<PAGE> 1
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 QUARTERLY PERIOD ENDED SEPTEMBER 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 NUMBER)
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 November 12, 1996 there were 5,721,184 shares of Common Stock,
par value $0.10 per share, outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,178 $ 2,785
Accounts receivable 35,185 20,167
Income taxes receivable 1,068 393
Inventories 53,759 22,983
Prepaid expenses and other assets 646 255
Deferred tax asset 1,274 372
-------- -------
Total current assets 94,110 46,955
-------- -------
Land 392 306
Property, plant and equipment, at cost 40,674 17,650
Accumulated depreciation (10,504) (7,874)
-------- -------
Net property, plant and equipment 30,562 10,082
-------- -------
Other assets 318 -
Goodwill 26,150 -
-------- -------
Total assets $151,140 $57,037
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt and capital lease
obligations $ 352 $ -
Accounts payable 24,838 9,116
Accrued liabilities 4,364 554
-------- -------
Total current liabilities 29,554 9,670
Long term debt and capital lease obligations, less
current portion 30,530 -
Line of credit 14,000 -
Deferred income taxes 3,434 743
Shareholders' equity:
Preferred shares, $0.10 par value; 5,000,000 shares
authorized, none issued - -
Common shares, $0.10 par value; 10,000,000 shares
authorized; issued - 4,744,106 and 4,046,142,
respectively; outstanding - 4,719,364 and 4,021,400,
respectively 472 402
Additional paid-in capital 40,607 19,808
Retained earnings 32,703 26,474
Less treasury shares, at cost; 24,742 shares (60) (60)
Unearned ESOP shares (100) -
-------- -------
Total shareholders' equity 73,622 46,624
-------- -------
Total liabilities and shareholders' equity $151,140 $57,037
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $62,304 $ 24,393 $ 126,187 $ 71,154
Cost of sales 55,754 21,285 111,328 61,832
------- -------- --------- --------
Gross profit 6,550 3,108 14,859 9,322
Selling expense 421 355 1,269 1,006
General and administrative expense 1,409 377 2,547 1,159
------- -------- --------- --------
Operating expenses 1,830 732 3,816 2,165
Amortization expense 293 - 293 -
------- -------- --------- --------
Income from operations 4,427 2,376 10,750 7,157
Interest income 92 61 130 214
Interest expense (652) - (741) -
Other income 25 10 26 23
------- -------- --------- --------
Income before income tax expense 3,892 2,447 10,165 7,394
Income tax expense (1,527) (886) (3,936) (2,676)
------- -------- --------- --------
Net income $ 2,365 $ 1,561 $ 6,229 $ 4,718
======= ======== ========= ========
Earnings per common share $ 0.51 $ 0.38 $ 1.45 $ 1.15
======= ======== ========= ========
Weighted average common and equivalent
shares outstanding 4,637 4,132 4,303 4,102
======= ======== ========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 6,229 $ 4,718
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization expense 3,491 1,523
Deferred income taxes 96 104
Loss on sale of property, plant and equipment 97 -
Changes in operating assets and liabilities, net of effects
from acquisition of business:
Accounts receivable (6,122) (1,856)
Income taxes receivable 314 (45)
Inventories (2,528) (6,439)
Prepaid expenses and other assets 46 (33)
Accounts payable 2,268 994
Accrued liabilities (775) (108)
Current income taxes payable - (99)
------- -------
Net cash provided by (used in) operations 3,116 (1,241)
------- -------
Cash flows from investing activities:
Capital expenditures, net (6,080) (1,452)
Acquisition, net of cash acquired (30,824) -
Other (2) -
------- -------
Net cash used in investing activities (36,906) (1,452)
------- -------
Cash flows from financing activities:
Borrowings under revolving line of credit, net 3,167 -
Proceeds from exercise of employee stock options 358 158
Deferred stock offering costs (13) -
Debt issuance costs (291) -
Proceeds from issuance of long term debt 30,000 -
Principal payments on long term debt and capital lease
obligations (38) -
------- -------
Net cash provided by financing activities 33,183 158
------- -------
Net decrease in cash (607) (2,535)
Cash at beginning of year 2,785 8,371
------- -------
Cash at September 30 2,178 5,836
======= =======
Supplemental disclosures of cash flow information:
Income taxes paid $ 3,569 $ 2,715
======= =======
Interest paid $ 668 $ -
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Benchmark Electronics, Inc. (the "Company") is a Texas corporation
which provides contract electronics manufacturing and design services to
original equipment manufacturers ("OEMs") in select industries, including
medical devices, communications equipment, industrial and business computers,
testing instrumentation, and industrial controls.
