UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
----- -----
Commission File Number 33-95284
ZYCON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2348052
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification number)
445 El Camino Real
Santa Clara, CA 95050
(408) 241-9900
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------
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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Registrant had 11,056,000 shares of Common Stock, $.001 Par Value, outstanding
at October 31, 1996.
<PAGE>
ZYCON CORPORATION AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of September 30, 1996
and December 31, 1995........................................ 3
Consolidated Condensed Statements of Income for the three
months and for the nine months ended September 30, 1996
and 1995, respectively....................................... 4
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995, respectively....... 5
Notes to Consolidated Condensed Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 8
Part II. Other Information
Item 1. Legal Proceedings.............................................. 15
Item 4. Submission of Matters to a Vote of Security Holders ........... 15
Item 5. Other Information.............................................. 15
Item 6. Exhibits and Reports on Form 8-K............................... 15
Signatures ............................................................... 16
Exhibits ............................................................... 17
2
<PAGE>
Part I: Financial Information
Item I. Condensed Financial Statements
ZYCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
ASSETS
September 30, December 31,
1996 1995
------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents..................... $ 7,683 $11,264
Trade receivables............................. 26,920 20,886
Inventories .................................. 9,118 6,131
Prepaid expenses and other
current assets.............................. 2,272 1,734
-------- -------
Total current assets.............. 45,993 40,015
Plant and equipment, net......................... 73,549 52,130
Other assets .................................... 22,972 2,830
-------- -------
$142,514 $94,975
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............. $ 6,457 $ 2,567
Accounts payable............................... 20,644 17,624
Accrued liabilities............................ 6,464 5,021
Income taxes payable........................... - 1,770
-------- -------
Total current liabilities.......... 33,565 26,982
Bank borrowings................................... 15,259 -
Long-term debt ................................... 22,194 5,458
Deferred income taxes............................. 7,534 6,634
-------- -------
Total liabilities 78,552 39,074
-------- -------
Stockholders' Equity:
Preferred stock; $0.001 par value;
20,000,000 shares authorized; none outstanding.. - -
Common stock; $0.001 par value;
25,000,000 shares authorized;
11,056,000 and 11,000,000 shares issued
and outstanding respectively.................. 11 11
Additional paid-in capital...................... 33,017 32,369
Retained earnings............................... 30,934 23,521
-------- -------
Total stockholders' equity 63,962 55,901
-------- -------
$142,514 $94,975
======== =======
See accompanying Notes to the Consolidated Condensed Financial Statements
3
<PAGE>
<TABLE>
ZYCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales................................................. $ 55,181 $ 46,845 $ 158,649 $127,524
Cost of sales............................................. 46,987 39,555 133,389 110,882
-------- -------- --------- --------
Gross profit......................................... 8,194 7,290 25,260 16,642
-------- -------- --------- --------
Selling, general and administrative expenses.............. 4,164 2,808 11,601 7,402
-------- -------- --------- --------
Income from operations............................... 4,030 4,482 13,659 9,240
Interest expense, net..................................... 702 512 975 1,478
-------- -------- --------- --------
Income before income taxes........................... 3,328 3,970 12,684 7,762
Income taxes.............................................. 1,414 4,596 5,271 4,612
-------- -------- --------- --------
Net income (loss).................................... $ 1,914 $ (626) $ 7,413 $ 3,150
======== ========= ========= ========
Net Income Per Share...................................... $ 0.17 $ 0.67
======== =========
Shares used in computing
Net income per share................................. 11,091 11,090
======== =========
Pro forma net income data:
Income before income taxes, as reported.............. $ 3,970 $ 7,762
Pro forma income tax expense............................. 1,600 3,128
-------- --------
Pro forma net income..................................... $ 2,370 $ 4,634
======== ========
Pro forma net income per share........................... $ 0.27 $ 0.54
======== ========
Shares used in computing pro forma
Net income per share................................... 8,650 8,650
======== ========
<FN>
See accompanying Notes to the Consolidated Condensed Financial Statements
</FN>
</TABLE>
4
<PAGE>
ZYCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Nine Months Ended
--------------------
September 30,
1996 1995
------- -------
Cash flows from operating activities:
Net income ......................................... $ 7,413 $ 3,150
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 8,095 6,960
Deferred income taxes............................ 900 5,361
Changes in operating assets and liabilities:
Receivables................................... (4,027) (5,218)
Inventories................................... (1,971) (492)
Prepaid expenses, deposits and other assets... (883) (2,095)
Accounts payable.............................. 1,714 7,792
Accrued liabilities........................... 938 1,435
Income taxes payable.......................... (1,770) -
-------- --------
Net cash provided by operating activities... 10,409 16,893
-------- --------
Cash flows from investing activities:
Purchase of ACT assets (net of cash)................ (8,884) -
Investment in Malaysia plant and equipment.......... (11,024) -
Malaysia equipment deposits and other assets........ (13,695) -
Purchases of plant and equipment, net............... (12,972) (14,568)
-------- --------
Net cash used for investing activities..... (46,575) (14,568)
-------- --------
Cash flows from financing activities:
Bank borrowings, net................................ 13,916 2,000
Proceeds from long-term debt........................ 24,078 1,761
Repayment of long-term debt......................... (5,857) (5,436)
Deferred lease financing........................... 400 -
Issuance of common stock ........................... 48 -
Collections on stockholder notes.................... - 319
Distribution paid to stockholders................... - (4,174)
-------- --------
Net cash provided by (used for) financing
activities................................ 32,585 (5,530)
-------- --------
Decrease in cash and cash equivalents.................. (3,581) (3,205)
Cash and cash equivalents at beginning of period....... 11,264 8,217
-------- --------
Cash and cash equivalents at end of period............. $ 7,683 $ 5,012
======== =======
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 1,464 $ 1,865
======== =======
Taxes paid ......................................... $ 6,290 $ 60
======== =======
Supplemental disclosure of noncash financing activity:
Common stock issued in ACT acquisition.............. $ 600 $ -
======== =======
Stockholder distributions declared but not paid..... $ - $ 1,219
======== =======
See accompanying Notes to the Consolidated Condensed Financial Statements
5
<PAGE>
ZYCON CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
In the opinion of management, these consolidated condensed financial
statements contain all normal recurring adjustments for fair presentation. The
results of operations for the nine months ended September 30, 1996, are not
necessarily an indication of the results to be expected for the full year.
