SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27392
ELECTROSTAR, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0539991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
710 North 600 West
Logan, Utah 84321
(Address of principal executive offices)
(Zip Code)
(801) 753-4700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
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
At April 30, 1996, the Registrant had 6,854,260 shares of $0.01 par
value common stock outstanding.
ELECTROSTAR, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 30, 1996 and December 31, 1995. . . . . . . . . . . .
Condensed Consolidated Statements of Income for
the Three Months Ended March 30, 1996 and
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . .
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 30, 1996 and March 31, 1995 . . . . . . . . . . . . .
Notes to Condensed Interim Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . . .
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . .
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . .
ELECTROSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
in thousands
(Unaudited)
[CAPTION]
December
March 30, 31,
ASSETS 1996 1995
CURRENT ASSETS:
Cash $ 281 $ 376
Accounts receivable, net 7,424 6,744
Inventories 2,601 2,767
Deferred income taxes 640 640
Other current assets 855 549
Total current assets 11,801 11,076
PROPERTY, PLANT AND EQUIPMENT, net 18,353 15,937
OTHER ASSETS:
Goodwill, net 6,546 6,617
Deferred income taxes 505 505
Deposits 40 40
Total other assets 7,091 7,162
TOTAL ASSETS $37,245 $34,175
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,392 $ 4,133
Accrued salaries, wages and benefits 1,630 1,874
Accrued incentive compensation - 5,173
Other accrued expenses 2,616 1,565
Total current liabilities 8,638 12,745
LONG-TERM LIABILITIES:
Revolving credit borrowing from
related party 4,471 -
Other long-term debt 1,531 1,535
Total long-term liabilities 6,002 1,535
STOCKHOLDERS' EQUITY:
Common Stock, 6,854,260 and 6,724,878
shares issued and outstanding,
respectively 68 67
Common B Nonvoting Common Stock,
620,737 and 650,119 shares issued
and outstanding, respectively 6 7
Additional paid-in capital 20,445 19,609
Retained earnings 2,129 258
Deferred compensation (43) (46)
Total stockholders' equity 22,605 19,895
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,245 $34,175
The accompanying notes to condensed consolidated financial
statements are an integral part of these consolidated balance
sheets.
ELECTROSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
in thousands, except for per share data
(Unaudited)
[CAPTION]
Three Months Ended
March 30, March 31,
1996 1995
NET SALES $17,046 $14,454
COST OF GOODS SOLD 11,979 10,142
Gross profit 5,067 4,312
OPERATING EXPENSES:
Selling and marketing 1,116 1,014
General and administrative 695 597
Incentive compensation - 450
Amortization of covenants
not to compete - 150
Amortization of goodwill 71 68
Management fees - 69
Total operating expenses 1,882 2,348
OPERATING INCOME 3,185 1,964
OTHER EXPENSE:
Interest expense 98 472
Amortization of deferred
financing costs - 79
Other, net 10 13
Total other expense 108 564
INCOME BEFORE PROVISION FOR
INCOME TAXES 3,077 1,400
PROVISION FOR INCOME TAXES 1,206 581
NET INCOME $ 1,871 $ 819
NET INCOME PER COMMON SHARE $ 0.24 $ 0.14
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,666 5,897
The accompanying notes to condensed consolidated financial
statements are an integral part of these consolidated statements
ELECTROSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands
(Unaudited)
[CAPTION]
Three Months Ended
March 30, March 31,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,871 $819
Adjustments to reconcile
net income to net cash
used in operating
activities:
Depreciation and
amortization 636 537
Loss on disposal of
equipment - 3
Amortization of covenant
not to compete - 150
Amortization of goodwill 71 68
Amortization of deferred
financing costs - 79
Compensation on stock and
stock options issued for
services 3 22
Changes in operating assets
and liabilities:
Accounts receivable, net (680) (2,100)
Inventories 166 (17)
Other current assets (307) 26
Accounts payable 259 807
Accrued incentive
compensation (5,173) 450
Accrued salaries, wages
and benefits (244) (641)
Other accrued expenses (155) (527)
Income taxes payable 1,205 226
Net cash used in
operating
activities (2,348) (98)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (3,051) (1,369)
Net cash used in
investing activities (3,051) (1,369)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Common Stock, net of offering
costs 837 -
Borrowings on revolving credit,
net 4,471 557
Principal payments of
long-term debt (4) (3)
Net cash provided by
financing activities 5,304 554
NET DECREASE IN CASH (95) (913)
CASH AT BEGINNING OF PERIOD 376 1,105
CASH AT END OF PERIOD $ 281 $ 192
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 91 $ 308
Income taxes - -
The accompanying notes to condensed consolidated financial
statements are an integral part of these consolidated statements
ELECTROSTAR, INC.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial
statements of ElectroStar, Inc. and subsidiaries are unaudited, and
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally required in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures
are adequate for a fair presentation.