The condensed consolidated financial statements included herein have
been prepared by the Company without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
statements reflect all normal and recurring adjustments which in the opinion of
management are necessary for a fair presentation of the results of operations
and cash flows for the interim periods presented. The results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full year. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
NOTE 2 - EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding.
For the purposes of this calculation, outstanding employee stock options are
considered common equivalent shares. Fully diluted earnings per share are
materially equivalent to primary earnings per share for all periods presented.
Weighted average common and equivalent shares outstanding for the three months
ended September 30, 1996 and September 30, 1995 were 4,636,517 and 4,131,813
respectively.
NOTE 3 - INDEBTEDNESS
At June 30, 1996, the Company had a short-term revolving line of
credit with a commercial bank which was available to finance accounts
receivable and inventory requirements. The Company was entitled to borrow
under the line of credit up to the lesser of $10,000,000 or the sum of 80% of
its eligible accounts receivable and 25% of its eligible inventories. The
Company's borrowings under the line of credit bore interest at the lower of the
rate applicable to Alternate Base Loans or Eurodollar Loans as defined in the
credit agreement. The line of credit was collateralized by substantially all
of the Company's current assets. The line or credit also contained certain
financial covenants and restricted the ability of the Company to incur
additional debt without the consent of the bank.
In connection with the acquisition of EMD Technologies, Inc.("EMD"),
which was completed on July 30, 1996, the Company replaced the above mentioned
facility with a $35,000,000 four-year revolving line of credit with a
commercial bank which is available primarily to finance accounts receivable and
inventory requirements. The Company is entitled to borrow under the line of
credit up to the lesser of $35,000,000 or the sum of 80% of its eligible
accounts receivable and 25% of its eligible inventories. Interest on the line
of credit is payable quarterly and accrues, at the Company's option, at either
the bank's prime rate or its Fixed Eurodollar Rate plus 0.625% to 1.75% per
annum. A commitment fee of 0.25% per annum on the unused portion of the line of
credit is payable quarterly in arrears. The line of credit agreement contains
certain financial covenants and restricts the ability of the Company to incur
additional debt without the consent of the bank and to pay dividends. The line
of credit matures on July 31, 2000. At September 30, 1996, the Company had
$14,000,000 outstanding under its line of credit, bearing interest at a rate of
6.80% per annum. In November 1996, the Company repaid all amounts outstanding
under this line of credit with the proceeds from a public offering of the
Company's common stock. See Note 7.
6
<PAGE> 7
In order to finance a portion of the cash consideration for the
acquisition of EMD, which was completed on July 30, 1996, 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 $5.0 million beginning July 31, 2001 with a
final installment on the unpaid principal amount due July 31, 2006.
The purchase agreement relating to the Senior Note (the "Purchase
Agreement") includes customary affirmative and negative covenants and requires
that the Company maintain (i)a tangible net worth of not less that the sum of
(a) $39.0 million, (b) 50% of the Company's net income after June 30, 1996 and
(c) the aggregate amount of net cash proceeds from the sale of Common Stock
after June 30, 1996; (ii) minimum fixed charge and interest coverage ratios;
and (iii) a ratio of consolidated indebtedness to earnings before interest,
taxes, depreciation and amortization of not greater than 3.25 to 1.00 at any
time prior to March 31, 1997 and not greater than 3.00 to 1.00 at any time on
or after March 31, 1997. Upon any prepayment of all or a portion of the Senior
Note, the Company is obligated to pay the holder a premium on the amount
prepaid. The Purchase Agreement contains a provision that in the event of a
change of control (defined generally to mean the acquisition by a person or
group (as defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder) of beneficial ownership of more than 50% of
the total voting power of the outstanding voting stock of the Company), the
Company must offer to repurchase the Senior Note at par plus any prepayment
penalty. The Purchase Agreement also prohibits the payment of cash dividends
by the Company at any time when an event of default has occurred and is
continuing under the agreement, and otherwise limits the funds the Company may
use for the payment of dividends to the sum of (i) 50% of cumulative net income
subsequent to July 30, 1996, (ii) $10 million, and (iii) the net proceeds of
the sale of equity.