The accompanying consolidated condensed financial statements include
the accounts of Zycon Corporation and its wholly-owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.
The unaudited pro forma amounts included in the accompanying
consolidated condensed statements of income for the nine months ended September
30, 1995 reflect provisions for income taxes as if the Company had been a C
Corporation, fully subject to federal and state income taxes. On September 26,
1995, the Company elected C Corporation status for federal and state income tax
reporting purposes.
For information as to the significant accounting policies followed by
the Company and other financial and operating information, see the Company's
Form S-1 or Form 10-K (File No. 33-95284), as filed with the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements included in those filings.
(2) Balance Sheet Components
Receivables
A summary of receivables follows (in thousands):
September 30, December 31,
1996 1995
--------- ---------
Trade accounts receivable.............. $ 27,230 $ 21,136
Less allowance for doubtful accounts... (310) (250)
-------- -------
$ 26,920 $ 20,886
======== ========
Inventories
A summary of inventories follows (in thousands):
September 30, December 31,
1996 1995
--------- ---------
Raw materials.......................... $ 3,940 $ 1,392
Work in process........................ 4,486 3,760
Finished Goods......................... 692 979
-------- --------
$ 9,118 $ 6,131
======== ========
6
<PAGE>
ZYCON CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(unaudited)
(2) Balance Sheet Components (Continued)
Property, Plant and Equipment
A summary of property, plant and equipment follows (in thousands):
September 30, December 31,
1996 1995
-------- --------
Machinery and equipment................... $ 78,158 $ 61,975
Building and leasehold improvements....... 39,248 23,704
Office furniture and equipment............ 847 520
Construction in progress.................. 387 3,250
Other..................................... 765 580
-------- ---------
119,405 90,029
Less accumulated depreciation
and amortization 45,856 37,899
-------- --------
$ 73,549 $ 52,130
======== ========
(3) Income Taxes
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liability as of September 30,
1996, are presented below (in thousands):
Deferred income tax assets:
Allowance and accruals............................... $ 749
State income taxes................................... 167
-------
Total deferred income tax assets................. 916
Deferred income tax liability:
Property and equipment, principally
due to differences in depreciation................... (7,534)
-------
Net deferred income tax liability................$(6,618)
=======
7
<PAGE>
ZYCON CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained herein, the matters
discussed below or elsewhere in this quarterly report are forward looking
statements that involve risks and uncertainties. Any forward-looking statements
involving management's estimates or beliefs should be considered in light of the
factors described below under "Factors That May Affect Future Results." Actual
results may vary materially from those projected, anticipated or indicated in
any forward-looking statements.
Results of Operations
Third Quarter
Sales for the third quarter of 1996 increased 18% to $55.2 million
from $46.8 million for the third quarter of 1995, primarily due to a 9% increase
in the average selling price per panel, combined with the inclusion of $3.7
million of sales from the Company's newly acquired quickturn, prototype and
design facility, Zycon Alternate Circuits, Inc. (ZAC). The increase in the
average selling price per panel was caused by a shift in customer demand towards
a greater percentage of higher priced, higher layer count printed circuit
boards. Unit volumes shipped from the Santa Clara, California facility were
virtually unchanged from the prior year, and increased 6% from the second
quarter of 1996.
The gross profit margin was 14.9% in the third quarter of 1996
compared to 15.6% for the same period in 1995. The gross margin decline was
primarily the result of higher fixed costs associated with the Company's
capacity expansion during the past year. The third quarter gross margin
represented an improvement over the second quarter gross margin of 13.5%, when
the Company experienced a slowing of orders.
Selling, general and administrative (S,G&A) expenses increased to 7.5%
of sales in the third quarter of 1996, as compared to 6.0% in the third quarter
of 1995. This was primarily due to an increase in Malaysia related expenses of
$526,000 and the addition of ZAC's S,G&A expenses of $560,000. Excluding the
increase in Malaysia related start up expenses and ZAC's S,G&A expenses, total
S,G&A would have remained at 6.0% of sales (without ZAC).
Net interest expense for the third quarter of 1996 increased to
$702,000 from $512,000 in the third quarter of 1995, mainly due to the addition
of $19 million of debt during June, 1996 to finance the Malaysia operation and
domestic equipment purchases.
Year-to-Date
For the nine months ended September 30, 1996, sales increased 24% to
$158.6 million from $127.5 million for the same period in 1995. The increase in
sales was primarily due to a 17% increase in the average selling price per
panel, which was caused by a shift in customer demand towards a greater
percentage of higher priced, higher layer count printed circuit boards. Unit
volumes shipped from the Santa Clara facility increased 3% over the same period
from the prior year.
Gross profit margins for the nine month period improved to 15.9% from
13.1% a year earlier. This improvement was mainly due to the spreading of fixed
costs over a larger sales base and the trend in customer demand toward more
complex, higher layer count, higher margin product.
8
<PAGE>
Selling, general and administrative expenses increased to 7.3% of
sales for the nine months ended September 30, 1996, compared to 5.8% during the
same period in 1995. This was primarily due to an increase in Malaysia related
expenses of $1,527,000, the addition of ZAC's S,G&A expenses of $647,000,
additional bonus accrual of $690,000, with employee related expenses and legal
and professional fees accounting for the difference. Excluding the increase in
Malaysia related start up expenses and ZAC's S,G&A expenses, total S,G&A would
have increased slightly to 6.1% of sales (without ZAC).
