-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SFnYq7j3Si9nh/9DttT7gEYGnM6PseiSkCQVpUf+jXnIc3y0z1h3NRZWTMcxktrC hFvavtR3I7/MEYNL7Iszjg== 0001035704-97-000046.txt : 19970801 0001035704-97-000046.hdr.sgml : 19970801 ACCESSION NUMBER: 0001035704-97-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970731 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DII GROUP INC CENTRAL INDEX KEY: 0000899047 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 841224426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21374 FILM NUMBER: 97649552 BUSINESS ADDRESS: STREET 1: 6273 MONARCH PARK PLACE CITY: NIWOT STATE: CO ZIP: 80503 BUSINESS PHONE: 3036522221 FORMER COMPANY: FORMER CONFORMED NAME: DOVATRON INTERNATIONAL INC DATE OF NAME CHANGE: 19930319 10-Q 1 FORM 10-Q DATED 06/29/97 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 29, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-21374 THE DII GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 84-1224426 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6273 Monarch Park Place Suite 200 Niwot, Colorado 80503 (Address and zip code of principal executive offices) (303) 652-2221 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. OUTSTANDING AT CLASS July 28, 1997 ----- ------------- Common Stock, Par Value $0.01 12,439,853 2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THE DII GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except earnings per share)
FOR THE THREE MONTHS ENDING FOR THE SIX MONTHS ENDING ------------------------------- ------------------------------ JUNE 29, 1997 JUNE 30, 1996 JUNE 29, 1997 JUNE 30, 1996 -------------- -------------- ------------- ------------- Net sales: Contract electronics manufacturing $ 122,585 68,257 207,586 141,023 Other 61,512 46,807 113,591 87,017 ---------- ---------- ---------- ---------- Total net sales 184,097 115,064 321,177 228,040 Cost of sales 151,418 90,945 262,318 183,351 ---------- ---------- ---------- ---------- Gross profit 32,679 24,119 58,859 44,689 Selling, general and administrative expenses 18,189 11,451 34,326 23,242 Merger costs -- 1,104 -- 1,104 Interest income (156) (403) (398) (983) Interest expense 1,720 1,533 3,420 3,072 Amortization of intangibles 929 783 1,729 1,523 Other, net 581 132 674 (152) ---------- ---------- ---------- ---------- Income before income taxes 11,416 9,519 19,108 16,883 Income tax expense 3,876 2,913 6,491 5,210 ---------- ---------- ---------- ---------- Net income $ 7,540 6,606 12,617 11,673 ========== ========== ========== ========== Earnings per share: Primary $ 0.59 0.54 0.99 0.95 Fully diluted $ 0.55 0.50 0.93 0.91 Weighted average number of common shares and equivalents outstanding: Primary 12,885 12,333 12,757 12,262 Fully diluted 15,338 14,836 15,303 14,767
See accompanying notes to condensed consolidated financial statements 3 THE DII GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value data)
JUNE 29, DECEMBER 29, 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 14,445 25,010 Accounts receivable, net 103,881 79,851 Inventories 57,206 47,008 Other 10,496 8,829 ------------ ------------ Total current assets 186,028 160,698 Property, plant and equipment, net 144,683 106,977 Intangible assets, net 73,869 66,207 Other 3,354 1,969 ------------ ------------ $ 407,934 335,851 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 92,294 46,748 Accrued expenses 25,747 14,729 Accrued interest payable 1,158 1,116 Line-of-credit borrowings 5,660 -- Current installments of long-term financing obligations 7,387 10,572 Notes payable to sellers of businesses acquired -- 826 ------------ ------------ Total current liabilities 132,246 73,991 Convertible subordinated notes payable 86,250 86,250 Long-term financing obligations, excluding current installments 9,955 12,938 Notes payable to sellers of businesses acquired 1,589 1,262 Other 1,998 2,373 Commitments and contingent liabilities Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- -- Common stock, $0.01 par value; 45,000,000 shares authorized; 12,368,605 and 11,964,415 shares issued and outstanding 124 120 Additional paid-in capital 96,843 91,976 Retained earnings 87,400 74,783 Cumulative foreign currency translation adjustments (3,933) (3,849) Deferred stock compensation (4,538) (3,993) ------------ ------------ Total stockholders' equity 175,896 159,037 ------------ ------------ $ 407,934 335,851 ============ ============
See accompanying notes to condensed consolidated financial statements 4 THE DII GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