NOTE 4 - INVENTORIES
Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Raw materials $ 35,290,162 $ 16,365,280
Work in process 18,469,290 6,617,875
------------ ------------
$ 53,759,452 $ 22,983,155
============ ============
</TABLE>
NOTE 5 - INCOME TAXES
The provision for income taxes in the statement of operations is
summarized below (unaudited):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
Federal-current $3,269,000 $2,174,000
Federal-deferred 96,000 104,000
State 571,000 398,000
---------- ----------
Total $3,936,000 $2,676,000
========== ==========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the blended U.S. federal and state statutory rate for the nine month
period ended September 30, 1996 due to the impact of nondeductible goodwill and
the benefit from the use of a foreign sales corporation. The Company's
effective tax rate approximated the blended U.S. federal and state statutory
rate for the nine month period ended September 30, 1995.
7
<PAGE> 8
NOTE 6 - ACQUISITION
On July 30, 1996 the Company completed its acquisition of EMD. This
business, headquartered in Winona, Minnesota, was acquired for 674,964 shares
of common stock, $30.5 million in cash, and the Company paid $2.1 million in
acquisition costs. The transaction was accounted for under the purchase method
of accounting, and, accordingly, the results of operations of EMD since July
30, 1996 have been included in the accompanying condensed consolidated
statements of income. The acquisition resulted in goodwill of approximately
$26.4 million which will be amortized on a straight line basis over 15 years.
The net purchase price was allocated as follows:
<TABLE>
<S> <C>
Working capital, other than cash $10,264,000
Property, plant and equipment 17,695,000
Other assets 12,000
Goodwill 26,443,000
Other liabilities (3,179,000)
Unearned ESOP shares 100,000
-----------
Purchase price, net of cash received $51,335,000
===========
Net cash portion of purchase price $30,824,000
Common stock issued 20,511,000
-----------
Purchase price, net of cash received $51,335,000
===========
</TABLE>
The following summary pro forma condensed consolidated financial
information reflects the acquisition as if it had occurred on January 1, 1995
for purposes of the statements of income. The summary pro forma information is
not necessarily representative of what the Company's results of operations
would have been had the acquisition in fact had occurred on January 1, 1995 and
is not intended to project the Company's results of operations for any future
period or date.
Pro forma condensed consolidated financial information for the periods
ended September 30, 1996 and 1995 (unaudited):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
Net sales $217,189,000 $194,622,000
Gross profit $ 21,864,000 $ 23,027,000
Income from operations $ 12,435,000 $ 13,192,000
Income from continuing operations $ 5,886,000 $ 6,561,000
Earnings per common share:
Continuing operations $ 1.22 $ 1.37
Weighted average common shares outstanding 4,825,000 4,777,000
</TABLE>
NOTE 7 - SUBSEQUENT EVENT
On November 1, 1996, the Company issued 1,000,000 shares of common
stock in a public offering for net proceeds of approximately $28 million. The
net proceeds to the Company from the offering have been used to repay all
amounts outstanding under the Company's revolving line of credit facility and
the balance will be used for working capital and other general corporate
purposes. As of September 30, 1996, the Company had recorded deferred offering
costs totaling $13,000. Had the offering occurred on January 1, 1996, earnings
per share would have been $1.17 for the nine months ended September 30, 1996.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
regarding future financial condition and results of operations and the
Company's business operations. The words "expect," "estimate," "anticipate,"
"predict," and similar expressions are intended to identify forward-looking
statements. Such statements involve risks, uncertainties and assumptions,
including, but not limited to, industry and economic conditions and customer
actions and other factors discussed in this Form 10-Q and in the Company's
other filings with the Securities and Exchange Commission. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated.
GENERAL
The Company provides contract electronics manufacturing and design
services to OEMs in select industries, including medical devices,
communications equipment, industrial and business computers, testing
instrumentation and industrial controls. The Company specializes in
manufacturing high quality, technologically complex printed circuit board
assemblies with computer-automated equipment using surface mount and
pin-through-hole interconnection technologies for customers requiring low to
medium volume production runs. The Company frequently works with customers from
product design and prototype stages through ongoing production and, in some
cases, final assembly of the customers' products and provides manufacturing
services for successive product generations. As a result, the Company believes
that it is often an integral part of its customers' operations.
