- ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED COMMISSION FILE NUMBER JULY 4, 1998 0-13230 ALTRON INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2464301 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE JEWEL DRIVE, WILMINGTON, 01887 MASSACHUSETTS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 658-5800 FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 The number of shares of Common Stock of the Registrant outstanding as of July 4, 1998 was 15,564,645 shares. - ------------------------------------------------------------------------------- ALTRON INCORPORATED AND SUBSIDIARIES INDEX PAGE NUMBER ------ PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets -- July 4, 1998 and January 3, 1998......................................................... 3 Consolidated Income Statements -- Three and Six Months Ended July 4, 1998 and June 28, 1997............................... 4 Consolidated Statements of Cash Flows -- Six Months Ended July 4, 1998 and June 28, 1997............................... 5 Notes to Consolidated Financial Statements.................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 7-8 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders........... 9 ITEM 6. Exhibits and Reports on Form 8-K.............................. 9 Signatures.................................................... 10 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALTRON INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JULY 4, JANUARY 3, 1998 1998 ----------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................................. $ 12,944 $ 11,926 Short-term investments..................................... 13,191 15,556 Accounts receivable, net................................... 26,067 25,781 Inventories................................................ 33,271 28,626 Other current assets....................................... 3,724 3,337 -------- -------- Total current assets..................................... 89,197 85,226 Property, plant and equipment, net........................... 70,068 65,311 Costs in excess of net assets of acquired company............ 3,046 3,184 Long-term investments........................................ 1,716 1,882 -------- -------- $164,027 $155,603 ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities: Accounts payable........................................... $ 16,299 $ 16,455 Accrued payroll and other employee benefits................ 3,633 3,367 Other accrued expenses..................................... 2,381 2,269 -------- -------- Total current liabilities................................ 22,313 22,091 -------- -------- Long-term debt............................................... 7,600 7,600 -------- -------- Deferred income taxes........................................ 9,358 8,785 -------- -------- Stockholders' investment: Preferred stock, $1.00 par value -- Authorized -- 1,000,000 shares Issued and outstanding -- none............................ -- -- Common stock, $.05 par value -- Authorized -- 40,000,000 shares Issued -- 15,800,226 and 15,726,769 shares................ 790 786 Paid-in capital............................................ 40,564 40,113 Retained earnings.......................................... 83,679 76,505 -------- -------- 125,033 117,404 Less treasury stock, at cost (235,581 shares).............. 277 277 -------- -------- Total stockholders' investment........................... 124,756 117,127 -------- -------- $164,027 $155,603 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3 ALTRON INCORPORATED AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ----------------- JULY 4, JUNE 28, JULY 4, JUNE 28, 1998 1997 1998 1997 --------- --------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) Net sales.............................. $ 51,664 $ 40,560 $102,232 $83,728 Cost of sales.......................... 41,693 31,368 82,347 64,306 --------- --------- -------- ------- Gross profit........................... 9,971 9,192 19,885 19,422 Selling, general and administrative expenses.............................. 4,326 3,457 8,659 6,820 --------- --------- -------- ------- Income from operations................. 5,645 5,735 11,226 12,602 Other income........................... 266 403 546 838 Interest expense....................... 2 18 7 26 --------- --------- -------- ------- Income before provision for income taxes................................. 5,909 6,120 11,765 13,414 Provision for income taxes............. 2,307 2,485 4,591 5,439 --------- --------- -------- ------- Net income............................. $ 3,602 $ 3,635 $ 7,174 $ 7,975 ========= ========= ======== ======= Basic earnings per share............... $ 0.23 $ 0.24 $ 0.46 $ 0.52 ========= ========= ======== ======= Basic weighted average shares outstanding........................... 15,553 15,279 15,541 15,266 ========= ========= ======== ======= Diluted earnings per share............. $ 0.22 $ 0.22 $ 0.45 $ 0.49 ========= ========= ======== ======= Diluted weighted average shares outstanding........................... 16,049 16,194 16,055 16,204 ========= ========= ======== ======= The accompanying notes are an integral part of these consolidated financial statements. 4 ALTRON INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED ----------------- JULY 4, JUNE 28, 1998 1997 ------- -------- (IN THOUSANDS, UNAUDITED) Cash flows from operating activities: Net income................................................. $ 7,174 $ 7,975 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................ 4,214 3,330 Deferred income taxes.................................... 573 64 Changes in current assets and liabilities: Accounts receivable.................................... (286) (2,674) Inventories............................................ (4,645) (5,576) Other current assets................................... (387) (672) Accounts payable....................................... (156) 5,567 Accrued payroll and other employee benefits............ 266 (317) Other accrued expenses................................. 112 (953) ------- -------- Net cash provided by operating activities.................. 6,865 6,744 ------- -------- Cash flows from investing activities: Sales of investments, net.................................. 2,531 2,391 Capital expenditures....................................... (8,833) (13,125) ------- -------- Net cash used in investing activities...................... (6,302) (10,734) ------- -------- Cash flows from financing activities: Proceeds from issuance of common stock..................... 455 388 ------- -------- Net cash provided by financing activities.................. 455 388 ------- -------- Net change in cash and cash equivalents...................... 1,018 (3,602) Cash and cash equivalents, beginning of period............... 11,926 14,949 ------- -------- Cash and cash equivalents, end of period..................... $12,944 $ 11,347 ======= ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest................................................. $ 267 $ 267 Income taxes............................................. 3,648 5,483 The accompanying notes are an integral part of these consolidated financial statements. 5 ALTRON INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BUSINESS Altron Incorporated (the "Company") is a leading contract manufacturer of interconnect products used in advanced electronic equipment. The Company provides total design and manufacturing capability for complete electronic systems, including multilayer boards, backplanes and surface mount assemblies. Altron is an ISO 9000 registered company serving the telecommunication, data communication, computer, industrial and medical industries located in the United States and Europe. The Company has four plants located in Massachusetts and Northern California. (2) INTERIM FINANCIAL STATEMENTS In the opinion of the Company's management, these interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for such periods. The unaudited results of operations for the quarter and six months ended July 4, 1998 are not necessarily an indication of the results of operations for the full year. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Altron Systems Corporation and Altron Securities Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. Printed circuit boards manufactured by the Company and used in its assembly operations are included in contract manufacturing sales to customers. Printed circuit board sales represent sales to third parties. For information as to the significant accounting policies followed by the Company and other financial and operating information, see the Company's Form 10-K for the year ended January 3, 1998 as filed with the Securities and Exchange Commission (Commission File No. 0-13230). These interim financial statements should be read in conjunction with the financial statements included in the Form 10-K. (3) NEW ACCOUNTING PRONOUNCEMENTS Effective January 4, 1998, the Company adopted the provisions of SFAS No. 130, Reporting Comprehensive Income. The Company's total comprehensive income for the periods presented was the same as reported net income. On March 4, 1998, Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use was issued and on April 9, 1998, SOP 98-5, Reporting on the Costs of Start-Up Activities was issued. Both SOPs will be adopted by the Company at the beginning of fiscal year 1999 and are not anticipated to have a material impact on the Company's financial position or results of operations. (4) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes materials, labor and manufacturing overhead. Inventories consisted of $12.3 million of raw materials and $21.0 million of work-in- process as of July 4, 1998 and $15.3 million of raw materials and $13.3 million of work-in-process as of January 3, 1998. (5) EARNINGS PER SHARE Calculations of basic and diluted earnings per share information are as follows: THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ---------------- JULY 4, JUNE 28, JULY 4, JUNE 28, 1998 1997 1998 1997 --------- --------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Income........................... $ 3,602 $ 3,635 $ 7,174 $ 7,975 Basic weighted average shares outstanding......................... 15,553 15,279 15,541 15,266 Common stock equivalents............. 496 915 514 938 Diluted weighted average shares outstanding......................... 16,049 16,194 16,055 16,204 Basic earnings per share............. $ 0.23 $ 0.24 $ 0.46 $ 0.52 Diluted earnings per share........... $ 0.22 $ 0.22 $ 0.45 $ 0.49 (6) SIGNIFICANT CUSTOMERS One customer accounted for 16% of net sales for the six month period ended July 4, 1998. Two customers accounted for 11% and 10% of net sales for the six month period ended June 28, 1997. 