Net interest expense for the first nine months of 1996 decreased to
$975,000 from $1,478,000 in the same period a year earlier due to a $17.5
million paydown of debt in the fourth quarter of 1995, following the initial
public offering (IPO). Total debt remained at low levels until the $19 million
debt drawdown in late June 1996 to finance the Malaysia facility and domestic
equipment purchases.
Income Taxes
Based on current tax laws, the Company estimates that it will incur an
effective income tax rate of approximately 40% in the current year for it's
domestic operations. Accordingly, it has provided for income taxes during the
first nine months of 1996 using this estimate. The consolidated effective rate
is somewhat higher because the Malaysia losses are not deductible in the U.S.
Since the Company was an S corporation during the first nine months of
1995, pro forma net income data is presented which reflect income taxes as if
the Company had been a C corporation. With the return to C corporation status
immediately prior to the IPO, the Company recorded a net deferred tax liability
of $4.5 million and a nonrecurring charge to income tax expense.
Liquidity and Capital Resources
As of September 30, 1996, the Company's working capital was $12.4
million versus $13.0 million at December 31, 1995. Cash and cash equivalents
were $7.7 million at September 30, 1996 compared with $11.3 million at December
31, 1995. In the nine months ended September 30, 1996 the Company generated cash
from operations of $10.4 million, and used $46.6 million for investments in the
ACT acquisition and plant and equipment for the Malaysia and Santa Clara
facilities, which were partially financed by $32.6 million in net borrowings.
Receivables increased to $26.9 million at September 30, 1996 from $20.9 million
at December 31, 1995, primarily due to the increased sales level and the
addition of the receivables from the Company's newly acquired subsidiary, ZAC.
As of September 30, 1996 the following lines of credit were available
to the Company:
Working Capital Revolver ($28 million maximum) $9 million
Foreign Credit Lines for Malaysia Plant and Working
Capital $18 million
Domestic Credit Line for Malaysia Equipment $6 million
On June 18, 1996, the Company purchased substantially all the assets
of Alternate Circuit Technology, Inc. (ACT), a quick-turn, prototype and design
printed circuit board manufacturer. The initial consideration for the
acquisition was approximately $8.7 million in cash, $600,000 worth of the
Company's common stock (50,000 shares valued at $12.00 per share), and the
assumption of approximately $5.0 million of liabilities. The acquisition
agreement also calls for payment of $200,000 after a three year period if
certain non-compete covenants are met. The acquisition was funded from excess
working capital.
In July, 1996, the Company renewed its revolving bank line of credit
for another two years at an increased maximum limit of $28 million, up from $14
million previously. Borrowings under the line of credit incur interest at the
bank's prime rate (8.25% as of September 30, 1996) and are secured by equipment,
trade receivables and inventories.
9
<PAGE>
During June, 1996, the Company borrowed a total of $19 million, of
which $10 million in fixed assets lines of credit was used to finance equipment
that had been purchased and paid for during the last nine months, and $9 million
of a domestic credit line was used for the building and equipment of the
Company's Malaysia facility.
Malaysia Investment
The Company is the first major U.S. independent printed circuit board
manufacturer to establish an Asian manufacturing facility. Construction of the
Company's new manufacturing plant in Kuching, Malaysia was completed in July,
with initial shipments commencing in November of this year. The plant will
initially produce lower layer count boards for export back to current U.S.
customers, allowing the Santa Clara facility to continue to focus on the higher
layer count product.
Management believes that the Malaysia facility is strategically
important for several reasons: 1) it will provide a lower cost structure to
competitively manufacture lower layer count boards for export back to current
U.S. customers, 2) it provides an Asian manufacturing presence that will allow
the Company to eventually build higher layer count product to sell into the
Southeast Asian and European markets, and 3) the Company's geographical
diversification will be improved. With the exception of our recently acquired
quickturn, prototype and design plant located in Massachusetts, the Santa Clara,
California facility was previously this Company's only manufacturing location.
The Company believes that the Malaysia operation will begin generating
operating profits by the end of 1997. The Company estimates that due to the
limited sales level from the Malaysia facility during the fourth quarter,
combined with it's large fixed overhead base, the foreign loss from the Malaysia
operations (not tax deductible) could approach an approximate range of $1.0 to
$1.2 million, or -$.09 to $-.11 per share on an estimated 11,120,000 shares. The
results from each of the first three quarters of 1996 included Malaysia startup
expenses that reduced total earnings by approximately $-.03, $-.04, and $-.04,
respectively. Thus the estimated negative impact of the Malaysian startup on our
fourth quarter results will be an additional $-.05 to $-.07 over the third
quarter of 1996.
The Company's total investment in its Malaysia plant and equipment at
September 30, 1996 was approximately $28 million, and is expected to total
approximately $31 million when completed during the fourth quarter of 1996. One
or portions of both of the credit lines remaining for the building and equipment
of the Company's Malaysian facility will be used to fund the estimated start-up
costs still remaining of approximately $3 million over the next two months,
leaving available credit lines of approximately $21 million.
