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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 COMMISSION FILE NUMBER: 1-10560
BENCHMARK ELECTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2211011
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
3000 TECHNOLOGY DRIVE 77515
ANGLETON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(409)849-6550
(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 (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
As of August 13, 1996 there were 4,712,414 shares of Common Stock, par
value $0.10 per share, outstanding.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company sells its products to electronics system original
equipment manufacturers from its manufacturing facilities in Angleton, Texas
and Beaverton, Oregon. The majority of the Company's customers compete in the
medical devices, telecommunications, instrumentation, industrial controls and
high-end computer systems industries.
The Company has no long-term contracts with its customers, and
lead-times for customer orders and product-life cycles continue to diminish.
Customer programs can be canceled and volume levels can be changed or delayed
at any time. The timely replacement of delayed, canceled or reduced programs
with new business cannot be assured. Because of these and other factors, there
can be no assurance that the Company's historical revenue growth rate will
continue.
On July 30, 1996 the Company completed the purchase of EMD
Technologies, Inc. ("EMD") This business, headquartered in Winona, Minnesota,
was acquired for approximately 675,000 shares of common stock and
approximately $30.4 million in cash. The transaction will be accounted for
under the purchase method of accounting.
The acquisition of EMD presents a number of risks, including whether
the Company will be able to successfully manage the transition, integrate
purchasing operations and information systems and manage a larger and more
geographically disparate business. Although the Company believes it has
adequate resources and capabilities to successfully manage the integration of
EMD, if it is unsuccessful in doing so, the Company's results of operations
could be materially adversely affected.
FORWARD LOOKING STATEMENTS
The statements contained in this Form 10-Q that are not historical
facts are forward looking statements that involve risks and uncertainties,
including, but not limited to, the Company's ability to maintain its current
customer base, the risk of customer reductions, the impact of technological
changes and increased competition and other factors discussed herein. Such
risks and uncertainties could cause actual circumstances to differ materially
from those set forth in the forward looking statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
in the Company's Condensed Statements of Operations as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -----------------
1996 1995 1996 1995
---- ----- ----- -----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.6 86.8 87.0 86.7
----- ----- ----- -----
Gross profit 13.4 13.2 13.0 13.3
Selling expense 1.4 1.4 1.3 1.4
General and administrative expense 1.9 1.6 1.8 1.7
----- ----- ----- -----
Operating expenses 3.3 3.0 3.1 3.1
----- ----- ----- -----
Income from operations 10.1 10.2 9.9 10.2
Interest income 0.0 0.3 0.1 0.3
Interest expense (0.3) 0.0 (0.1) 0.0
----- ----- ----- -----
Income before income tax 9.8 10.5 9.9 10.5
Income tax expense (3.8) (3.8) (3.8) (3.8)
----- ----- ----- -----
Net income 6.0% 6.7% 6.1% 6.7%
===== ===== ===== =====
</TABLE>
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Sales for the second quarter of 1996 were approximately $33.5 million,
a 42% increase from sales of approximately $23.6 million for the same quarter of
1995. Sales for the first six months of 1996 were approximately $64 million, a
36% increase from sales of $47 million for the same period of 1995. The
Company's sales increased as a result of the Company's continued aggressive
sales efforts, which resulted in additional orders from new and existing
customers. The increase in sales resulted from increased production volumes as
compared to the second quarter and the first six months of 1995. The increased
production volumes were made possible during the second quarter of 1996 by the
expansion of the surface mount assembly capacity, which was completed during the
first quarter of 1996. For the six-month period, the increase in production
volumes was attributable in part to the fulfillment during the first quarter of
1996 of orders that were subject to customers' changes in production schedules
and mix experienced by the Company in the last quarter of 1995 and to the
absence of component shortages during the first six months of 1996 which had
caused delays during 1995.
Gross profit increased 43% to approximately $4.5 million in the second
quarter of 1996 from approximately $3.1 million in the same quarter of 1995.