FOR THE SIX MONTHS ENDING ---------------------------- JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- Net cash provided by operating activities $ 44,189 10,011 ---------- ---------- Cash flows from investing activities: Payments for business acquisitions, net of cash acquired (7,939) (2,056) Additions to property, plant and equipment (46,156) (11,587) Proceeds from sales of equipment 916 134 ---------- ---------- Net cash used by investing activities (53,179) (13,509) ---------- ---------- Cash flows from financing activities: Debt issuance costs -- (286) Repayments of long-term financing obligations (8,368) (3,158) Proceeds from issuance of long-term financing obligations -- 1,090 Proceeds from line-of-credit borrowings 5,660 -- Repayments of notes payable to sellers of businesses acquired (826) (15,868) Proceeds from stock issued under stock plans 1,931 586 ---------- ---------- Net cash used by financing activities (1,603) (17,636) ---------- ---------- Effect of exchange rate changes on cash 28 (9) ---------- ---------- Net decrease in cash and cash equivalents (10,565) (21,143) Cash and cash equivalents at beginning of year 25,010 55,533 ---------- ---------- Cash and cash equivalents at end of period $ 14,445 34,390 ========== ==========
See accompanying notes to condensed consolidated financial statements 5 THE DII GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Financial information as of December 29, 1996 has been derived from the audited consolidated financial statements of The DII Group, Inc. and subsidiaries (the "Company" or "DII"). The condensed consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements as of and for the year ended December 29, 1996 included in the annual report on Form 10-K previously filed with the Securities and Exchange Commission (the "SEC"). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. Operating results for the six-month period ended June 29, 1997 are not necessarily indicative of the results that may be expected for the year ending December 28, 1997. On August 22, 1996, the DII Group changed its fiscal year end from December 31 to the Sunday nearest to December 31, beginning with the fiscal year ended December 29, 1996. The accompanying condensed consolidated financial statements are therefore presented as of and for the three and six month periods ended June 29, 1997 and June 30, 1996. (2) INVENTORIES Inventories consisted of the following:
JUNE 29, DECEMBER 29, 1997 1996 -------- ------------ Raw materials $ 44,709 34,099 Work in process 16,222 15,721 Finished goods 2,906 2,580 -------- ------- 63,837 52,400 Allowance for inventory (6,631) (5,392) -------- ------- $ 57,206 47,008 ======== =======
The Company made provisions to the allowance for inventory impairment of $2,672 and $400 during the six months ended June 29, 1997 and June 30, 1996, respectively. (3) ACQUISITIONS During the second quarter of 1997, the Company acquired Design Solutions, Inc. ("DSI") and Process Control Technologies, Inc. ("PCT"). DSI provides custom design and engineering services for printed circuit assemblies to original equipment manufacturers. PCT is a manufacturer of solutions to automate the transfer of bare printed circuit boards and assembled circuits through the entire manufacturing process 6 THE DII GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (3) ACQUISITIONS, CONTINUED including final box-build assembly. The cash purchase price, net of cash acquired for these acquisitions, was $7,939. The fair value of the assets acquired and liabilities assumed from these acquisitions were immaterial. The cost in excess of net assets acquired from these acquisitions amounted to $6,812. In April 1996, the Company acquired Chemtech Limited, a quick-turn manufacturer of surface mount printed circuit board solder cream stencils located in the United Kingdom. The cash purchase price, net of cash acquired, was $2,056. The fair value of the assets acquired and liabilities assumed were immaterial. The cost in excess of net assets acquired amounted to $3,658. The 1997 and 1996 acquisitions were accounted for as purchases with the results of operations from the acquired businesses included in the Company's results of operations from the acquisition dates forward. Pro forma results of operations would not be materially different from the historical results reported. The costs of these acquisitions have been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. (4) COMMITMENTS AND CONTINGENCIES The Company is involved in certain litigation and environmental matters described in the Company's Annual Reports on Form 10-K for the fiscal year ended December 29, 1996. The ultimate outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent in these matters. Based upon the facts and circumstances currently known, management cannot estimate the most likely loss or the maximum loss for these matters. The Company has accrued the minimum estimated costs associated with these matters in the accompanying condensed consolidated financial statements. The total amounts accrued for these matters is immaterial. The Company determines the amount of its accruals for environmental matters by analyzing and estimating the range of possible costs in light