These condensed consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary
to fairly present the results of operations for the interim
periods. All of the adjustments which have been made are of a
normal recurring nature.
The results of interim reporting are not necessarily an
indication of the results to be expected for the full year. The
information included herein should be read in conjunction with the
Company's Form 10-K for the year ended December 31, 1995, filed
with the Securities and Exchange Commission.
(2) INVENTORIES
Inventories consisted of the following (in thousands):
[CAPTION]
March 30, December 31,
1996 1995
Raw materials $1,789 $1,819
Work-in-process 699 835
Finished goods 113 113
$2,601 $2,767
(3) NET INCOME PER COMMON SHARE
Net income per common share is calculated using the weighted
average number of common shares and common equivalent shares
outstanding. Common equivalent shares consist of the dilutive
effect of certain stock options.
(4) INTERIM REPORTING PERIOD
For interim financial reporting, the Company uses a four
week, four week, five week quarterly reporting period. In 1996,
the fiscal reporting periods are March 30, June 29, September 28,
and December 31. The fiscal year-end is December 31.
ELECTROSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ElectroStar, Inc., together with its subsidiaries, Lundahl
Astro Circuits, Inc. based in Utah, and ElectroEtch Circuits, Inc.,
based in California are collectively referred to as "ElectroStar"
or the "Company".
ElectroStar is a leading manufacturer of complex rigid
printed circuit boards (PCBs) used in sophisticated electronic
equipment. The Company has developed long-term relationships with
customers in electronics industry market segments characterized by
high growth rates, rapid technological advances and short product
development cycles. The Company's flexible manufacturing
capabilities are designed to meet the time-to-market and time-to-
volume requirements of a customer base that includes leading
electronics original equipment manufacturers (OEMs) such as
Motorola, Glenayre and Alcatel, as well as contract manufacturers
such as AMP Packaging Systems. Management believes that
ElectroStar is one of the limited number of companies with the
technical and manufacturing capabilities to produce complex PCBs,
ranging from double-sided to 20 layers, on both a quick-turnaround
basis and in production volumes that satisfy all but the highest
volume requirements of the largest consumer electronics
manufacturers.
The Company provides extensive engineering support and a
full range of manufacturing services to meet substantially all of
the PCB needs of its customers, ranging from prototype through
production runs of multilayer and double-sided PCBs. The Company
targets OEMs and contract manufacturers with whom it can develop
strategic alliances and uses flexible and efficient processes to
manufacture production volumes of PCBs based on scheduled lead
times as well as quick-turnaround quantities with lead times as
little as 24 hours.
The Company is currently engaged in expansions of its
manufacturing facilities located in Utah and California.
Approximately one-half of the Utah expansion space and one-third of
the California expansion space are now occupied by production
departments, including the operation of a new automated plating
line at the Utah facility and multilayer presses in the California
facility. The expanded space is expected to be occupied and in
production by the end of 1996.
The Company completed an initial public offering (IPO) of
its common stock in December 1995, which provided net proceeds to
the Company of approximately $13.1 million. In January 1996, the
Company received additional net proceeds of $837,000 in connection
with the exercise of the underwriter's over-allotment option.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
certain information relating to the Company's operations expressed
as a percentage of the Company's net sales:
[CAPTION]
Three Months Ended
March 30, March 31,
1996 1995
NET SALES 100.0% 100.0%
COST OF GOODS SOLD 70.3 70.2
Gross profit 29.7 29.8
OPERATING EXPENSES:
Selling and marketing 6.5 7.0
General and administrative 4.1 4.1
Incentive compensation - 3.1
Amortization of covenants
not to compete - 1.0
Amortization of goodwill 0.4 0.5
Management fees - 0.5
Total operating expenses 11.0 16.2
OPERATING INCOME 18.7 13.6
OTHER EXPENSE:
Interest expense 0.6 3.3
Amortization of deferred
financing costs - 0.5
Other, net 0.0 0.1
Total other expense 0.6 3.9
INCOME BEFORE PROVISION FOR
INCOME TAXES 18.1 9.7
PROVISION FOR INCOME TAXES 7.1 4.0
NET INCOME 11.0% 5.7%
THREE MONTHS ENDED MARCH 30, 1996 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995
The Company's net sales increased approximately $2.6 million,
or 17.9% from net sales of $14.5 million in the three months ended
March 31, 1995 to $17.0 million in the comparable 1996 period.