Factors That May Affect Future Results
The Company operates in a changing environment that involves a number
of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Variability of Customer Requirements; Absence of Customer Commitments
on Orders. The level and timing of orders placed by the Company's customers vary
due to a number of factors, including customer attempts to manage inventory,
changes in customer manufacturing strategies and variation in demand for their
products. Since the Company typically does not obtain long-term purchase orders
or commitments, it must anticipate the future volume of orders based on
discussions with its customers. The Company relies on its estimate of
anticipated future volumes when making commitments regarding the level of
business that it will seek and accept, the mix of products that it intends to
manufacture, the timing of production schedules and the levels and utilization
of personnel and other resources. A variety of conditions, both specific to the
individual customer and generally affecting the customer's industry, may cause
customers to cancel, reduce or delay orders that were
10
<PAGE>
previously made or anticipated. Generally, customers may cancel, reduce or delay
purchase orders and commitments without penalty, except for payment for work and
materials expended through the cancellation date. Significant or numerous
cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition. The printed circuit board industry is characterized by
intense competition. Competition in this market is expected to increase in the
future. The Company competes principally in the market for complex multilayer
printed circuit boards. The Company's competitors in this market segment are
primarily large domestic manufacturers and, to a lesser degree, small or
regional producers. In addition, OEMs with captive printed circuit board
manufacturing operations may seek orders in the open market to fill excess
capacity, thereby increasing price competition. Some of the Company's
competitors are substantially larger and have greater financial resources than
the Company. In the future, the printed circuit board industry could encounter
competition from new technologies, including multichip modules and other
technologies that may reduce the number of printed circuit boards required in
electronic equipment or may render existing technology less competitive or
obsolete.
Fluctuations in Operating Results. The Company has experienced
significant fluctuations in its operating results and anticipates that these
fluctuations will continue in the future. For example, the Company had net
income for the first and second quarters of 1994 that was significantly below
the Company's net income for the comparable periods of 1993, reflecting, among
other things, a decline in average selling price. In addition, the Company's
gross profit margin decreased to 13.5% and 14.9% in the second and third
quarters of 1996, respectively, from 19.1% in the first quarter of 1996,
primarily as a result of a drop in sales volume and increases in fixed costs
associated with the Company's capacity expansion during the past year. The
Company's operating results are affected by a number of factors, including the
timing of orders from and shipments to major customers, the volume of orders
relative to the Company's capacity, the timing of expenditures in anticipation
of future sales, competitive pressures, variations in product mix and economic
conditions in the electronics industry. Many of these factors are outside the
control of the Company. Since a significant portion of the Company's operating
expenses are fixed, even a relatively small revenue shortfall can have a
disproportionate effect on the Company's results of operations.
Malaysia Facility. The Company has recently constructed a
manufacturing facility in Malaysia. The start-up costs of this facility,
including working capital for the Company's Malaysia subsidiary, are estimated
to be approximately $31 million, and the Company believes that the facility will
be ready to commence operations by November, 1996. The start up costs for the
Malaysia facility have been funded primarily through bank loans. The Company's
management has no experience in operating foreign manufacturing facilities, and
there can be no assurance that the Company will be able to operate the new
facility on a profitable basis. It is anticipated that the Malaysia facility
will incur operating losses during its first several quarters of operations,
primarily as a result of start-up costs. The Company expects that a substantial
portion of the capacity of the Malaysia facility will initially be dedicated to
lower layer count segments of the printed circuit board market, and it is
possible that the Company could incur losses even after the initial year of
operations as a result of various factors including intense price competition
for the products which it intends to produce at the new facility. Management
believes that losses incurred in the Company's Malaysia operations will not be
deductible for United States income tax purposes. International operations are
subject to a number of risks, including unforeseen changes in regulatory
requirements, exchange rates, tariffs and other trade barriers, and political
and economic instability. These risks are particularly significant in the case
of the Company because of management's inexperience in foreign manufacturing or
in managing international operations.
Expansion of Manufacturing Capacity. The Company believes that its
competitive position depends in part on its ability to expand its manufacturing
capacity. The Company has made a significant investment in a major expansion of
space at its Northern California manufacturing facility and has expanded its
prototype manufacturing capabilities by its acquisition of the assets of an East
Coast quick turn, prototype and design facility. In January 1996, the Company
entered into an additional facility lease for a 59,000 square foot building
which is expected to be constructed by the end of January 1997. This building
will be immediately adjacent to the
11
<PAGE>
Company's three buildings leased in Santa Clara, California. The Company's
capital expenditure projects also include the completion of the manufacturing
facility in Malaysia and the purchase of additional equipment which is being
installed at its Northern California, Massachusetts, and Malaysia facilities.
There can be no assurance that the Company will be able to expand its
manufacturing capacity in a timely manner or that the cost of such expansion
will not exceed management's current estimates. In addition, the Company's
expansion of its manufacturing capacity has and will continue to significantly
increase its fixed costs, and the future profitability of the Company will
depend on its ability to utilize its manufacturing capacity in an effective
manner. The Company's inability to generate the additional sales necessary to
utilize its additional capacity could have a material adverse effect on the
Company's business, financial condition and results of operations.
Technological Change. Printed circuit board manufacturing technology
has evolved from single and double sided printed circuit boards to include
multilayer printed circuit boards that require finer lines and spacing, smaller
drilled holes and incorporate surface mount technology ("SMT"). Technological
change is rapid and continuous, and in the future the manufacture of complex
printed circuit boards will require increased technological and manufacturing
expertise. There can be no assurance that the Company will be able to maintain
its current technological position. In addition, the introduction of new
technologies may require the Company to substantially increase its capital
expenditures. Although the Company has developed certain technological
processes, there can be no assurance that these technological processes will
become commercially viable or that there will be commercial applications for
these technologies.
Dependence on Electronics Industry. The Company's principal customers
are OEMs and contract manufacturers of data communication products,
telecommunications equipment, advanced storage systems, workstations, servers
and personal computers. These industry segments, and the electronics industry as
a whole, are subject to rapid technological change and product obsolescence.
