's
operating results for a particular quarter or longer periods can be materially
and adversely affected by numerous factors, such as the receipt and shipment of
large orders, or conversely the cancellation or delay of orders, plant
utilization, product mix, manufacturing process yields, the timing of
expenditures in anticipation of future sales, raw material availability, product
and price competition, the length of sales cycles and economic conditions in the
electronics industry. Variations in orders and in the mix of products sold by
the Company, together with increased price competition, overall reduced demand
and resulting factory overcapacity have significantly negatively impacted net
sales and gross profit. No assurances can be given that the reorganization plan
recently adopted by the Company will allow the Company to return to
profitability.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its liquidity needs to date primarily through
cash generated from operations, the use of bank credit lines and through
proceeds from the sale of its Common Stock. The primary uses of cash have been
for increased working capital, funding of capital expenditures, expansion of ATL
and funding operating losses. At June 27, 1999, cash and cash equivalents
totaled $2.6 million, compared with $4.5 million as of June 30, 1998.
Prior to October 30, 1998, the Company's credit facility consisted of a
$35.0 million term loan and a $25.0 million revolving line of credit arranged by
BankBoston N.A. and a group of other lenders, secured by the Company's assets
and 66-2/3% of the stock of its subsidiaries. On October 30, 1998, the Company
and the banks amended the credit facility to reduce the term loan to $30.0
million, change the amortization schedule of the term loan, reduce the revolver
to $20.0 million, and change the financial covenants. In addition, a required
$5.0 million principal reduction on the term loan was paid from the revolver, as
was a required $5.0 million principal payment due January 20, 1999 and a
required $0.8 million principal payment due March 31, 1999. An additional
principal payment of $0.8 million was paid during the three month period ended
June 27, 1999 and an additional payment of $0.8 million is due next quarter
ending September 30, 1999 followed by quarterly principal payments of $1.3
million through maturity at December 31, 2002. Borrowing under the revolver is
limited to 80% of the aggregate value of eligible domestic accounts receivable
and 70% of the aggregate value of eligible foreign accounts receivable.
Outstanding balances bear interest at prime plus 0.5% or LIBOR plus an
applicable margin ranging from 1.5% to 2.25% based on the Company achieving
certain financial objectives at the end of each quarter. In order to obtain the
amendment, the Company granted the lenders a warrant to purchase an aggregate of
50,000 shares of common stock at an exercise price of $5.00 per share. The
warrant is now fully vested and expires on December 29, 2002. The lenders have
customary demand and piggyback registration rights in connection with the
warrant. At June 27, 1999, $16.6 million was outstanding under the term loan
(less warrant discount of $0.2 million) and the Company had $12.9 million
available for borrowing based on collateral requirements under the revolving
line of credit, subject to the discussion in the next paragraph regarding the
lenders notification that the financing commitments under the existing credit
facility had been terminated, with an outstanding balance of $16.4 million. In
addition, the Company is in default under its amended credit agreement by
failing to comply with its obligation to make a mandatory prepayment of such
excess amount of revolver borrowings over the borrowing base amount.
As of June 27, 1999, the Company was in default under certain financial
covenants of the credit facility and in June 1999, the lenders notified the
Company that the financing commitments under the existing credit facility had
been terminated and the lenders were no longer obligated to loan funds to the
Company pursuant to the credit agreement. Therefore, the Company has classified
the entire outstanding balance of the facility as a current liability. Further,
the audit of the Company's financial statements for the year ended December 27,
1998 included a going-concern qualification from the Company's independent
auditors.
On July 1, 1999, the Company announced that it had entered into a
definitive merger agreement with Innovex, Inc. whereby Innovex's acquisition
subsidiary would commence a cash tender offer to purchase outstanding shares of
Company common stock for $3.80 per share. As of August 3, 1999, the tender offer
was successfully completed. Following the expiration of the tender offer,
Innovex's acquisition subsidiary purchased 6,804,284 shares of the Company's
issued and outstanding common stock, representing approximately 75.5% of such
shares. One member of the four members of the Company's Board of Directors,
under the provisions of the merger agreement, resigned and four persons
designated by such Innovex subsidiary were appointed as members of the Company's
Board of Directors. As a result, Innovex has voting control of the Company. At
the effective time of the merger that is subject to shareholder approval, the
Company will become a wholly-owned subsidiary of Innovex. As outlined in the
definitive merger agreement, Innovex has agreed to pay in full the Company's
indebtedness to its lenders at the effective time of the merger.