Substantially all of the Company's manufacturing services are provided
on a turnkey basis, whereby the Company purchases customer-specified components
from its extensive network of suppliers, assembles the components on finished
printed circuit boards, performs post-production testing and provides the
customer with production process and testing documentation. The Company offers
its customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with the customers' inventory requirements.
In certain instances, the Company completes the assembly of its customers'
products at the Company's facilities by integrating printed circuit board
assemblies into other elements of the customers' products. The Company also
provides manufacturing services on a consignment basis, whereby the Company,
utilizing components provided by the customer, provides only assembly and
post-production testing services. The Company operates a total of 29 surface
mount production lines at its facilities in Angleton, Texas, Beaverton, Oregon,
and Winona, Minnesota.
Revenues are recognized at the time products are shipped to customers
and may vary depending on the timing of customers orders, product mix and
availability of component parts. Substantially all of the Company's business
is performed on a turnkey basis, which involves the procurement of component
parts. The gross profit margin for such materials is generally lower than the
gross profit associated with the manufacturing process and other value-added
services. The Company anticipates that 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.
The level and timing of purchase orders placed by the Company's
customers are affected by a number of factors not within the control of the
Company, including variation in demand for customers' products, customer
attempts to manage inventory and changes in customers' manufacturing
strategies. The Company typically does not obtain long-term purchase orders or
commitments but instead works with its customers to develop nonbinding
forecasts of the future volume of orders. Based on such nonbinding forecasts,
the Company makes commitments regarding the level of business that it will seek
and accept, the timing of production schedules and the levels and utilization
of personnel and other resources. A variety of conditions, both specific to
each individual customer and generally affecting each customer's industry, may
cause customers to cancel, reduce or delay purchase orders and commitments
without penalty, except for payment for services rendered, materials purchased
and, in certain circumstances, charges associated with such cancellation,
reduction or delay. Significant or numerous cancellations, reductions or
delays in orders by customers, or any inability of customers to pay for
services provided by the Company or to pay for components and
9
<PAGE> 10
materials purchased by the Company on such customers' behalf, could have an
adverse effect on the Company's business, financial condition and results of
operations.
A substantial percentage of the Company's sales have been to a small
number of customers, and the loss of a major customer would adversely affect
the Company. For the nine months ended September 30, 1996, the Company's three
largest customers accounted for 40.3% of the Company's sales, and the Company's
largest customer, Credence Systems Corporation, accounted for 14.7% of sales.
On a pro forma basis for the nine months ended September 30, 1996, the three
largest customers of the Company and EMD accounted for 43.2% of sales, and the
largest customer, Stratus Computer Corporation, accounted for 26.2% of sales.
The Company's future sales are dependent on the success of its customers, some
of which operate in businesses associated with rapid technological change,
vigorous competition, short product life cycles and pricing and margin
pressures. Additionally, certain of the industries served by the Company are
subject to economic cycles and have in the past experienced, and are likely in
the future to experience, recessionary periods. Developments adverse to the
Company's major customers or their products could have an adverse effect on the
Company.
The acquisition of EMD represents a significant expansion in the scope
of the Company's operations, and the integration and consolidation of EMD into
the Company will require substantial management, financial and other resources.
During the integration process, the financial performance of the Company will
be subject to the risks commonly associated with the acquisition of businesses,
including the impact of expenses incurred in connection with an acquisition and
the potential disruptions associated with the integration of businesses. The
integration process may place a significant strain on the Company's management,
production, technical, financial and other resources, and may pose a risk with
respect to production, customer service and market share.
The Company's future success is dependent upon its ability to
effectively integrate EMD into the Company, including its ability to implement
potentially available marketing and cost saving opportunities, some of which
may involve operational changes. There can be no assurance as to the timing or
amount of any marketing opportunities or cost savings that may be realized as
the result of operational changes implemented during the integration process.
Further, there can be no assurance that the Company will not experience
difficulties with customers, personnel and business prospects or that the
combination of the Company and EMD will be successful.
The following discussion should be read in conjunction with the
unaudited financial statements of the Company included elsewhere in this
report.
