Paul, DIIG's Report came in as expected - only two surprises- the new greater Mylex relationship in California, and the plans to exit that portion of Orbit's semiconductor manufacturing business....Looks much better per me moving forward....
The Dii Group, Inc. Announces Third Quarter Results And Plans To Exit Semiconductor Manufacturing
PR Newswire - October 22, 1998 06:29
NIWOT, Colo., Oct. 22 /PRNewswire/ -- The Dii Group, Inc. (Nasdaq: DIIG), a leading value-added electronics design and manufacturing service provider, today reported third quarter 1998 net revenues of $205.9 million, down slightly from $212.9 million a year ago. Net income was $6.5 million, or 25 cents per diluted share, compared with $10.0 million, or 35 cents per diluted share, in the prior year quarter. The reduced earnings level was due to lower sales combined with underutilization of assets, and was in line with prior guidance.
Revenues for the first nine months of 1998 were $663.2 million, up 24 percent from $534.0 million in the prior year. Net income for the first nine months of 1998 was $19.5 million, or 72 cents per diluted share, excluding a $38.9 million after-tax restructuring charge that was taken in the first quarter. In the first nine months of 1997, the company's net income was $22.6 million, or 81 cents per diluted share.
The company also announced that Orbit Semiconductor will divest its wafer fabrication facility and adopt a fabless strategy to complement its application-specific integrated circuit design, ENCORE! gate array, and mixed signal product lines. The company is in discussions with certain potential acquirers of its 6-inch, 0.6 micron facility. If such discussions do not result in a firm agreement to sell the facility before the end of the fourth quarter, the company plans to adopt an orderly exit strategy, which would result in the fab closing on or about June 30, 1999. If the fab is successfully sold, the company will determine the financial impact of such a transaction once the terms of sale are known. If the fab is closed, it would result in total nonrecurring after-tax charges in the fourth quarter of 1998 of approximately $15 to $18 million, consisting of approximately $11 to $13 million of asset write-offs and $4 to $5 million of exit costs.
Ronald R. Budacz, chairman and chief executive officer, commented, "While the wafer fab made significant progress in quality, yields, and throughput, soft semiconductor markets worldwide dictated our need to exit the foundry services business. Orbit's successful mixed signal and ENCORE! gate array products are contributors to net income and significantly add to the Dii Group's integrated design capabilities.
"Looking at earnings, the third quarter came in about as expected, reflecting good year-over-year growth for Multek, our printed circuit board fabrication business. Multek continues to demonstrate that it is a world class operation, with sales volume up 28 percent from the year-ago quarter, and operating margins of 17.5 percent. With its recently completed acquisition in the People's Republic of China and its upcoming acquisition in Germany, Multek is poised for strong growth over the next five quarters, and beyond."
Budacz continued, "Dovatron, our contract electronics assembly operation, realized lower sales from some of its largest customers. Although Dovatron added a substantial number of new customers during the year, their combined sales have ramped slowly. They are expected to make a positive contribution to 1999 results. Despite slow sales growth, Dovatron was able to achieve a 5.5 percent operating margin through strict working capital and cost control. With the recent expansions of our assembly business in China and the Czech Republic, we believe that Dovatron has the mass in place to be able to consistently compete for large contract awards. We have strengthened, and will continue to build, our business development staff at Dovatron to win those large contracts.
"The remaining businesses account for less than 15 percent of sales and operating income. Orbit Semiconductor was near break-even for the quarter as a result of underutilized wafer fab capacity. Sales revenue at PTI, our process control technologies companies, reflected the soft market for electronics industry machine tools."
Earnings Guidance:
Thomas J. Smach, Dii's chief financial officer, provided the following earnings outlook: "Our guidance for the fourth quarter and next year assumes that the worldwide electronics markets continue at their current level; and no incremental acquisitions occur despite our ongoing efforts in that regard. Given that, we would expect our fourth quarter existing base sales and earnings per share to increase about 20 percent from the third quarter levels. For 1999, we would expect revenues to grow at least 25 percent and EPS to grow around 50 percent. In addition, we are currently looking at several options to eliminate certain nonperforming assets that remain in the business. The guidance above does not assume any such divestitures."