The tender offer and the merger are described in detail in the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 dated July 7,
1999 and filed with the Securities and Exchange Commission ("SEC") July 8, 1999,
as amended by the Company's First Amended and Restated
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC on
July 27, 1999 and as further amended by the Company's Amendment No. 2 to its
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the SEC on
August 9, 1999.
Net cash provided by operating activities for the six month period
ended June 27, 1999 was $5.3 million compared with $7.9 million for the same
period in 1998. During these same periods net loss was $23.6 million and
11
<PAGE> 12
$0.9 million, respectively. Decreased sales levels for the six month period
ended June 27, 1999 resulted in the Company incurring a negative working
capital, primarily attributable to a decreased level of accounts receivable and
inventory coupled with an increase in accounts payable, accrued liabilities and
current portion of long-term debt.
Net cash used in investing activities was $5.4 million for the six
month period ended June 27, 1999 compared with $13.7 million for the same period
in 1998. During the six month period ended June 27, 1999, the Company invested a
total of $4.0 million to complete construction of the new Thailand facility. As
of June 27, 1999, related capital expenditures total $7.0 million and the total
estimated cost of the Thailand facility is approximately $9.5 million. In
addition, capital expenditures during the six month period ended June 27, 1999
included $1.4 million related to machinery and equipment additions. Capital
expenditures during the periods were financed from existing cash balances and
from borrowings under the Company's bank line of credit. The Company currently
expects to spend an additional $4.6 million on capital expenditures in 1999 to
support expansion of worldwide manufacturing operations, primarily for
machinery, systems and equipment, and expansion of operations in Thailand.
Net cash used in financing activities for the six month period ended
June 27, 1999 was $2.6 million compared with net cash provided by financing
activities of $1.2 million during the same period in 1998. The Company remitted
$7.5 million of principal payments on its term loan during the six month period
ended June 27, 1999. During the same period in 1999, the Company entered into a
sale-leaseback agreement with Copelco Capital, Inc. which generated $1.5 million
in proceeds and was used to paydown the Company's term loan and bank line of
credit. The Company borrowed an additional $5.0 million on its term loan during
the six months ended June 30, 1998, which was used to pay down the Company's
bank line of credit. Net borrowings on the Company's bank line of credit totaled
$3.4 million during the six months ended June 27, 1999 compared to net
repayments of $3.5 million for the same period in 1998. The Company generated
$0.6 million and $0.7 million in the six months ended June 27, 1999 and June 30,
1998, respectively, through sales of its Common Stock. During the year ended
December 31, 1997, the Company paid $0.5 million at closing and issued a note in
the principal amount of $2.8 million payable at various dates through September
30, 1998 in connection with the acquisition of Hana's 20% interest in ATL. As
required by the terms of the note, the Company remitted $0.9 million during the
six months ended June 30, 1998 and the note was paid in full in January 1999.
Funding for these payments came from the Company's bank line of credit. For the
six months ended June 27, 1999, non-cash financing activities included the
following: $0.1 million of equipment acquired under capital lease obligations,
$0.3 million reversal of debt issuance costs and $0.2 million term loan discount
which was recorded in connection with warrants vested March 14, 1999 under the
third amendment to the credit agreement.
Management believes that the level of working capital should continue
to grow at a rate generally consistent with the growth of the Company's
operations. As discussed above, the Company entered into a definitive merger
agreement with Innovex, Inc. pursuant to which Innovex has agreed to pay in full
the Company's indebtedness to its lenders at the effective time of the merger.
OTHER MATTERS
Foreign Operations
The Company's primary finishing and assembly facilities are located in
Agua Prieta, Mexico and Lamphun, Thailand. While the Company believes that it
has established good relationships with its labor force and the local
governments, the spread of the manufacturing process over multiple countries
subjects the Company to risks inherent in international operations. While the
Company transacts business predominately in U.S. Dollars and most of its net
sales are collected in U.S. Dollars, a portion of its sales and expenses are
denominated in other currencies. Changes in the relation of other currencies to
the U.S. Dollar will affect the Company's cost of goods sold and operating
margins and could result in exchange gains or losses. In order to reduce the
impact of certain foreign currency fluctuations, the Company enters into
short-term forward foreign currency exchange contracts (hedges) in the regular
course of business to manage its exposure. The forward exchange contracts
generally require the Company to exchange U.S. Dollars for foreign currencies at
maturity, at rates agreed to at inception of the contracts. The gains or losses
on hedges of transaction exposure are included in income in the period in which
the exchange rates change. The gains and losses on unhedged foreign currency
transactions are included in income. No assurance can be given that the
Company's hedging strategies will prevent future currency fluctuations from
adversely affecting the Company's business, financial condition, results of
operations and cash flows.