ACQUISITION
On July 30, 1996 the Company completed its acquisition of EMD. This
business, headquartered in Winona, Minnesota, was acquired for 674,964 shares
of common stock, $30.5 million in cash, and the Company paid $2.1 million in
acquisition costs. The transaction was accounted for under the purchase method
of accounting, and, accordingly, the results of operations of EMD since July
30, 1996 have been included in the accompanying condensed consolidated
statements of income. The acquisition resulted in goodwill of approximately
$26.4 million which will be amortized on a straight line basis over 15 years.
See Note 6 of Notes to Condensed Consolidated Financial Statements.
In order to finance a portion of the cash consideration for the
acquisition of EMD, the Company issued a $30 million, 8.02% Senior Note due 2006
("Senior Note") to Northwestern Mutual Life Insurance Company. See Note 3 of
Notes to Condensed Consolidated Financial Statements and "Liquidity and Capital
Resources."
10
<PAGE> 11
Completion of the acquisition of EMD on July 30, 1996 and the inclusion
of EMD's operations in the Company's accounts subsequent to that date is
responsible for a substantial portion of the variation in the results of the
Company's operations (including the components thereof) for the three and nine
month periods ended September 30, 1996, as compared to the same periods during
the prior year. In addition, the indebtedness incurred in connection with the
acquisition of EMD accounts for the increase in long term debt as compared to
comparable periods in the prior year. The effects of the acquisition of EMD on
the Company's financial condition as of September 30, 1996, and its reported
results of operations for the three month and nine month periods then ended,
should be considered when reviewing the financial information contained herein.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
in the Company's Condensed Consolidated Statements of Operations as a
percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.5 87.3 88.2 86.9
----- ----- ----- -----
Gross profit 10.5 12.7 11.8 13.1
Selling expense 0.7 1.5 1.0 1.4
General and administrative expense 2.3 1.5 2.0 1.6
Amortization of goodwill 0.5 0.0 0.2 0.0
----- ----- ----- -----
Income from operations 7.0 9.7 8.6 10.1
Interest income 0.2 0.3 0.1 0.3
Interest expense (1.0) 0.0 (0.6) 0.0
----- ----- ----- -----
Income before income tax expense 6.2 10.0 8.1 10.4
Income tax expense (2.4) (3.6) (3.1) (3.8)
----- ----- ----- -----
Net income 3.8% 6.4% 5.0% 6.6%
===== ===== ===== =====
</TABLE>
Sales for the third quarter of 1996 were approximately $62.3 million,
a 155% increase from sales of approximately $24.4 million for the same quarter
of 1995. Sales for the first nine months of 1996 were $126.2 million, a 77%
increase from sales of $71.2 million for the same period of 1995.
Approximately $28.2 million of the sales increase for both the third quarter
and the nine-month period was attributable to the acquisition of EMD during the
third quarter of 1996. The increase in sales also resulted from increased
production volumes made possible by the expansion of the surface mount assembly
capacity at the Company's Angleton, Texas facility, which was completed during
the second quarter of 1996. In addition, the increase in production volumes
for the nine-month period 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 product mix experienced by the Company in the last
quarter of 1995 and to the absence of component shortages during the first nine
months of 1996 which had caused delays during the corresponding period in 1995.
Gross profit increased 110.8% to approximately $6.6 million in the
third quarter of 1996 from approximately $3.1 million in the same quarter of
1995. Gross profit increased 59% to $14.9 million from $9.3 million for the
first nine months of 1996. Gross profit as a percentage of sales decreased
from 12.7% for the third quarter of 1995 to 10.5% for the third quarter of
1996. Gross profit as a percentage of sales decreased from 13.1% for the first
nine months in 1995 to 11.8% from the first nine months of 1996. The increase
in gross profit was due primarily to higher sales volumes and normal changes in
product mix and customer mix. The Company's gross margin reflects a number of
factors, including product mix, the level of start up costs and efficiencies
associated with new programs, capacity utilization of surface mount and other
equipment, and pricing with the electronics industry. All of these factors are
continually changing and are interrelated, making it impracticable to determine
separately the effect of each factor. The decrease in gross profit as a
percentage of sales during the nine months ended September 30, 1996 was due
primarily to the product mix and the initiation of new programs during the
first quarter of 1996 which had not yet reached full production and secondarily
to the use during the first quarter of 1995 of some components that had been
previously reserved as obsolete.