Discontinuance or modifications of products containing components manufactured
by the Company could adversely affect the Company's business, financial
condition and results of operations. The Company's growth has resulted, in part,
from its ability to focus on customers in rapidly growing segments of the
electronics industry. There can be no assurance that the Company will continue
to be able to identify and attract customers with rapid growth rates or that
these industry segments will continue to grow at their historical rates or at
all. Moreover, pricing pressures within one or more of these industry segments
may lead to decreased margins on sales of the Company's products. The
electronics industry is subject to economic cycles and has in the past
experienced, and is likely in the future to experience, recessionary periods. A
recession or any other event leading to excess capacity in the electronics
industry would likely result in intensified price competition and a decrease in
unit volume, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Concentration of Customers. Since its inception, the Company's sales
to a small number of its top customers have accounted for a high percentage of
the Company's annual net sales. The composition of the Company's principal
customers changes over time, and some of the Company's current largest customers
have only been customers for a relatively short period of time. There can be no
assurance that the Company's relationships with any of its principal customers
will continue at current levels, if at all, and the loss of one or more of such
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Process Failure. The Company's business involves highly complex
manufacturing processes that could be subject to periodic failure. In the past,
process failures have occurred, which have resulted in short delays in certain
product shipments. There can be no assurance that failures will not occur in the
future. The loss of revenue and earnings to the Company from such a failure
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Single Manufacturing Facility. The Company's current
high volume printed circuit board manufacturing operations are centralized in
three adjacent buildings in Northern California. Since the Company is just
beginning to operate multiple facilities in different geographic areas, a
disruption of the
12
<PAGE>
Company's Northern California manufacturing operations resulting from sustained
process abnormalities, human error, government intervention or a natural
disaster such as fire, earthquake or flood could cause the Company to cease or
limit its manufacturing operations and consequently have a material adverse
effect on the Company's business, financial condition and results of operations.
Management of Growth; Acquisitions. The Company has initiated
significant expansion, including geographic expansion, of its overall level of
operations, which has placed, and is expected to continue to place, significant
demands on the Company's managerial, technical, financial and other resources.
This expansion will require the Company to invest in its operations, including
its financial and management information systems, and to retain, motivate and
effectively manage its employees. If the Company's management is unable to
manage growth effectively and to retain key personnel, then the quality of the
Company's products and services, as well as its business, financial condition
and results of operations, could be materially and adversely affected.
The Company may from time to time pursue the acquisition of other
companies, assets or product lines that complement or expand its existing
business. Acquisitions involve a number of risks that could adversely affect the
Company's operating results, including the diversion of management's attention,
the assimilation of the operations and personnel of the acquired companies, the
amortization of acquired intangible assets and the potential loss of key
employees. No assurance can be given that any acquisition by the Company will
not materially and adversely affect the Company or that any such acquisition
will enhance the Company's business.
Availability of Materials and Components. Raw materials used by the
Company in producing printed circuit boards are purchased by the Company and, in
certain circumstances, the Company bears the risk of price fluctuations. In
addition, shortages of certain types of materials have occurred in the past and
may occur in the future.
Dependence on Key Personnel. The Company's success depends to a
significant degree upon the continued contributions of members of its senior
management, many of whom would be difficult to replace. The future success of
the Company also depends on its ability to identify, attract and retain
additional qualified technical and managerial personnel. The loss of the
President or other officers and key personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
None of these employees has entered into an employment agreement with the
Company, and there can be no assurance that the Company will be able to retain
these employees.
Intellectual Property. The Company's success depends in part on its
proprietary techniques and manufacturing expertise. The Company has few patents
for these proprietary techniques and chooses to rely principally on trade secret
protection. There can be no assurance that the Company will be able to protect
its technology or that competitors will not be able to develop similar
technology independently. In addition, there can be no assurance that the claims
allowed on any patents held by the Company will be sufficiently broad to protect
the Company's technology, that any patents issued to the Company will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company.
Environmental Matters. The Company uses certain materials in its
manufacturing process which are classified as hazardous substances. Proper waste
disposal and environmental regulation are major considerations for printed
circuit board manufacturers. Although the Company believes that its facilities
are currently in material compliance with all applicable environmental laws and
monitors it operations to avoid violations arising from human error or equipment
failures, there can be no assurance that violations will not occur. In the event
of a future violation of environmental laws, the Company could be held liable
for damages and for the costs of remedial actions and could also be subject to
revocation of permits necessary to conduct its business. Any such revocation
could require the Company to cease or limit production at its facilities,
thereby causing a material adverse effect on the Company's operations. Zycon is
also subject to environmental laws and air quality regulations relating to the
storage, use and disposal of chemicals, solid waste and other hazardous
materials. As a generator of hazardous materials, the Company is subject to
financial exposure even if it fully complies with such
13
<PAGE>
laws. In addition, there can be no assurance that more stringent environmental
laws will not be adopted over time, imposing greater compliance costs and
increasing risks and penalties associated with a violation. The City of Santa
Clara has adopted an ordinance that, as of April 1, 1997, significantly reduces
the amount of waste, including copper and nickel, that companies such as Zycon
may discharge into the city sanitary sewer. The new ordinance provides for
substantial penalties for intentional or negligent violations. These penalties
include fines ranging from $10,000 to $50,000 per day, revocation of required
business permits, the issuance of a cease and desist order and, under certain
circumstances, up to nine months imprisonment. Under the new ordinance, the
Company is subject to stringent requirements on the amount of water it can
discharge and is required to substantially reduce the concentrations of certain
chemicals, including copper and nickel, which it currently discharges. Under the
new ordinance, the concentration limit for the Company's copper discharge is
reduced from 2.00 milligrams per liter to 1.02 milligrams per liter, and the
concentration limit for the Company's nickel discharge is reduced from 2.60
milligrams per liter to 0.02 milligrams per liter. The Company believes that by
using a combination of existing and developing technologies, including
established methods for the chemical removal of copper, it will be able to meet
the concentration standards by April 1, 1997, the required date of compliance.
However, there can be no assurance that the Company will be able to comply with
the reduced discharge levels mandated by the ordinance or that the costs of
complying with the new ordinance will not exceed the Company's current estimate.