The Dii Group provided the following commentary on each of its four core competencies:
Systems Assembly and Distribution
Despite lower third quarter revenues associated with lower sales volume from several of its large customers, Dovatron anticipates good growth in 1999. The company today announced an expanded relationship with Mylex to assemble, test and configure high performance disk array (RAID) controllers and complementary computer products for network servers, mass storage systems, workstations and system boards. In conjunction with the Mylex business, Dovatron is establishing a presence in the Silicon Valley area. In addition, over the last two months, Dovatron has added new locations in China and the Czech Republic, and is in the process of expanding its Florida operation. With the resulting worldwide presence, Dovatron believes it can now consistently compete for very large OEM orders, and has added business development staff to be able to fill the new capacity quickly and profitably.
High-Performance Printed Circuit Boards
Multek continues to be a premier printed circuit board fabrication company in technology, profitability, and geographic presence. Customer interest in the new manufacturing facility in China is high, and the previously announced acquisition in Germany is on track to close at the end of the month. After a start-up period to qualify business, both facilities are expected to provide significant volume in 1999. This should help "smooth" earnings predictability for Multek, which had historically been a quick-turn, prototype specialist. The plating line expansion in the Austin facility is about one month behind schedule, but is anticipated to be in production before the end of the quarter. Multek has several new customer prospects for the Austin facility that it expects to sign during the fourth quarter.
Process Technologies
The Process Technologies companies are experiencing soft market conditions. Nonetheless, TTI Testron anticipates a seasonal uptick in orders in the fourth quarter, and IRI is in the process of adding a new location in Florida to support growth in the Southeast.
Custom Semiconductors
With soft semiconductor markets worldwide, Orbit's results were near break-even in the quarter due to underutilized manufacturing capacity. However, the company's design and mixed-signal businesses were both profitable, and quality improvement and cost reduction initiatives continue.
This press release contains historical information and forward-looking statements. Statements looking forward in time involve risks and uncertainties, including risks associated with customer concentration, dependence on the electronics industry, especially the semiconductor business sector, economic conditions, the successful integration of newly acquired businesses and other risks associated with acquisitions, changes in product mix, competition, and international operations. For further information, reference should be made to the Dii Group's filings with the Securities and Exchange Commission, including the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's most recent Annual Report on Form 10-K.
The Dii Group, Inc. (Nasdaq: DIIG) is a leading, value-added electronics design and manufacturing outsource service provider, which operates through a global network of companies in North America, Europe, and Asia. The Company serves the electronics industry through its four core competencies: semiconductors; printed circuit boards; circuit board and finished product assembly and distribution; and process control technologies. The Dii Group employs approximately 7,000 people and had revenues of $663 million in the first nine months of fiscal 1998. Its Internet (Web) Site can be reached by accessing "www.diigroup.com" to view recent press releases, company information, and financial data relating to the Dii Group.