Management attributes this growth to increases in both unit volume
of multilayer PCBs, and the average prices of panels sold. The
increase in average panel price was primarily due to (i) an
increase in the premium, quick-turnaround services, (ii) a
continuing shift in product mix to a greater percentage of
multilayer (rather than double-sided) circuit boards and (iii) a
product mix shift to PCBs with higher complexity and increased
layer counts. Each of these trends are a result of both industry-
wide demand and senior management's strategy to pursue such higher
value added business.
The Company's gross profit margin was virtually unchanged at
29.8% in the three months ended March 31, 1995 and 29.7% in the
comparable 1996 period. During the three months ended March 30,
1996, the Company began to incur certain ongoing costs relating to
the operation of recently constructed manufacturing facilities,
such as depreciation, utilities and insurance expenses. Although
these overhead costs added additional burden to the cost of goods
sold, gross profit margins remained unchanged between the 1996 and
1995 periods. Management attributes this ability to absorb
additional overhead primarily to (i) the increased percentage of
quick-turnaround business, (ii) the increased percentage of
multilayer PCBs produced, (iii) the spreading of the fixed
components of the Company's cost of goods sold over a larger net
sales base, and (iv) greater employee productivity and other
production efficiencies. Management expects that the Company will
continue to seek increases in its percentage of quick-turnaround
and multilayer PCB business; however, gross profit margins may be
adversely affected to the extent the Company does not fully utilize
its increased manufacturing capacity.
The Company's operating expenses decreased approximately $.5
million, or 19.8%, from the three months ended March 31, 1995 to
the comparable 1996 period, primarily as a result of the
elimination of nonrecurring expenses partially offset by increases
in selling and marketing expenses related to the growth in net
sales. As a percentage of net sales, selling, general and
administrative expenses remained relatively constant from the three
months ended March 31, 1995 to the comparable 1996 period.
The Company's operating income increased approximately $1.2
million, or 62.2%, from the three months ended March 31, 1995 to
the comparable 1996 period. The operating margin increased to
18.7% in the 1996 period from 13.6% during the corresponding
period of 1995. If the nonrecurring expenses mentioned in the
preceding paragraph had not been incurred in the three months ended
March 31, 1995, operating income would have increased by
approximately $.7 million or 28.3% in the 1996 period.
Due to the Company's IPO, and the reduction of long-term debt
pursuant thereto, interest expense and amortization of deferred
financing costs decreased from $.6 million in the three months
ended March 31, 1995 to $.1 million in the comparable 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient cash flows
from operations to fund its general working capital needs. As of
March 30, 1996, the Company had working capital of approximately
$3.2 million compared to a working capital deficit of approximately
$(1.7) million at December 31, 1995. In January 1996, the Company
amended and restated its credit agreement with its primary lender.
The revised agreement contains a revolving loan commitment of up to
$14 million. As of March 30, 1996, the Company has approximately
$9.5 million of available borrowing capacity under the revolving
credit arrangement.
Net cash used in operating activities was approximately $2.4
million for the three months ended March 30, 1996, compared to $.1
million for the same period in 1995. The difference between the
Company's net income of $1.9 million and cash used in operating
activities of $(2.4) million was primarily attributable the payment
of accrued incentive compensation in the amount of $5.2 million
partially offset by the impact of $.7 million of depreciation and
amortization. In connection with the Company's IPO in 1995,
approximately $5.2 million of incentive compensation expense was
accrued in 1995 and paid in January 1996.
Net cash used in investing activities was $3.1 million for
the three months ended March 30, 1996 compared to $1.4 million for
the same period in 1995. The 1995 and 1996 cash flow reflects the
capital expenditures incurred in connection with the Company's
current expansions of its two manufacturing facilities.
Net cash provided by financing activities was approximately
$5.3 million for the three months ended March 30, 1996 compared to
net cash provided of $.6 million in the same period in 1995.
During the three months ended March 30, 1996, the Company received
$.8 million of proceeds from its IPO, and it borrowed $4.5 million
on its revolving credit arrangement.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other
than routine litigation incidental to its business, none of
which is material.
ITEM 2.CHANGES IN SECURITIES
Not applicable.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
ITEM 5.OTHER INFORMATION
Not applicable.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule
(b) Reports on Form 8-K - None.
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.
ELECTROSTAR, INC.
Date: May 1, 1996 By: /s/ Kenton K. Alder
Kenton K. Alder, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 1, 1996 By: /s/ F.G. Lindsay Burton, Jr.
F.G. Lindsay Burton, Jr.,
Chief Financial Officer
(Principal Financial and
Accounting Officer)