6 ALTRON INCORPORATED AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the second quarter of 1998 were $51.7 million, as compared to net sales of $40.6 million for the same quarter of 1997. Net sales for the first six months of 1998 were $102.2 million, as compared to $83.7 million for the same period last year. The higher sales in 1998 resulted principally from increased value added shipments to the Company's larger customers in the communications and computer segments of the electronics industry. Value added sales for the second quarter of 1998 were $39.1 million or approximately 76% of net sales, compared to $28.3 million or 70% of net sales in the second quarter of 1997. Printed circuit board sales for the second quarter of 1998 were $12.6 million or 24% of net sales compared to $12.3 million or 30% of net sales in the second quarter of 1997. For the first six months of 1998, value added sales were $78.7 million or 77% of net sales compared with $59.3 million or 71% for 1997. Printed circuit board sales for the first six months of 1998 and 1997 were $23.5 million or 23% of net sales and $24.4 million or 29% of net sales, respectively. Gross margin as a percentage of net sales for the second quarter of 1998 was 19.3%, as compared to 22.7% for the same period of 1997. For the first six months of 1998, gross margin was 19.5%, as compared to 23.2% for the same 1997 period. The decrease for the periods resulted primarily from a shift in shipment mix to a higher level of value added printed circuit assembly and systems build products which have lower gross margins, coupled with startup costs associated with major new customer programs and continued increased pricing pressures. In addition, higher depreciation and related facility costs resulting from the Company's new backplane and systems facility and the continued investment in facilities and equipment to further increase capacity and capabilities for the printed circuit operation also impacted gross margins. Selling, general and administrative expenses as a percentage of net sales were 8.4% in the second quarter of 1998 and 8.5% for the same quarter of 1997. For the first six months of 1998, selling, general and administrative expenses as a percentage of net sales were 8.5%, as compared to 8.1% in 1997. The increase for the six month period resulted primarily from higher payroll and related expenses associated with additional sales and program management personnel. Secondarily, higher sales expense resulted from increased commissionable sales made by independent sales representatives. The decrease in other income in the second quarter and first six months of 1998, as compared to 1997, was principally due to lower cash balances available for investment. Interest expense for the second quarter and first six months of 1998 was approximately the same as the respective 1997 periods. The Company's effective tax rate for the second quarter and first six months of 1998 was 39%, as compared to approximately 40.5% for the same 1997 periods, principally due to increased tax credits. LIQUIDITY AND CAPITAL RESOURCES At July 4, 1998, the Company had working capital of $66.9 million and a current ratio of 4.0, as compared to $63.1 million and 3.9 at January 3, 1998. Cash and cash equivalents and short-term investments were $26.1 million at July 4, 1998 and $27.5 million at January 3, 1998. Long-term investments at July 4, 1998 were $1.7 million, as compared to $1.9 million at January 3, 1998. Capital expenditures were $8.8 million for the first six months of 1998, as compared to $13.1 million for the same period of 1997. During the second quarter of 1998, the Company's unsecured line of credit was increased to $10.0 million from $5.0 million, all of which was available at July 4, 1998. 7 The Company believes that its existing bank credit and working capital, together with funds generated from operations, will be sufficient to satisfy anticipated sales growth and investment in manufacturing facilities and equipment. The Company had commitments for approximately $2.6 million of capital expenditures as of July 4, 1998. YEAR 2000 COMPLIANCE During the second quarter, the Company continued its year 2000 date conversion project. The costs of the project are not expected to have a significant impact on the Company's results of operations and project completion is planned for the middle of 1999. There can be no assurance, however, that systems of other companies on which the Company's systems rely will be converted on a timely basis or that any such conversion failure by another company would not have an adverse effect on the Company's systems. 8 ALTRON INCORPORATED AND SUBSIDIARIES PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At a Special Meeting of Stockholders held on May 21, 1998 in lieu of the 1998 Annual Meeting of Stockholders, the Company's stockholders elected the nominated Director to serve for a term of three years, and approved; (1) by a vote of 10,546,309 for, 308,720 against and 44,173 abstaining, a proposal to approve the 1997 Stock Option Plan for Nonemployee Directors, (2) by a vote of 10,734,206 for, 111,417 against and 53,579 abstaining, a proposal to approve the First Amendment to the Altron Incorporated 1995 Employee Stock Purchase Plan and, (3) by a vote of 8,047,439 for, 2,802,072 against and 49,691 abstaining, a proposal to approve the Altron Incorporated 1998 Stock Incentive Plan. The Company solicited proxies for the Special Meeting pursuant to Regulation 14 under the Securities Exchange Act. There was no solicitation in opposition to the Company's nominee for Director and the nominee was elected. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 -- Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended July 4, 1998. 9 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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. ALTRON INCORPORATED NAME TITLE DATE ---- ----- ---- /s/ Samuel Altschuler Chairman of the Board of August 14, - ----------------------- Directors and President 1998 SAMUEL ALTSCHULER (principal executive officer) /s/ Burton Doo Executive Vice President and August 14, - ----------------------- Director, President, 1998 BURTON DOO Altron Systems Corporation /s/ Peter D. Brennan Vice President, Chief Financial August 14, - ----------------------- Officer and Treasurer 1998 PETER D. BRENNAN (principal financial and accounting officer) 10