12
<PAGE> 13
Expansion of Thailand Operations
In February 1999, the qualification process was completed and
production began at the new Thailand facility. The facility provides 100,000
square feet of manufacturing space - 65,000 feet for flex finishing and 35,000
feet for assembly. The facility, which increased the total assembly area by
nearly 50%, includes state-of-the-art clean rooms and the production capability
to process up to 750,000 circuit assemblies per week. The new flex finishing
area features advanced surface finishing, laser processing and automated optical
profiling technologies. The total estimated cost of the facility is
approximately $9.5 million. The Company anticipates that the new Thailand
facility will enable it to attain increased efficiencies, improved margins and
significant cost reductions that are crucial to mitigating competitive price
pressures in Asia and help sustain the Company's implementation of a complete
flexible circuit interconnect solution including design, fabrication, assembly
and testing. No assurance can be given that the Company's expansion strategies
will result in the improvements and cost reductions as anticipated.
Environmental Regulations
The Company is subject to a variety of environmental laws relating to
the storage, discharge, handling, emission, generation, manufacture, use and
disposal of chemicals, solid and hazardous waste and other toxic and hazardous
materials used to manufacture the Company's products. The Company has conducted
environmental studies of its facility in Chandler, Arizona, which revealed a
limited amount of soil contamination that may require remediation. Based on
these studies, the Company believes that the costs associated with remediation
will not have a material adverse effect on its operations or financial
condition. However, given the uncertainties associated with environmental
contamination, there can be no assurance that such costs will not have a
material adverse impact on the Company. Pursuant to the agreements governing the
Rogers Corporation (Rogers) acquisition, Rogers has retained all environmental
liabilities relating to the purchased assets prior to the closing date of the
acquisition. While Rogers currently has sufficient assets to fulfill its
obligations under the acquisition agreements, if environmental liabilities
requiring remediation are discovered and the Company was unable to enforce the
acquisition agreement against Rogers, the Company could become subject to costs
and damages relating to such environmental liabilities. Any such costs and
damages imposed on the Company could materially adversely affect the Company's
business, financial condition, results of operations and cash flows.
In mid 1995, the Company acquired a manufacturing facility located in
Agua Prieta, Mexico. In connection with this acquisition, the Company conducted
an environmental study of the facility which indicated the contamination by
hazardous materials in the soil and groundwater. Pursuant to the purchase
agreement, the seller submitted a remediation plan to the appropriate Mexican
authorities, which was approved in May 1997. Subsequent remediation was
completed in December 1997. The seller is awaiting acknowledgement that the
remediation plan has been approved and no further action is required by the
Mexican authorities. The seller's obligation for cost of remediation is limited
to $2.5 million. A total of $1.0 million was originally held in escrow pending
the seller's performance of its environmental obligations under the agreement.
One third of the escrow balance was used to conduct the remediation, one third
was released to the seller according to the agreement and one third remains in
escrow and will be released to the seller upon closure of the issue by the
Mexican authorities with certification that no further action is required.
The Company believes it has been operating its facilities in
substantial compliance in all material respects with existing environmental
laws. However, the Company cannot predict the nature, scope or effect of
legislation or regulatory requirements that could be imposed or how existing or
future laws or regulations will be administered or interpreted with respect to
products or activities to which they have not previously been applied.
Compliance with more stringent laws or regulations, or more vigorous enforcement
policies of regulatory agencies, could require substantial expenditures by the
Company and could adversely affect the Company's business, financial condition,
results of operations and cash flows.
Dependence on Electronics Industry
The Company's principal customers are electronics original equipment
manufacturers and contract manufacturers. The electronics industry as a whole is
characterized by intense competition, relatively short product life cycles and
significant fluctuations in product demand. In addition, the electronics
industry is generally subject to rapid technological change and product
obsolescence. Discontinuance of products or modifications developed in
connection with next generation products containing flexible circuit
interconnects manufactured by the Company has had and could continue to have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows. Further, various sectors of the electronics
industry are subject to economic cycles and have in the past experienced, and
are likely in the future to experience, periods of slowdown. A slowdown or any
13
<PAGE> 14
other event leading to excess capacity or a downturn in the electronics industry
has resulted and may continue to result in intensified price competition,
reduced gross margins and a decrease in unit volume, all of which have had and
would continue to have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.