of information currently available. The imposition of more stringent standards or requirements under environmental laws or regulations, the results of future testing and analysis undertaken by the Company at its operating facilities, or a determination that the Company is potentially responsible for the release of hazardous substances at other sites, could result in expenditures in excess of amounts currently estimated to be required for such matters. No assurance can be given that actual costs will not exceed amounts accrued or that costs will not be incurred with respect to sites as to which no problem is currently known. Further, there can be no assurance that additional environmental matters will not arise in the future. The Company has approximately $13,700 of capital commitments as of June 29, 1997. The Company has a $60,000 senior secured revolving line-of-credit which expires in June 1998. The Company had borrowings outstanding under this credit facility in the amount of $5,660 as of June 29, 1997. This credit facility requires compliance with certain financial covenants and is secured by substantially all of the Company's assets. As of June 29, 1997, the Company was in compliance with all financial covenants. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) CERTAIN FORWARD-LOOKING INFORMATION: This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements regarding contingencies, litigation, environmental matters and capital expenditures herein under "Part I Financial Information - Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations." Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below. A. OVERVIEW The Company is a value-added electronics design, engineering and manufacturing service provider which operates through a global network of companies in North America, Europe and Southeast Asia. These companies are uniquely integrated to provide a broad range of related products and services, including semiconductor design and manufacturing of customer specific integrated circuits; initial printed circuit board design and engineering services; manufacturing of prototype printed circuit boards; assembly of printed circuit boards; process tooling and assembly automation; machine tools; in-circuit and functional test hardware and software; and final system configuration. By being the fastest and most comprehensive provider of custom design, engineering and manufacturing services for OEM customers, from microelectronics circuits through the final assembly of finished products, the Company believes it is better able to develop long-term relationships with its customers, expand into new markets and enhance its profitability. The Company provides the following products and services to the global electronics outsourcing industry: Custom Semiconductors--The Company designs and manufactures customer specific integrated circuits on a quick-turn basis through Orbit Semiconductor ("Orbit"). Interconnect Technologies--The Company provides design and engineering services for printed circuit assemblies through Design Solutions, Inc. ("DSI") and manufactures high density, complex multilayer printed circuit boards on a quick-turn basis through Multilayer Technology ("Multek"). Systems Assembly and Distribution--The Company assembles complex electronic circuits and final system configuration (contract electronics manufacturing or "CEM") on a high and low volume contract basis through Dovatron International ("Dovatron"). Process Technologies--The Company manufactures surface mount printed circuit board solder cream stencils on a quick-turn basis through IRI International ("IRI") and Chemtech Limited ("Chemtech"); designs and manufactures in-circuit and functional test software and hardware on a quick-turn basis through TTI Testron; manufactures depaneling systems that route individual printed circuit boards from an assembled master panel in the final step of the electronics assembly process through Cencorp; and manufactures automation solutions for the transfer of bare printed circuit boards and assembled circuits through the entire manufacturing process including final box-build assembly through Process Control Technologies, Inc. ("PCT"). 