--two tables and one schedule follow --
THE DII GROUP, INC. AND SUBSIDIARIES (Dollars in thousands, except earnings per share)
Three months ended Nine months ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
Condensed Consolidated Income Statements
Net sales:
Systems assembly and distribution$131,016 141,503 424,147 349,089
Interconnect technologies 43,964 34,228 140,795 83,139
Other 30,937 37,133 98,287 101,813
Total net sales 205,917 212,864 663,229 534,041
Cost of sales 173,895 179,562 564,623 441,880
Gross profit 32,022 33,302 98,606 92,161
Selling, general and
administrative expenses (SG&A) 17,664 17,098 56,224 51,424
Non-recurring charges (a) -- -- 54,000 --
Interest income (613) (256) (2,217) (654)
Interest expense 4,910 2,504 14,298 5,924
Amortization of intangibles 1,168 1,033 3,383 2,762
Other, net (173) 245 (172) 919
Income (loss) before income taxes 9,066 12,678 (26,910) 31,786
Income tax expense (benefit) 2,534 2,723 (7,522) 9,214
Net income (loss) $6,532 9,955 (19,388) 22,572
Earnings (loss) per common share:
Basic:
Excluding non-recurring charges $0.26 0.40 0.78 0.92
Non-recurring charges (a) -- -- (1.56) --
$0.26 0.40 (0.78) 0.92
Diluted (b):
Excluding non-recurring charges $0.25 0.35 0.72 0.81
Non-recurring charges (a) -- -- (1.50) --
$0.25 0.35 (0.78) 0.81
Weighted average number of common
shares and equivalents outstanding
(in thousands):
Basic 24,775 25,058 25,004 24,533
Diluted 29,948 31,203 30,511 31,014
Other Consolidated Financial Data (c):
Gross margin 15.6% 15.6% 14.9% 17.3%
SG&A expenses as a percentage
of sales 8.6% 8.0% 8.5% 9.6%
Operating income as a percentage
of sales 7.0% 7.6% 6.4% 7.6%
Pretax income as a percentage
of sales 4.4% 6.0% 4.1% 6.0%
Income tax rate 28% 21% 28% 29%
EBITDA $21,891 20,863 65,094 52,661
Capital expenditures $15,827 59,947 49,399 106,103
Working capital at end of period $81,756 53,782 81,756 53,782
Days sales outstanding (d) 51 49 51 52
Inventory turns (d) 10.5 x 12.8 x 10.7 x 9.4 x
(a) The Company recorded a non-recurring pre-tax charge of $54,000 in the
nine months ended Sept. 27, 1998 related to the restructuring of Orbit
Semiconductor, a wholly owned subsidiary
(b) Potential dilutive securities were antidilutive for the nine months
ended Sept. 27, 1998, and, therefore not included in diluted earnings
per share computation
(c) Other Consolidated Financial Data excludes non-recurring charges.
(d) Calculations exclude the effect of the Company's intraperiod
acquisitions
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 27, December 28,
1998 1997
Assets
Current assets:
Cash and cash equivalents $63,270 85,067
Accounts receivable, net 124,824 132,590
Inventories 68,062 74,059
Other 12,708 8,535
Total current assets 268,864 300,251
Property, plant and equipment, net 235,708 207,257
Intangible assets, net 93,019 77,653
Other 8,310 7,568
$605,901 592,729
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $103,547 98,688
Accrued expenses 30,611 29,766
Accrued interest payable 2,988 4,688
Line-of-credit borrowings 45,861 --
Current installments of other
long-term financing obligations 4,101 6,491
Total current liabilities 187,108 139,633
Other 1,647 2,953
Long-term financing obligations,
excluding current installments 7,335 6,545
Senior subordinated 8.5% notes payable 150,000 150,000
Convertible subordinated 6% notes payable 86,247 86,250
Stockholders' equity 173,564 207,348
$605,901 592,729
Schedule 1
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands)
For the three months ended September 27, 1998
Systems
Assembly
and % of Interconnect % of
Distribution Sales Technologies Sales
Net sales $131,016 43,964
Cost of sales 118,902 32,348
Gross profit 12,114 9.2% 11,616 26.4%
Selling, general and
administrative expenses 4,928 3.8% 3,904 8.9%
Operating income $7,186 5.5% 7,712 17.5%
Unallocated
PTI and % of General % of
Orbit Sales Corporate Total Sales
Net sales 30,937 -- $205,917
Cost of sales 22,645 -- 173,895
Gross profit 8,292 26.8% -- 32,022 15.6%
Selling, general and
administrative expenses 6,467 20.9% 2,365 17,664 8.6%
Operating income 1,825 5.9% (2,365) $14,358 7.0%
For the nine months ended September 27, 1998
Systems
Assembly
and % of Interconnect % of
Distribution Sales Technologies Sales
Net sales $424,147 140,795
Cost of sales 386,691 105,936
Gross profit 37,456 8.8% 34,859 24.8%
Selling, general and
administrative expenses 14,400 3.4% 12,538 8.9%
Operating income $23,056 5.4% 22,321 15.9%
Unallocated
PTI and % of General % of
Orbit Sales Corporate Total Sales
Net sales 98,287 -- $663,229
Cost of sales 71,996 -- 564,623
Gross profit 26,291 26.7% -- 98,606 14.9%
Selling, general and
administrative expenses 22,025 22.4% 7,261 56,224 8.5%
Operating income 4,266 4.3% (7,261) 42,382 6.4%
Dii Group and Mylex Corporation To Expand Relationship
The Dii Group, Inc., (Nasdaq: DIIG) a leading value-added electronics design and manufacturing service provider, today announced that its wholly owned contract electronics subsidiary, Dovatron International, Inc., has signed a letter of intent to enter into an agreement with Mylex Corporation (Nasdaq: MYLX) to expand its role in the manufacture of Mylex's high performance disk array (RAID) controllers and complementary computer products for network servers, mass storage systems, workstations and system boards. Dovatron will assemble printed circuit boards in several of its facilities, and will test and configure products in space leased from Mylex in its Fremont, Calif., facility.