Concentration Risk
The Company provides flexible interconnect products to a diverse group
of markets. Through ongoing diversification and new market expansion efforts,
primarily directed toward the communications and consumer markets, the Company
is continuing its efforts to reduce its dependence on the hard disk drive (HDD)
market. Sales to the HDD market accounted for 28% of net sales compared to 35%
of net sales for the six month periods ended June 27, 1999 and June 30, 1998,
respectively. This decrease was due to the Company's continued diversification
efforts. Though the Company is continuing its efforts to reduce its dependence
on the HDD industry, net sales attributable to this market are expected to
continue to represent the largest portion of net sales for the foreseeable
future and could return to a majority of the Company's net sales. The loss of
any HDD customer, or a substantial reduction in orders by any significant
customer, including reductions due to market, competitive or economic
conditions, have had and would continue to have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows.
Competition
The flexible circuit interconnect market is differentiated by
customers, applications and geography, with each niche having its own
combination of complex packaging and interconnection requirements. The Company
believes that it competes principally on the basis of design capability, price,
quality and response time to design changes and technological advancements in
underlying applications and the ability to offer a total flexible circuit
interconnect solution. During periods of economic slowdown in the electronics
industry and other periods when excess capacity exists, electronic OEMs become
more price sensitive. During the year ended December 27, 1998 and the six month
period ended June 27, 1999, there was a worldwide slowdown in the electronics
industry and to maintain market share, many of the Company's primary foreign
competitors with lower cost structures decreased their prices to unprecedented
levels. This had a material adverse effect on the Company's pricing during those
periods. The Company believes that once a customer has selected a particular
vendor to design and manufacture a flexible circuit interconnect, the customer
generally relies upon that vendor's design for the life of that specific
application and, to the extent possible, subsequent generations of similar
applications. Accordingly, it is difficult to achieve significant sales to a
particular customer with respect to any application once another vendor has been
selected to design and manufacture the flexible circuit interconnect used in
that application. While this market paradigm may provide a barrier to the
Company's competitors in the markets served by the Company, it also may present
an obstacle to the Company's entry into other markets.
The Company experiences competition worldwide from a number of leading
foreign and domestic providers, such as Nippon Mektron ("NOK"), Fujikura Ltd.
("Fujikura"), Multi-Fineline Electronix, Inc. ("M-Flex"), Sheldahl, Inc.
("Sheldahl") and Parlex Corporation ("Parlex"). NOK and Fujikura are Japan-based
suppliers substantially larger than the Company with greater financial and other
resources. M-Flex, Sheldahl and Parlex are U.S.-based flexible circuit
manufacturers that have lower sales of polyimide flexible circuits than the
Company and have historically targeted suppliers of computers, communication and
automotive services, and the military, respectively. Expansion of the Company's
existing products or services could expose the Company to new competition.
Moreover, new developments in the electronics industry could render existing
technology obsolete or less competitive and could potentially introduce new
competition into the market. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products or services that will offer superior price or performance
features to those of the Company or that new competitors will not enter the
Company's markets. Finally, as many of the Company's competitors are based in
foreign countries, they have cost structures and prices based on foreign
currencies. Accordingly, currency fluctuations could cause the Company's
dollar-priced products to be less competitive than its competitors' products
priced in other currencies.
The Company also competes in assembly matters with leading flexible
circuit assembly providers such as Smartflex Systems, Inc. and Solectron. The
Company believes that competition in assembly matters is primarily driven by
availability of assembly technology, price and cycle time. The Company believes
that it will compete favorably with these competitors because it offers its
customers a complete flexible circuit interconnect solution including design,
fabrication, assembly and testing (referred to as the one-stop shop strategy).
14
<PAGE> 15
The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results. The
Company will be required to make a continued high level of investment in product
development and research, sales and marketing and ongoing customer service and
support to remain competitive. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company will be able to make the technological advances necessary to maintain
its competitive position in the flexible circuit interconnect market. There can
be no assurance that existing or future competitors will not be able to
duplicate the Company's strategies, that the Company will be able to compete
successfully in the future, or that competitive pressures faced by the Company
will not have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
Volatility of Stock Price
During the six month period ended June 27, 1999, the trading price of
the Company's Common Stock has been subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of
technological innovations or new products by the Company's customers, general
conditions in the disk drive and computer industries, and other events or
factors. In addition, stock markets have experienced extreme price volatility in
recent years. This volatility has had a substantial effect on the market price
of securities issued by many high technology companies, in many cases for
reasons unrelated to the operating performance of the specific companies, and
the Company's Common Stock has experienced volatility not necessarily related to
announcements of Company performance. Broad market fluctuations also have
adversely affected the market price of the Company's Common Stock. At the
effective time of the merger with Innovex, Inc. that is subject to shareholder
approval, the Company will become a wholly-owned subsidiary of Innovex and
its stock will no longer be publicly traded.