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) A. OVERVIEW, CONTINUED Operating results may be affected by a number of factors including the economic conditions in the markets the Company serves; price and product competition; the level of volume and the timing of orders; product mix; the amount of automation existing on specific manufacturing projects; efficiencies achieved by inventory management; fixed asset utilization; the level of experience in manufacturing a particular product; customer product delivery requirements; shortages of components or experienced labor; start-up costs associated with adding new geographical locations; expenditures required for research and development; and failure to introduce, or lack of market acceptance of, new processes, services, technologies and products on a timely basis. In addition, the level of sales can greatly shift based on whether certain projects are contracted on a turnkey basis where the Company purchases materials, versus a consignment basis where materials are provided by the customer. A majority of the Company's sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence and price competition. The factors affecting the electronics industry (especially the semiconductor sector) in general, or any of the Company's major customers, in particular, could have a material adverse affect on the Company's operating results. The electronics industry (especially the semiconductor sector) has historically been cyclical and subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and overcapacity. The Company seeks a well-balanced customer profile across most sectors of the electronics industry in order to reduce exposure due to a downturn in any particular sector. The primary sectors within the electronics industry served by the Company are data communications, computer and peripherals, telecommunications, industrial, instrumentation, and medical. The Company offers outsourcing capabilities in three major electronics markets of the world (North America, Europe and Southeast Asia). The Company's international operations subject the Company to the risks of doing business abroad, including currency fluctuations, export duties, import controls and trade barriers, restrictions on the transfer of funds, greater difficulty in accounts receivable collection, burdens of complying with a wide variety of foreign laws and, in certain parts of the world, political instability. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have significantly reduced or delayed the volume of design, engineering and manufacturing services from the Company. Any such termination of a manufacturing relationship or change, reduction or delay in orders could have a material adverse affect on the Company's operating results. Although management believes the Company has a broad diversification of customers and markets, the Company has no material firm long-term commitments or volume guarantees from its customers. In addition, customer contracts can be canceled and volume levels can be changed or delayed. The timely replacement of canceled, delayed or reduced contracts with new business cannot be assured. At any given time, certain customers may account for significant portions of the Company's business. Hewlett Packard Company accounted for 12% of net sales during the six months ending June 29, 1997. No other customer accounted for more than 10% of net sales during the six months ended June 29, 1997. No customer accounted for more than 10% of net sales during the six months ended June 30, 1996. The Company's top ten customers accounted for 47% and 46% of net sales for the six months ending June 29, 1997 and June 30, 1996, respectively. The percentage of the Company's sales to its major customers may fluctuate from period to period. Significant reductions in sales to any of these customers could have a material adverse effect on the Company's operating results. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) A. OVERVIEW, CONTINUED The DII Group has actively pursued acquisitions in furtherance of its strategy to be the fastest and most comprehensive provider of custom quick-turn design, engineering and manufacturing services for OEM customers, from microelectronics circuits through the final assembly of finished products. Moreover, the Company's acquisitions enable the DII Group to provide more integrated outsourcing technology solutions with time-to-market and lower cost advantages, thereby enhancing its position as a leading provider of value-added design, engineering and manufacturing solutions. These acquisitions have played an important part in broadening the Company's presence in the global electronics marketplace, thereby enhancing the DII Group's capability to provide a comprehensive outsourcing technology solution and global electronics design, engineering and manufacturing services to a market increasingly dependent on outsourcing providers. Acquisitions involve numerous risks including difficulties in the assimilation of the operations, technologies, and products and services of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the DII Group has no or limited direct prior experience and where competitors in such markets have stronger market positions, and the potential loss of key employees of the acquired company. The integration of certain operations following an acquisition will require the dedication of management resources that may distract attention from the day-to-day business of the Company. B. RESULTS OF OPERATIONS Total net sales for the three months ended June 29, 1997 increased $69,033 (60%) to $184,097 from $115,064 for the comparable period in 1996. Total net sales for the six months ended June 29, 1997 increased $93,137 (41%) to $321,177 from $228,040 for the comparable period in 1996. The growth in net sales is mainly attributed to the significant growth experienced by the Company's contract electronics manufacturing services. Contract electronics manufacturing net sales for the three months ended June 29, 1997 increased $54,328 (80%) to $122,585 from $68,257 for the corresponding period in 1996. Contract electronics manufacturing net sales for the six months ended June 29, 1997 increased $66,563 (47%) to $207,586 from $141,023 for the comparable period in 1996. These increases are primarily attributable to the high volume, multi-site production order for Hewlett-Packard combined with increased orders to existing customers and an expanding customer base. Net sales for the Company's other products and services for the three months ended June 29, 1997 increased $14,705 (31%) to $61,512 from $46,807 for the comparable period in 1996. Net sales for the Company's other products and services for the six months ended June 29, 1997 increased $26,574 (31%) to $113,591 from $87,017 for the comparable period in 1996. These increases are attributable to (i) increased sales to existing customers, (ii) an expanding customer base from the continued industry-wide acceptance of its service offerings, and (iii) the 1997 acquisitions of DSI and PCT and the 1996 acquisition of Chemtech. Gross profit for the three months ended June 29, 1997, increased $8,560 to $32,679 from $24,119 for the comparable period in 1996. Gross profit for the six-month period ending June 29, 1997, increased $14,170 to $58,859 from $44,689 for the comparable period in 1996. The gross margin decreased to 17.8% for the three months ended June 29, 1997 as compared to 21.0% for the three months ended June 30, 1996. The 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) B. RESULTS OF OPERATIONS, CONTINUED gross margin decreased to 18.3% for the six month period ended June 29, 1997 from 19.6% for the six month period ended June 30, 1996. These decreases were the result of (i) the increase in the contract electronics manufacturing revenues which generate lower margins than the Company's other products and service offerings, (ii) pricing pressure as a result of a shift in Multek's product mix to higher-volume (lower margin) production from its quick-turn, low-volume (higher margin) production, and (iii) Orbit's underabsorbed overhead associated with its transition into its new 6-inch, 0.6 micron wafer fabrication facility. Selling, general and administrative (SG&A) expense increased $6,738 to $18,189 for the three months ended June 29, 1997 from $11,451 for the comparable period in 1996. The percentage of SG&A expense to net sales decreased to 9.9% for the three months ended June 29, 1997 from 10.0% for the three months ended June 30, 1996. The increase in absolute dollars was primarily attributable to (i) additional costs associated with the start-up of Orbit's newly acquired wafer fabrication facility while winding down its old wafer fabrication facility, (ii) the continued expansion of the Company's sales and marketing, finance, and other general and administrative infrastructure necessary to support the Company's sales growth, (iii) increased incentive-based stock plan compensation, the recognition of which is based upon expected achievement of certain earnings per share targets established by the Compensation Committee of the Board of Directors, and (iv) increased SG&A expenses associated with the 60% increase in net sales in the three months ended June 29, 1997 versus the comparable period in 1996. The percentage of SG&A expense to net sales did not increase during the three months ended June 29, 1997 versus June 30, 1996 due to the significant increase in the contract electronics manufacturing revenues. SG&A expense increased $11,084 to $34,326 for the six month period ended June 29, 1997 from $23,242 for the comparable period in 1996. The percentage of SG&A expense to net sales also increased to 10.7% for the six months ended June 29, 1997 from 10.2% for the six months ended June 30, 1996. These increases are primarily attributable to (i) additional costs associated with the start-up of Orbit's newly acquired wafer fabrication facility while winding down its old wafer fabrication facility, (ii) the continued expansion of the Company's sales and marketing, finance, and other general and administrative infrastructure necessary to support the Company's sales growth, (iii) increased incentive-based stock plan compensation, and (iv) increased SG&A expenses associated with the 41% increase in net sales in the six months ended June 29, 1997 versus the comparable period in 1996. Interest income decreased $247 to $156 for the three months ended