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, 1997
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, 1997 there were 11,546,768 shares of Common Stock, par
value $0.10 per share, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................. $ 20,620 $ 13,800
Accounts receivable, net ................... 39,771 39,183
Income taxes receivable .................... -- 388
Inventories ................................ 64,485 48,100
Prepaid expenses and other assets .......... 1,715 820
Deferred tax asset ......................... 1,091 1,091
--------- ---------
Total current assets ..................... 127,682 103,382
--------- ---------
Property, plant and equipment, at cost ....... 52,183 44,469
Accumulated depreciation ..................... (20,820) (13,834)
--------- ---------
Net property, plant and equipment ........ 31,363 30,635
--------- ---------
Other assets, net ............................ 257 298
Marketable securities ........................ 11,543 9,508
Goodwill, net ................................ 23,098 24,350
--------- ---------
$ 193,943 $ 168,173
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt and
capital lease obligations ................ $ 182 $ 239
Accounts payable ........................... 39,948 24,352
Income taxes payable ....................... 39 --
Accrued liabilities ........................ 5,712 6,205
--------- ---------
Total current liabilities ................ 45,881 30,796
Long term debt and capital lease
obligations, less current portion .......... 30,365 30,485
Deferred income taxes ........................ 1,378 1,893
Shareholders' equity:
Preferred shares, $0.10 par value;
5,000,000 shares authorized,
none issued .............................. -- --
Common shares, $0.10 par value;
30,000,000 shares authorized; issued
- 11,570,852 and 11,526,552,
respectively; outstanding -
11,521,368 and 11,477,068,
respectively ............................. 1,152 1,146
Additional paid-in capital ................. 69,089 68,635
Retained earnings .......................... 46,198 35,338
Less treasury shares, at cost;
49,484 shares ............................ (120) (120)
--------- ---------
Total shareholders' equity ............... 116,319 104,999
--------- ---------
Commitments and contingencies ..............
$ 193,943 $ 168,173
========= =========
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
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,
------------------------- ---------------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Sales ........................................................ $ 83,183 $ 62,304 $ 237,062 $ 126,187
Cost of sales ................................................ 73,026 55,754 208,198 111,328
-------- -------- --------- ---------
Gross profit ........................................... 10,157 6,550 28,864 14,859
Selling, general and administrative expense .................. 3,172 1,830 9,394 3,816
Amortization expense ......................................... 417 293 1,252 293
-------- -------- --------- ---------
Income from operations ................................. 6,568 4,427 18,218 10,750
Interest income .............................................. 328 92 895 130
Interest expense ............................................. (616) (621) (1,857) (708)
Other income (expense) ....................................... 79 (6) 131 (7)
-------- -------- --------- ---------
Income before income tax expense ....................... 6,359 3,892 17,387 10,165
Income tax expense ........................................... 2,346 1,527 6,527 3,936
-------- -------- --------- ---------
Net income ............................................. $ 4,013 $ 2,365 $ 10,860 $ 6,229
======== ======== ========= =========
Earnings per common share .................................... $ 0.33 $ 0.26 $ 0.90 $ 0.72
======== ======== ========= =========
Weighted average common and equivalent
shares outstanding ......................................... 12,322 9,274 12,021 8,605
======== ======== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income ............................................................................. $ 10,860 $ 6,229
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense .............................................. 8,904 3,491
Deferred income taxes .............................................................. (515) 96
(Gain) loss on sale of property, plant and equipment ............................... (98) 97
Tax benefit of employee stock options exercised .................................... 120 --
Amortization of premiums on marketable securities .................................. 230 --
Changes in operating assets and liabilities, net of effects from acquisition
of business:
Accounts receivable ................................................................ (588) (6,122)
Inventories ........................................................................ (16,385) (2,528)
Prepaid expenses and other current assets .......................................... (895) 46
Accounts payable ................................................................... 15,596 2,268
Accrued liabilities ................................................................ (493) (775)
Income taxes ....................................................................... 427 314
-------- --------
Net cash provided by operations ................................................ 17,163 3,116
-------- --------
Cash flows from investing activities:
Capital expenditures, net .............................................................. (8,234) (6,080)
Purchase of marketable securities ...................................................... (2,265) --
Acquisition, net of cash acquired ...................................................... -- (30,824)
Other .................................................................................. (7) (2)
-------- --------
Net cash used in investing activities........................................... (10,506) (36,906)
-------- --------
Cash flows from financing activities:
Borrowings under revolving line of credit .............................................. -- 3,167
Proceeds from exercise of employee stock options ....................................... 392 358
Stock offering expenses ................................................................ (52) (13)
Debt issuance costs .................................................................... -- (291)
Proceeds from issuance of long term debt ............................................... -- 30,000
Principal payments on long term debt and capital lease obligations ..................... (177) (38)
-------- --------
Net cash provided by financing activities ...................................... 163 33,183
-------- --------
Net increase (decrease) in cash .......................................................... 6,820 (607)
Cash at beginning of year .............................................................. 13,800 2,785
-------- --------
Cash at September 30 ................................................................... $ 20,620 $ 2,178
======== ========
Supplemental disclosures of cash flow information:
Income taxes paid ...................................................................... $ 6,038 $ 3,569
======== ========
Interest paid .......................................................................... $ 2,509 $ 668
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
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, 1996.
NOTE 2 - EARNINGS PER COMMON SHARE
Earnings per common and common equivalent 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, 1997 and 1996 were 12,322,383 and 9,273,034,
respectively.