Selling expenses were $421,000 in the third quarter of 1996, an
increase of 19% from the third quarter of 1995. Selling expenses were
$1.3 million for the first nine months of 1996, an increase of 26% from the same
period of 1995. General and administrative expenses were $1.4 million in the
third quarter, an increase of 275% from $377,000 for the same quarter of 1995.
General and administrative expenses for the first nine months were $2.5 million
a 120% 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
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<PAGE> 12
personnel. The increase in selling, general and administrative expenses during
the third quarter 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 and the inclusion of the EMD selling, general and administrative
expenses for August and September. 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. Selling, general and administrative
expenses as a percentage of sales remained relatively flat at 3% of sales
during the comparable periods of 1996 and 1995.
The amortization of goodwill and debt issuance costs for the third
quarter and the nine months ended September 30, 1996 was $293,000.
Interest expense for the third quarter of 1996 was $652,000 and for
the nine months was $741,000, which was incurred by the Company on the debt
incurred in connection with the acquisition of EMD.
Income tax expense in the third quarter of 1996 was $1,527,000, an
increase of 72% from the same period in 1995. Income tax expenses increased
47% in the first nine months of 1996 to $3,936,000 from $2,676,000 for the same
period of 1995. The increase is due to higher pre-tax income and nondeductible
amortization of goodwill offset by the benefit from the use of a foreign sales
corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and operations through funds
generated from operations, proceeds from the sale of common stock and, during
the second and third quarter of 1996, funds borrowed under its credit
facilities. Prior to the second quarter of 1996 the Company had never borrowed
any amounts under its available lines of credit.
Cash provided by operating activities was $3.1 million for the nine
months ended September 30, 1996. Cash provided by operations was primarily the
result of increases in net income and accounts payable offset by increases in
inventories and accounts receivable. Inventories have increased 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 continued to influence 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.
Cash used in investing activities was $36.9 million for the nine
months ended September 30, 1996. The Company completed the planned expansion
of its production capacity at the Angleton plant during the second quarter of
1996, after which the Company had 12 surface mount assembly lines in operation
at the Angleton plant. Capital expenditures of $6.1 million for the nine
months ended September 30, 1996 were primarily concentrated in the expansion of
the facility and surface mount assembly equipment associated with this
expansion. On July 30, 1996, the Company completed its acquisition of EMD.
Approximately $30.8 million in cash was used to complete the acquisition. See
Note 6 of Notes to Condensed Consolidated Financial Statements.
Cash provided by financing activities was $33.2 million for the nine
months ended September 30, 1996. On July 30, 1996 the Company obtained a
four-year, $35 million revolving line of credit which replaced the Company's
prior revolving credit facility, financed a portion of the cash consideration
of the acquisition of EMD, refinanced the revolving line of credit at EMD and
provided for future working capital needs. This line of credit is unsecured
and is guaranteed by each of the Company's United States subsidiaries. The
credit agreement related to this line of credit contains certain financial
covenants and restricts the ability of the Company to incur additional debt
without the consent of the bank and to pay dividends. 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 is entitled to prepay the line of credit without penalty at any
time upon proper notice to the bank. At September 30, 1996, the Company had
$14 million outstanding under its line of credit. See Note 3 of Notes to
Condensed Consolidated Financial Statements.
12
<PAGE> 13
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 its 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.
On November 1, 1996, the Company issued 1,000,000 shares of common
stock in a public offering for net proceeds of approximately $28 million. The
net proceeds to the Company from the offering were used to repay all amounts
outstanding under the Company's revolving line of credit. The balance of the
offering proceeds will be used for working capital and other general corporate
purposes. See Note 7 to the Condensed Consolidated Financial Statements.
In order to finance a portion of the cash consideration for the
acquisition of EMD, 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.