Furthermore, there can be no assurance that compliance with the ordinance will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
Possible Volatility of Stock Price. The Company believes that the
trading price of the Common Stock could be subject to significant fluctuations
in response to variations in quarterly operating results, developments in the
electronics industry, stock market conditions and other factors. In addition,
any variance or shortfall in revenue or earnings from levels expected by
securities analysts or the investment community at large could have an immediate
and significant adverse effect on the trading price of the Company's Common
Stock.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In March 1993, the U.S. Environmental Protection Agency (EPA) notified
Zycon of its potential liability for maintenance and remediation costs in
connection with a hazardous waste disposal facility operated by Casmalia
Resources, a California Limited Partnership, in Santa Barbara County,
California. The EPA identified Zycon as one of the 65 generators which had
disposed the greatest amounts of materials at the site by weight during the
final years in which material was accepted by Casmalia Resources. Based on the
total tonnage contributed by all generators, Zycon's share is estimated at
approximately 0.3% of the total weight. Approximately 20,000 generators that
contributed material to the site have been identified.
The Casmalia site was regulated by the EPA during the period when the
material was accepted. There is no allegation that Zycon violated any law in the
disposal of material at the site, rather the EPA's actions stemmed from the fact
that Casmalia Resources may not have the financial means to implement a closure
plan for the site and because of Zycon's status as a generator of hazardous
waste.
In September, 1996 a Consent Decree was entered into between the EPA
and 48 companies (including Zycon) acting through the Casmalia Steering
Committee (CSC). The Consent Decree has been filed with the United States
District Court in Los Angeles, California, which must approve the agreement.
Although this approval is pending, work has started under the Consent Decree.
The Consent Decree sets forth the terms and conditions under which the CSC will
carry out work aimed at final closure of the site. Certain closure activities
will be performed by the CSC. Later work will be performed by the CSC, if funded
by other parties. Under the Consent Decree, the settling parties will work with
the EPA to pursue the non-settling parties to ensure they participate in
contributing to the closure and long-term operation and maintenance of the
facility.
The EPA will continue as the lead regulatory agency during the final
closure work. Because long-term maintenance plans for the site will not be
determined for a number of years, it has not yet been decided which regulatory
agency will oversee this phase of the work plan or how the long-term costs will
be funded. However, the agreement provides a mechanism for ensuring that an
appropriate federal, state or local agency will assume regulatory responsibility
for long-term maintenance.
The Company has reserved $250,000 for its share of future remediation
costs and believes such amount is a reasonable approximation of its potential
responsibility under the Consent Decree, but if certain of the Casmalia Steering
Committee members are ultimately unable to fund their allocated shares or if
Zycon must contribute to long-term maintenance of the site, the Company could
incur additional obligations. Except for the Casmalia Consent Decree, the
Company is not party to any material litigation.
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) See the index to exhibits filed as part of this Form 10-Q on
page 17.
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 24, 1996, as amended by a
report on Form 8-K/A, Amendment No. 1, filed on July 29, 1996, as
further amended by a report on Form 8-K/A, Amendment No. 2, filed on
August 23, 1996, to disclose the acquisition of certain assets and
liabilities of Alternate Circuit Technology, Inc.
15
<PAGE>
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.
ZYCON CORPORATION
Date: November 8, 1996 By: /s/ Ronald H. Donati
--------------------------
Ronald H. Donati
Chief Executive Officer,
President
By: /s/ Kenneth R. Shilling
Kenneth R. Shilling
Chief Financial Officer
Vice President, Finance
16
<PAGE>
ZYCON CORPORATION
INDEX TO EXHIBITS
Exhibit Number Description Page
- -------------- ----------- ----
3.1 Restated Certificate of Incorporation of Registrant *
3.2 Bylaws of Registrant *
4 Specimen Common Stock Certificate *
10.1 Revolving Credit Note Agreement dated July 17, 1996 18
by and between the Company and Comerica Bank -
California
10.2 Third Amendment to Loan Agreement (Revolver) and First 20
Amendment to Loan Agreement (Term Loan) dated July 26,
1996 by and between the Company and Comerica Bank -
California
11 Computation of Net Income Per Share 23
27 Financial Data Schedule 24
*Exhibits 3.1, 3.2, and 4 are incorporated by reference to Exhibits 3.3,
3.4, and 4.1, respectively, of Registrant's Registration Statement on Form S-1,
File No. 33-95284.
17
REVOLVING CREDIT NOTE
$28,000,000 Santa Clara, California
July 17, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
COMERICA BANK-CALIFORNIA (the "Bank") at 333 Santa Clara Street, San Jose,
California, on July 1, 1998, the principal sum or so much of the principal sum
of Twenty Eight Million Dollars ($28,000,000) as may from time to time have been
advanced and be outstanding under that certain Loan Agreement dated March 31,
1994 between the undersigned and the Bank (the "Agreement") plus all accrued but
unpaid interest thereon.
The unpaid principal amount of this Note shall bear interest at the rate
provided in Section 2.4.1 of the Agreement, which Agreement, as it may be
amended from time to time, is by this reference incorporated herein and made a
part hereof. Interest shall be payable to the extent accrued on the first day of
each consecutive calendar month, beginning August 1, 1996, until maturity
(whether by acceleration or otherwise) and, thereafter, on demand at a rate
equal to three percent (3%) per annum plus the rate otherwise prevailing
hereunder, but in no event to exceed the Legal Rate (as defined in the
Agreement).
This Note is a Master Note under which sums may or must be repaid from time
to time and under which new advances are to be made by the Bank pursuant to the
terms and conditions of the Agreement, and the books and records of the Bank
shall constitute the best evidence of the amount of the indebtedness at any time
owing hereunder.