Gross profit increased 34% to $8.3 million in the first six months of 1996 from
$6.2 million in the first six months of 1995. Gross profit as a percentage of
sales increased from 13.2% for the second quarter of 1995 to 13.4% for the
second quarter of 1996. Gross profit as a percentage of sales decreased from
13.3% for the first six months of 1995 to 13.0% for the first six months of
1996. The increase in gross profit and, for the second quarter, in gross profit
as a percentage of sales was due primarily to improved manufacturing
efficiencies and to normal changes in product mix and customer mix. The
decrease in gross profit as a percentage of sales for the six-month period was
due primarily to the initiation of new programs during the first quarter of 1996
and secondarily to the use during the first quarter of 1995 of some components
that had been previously reserved as obsolete. The Company expects gross
margins to fluctuate based on product mix and customer mix.
Selling expenses were $465,000 in the second quarter of 1996, an
increase of 38% from the first quarter of 1995. Selling expenses were $849,000
for the first six months of 1996, an increase of 30% from the same period of
1995. General and administrative expenses for the second quarter of 1996 were
$637,000, an increase of 66% from $384,000 for the same quarter of 1995. General
and administrative expenses for the first six months of 1996 were approximately
$1.1 million, a 45% increase from the same period of 1995. In order to satisfy
the increased level of business activity and to continue the development and
improvement of the systems and processes necessary to accommodate future growth,
the Company has added management personnel. The increase in general and
administrative expenses during the second quarter and the first six months of
1996 reflects these additional personnel and related departmental expenses, as
well as the additional administrative expenses, such as travel and communication
costs incurred in connection with the acquisition of EMD. The Company
anticipates selling, general and administrative expenses will continue to
increase in nominal terms as the Company continues to build the internal
management and support systems necessary to support higher revenue levels.
Interest expense for the second quarter of 1996 was $89,000, which was
incurred by the Company for the borrowings under the revolving line of credit
facility.
Income tax expense in the second quarter of 1996 was $1.3 million, an
increase of 41% from the same period in 1995. Income tax expense for the first
six months of 1996 was approximately $2.4 million, an increase of 35% from the
same period in 1995. The increases were due to higher pre-tax income. The
Company's effective tax rate approximates the blended Federal and state
statutory rates as a result of all of the Company's operations being located
within the United States.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and operations to date through
funds generated from operations, proceeds from the sale of its common stock
and, during the second quarter of 1996, funds borrowed under its revolving line
of credit facility. Prior to the second quarter of 1996 the Company had never
borrowed any amounts under its credit facility.
Cash flows used in operating activities were $2.5 million for the six
months ended June 30, 1996. Cash used by operations was utilized primarily by
the increase in inventories to accommodate the increased backlog. Additionally,
a high level of inventories on new programs for existing customers has been
added. Further, customer-imposed program delays have influenced the overall
level of inventories. The Company is attempting to mitigate the impact of such
delays by obtaining customer deposits for inventories carried by the Company in
these situations.
The Company completed the planned expansion of its production capacity
at the Angleton plant during the second quarter of 1996. The Company had twelve
surface mount assembly lines in operation for the second quarter of 1996.
Capital expenditures of $5.0 million for the six months ended June 30, 1996
were primarily concentrated in the expansion of the facility and surface mount
assembly equipment associated with this expansion.
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At June 30, 1996, the Company had a short-term revolving line of
credit with a commercial bank which was available primarily to finance accounts
receivable and inventory requirements. At June 30, 1996, the Company had $5
million outstanding under its line of credit. The Company was entitled to
borrow under the line of credit up to the lesser of $10 million or the sum of
80% of its eligible accounts receivable and 25% of its eligible inventories.
This line of credit was collateralized by substantially all of the
Company's current assets. The line of credit agreement contained certain
financial covenants and restricted the ability of the Company to incur
additional debt without the consent of the bank. See Note 3 of Notes to
Condensed Financial Statements.
On July 30, 1996 the Company obtained a $35 million revolving line
of credit which replaced the prior revolving credit facility, financed a portion
of the cash consideration for the acquisition of EMD, refinanced the revolving
line of credit at EMD and provided for future working capital needs. The $35
million four year revolving line of credit is unsecured and is guaranteed by
each of the Company's United States subsidiaries. This credit agreement
contains certain financial covenants and restricts the ability of the Company to
incur additional debt without the consent of the bank. The Company is entitled
to borrow under the line of credit up to the lesser of $35 million or the sum of
80% of its eligible accounts receivable and 25% of its eligible inventories. The
Company may prepay the revolving line of credit facility at any time upon proper
notice to the bank.