June 29, 1997 from $403 for the comparable period in 1996. Interest income decreased $585 to $398 for the six months ended June 29, 1997 from $983 for the comparable period in 1996. This decrease is attributable to the earnings generated on the invested cash and cash equivalents. Interest expense increased $187 to $1,720 for the three months ended June 29, 1997 from $1,533 for the comparable period in 1996. Interest expense increased $348 to $3,420 for the six months ended June 29, 1997 from $3,072 for the comparable period in 1996. This increase is primarily associated with the increase in long-term financing obligations in connection with equipment additions related to Orbit's transition to its new 6-inch, 0.6 micron process facility coupled with borrowings from the Company's line-of-credit. Amortization of intangibles increased $146 to $929 for the three months ended June 29, 1997 from $783 for the comparable period in 1996. Amortization of intangibles increased $206 to $1,729 for the six 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) B. RESULTS OF OPERATIONS, CONTINUED months ended June 29, 1997 from $1,523 for the comparable period in 1996. This increase is attributable to the amortization of goodwill associated with the Chemtech, DSI and PCT acquisitions. Other expenses (net) increased $449 for the three months ended June 29, 1997 from the comparable period of 1996 and $826 for the six months ended June 29, 1997 from the corresponding period in 1996. These increases were primarily the result of increased provisions for doubtful accounts. The Company's estimated effective income tax rate differs from the U.S. statutory rate due to domestic income tax credits and lower effective income tax rates on foreign earnings considered permanently invested abroad. The effective tax rate for a particular year will vary depending on the mix of foreign and domestic earnings, income tax credits and changes in previously established valuation allowances for deferred tax assets based upon management's current analysis of the realizability of these deferred tax assets. As foreign earnings considered permanently invested abroad increase as a percentage of consolidated earnings, the overall consolidated effective income tax rate will usually decrease because the foreign earnings are generally taxed at a lower rate than domestic earnings. The mix of foreign and domestic income from operations before income taxes, income tax credits and management's current assessment of the required valuation allowance resulted in an estimated effective income tax rate of 34% and 31% for the six months ended June 29, 1997 and June 30, 1996, respectively. C. ACQUISITIONS During the second quarter of 1997, the Company acquired DSI and PCT. DSI provides custom design and engineering services for printed circuit assemblies to original equipment manufacturers. PCT is a manufacturer of solutions to automate the transfer of bare printed circuit boards and assembled circuits through the entire manufacturing process including final box-build assembly. The cash purchase price, net of cash acquired for these acquisitions, was $7,939. The fair value of the assets acquired and liabilities assumed from these acquisitions were immaterial. The cost in excess of net assets acquired from these acquisitions amounted to $6,812. In April 1996, the Company acquired Chemtech, a quick-turn manufacturer of surface mount printed circuit board solder cream stencils located in the United Kingdom. The cash purchase price, net of cash acquired, was $2,056. The fair value of the assets acquired and liabilities assumed were immaterial. The cost in excess of net assets acquired amounted to $3,658. The 1997 and 1996 acquisitions were accounted for as purchases with the results of operations from the acquired businesses included in the Company's results of operations from the acquisition dates forward. Pro forma results of operations would not be materially different from the historical results reported. The costs of these acquisitions have been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS At June 29, 1997 the Company had working capital of $53,782 and a current ratio of 1.4x compared to working capital of $96,332 and a current ratio of 2.2x at December 29, 1996. Cash and cash equivalents at June 29, 1997 were $14,445, a decrease of $10,565 from $25,010 at December 29, 1996. This decrease resulted from cash used by investing and financing activities of $53,179 and $1,603, respectively, offset by cash provided by operating activities of $44,189. The Company's net cash flows used by investing activities amounted to $53,179 and $13,509 for the six months ended June 29, 1997 and June 30, 1996, respectively. Capital expenditures amounted to $46,156 and $11,587 for the six months ended June 29, 1997 and June 30, 1996, respectively. This increase is mainly attributable to the Company's