This Note is secured by the Collateral described in the Agreement, to which
reference is made for, among other things, the conditions under which this Note
may or must be paid in whole or in part prior to its due date or its due date
accelerated. The Bank is hereby granted a security interest in all property of
the undersigned at any time in the possession of the Bank or any Affiliate (as
defined in the Agreement) of the Bank (or as to which the Bank or any Affiliate
of the Bank at any time controls possession by documents or otherwise).
If an Event of Default (as defined in the Agreement) occurs and is not
cured within the time, if any, provided for by the Agreement, the Bank may
exercise any one or more of the rights and remedies granted by the Agreement or
any document contemplated thereby or given to a secured party under applicable
law, including without limit the right to accelerate this Note and any other
Indebtedness (as defined in the Agreement), and may set off against the
principal of and interest on this Note or against any other Indebtedness (i) any
amount owing by the Bank to the undersigned, (ii) any property of the
undersigned at any time in the possession of the Bank or any Affiliate of the
Bank.
The undersigned and all accommodation parties, guarantors and indorsers (i)
waive presentment, demand, protest and notice of dishonor, (ii) agree that no
extension or indulgence to the undersigned or release or non-enforcement of any
security, whether with or without notice, shall affect the obligations of any
accommodation party, guarantor or indorser, and (iii) agree to reimburse the
holder of this note for any and all costs and expenses incurred in collecting or
<PAGE>
attempting to collect any and all principal and interest under this Note
(including, but not limited to, court costs and reasonable attorney fees,
whether in-house or outside counsel is used and whether such costs and expenses
are incurred in formal or informal collection actions, federal bankruptcy
proceedings, appellate proceedings, probate proceedings, or otherwise). This
Note shall be governed by and construed in accordance with the laws of the State
of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of July 17,
1996.
Zycon Corportion
By: /s/ Ronald H. Donati
-----------------------------
Ronald H. Donati
President
THIRD AMENDMENT TO LOAN AGREEMENT (REVOLVER) AND FIRST AMENDMENT TO
LOAN AGREEMENT (TERM LOAN)
These AMENDMENTS, dated the 26th day of July, 1996 between Zycon Corporation
(herein referred to as the "Borrower") and COMERICA BANK-California (herein
referred to as the "Bank").
WlTNESSETH:
WHEREAS, the Bank and the Borrower on March 31, 1994 entered a certain Loan
Agreement as amended (herein referred to as the "Revolver Agreement"), a certain
Revolving Credit Master Note (the "Revolving Credit Note"), a certain Term Note,
a Security Agreement (Inventory and Accounts Receivable), and a certain Security
Agreement (Equipment); and
WHEREAS, the Bank and the Borrower on December 31, 1995 entered a certain Loan
Agreement as amended (herein referred to as the "Term Loan Agreement"), and a
certain Term Note; and
WHEREAS, the modifications to the Revolver Agreement and the Term Loan Agreement
contemplated hereby are in the best interest of, and will mutually benefit, the
parties hereto; and
NOW, THEREFORE, in consideration of the premises and the mutual promises herein
contained, the Borrower and the Bank agree to amend the Revolver Agreement and
the Term Loan Agreement in the manner and to the extent hereinafter set forth:
1. In Section 1.1 of the Revolver Agreement titled "Defined Terms.", replace the
definition of "Commitment Amount (Revolving Loans)" with the following:
"'Commitment Amount (Revolving Loans)' shall mean for any applicable period of
determination, Twenty Eight Million Dollars ($28,000,000)."
2. In Section 1.1 of the Revolver Agreement titled "Defined Terms.", replace the
definition of "Termination Date" with the following: "'Termination Date' shall
mean July 1, 1998 (or such earlier date on which the Borrower shall permanently
terminate the Bank's commitment under Section 2.8 of this Agreement), provided,
however, if the Bank notifies Borrower fewer than 90 days before July 1, 1998,
that the period of financing under the Agreement will not be extended, and no
Event of Default then exists under this Agreement, then the Termination Date
will for this Agreement be deemed postponed to the date 90 days after delivery
of such notice from Bank to Borrower."
3. In Section 1.1 of the Revolver Agreement titled "Defined Terms.", replace the
definition of "Borrowing Base" with the following: "'Borrowing Base' shall mean
as of any applicable date of determination, eighty percent (80%) of the sum of
(a) the aggregate outstanding principal balance of the Borrower's Eligible
Accounts plus (b) the aggregate outstanding principal balance of the Eligible
Accounts of Zycon Alternate Circuits, Inc."
1
<PAGE>
4. Replace the content of Section 6.1.4 of the Revolver Agreement and Section
6.1.3 of the Term Loan Agreement both titled "Aging of Accounts Certificate."
with the following: "Furnish to the Bank monthly by the 10th of each month the
following: (1) an aging as of the end of the preceding month of Borrower's
Accounts Receivable and accounts payable in a form satisfactory to the Bank; and
(2) an aging of Accounts Receivable and accounts payable of Zycon Alternate
Circuits, Inc. as of the end of the preceding month in a form satisfactory to
the Bank."
5. Replace the content of Section 6.5 of the Revolver Agreement titled "Maintain
Tangible Net Worth." with the following: "At the date of each Financial
Statement provided to the Bank pursuant to Section 6.1 of the Agreement, on a
consolidated and non-consolidated basis, maintain a Tangible Net Worth for it of
not less than the amounts specified during the periods specified below:
(a) $42,000,000 from December 31, 1995 until September 30, 1996,
(b) the sum of the minimum Tangible Net Worth required at the
commencement of the preceding calendar quarter plus fifty percent
(50%) of the Borrower's Net Income (but only if such Net Income is a
positive number greater than zero dollars ($0.00) for the preceding
calendar quarter from October 1, 1996 until the Indebtedness is paid
in full and the Borrower has performed all of its obligations
hereunder."