Interest on the revolving credit facility accrues, at the Company's
option, at either the bank's Fixed Eurodollar Rate plus from .625% to 1.75% per
annum or prime rate. The margin on the Fixed Eurodollar Rate fluctuates with
the Company's ratio of Funded Debt to EBITDA. Interest is payable quarterly.
A commitment fee of 1/4% per annum on the unused portion of the revolving
credit facility is payable quarterly in arrears. As of August 8, 1996, the
Company had $20 million outstanding under the revolving credit facility.
In order to finance a portion of the cash consideration for the
acquisition, the Company issued a $30 million, 8.02% Senior Note due 2006
("Senior Note") to Northwestern Mutual Life Insurance Company. The Senior Note
is unsecured and guaranteed by each of the Company's United States subsidiaries.
Principal on the Senior Note is payable in annual installments of $5 million
beginning July 31, 2001 with a final installment of the unpaid principal amount
due July 31, 2006.
Upon any prepayment of all or a portion of the Senior Note, the
Company is obligated to pay the Purchaser a Make-Whole Premium on the amount
prepaid. The Note Purchase Agreement contains a provision that in the event of
a change of control, the Company must offer to repurchase the Note at par plus
the Make-Whole Premium.
The Note Purchase Agreement includes customary affirmative and negative
covenants. The financial covenants include maintenance of: (i) a fixed charge
coverage ratio, (ii) an interest coverage ratio, (iii) an indebtedness ratio,
(iv) a level of tangible net worth.
The Company may require additional capital to finance further
enhancements to or acquisitions or expansions of its manufacturing capacity.
Management believes that the level of working capital will continue to grow at a
rate generally consistent with the growth of the Company's operations. Although
no assurance can be given that future financing will be available on terms
acceptable to the Company, the Company may seek additional funds from time to
time through public or private debt or equity offerings or through bank
borrowings to the extent permitted by its existing debt agreements. Management
believes that the Company's existing revolving credit agreement dated July 30,
1996, existing cash balances, funds generated from operations, and borrowings
under the Company's Senior Note will be sufficient to permit the Company to meet
its liquidity requirements in 1996 and for the foreseeable future.
The Company does not hold or issue derivative financial instruments in
the normal course of business.
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ACQUISITION
On July 30, 1996 the Company completed its purchase of EMD (the
"Acquisition"). EMD is located in Winona, Minnesota and, through its operating
subsidiary EMD Associates, Inc., provides engineering services and contract
manufacturing to original equipment manufacturers in the electronics industry.
The purchase price paid by the Company in the Acquisition was
approximately $30.4 million in cash and 675,000 shares of common stock.
Approximately 14% of the shares of common stock issued by the Company in the
Acquisition are subject to certain restrictions on the transferability and
voting thereof for a three year period.
The Company had been actively examining opportunities for the
establishment or acquisition of a third manufacturing facility that satisfied
its criteria for such expansion, including without limitation substantial
customer base, geographic expansion and management philosophy. The Company
believes that the Acquisition satisfies these criteria; however, no assurance
may be given that it will have a positive effect on the Company's results of
operations, or that it will not be dilutive to earnings.
QUARTERLY RESULTS
Although Management does not believe that the Company's business is
affected by seasonal factors, the Company's sales and earnings may vary from
quarter to quarter, depending primarily upon the timing of manufacturing
orders. Therefore, the Company's operating results for any particular quarter
may not be indicative of the results for any future quarter or for the year.
ACCOUNTING FOR INCOME TAXES
For income tax purposes, certain items of expense are reported in
periods different from their inclusion in determining income for financial
accounting purposes. The income tax effects of timing differences are allocated
to the periods in which the amounts are included in the statement of
operations.
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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 on September 13, 1996.
BENCHMARK ELECTRONICS, INC.
(Registrant)
By: /s/ Donald E. Nigbor
-------------------------------------
Donald E. Nigbor
President
(Principal Executive Officer)
By: /s/ Cary T. Fu
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Cary T. Fu
Executive Vice President
(Principal Financial Officer)
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