The purchase agreement relating to the Senior Note (the "Purchase
Agreement") includes customary affirmative and negative covenants and requires
that the Company maintain (i)a tangible net worth of not less that the sum of
(a) $39.0 million, (b) 50% of the Company's net income after June 30, 1996 and
(c) the aggregate amount of net cash proceeds from the sale of Common Stock
after June 30, 1996; (ii) minimum fixed charge and interest coverage ratios;
and (iii) a ratio of consolidated indebtedness to earnings before interest,
taxes, depreciation and amortization of not greater than 3.25 to 1.00 at any
time prior to March 31, 1997 and not greater than 3.00 to 1.00 at any time on
or after March 31, 1997. Upon any prepayment of all or a portion of the Senior
Note, the Company is obligated to pay the holder a premium on the amount
prepaid. The Purchase Agreement contains a provision that in the event of a
change of control (defined generally to mean the acquisition by a person or
group (as defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder) of beneficial ownership or more than 50% of
the total voting power of the outstanding voting stock of the Company), the
Company must offer to repurchase the Senior Note at par plus any prepayment
penalty. The Purchase Agreement also prohibits the payment of cash dividends
by the Company at any time when an event of default has occurred and is
continuing under the agreement, and otherwise limits the funds the Company may
use for the payment of dividends to the sum of (i) 50% of cumulative net income
subsequent to July 30, 1996, (ii) $10 million, and (iii) the net proceeds of
the sale of equity.
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 existing cash balances (including cash from the public
offering), funds generated from operations, borrowings under the Company's
credit facility and 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.
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.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
2.1 Agreement and Plan of Merger dated as of March 27,
1996, by and among the Company, Electronics
Acquisition, Inc., EMD Technologies, Inc., David H.
Arnold and Daniel M. Rukavina (incorporated herein by
reference to Exhibit 2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1995).
2.2 Amendment No. 1 to Agreement and Plan of Merger dated
as of April 5, 1996 by and among Benchmark
Electronics, Inc., Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M.
Rukavina (incorporated herein by reference to Exhibit
2.2 to the Company's Registration Statement on Form
S-4 (Registration No. 333-4230)).
10.1 Note Purchase Agreement dated as of July 30, 1996 by
and between the Company and Northwestern Mutual Life
Insurance Company (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form
8-K dated July 30, 1996).
10.2 Credit Agreement dated as of July 30, 1996 by and
between the Company and Texas Commerce Bank National
Association (incorporated by reference to Exhibit
99.2 to the Company's Current Report on Form 8-K
dated July 30, 1996).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated July 30,
1996 with the Securities and Exchange Commission during the
quarter ended September 30, 1996 which Report reported the
Company's acquisition of EMD and incorporated by reference
certain historical financial statements of EMD and certain
proforma financial statements of the Company giving effect to
the acquisition of EMD.
14
<PAGE> 15
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 November 13, 1996.
BENCHMARK ELECTRONICS, INC.
(Registrant)
By: /s/ DONALD E. NIGBOR
--------------------------
Donald E. Nigbor
President
(Principal Executive Officer)
By: /s/ CARY T. FU
--------------------------
Cary T. Fu
Executive Vice President
(Principal Financial Officer)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger dated as of March 27, 1996, by
and among the Company, Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of
April 5, 1996 by and among Benchmark Electronics, Inc.,
Electronics Acquisition, Inc., EMD Technologies, Inc., David
H. Arnold and Daniel M. Rukavina (incorporated herein by
reference to Exhibit 2.2 to the Company's Registration
Statement on Form S-4 (Registration No. 333-4230)).
10.1 Note Purchase Agreement dated as of July 30, 1996 by and
between the Company and Northwestern Mutual Life Insurance
Company (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated July 30, 1996).
10.2 Credit Agreement dated as of July 30, 1996 by and between the
Company and Texas Commerce Bank National Association
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K dated July 30, 1996).
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,178
<SECURITIES> 0
<RECEIVABLES> 35,185
<ALLOWANCES> 0
<INVENTORY> 53,759
<CURRENT-ASSETS> 94,110
<PP&E> 41,066
<DEPRECIATION> 10,504
<TOTAL-ASSETS> 151,140
<CURRENT-LIABILITIES> 29,554
<BONDS> 0
472
0
<COMMON> 0
<OTHER-SE> 73,150
<TOTAL-LIABILITY-AND-EQUITY> 151,140
<SALES> 62,304
<TOTAL-REVENUES> 62,304
<CGS> 55,754
<TOTAL-COSTS> 55,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (652)
<INCOME-PRETAX> 3,892
<INCOME-TAX> 1,527
<INCOME-CONTINUING> 2,365
<DISCONTINUED> 0
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<NET-INCOME> 2,365
<EPS-PRIMARY> .51
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