Dermott O'Flanagan, president of Dovatron, commented: "We are extremely pleased to expand our relationship with Mylex. The manufacturing solution we will provide demonstrates Dovatron's commitment to provide build-to-order services as part of a full suite of offerings that provide 'value-add' for our customers, and launches Dovatron's presence in Silicon Valley. We hope to expand our relationship in the future by utilizing more services from other Dii companies in the next generation of Mylex products."
Bal Singh, Mylex vice president of operations, commented: "We are delighted to expand our relationship with Dovatron. With this alliance, Mylex benefits from Dovatron's manufacturing expertise and worldwide locations, as Mylex's business continues to grow around the globe."
This press release contains historical information and forward-looking statements. Statements looking forward in time involve risks and uncertainties, including risks associated with customer concentration, dependence on the electronics industry, especially the semiconductor business sector, economic conditions, the successful integration of newly acquired businesses and other risks associated with acquisitions, changes in product mix, competition, and international operations. For further information, reference should be made to the Dii Group's filings with the Securities and Exchange Commission, including the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's most recent Annual Report on Form 10-K.
Founded in 1983, Mylex Corp. is an ISO 9001-certified developer of high- performance hardware and software for moving, storing, protecting and managing data in network and desktop environments. Ranked as the No. 1 supplier of RAID controllers in the non-captive network systems disk array market in 1997, 1996 and 1995 DISK/TREND reports, Mylex produces high-performance RAID controller subsystems, SCSI adapters and complementary computer products for network servers, mass storage systems, workstations and system motherboards.
Mylex products are sold globally through a network of OEMs, major distributors, VARs and system integrators. Mylex Corp. is headquartered at 34551 Ardenwood Blvd., Fremont, CA 94555, and can be reached by phone at 510/796-6100 or toll free at 800-770MYLEX, by fax at 510/745-8016 or at the Internet at mylex.com.
Dovatron International, Inc. is a leading ISO 9002 certified global contract manufacturer with locations in New York, Colorado, Southern California, Florida, Mexico, Ireland, the Czech Republic, Malaysia and the People's Republic of China. Dovatron is one of the autonomous companies of the DII Group. Dovatron International is headquartered in Boulder, CO and can be found on worldwide web site: www.dovatron.com
The Dii Group, Inc. (Nasdaq: DIIG) is a leading, value-added electronics design and manufacturing outsource service provider, which operates through a global network of companies in North America, Europe, and Asia. The Company serves the electronics industry through its four core competencies: semiconductors; printed circuit boards; circuit board and finished product assembly and distribution; and process control technologies. The Dii Group employs approximately 7,000 people and had revenues of $457 million in the first half of fiscal 1998. Its Internet (Web) Site can be reached by accessing "www.diigroup.com" to view recent press releases, company information, and financial data relating to the Dii Group.
SOURCE The Dii Group, Inc.
/NOTE TO EDITORS: For financial information via fax, please call
201-333-3662./
/CONTACT: Sharon L. Sweet, Vice President, Investor Relations of Dii
Group, 303-652-2221/
/Web site: mylex.com
/Web site: dovatron.com
/Web site: diigroup.com
(DIIG) |