continued investment in state-of-the-art, high-technology equipment for its Multek and Dovatron operating companies which enables the Company to accept increasingly complex and higher-volume orders. Additionally, Orbit acquired capital equipment of $25,258 necessary for its new 6-inch, 0.6 micron process facility. The Company sold $916 and $134 of equipment during the six months ended June 29, 1997 and June 30, 1996, respectively, to allow for the potential replacement of older equipment with state-of-the-art, high-technology equipment. As described above in Section D, Acquisitions, during the second quarter of 1997, the Company acquired DSI and PCT. DSI provides custom design and engineering services for printed circuit assemblies to original equipment manufacturers. PCT is a manufacturer of solutions to automate the transfer of bare printed circuit boards and assembled circuits through the entire manufacturing process including final box-build assembly. The cash purchase price, net of cash acquired for these acquisitions, was $7,939. The Company purchased Chemtech, a manufacturer of surface mount printed circuit board solder cream stencils in 1996. The cash purchase price, net of cash acquired, was $2,056. The Company's net cash flows used by financing activities amounted to $1,603 and $17,636 for the six months ended June 29, 1997 and June 30, 1996, respectively. The Company repaid $8,368 and $3,158 in long-term financing obligations in the six months ended June 29, 1997 and June 30, 1996, respectively. For the six months ended June 29, 1997 and June 30, 1996, the Company repaid $826 and $15,868, respectively, of notes payable to sellers of various businesses acquired. The Company received $1,931 and $586 in proceeds from stock issued under its stock plans in the six months ended June 29, 1997 and June 30, 1996, respectively. In addition, the Company borrowed $5,660 from its line-of-credit during the six months ended June 29, 1997. Management believes that cash generated from operations, existing cash reserves, leasing capabilities, and the line-of-credit availability will be adequate to fund the Company's current capital commitments. The Company's operations are subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing processes. The Company believes that it is currently operating in compliance with applicable regulations and does not believe that costs of compliance with these laws and regulations will have a material effect upon its capital expenditures, earnings or competitive position. The Company determines the amount of its accruals for environmental matters by analyzing and estimating the range of possible costs in light of information currently available. The imposition of more stringent standards or requirements under environmental laws or regulations, the results of future testing and analysis undertaken by the Company at is operating facilities, or a determination that the Company is 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS, CONTINUED potentially responsible for the release of hazardous substances at other sites, could result in expenditures in excess of amounts currently estimated to be required for such matters. No assurance can be given that actual costs will not exceed amounts accrued or that costs will not be incurred with respect to sites as to which no problem is currently known. Further, there can be no assurance that additional environmental matters will not arise in the future. See Note 4 to the condensed consolidated financial statements for a description of commitments, contingencies and environmental matters. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In June 1997, a complaint was filed in the District Court of Boulder, Colorado against the Company and three of its officers and directors. The lawsuit purports to be brought on behalf of a class of persons who purchased Company stock during the period April 1, 1996 through September 8, 1996 and claims violations of Colorado law based on allegedly false and misleading statements made in connection with the offer, sale or purchase of Company stock at artificially inflated prices, including statements made prior to the Company's acquisition of Orbit. The complaint seeks compensatory and other damages as well as equitable relief. A class action complaint for violations of federal securities law was filed against Orbit and three of its officers in 1995. The current amended complaint alleges that Orbit and the named officers misled the market for Orbit's then existing public common stock, by issuing a number of allegedly false or misleading statements. The amended complaint alleges claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The court has dismissed all claims based upon the public statements of Orbit and its officers and directors. The only remaining claims assert that Orbit is responsible for the statements of securities