Income Taxes
During the six month period ended June 27, 1999, the Company revised
its projection of future levels of income, and the anticipated jurisdictions in
which this income would be earned caused a reevaluation of the criteria of
future tax benefits. In the determination of management, it was no longer more
likely than not that the deferred tax assets could be fully utilized during the
carryforward period. Accordingly, the Company established a valuation reserve
for all its existing deferred tax assets which totaled $8.9 million and the
Company did not record an income tax benefit for the three and six month period
ended June 27, 1999. The effective tax rate for the three and six month period
ended June 27, 1998 was 28%.
The Internal Revenue Service (IRS) has concluded a field audit of the
Company's income tax returns for the tax year 1993. In connection with this
audit, the IRS issued a 90-day letter in January 1998 proposing adjustments to
the Company's income and tax credits for the year, which would result in an
additional assessment of $1.6 million, excluding interest. The major proposed
adjustment, which relates to the allocation of the purchase price of assets
obtained from Rogers Corporation (Rogers) pursuant to acquisition agreements
between the Company and Rogers, would extend the period over which the tax
benefit for the purchase price would be recovered. The Company and the IRS have
reached an agreement to settle all outstanding issues relating to this audit.
The terms of the agreement will require a payment of approximately $0.6 million,
excluding interest, most of which will be recoverable by amending subsequent
years' tax returns. The Company believes that the current tax accrual is
adequate to cover this liability and the final disposition of these matters will
not have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
Impact of Year 2000
The Year 2000 issue is a result of computer programs being written
using two digits rather than four to define the applicable year which, if left
uncorrected, could result in a system failure or miscalculations causing
disruptions of operations. With the complete implementation of the SAP R/3
software system in October 1998, the Company's manufacturing and cost control
system functions properly with respect to dates in the year 2000 and beyond. The
software replaced the Company's previous manufacturing and cost control system
and its implementation took place for a variety of reasons, not separately
identified as a Year 2000 remediation. Therefore, the Company does not consider
the implementation of the SAP R/3 system a direct Year 2000 remediation cost and
the direct costs associated with addressing the Company's Year 2000 issues have
been immaterial to date. In addition, the Company has implemented a formal
remediation plan to ensure the Company is compliant with respect to Year 2000
issues. The plan includes five phases representing a major Year 2000 activity or
segment awareness, assessment, renovation, validation and implementation.
15
<PAGE> 16
Awareness. All Year 2000 projects with regard to internal systems are
approved at the Board of Directors level and evaluated and reviewed by a Senior
Management Steering Committee on a monthly basis. The Company's plan of action
applies to all geographic locations where products and services are provided to
customers and project managers have been assigned to each location to coordinate
Year 2000 projects worldwide.
Assessment and Renovation. The Company has completed a detailed
inventory of processes, applications, hardware, operating systems and databases
where Year 2000 issues may exist. To date, an assessment of all information
technology (IT)-related systems (e.g. hardware and software systems) has been
fully carried out. Since the complete implementation of SAP finalized in October
1998, all worldwide application-driven processes for the Company are Year 2000
compliant. For example, processes required to support production and fulfillment
of customer orders (order entry, receiving/warehousing, procurement/materials,
manufacturing, product test, distribution/shipping and invoicing) are in
compliance with the Year 2000 issue since the complete implementation of SAP in
October 1998. In addition, 100% of internal network hardware and software
systems are Year 2000 compliant to date. The scope of the Company's full
assessment also includes non-IT areas such as all facilities/plant equipment,
manufacturing process and testing equipment, lab equipment and telephone
communications systems which all have been assessed. The majority of the non-IT
areas were in compliance with the Year 2000 issue and items that were not in
compliance required only minor modifications with insignificant costs incurred.
In addition, the Company has implemented programs with outside suppliers to
ensure their readiness with respect to Year 2000 issues. The Company is
currently tracking and managing this through periodic questionnaires to
suppliers. To date, the Company has received and analyzed questionnaires related
to 100% of the critical suppliers of the Company and 85% of non-critical
suppliers. Based on the information provided, all critical suppliers are in
compliance with the Year 2000 issue.