6. Replace the content of Section 6.7 of the Revolver Agreement titled "Maintain
Current Ratio." with the following: "At the date of each Financial Statement
provided to the Bank pursuant to Section 6.1 of the Agreement, on a consolidated
and non-consolidated basis, maintain the ratio of its Current Assets to Current
Liabilities at not less than 1.1 to 1.0, at all times from the date of this
Agreement until the Indebtedness is paid in full and the Borrower has performed
all of its obligations hereunder."
-
7. Replace the content of Section 6.8 of the Revolver Agreement titled "Maintain
Fixed Charges Ratio." with the following: "At the date of each Financial
Statement provided to the Bank pursuant to Section 6.1 of the Agreement, on a
consolidated and non-consolidated basis, maintain the ratio of (i) its Cash
Flow, calculated on an annualized basis, to (ii) its Fixed Charges at not less
than 1.35 to 1.0, at all times from the date of this Agreement until the
Indebtedness is paid in full and the Borrower has performed all of its
obligations hereunder."
8. Add the following Section to the Revolver Agreement:
"6.14 Zycon Corporation Sdn. Bhd. Profitability. Ensure that the Net Income
of Zycon Corporation Sdn. Bhd, calculated in accordance with GAAP shall be a
positive number greater than zero dollars ($0.00) for each fiscal year beginning
with the fiscal year ending December 31, 1998, until the Indebtedness is paid in
full and the Borrower has performed all of its obligations hereunder."
2
<PAGE>
9. Add the following Section to the Revolver Agreement:
"7.1 Transfers to Subsidiary. Make loan advances to, extend credit to,
guaranty the Debt of, purchase the stock of, or otherwise make Transfers (herein
defined as, every mode, direct or indirect, absolute or conditional, voluntary
or involuntary, of disposing or parting with property or with an interest in
property.) to or for the benefit of Zycon Corporation Sdn. Bhd., which, in the
aggregate, at any time, exceed thirty-three million dollars ($33,000,000.00)."
10. Replace the content of Section 6.6 of the Term Loan Agreement and the
Revolver Agreement both titled "Maintain Debt Ratio." with the following: "At
the date of each Financial Statement provided to the Bank pursuant to Section
6.1 of the Agreement, on a consolidated and non-consolidated basis, maintain the
ratio of its Debt to Tangible Net Worth at not more than 1.60 to 1.0, at all
times from the date of this Agreement until the Indebtedness is paid in full and
the Borrower has performed all of its obligations hereunder."
11. Replace the content of Section 2.4(a) of the Term Loan Agreement titled
"Interest - Draw Period Note." with the following: "During the Draw Period, the
Draw Period Note shall bear interest on the principal balance outstanding
thereunder at a rate equal to the Prime Rate plus three-eights of one percent
(.3750%) per annum, but in no event to exceed the Legal Rate. Such rate of
interest shall change as and when the Prime Rate changes. During the Draw
Period, accrued interest on the Draw Period Note shall be payable monthly on the
twenty-first day of each consecutive calendar month, beginning with the
twenty-first day of the first month following the first Disbursement Date until
the Termination Date (unless sooner accelerated pursuant to the terms of this
Agreement), and from and after such date, on demand."
12. Replace the content of Section 2.4(b)(i) of the Term Loan Agreement titled
"Interest - Fixed Rate Note and Variable Rate Note - Variable Rate Note." with
the following: "Commencing with the Termination Date, the Variable Rate Note
shall bear interest on the principal balance outstanding thereunder at the Prime
Rate plus three-eights of one percent (.3750%) per annum until the Maturity
Date, and thereafter at a rate equal to two percent (2%) per annum plus the rate
otherwise prevailing hereunder, but in no event to exceed the Legal Rate (the
"Prime Rate Option"). Such rate of interest shall change as and when the Prime
Rate changes. Interest shall be payable to the extent then accrued on the
twenty-first day of the first month following the Termination Date until the
Maturity Date, and from and after the Maturity Date, on demand;"
IN WITNESS WHEREOF, the parties hereto have caused these AMENDMENTS to the
Revolver Agreement and the Term Loan Agreement to be executed and delivered by
their duly authorized officers on the day and year first written above.
Zycon Corporation COMERICA BANK-California
By: /s/ Ronald H. Donati By: /s/ Greg H. Atkinson
------------------------------ -----------------------------
Ronald H. Donati Greg H. Atkinson
Its: President Its: Assistant Vice President
3
ZYCON CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION
OF NET INCOME PER SHARE
(unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
Net income $ 1,914 $ 7,413
======= -------
Pro forma net income $ 2,370 $ 4,634
======= =======
Weighted average shares outstanding
during the period 11,053 8,000 11,020 8,000
Common shares issued and stock options
granted in accordance with Staff
Accounting Bulletin No. 83 97 97
Common Stock Equivalents 38 70
Shares deemed outstanding to fund final
shareholder distribution 553 553
-------- ------- ------- ------
Total shares outstanding for purposes
of calculating primary and fully
diluted earnings per share 11,091 8,650 11,090 8,650
======== ======= ======= =======
Net Income per common and
common stock equivalent share $ 0.17 $ 0.67
======== =======
Pro forma primary earnings per common and
common stock equivalent share $ 0.27 $ 0.54
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,683
<SECURITIES> 0
<RECEIVABLES> 26,920
<ALLOWANCES> 0
<INVENTORY> 9,118
<CURRENT-ASSETS> 45,993
<PP&E> 73,549
<DEPRECIATION> 0
<TOTAL-ASSETS> 142,514
<CURRENT-LIABILITIES> 33,565
<BONDS> 0
<COMMON> 11
0
0
<OTHER-SE> 63,951
<TOTAL-LIABILITY-AND-EQUITY> 142,514
<SALES> 55,181
<TOTAL-REVENUES> 55,181
<CGS> 46,987
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702
<INCOME-PRETAX> 3,328
<INCOME-TAX> 1,414
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,914
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