analysts. Third party discovery is ongoing and the court has not yet set a trial date. In addition to the above matters, the Company is involved in certain other litigation arising in the ordinary course of business. Although management is of the opinion that none of these matters will have a material adverse effect on the consolidated financial position or results of operations of the Company, the ultimate outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent in litigation. See Note 10 of the 1996 Consolidated Financial Statements included in Part II, Item 8 of the Company's Form 10-K Annual Report for the fiscal year ended December 29, 1996 for contingencies and environmental matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's annual shareholders' meeting, which was held on May 13, 1997, the Company's shareholders elected the following seven persons as directors to one-year terms: Ronald R. Budacz, Chairman and Chief Executive Officer, Carl R. Vertuca, Jr., Senior Vice President and Chief Financial Officer, Robert L. Brueck, Gary P. Kennedy, Constantine S. Macricostas, Gerard T. Wrixon, Alexander W. Young. Not less than 9,253,098 shares were cast for each of the Directors. The shareholders approved the proposal to amend the 1994 Stock Incentive Plan to increase the maximum number of shares of the Company's common stock covered by awards that may be granted to any single individual in any fiscal year from 50,000 to 150,000 shares. Voting in favor were 8,338,957, opposed were 2,159,654, abstaining were 94,629, and broker non-votes were zero. The shareholders ratified the selection of KPMG Peat Marwick LLP as the Company's independent auditors. Voting in favor were 10,035,650, opposed were 20,798, abstaining were 536,792, and broker non-votes were zero. 15 ITEM 6(a). EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 11.1 Statement regarding computation of per share earnings. 27 Financial Data Schedule. ITEM 6(b). REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE DII GROUP, INC. Date: July 31, 1997 By: /s/Ronald R. Budacz --------------------- ------------------------------ Ronald R. Budacz Chairman and Chief Executive Officer (Principal Executive Officer) Date: July 31, 1997 By: /s/Carl R. Vertuca, Jr. --------------------- ------------------------------ Carl R. Vertuca, Jr. Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: July 31, 1997 By: /s/Thomas J. Smach --------------------- ------------------------------ Thomas J. Smach Vice President and Corporate Controller (Principal Accounting Officer) 17 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 11.1 Statement regarding computation of per share earnings. 27 Financial Data Schedule. EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 THE DII GROUP, INC. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDING FOR THE SIX MONTHS ENDING ----------------------------- ----------------------------- JUNE 29, 1997 JUNE 30, 1996 JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- ------------- ------------- PRIMARY EARNINGS PER SHARE: Earnings Available for Primary Earnings Per Share: Net income $ 7,540 6,606 12,617 11,673 ========== ========== ========== ========== Shares Used in Computation: Weighted average common shares outstanding 12,241 11,819 12,135 11,793 Common share equivalents outstanding: Stock options 559 514 537 469 Deferred stock compensation 85 -- 85 -- ---------- ---------- ---------- ---------- 12,885 12,333 12,757 12,262 ========== ========== ========== ========== Primary Earnings Per Share $ 0.59 0.54 0.99 0.95 ========== ========== ========== ========== FULLY DILUTED EARNINGS PER SHARE: Earnings Available for Fully Diluted Earnings Per Share: Net income $ 7,540 6,606 12,617 11,673 Interest expense (net of tax) on 6% convertible subordinated notes 776 776 1,552 1,552 Amortization (net of tax) of debt issuance cost on convertible subordinated notes 65 85 65 147 ---------- ---------- ---------- ---------- Earnings available for fully diluted earnings per share $ 8,381 7,467 14,234 13,372 ========== ========== ========== ========== Shares Used in Computation: Weighted average common shares outstanding 12,241 11,819 12,135 11,793 Additional potentially dilutive securities (equivalent in common stock): Stock options 712 672 752 629 Deferred stock compensation 85 45 116 45 Convertible subordinated notes 2,300 2,300 2,300 2,300 ---------- ---------- ---------- ---------- 15,338 14,836 15,303 14,767 ========== ========== ========== ========== Fully Diluted Earnings Per Share $ 0.55 0.50 0.93 0.91 ========== ========== ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-28-1997 DEC-30-1996 JUN-29-1997 14,445 0 106,487 2,606 57,206 186,028 197,743 53,060 407,934 0 0 124 0 0 175,772 407,934 321,177 321,177 262,318 262,318 35,497 834 3,420 19,108 6,491 12,617 0 0 0 12,617 0.99 0.93
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