Validation. Upon completion of the SAP software implementation, the
Company began its validation phase by testing, verifying and validating the
performance, functionality, and integration of the SAP manufacturing and cost
control software system in an operational environment. The Company anticipates
this phase of IT-related systems to continue throughout 1999. During the six
month period ended June 27, 1999, the Company also began its validation phase of
all non-IT areas that will continue throughout 1999.
Implementation. Upon completion of the validation phase of all IT as
well as non-IT areas for Year 2000 compliance, the Company plans to identify and
implement any necessary contingency plans and modify existing disaster recovery
plans throughout 1999.
In addition, the Company has evaluated software and hardware systems
associated with IT areas as well as all equipment related to non-IT areas and
concluded that there are no identified risks that would have a material exposure
to contingencies related to the Year 2000 issue. There can be no assurances that
the systems of customer, suppliers and other companies on which the Company
relies will be timely converted and will not have an adverse effect on the
Company' systems or operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements that involve risks and
uncertainties, including but not limited to, the risks of concentration of sales
in markets, and in particular the HDD market, and customers, which have caused
and in the future could cause materially adverse fluctuations in operating
results; the risks of being a supplier to the electronics industry in general,
which is characterized by rapid technological change, product obsolescence and
price competition, which have and could materially adversely affect operating
results; the risk of loss of market share through competition and pricing
pressures from competitors and/or customers; the risk that growth in demand for
products that use flex, and the corresponding demand for flex, will not continue
to increase as anticipated; the risk that the Company's fully integrated
one-stop shop strategy will not continue to be accepted by customers, and the
risk that competitors may seek to duplicate this strategy, which could
materially adversely affect operating results; risks associated with the Innovex
merger, including customary closing conditions and the risk that the merger will
not address the Company's capital and liquidity needs; the risk that the
Company's expansion of manufacturing facilities in Thailand will not result in
sustainable, increased efficiencies, cost savings or improved margins as
anticipated or at the time anticipated; general risks inherent in international
operations, including currency fluctuations and government-mandated wage
increases; general manufacturing risks, including environmental risks related to
manufacturing operations and clean-up of the Mexican manufacturing facility; the
risk
16
<PAGE> 17
that other computer systems on which the Company relies, such as suppliers and
customers, will function properly with respect to dates in the year 2000 and
thereafter; the risk that all of the foregoing factors or other factors could
cause fluctuations in the price of the Company's Common Stock; and other risks
detailed herein and in the Company's Annual Report on Form 10-K for the year
ended December 27, 1998 and Quarterly Report on Form 10-Q for the quarter ended
March 28, 1999 and other Securities and Exchange Commission filings. Actual
results in the future could differ materially from those described in
forward-looking statements as a result of such risks and uncertainties. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27.1) Financial Data Schedule (filed only electronically with
the SEC)
(b) Reports on Form 8-K
On July 8, 1999, the registrant filed Form 8-K relating to
the Agreement and Plan of Merger, dated as of July 7, 1999,
among ADFlex Solutions, Inc., Innovex, Inc. and Innovex
Acquisition Corp.
17
<PAGE> 18
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.
ADFlex Solutions, Inc.
Date: August 11, 1999 By /s/ Donald E. Frederick
------------------- ------------------------------------------
Donald E. Frederick
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
Number Description
(27.1) Financial Data Schedule (filed only electronically with the SEC)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> DEC-28-1998
<PERIOD-END> JUN-27-1999
<CASH> 2,641
<SECURITIES> 0
<RECEIVABLES> 23,944
<ALLOWANCES> (1,240)
<INVENTORY> 9,021
<CURRENT-ASSETS> 35,836
<PP&E> 71,992
<DEPRECIATION> (24,256)
<TOTAL-ASSETS> 85,328
<CURRENT-LIABILITIES> 59,559
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 24,369
<TOTAL-LIABILITY-AND-EQUITY> 85,328
<SALES> 62,825
<TOTAL-REVENUES> 62,825
<CGS> 58,576
<TOTAL-COSTS> 58,576
<OTHER-EXPENSES> 16,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,826)
<INCOME-PRETAX> 0
<INCOME-TAX> 8,874
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,552)
<EPS-BASIC> (2.62)
<EPS-DILUTED> (2.62)
</TABLE>