NOTE 3 - INDEBTEDNESS
In order to finance a portion of the cash consideration for the
acquisition of EMD Technologies, Inc. (EMD), which was completed on July 30,
1996, the Company issued a $30 million, 8.02% Senior Note due 2006 (the 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. Interest on the Senior Note is payable semi-annually on
January 31st and July 31st.
The purchase agreement relating to the Senior Note (the Purchase
Agreement) includes customary affirmative and negative covenants and restricts
the ability of the Company to incur additional debt and to pay dividends. 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.
5
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has a $15,000,000, 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 $15,000,000 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 0.17% 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. As of September 30, 1997, the Company had no
borrowings outstanding under this line of credit.
NOTE 4 - INVENTORIES
Inventory costs are summarized as follows:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -----------
(UNAUDITED)
Raw materials ............................. $ 47,141,082 $31,670,562
Work in process ........................... 17,344,268 16,429,776
------------ -----------
$ 64,485,350 $48,100,338
============ ===========
NOTE 5 - INCOME TAXES
Income tax expense (benefit) consists of the following (unaudited):
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
------------ -----------
Federal - Current ......................... $ 6,081,000 $ 3,269,000
State - Current ........................... 961,000 571,000
Federal/State - Deferred .................. (515,000) 96,000
------------ -----------
Total ................................ $ 6,527,000 $ 3,936,000
============ ===========
Income tax expense differs from the amount computed by applying the U.S.
federal statutory income tax rate to pretax income due to the impact of
nondeductible amortization of goodwill, state income taxes, net of federal
benefit and the benefit from the use of a foreign sales corporation.
NOTE 6 - NEW ACCOUNTING PRONOUNCEMENT
In February 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS No. 128 establishes a different method of computing earnings per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. SFAS No. 128 introduces the concept of basic earnings per
share, which represents net income divided by the weighted average common shares
outstanding - without the dilutive effects of common stock equivalents (options,
warrants, etc.). SFAS No. 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Earlier application
is not permitted. The Company plans to adopt SFAS No.
6
<PAGE>
128 in its fiscal quarter ending December 31, 1997 and at that time all
historical earnings per share data presented will be restated to conform to the
provisions of SFAS No. 128.
NOTE 7 - STOCK SPLIT
On July 28, 1997, the Board of Directors declared a two-for-one stock
split effected in the form of a stock dividend payable on August 14, 1997, to
shareholders of record as of August 7, 1997. Shareholders' equity has been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying from additional paid-in capital to common stock the par value of
the additional shares arising from the split. All share and per share data
appearing in the consolidated financial statements and notes thereto have been
retroactively adjusted for the stock split.
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 31 surface
mount production lines at its facilities in Angleton, Texas, Beaverton, Oregon,
and Winona, Minnesota.
7
<PAGE>
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 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.
The Company seeks to serve a sufficiently large number of customers to
minimize dependence on any one customer or industry. This strategy was enhanced
by the acquisition of EMD, as there was no customer overlap between the Company
and EMD. Although historically a substantial percentage of the Company's sales
have been to a small number of customers, by successfully undertaking the
transition to serve a much larger and more diversified customer base, the
Company has been able to reduce its dependence on certain significant customers
and lessen the impact of a substantial reduction in business from one such
customer. Nevertheless, during the nine months ended September 30, 1997, the
Company's three largest customers accounted for 55% of the Company's sales.
Although the loss of a major customer could have an adverse effect on the
Company, the Company does not believe that any such effect would be material
unless the Company were unable to replace such customer's business. 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 represented a significant expansion in the scope of
the Company's operations, and the integration and consolidation of EMD into the
Company has and 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
8
<PAGE>
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.
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:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1997 1996 1997 1996
----- ----- ----- -----
Sales ..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ............................. 87.8 89.5 87.8 88.2
----- ----- ----- -----
Gross profit ........................ 12.2 10.5 12.2 11.8
Selling, general and administrative
expense ................................. 3.8 2.9 4.0 3.0
Amortization of goodwill .................. 0.5 0.5 0.5 0.2
----- ----- ----- -----
Income from operations .............. 7.9 7.1 7.7 8.6
Interest income ........................... 0.4 0.1 0.4 0.1
Interest expense .......................... (0.7) (1.0) (0.8) (0.6)
----- ----- ----- -----
Income before income tax expense .... 7.6 6.2 7.3 8.0
Income tax expense ........................ 2.8 2.4 2.8 3.1
----- ----- ----- -----
Net income .......................... 4.8% 3.8% 4.5% 4.9%
===== ===== ===== =====
Sales for the third quarter of 1997 were approximately $83.2 million, a
33.5% increase from sales of approximately $62.3 million for the same quarter of
1996. Sales for the first nine months of 1997 were approximately $237.1 million,
an 87.9% increase from sales of $126.2 million for the same period of 1996. The
increase in sales resulted primarily from increased sales volume from existing
customers, the addition of new customers and the acquisition of EMD on July 30,
1996.
Gross profit increased 54.5% to approximately $10.2 million in the third
quarter of 1997 from approximately $6.6 million in the same quarter of 1996.
Gross profit increased 94.0% to $28.9 million from $14.9 million for the first
nine months of 1996. Gross profit as a percentage of sales increased from 10.5%
for the third quarter of 1996 to 12.2% for the third quarter of 1997. Gross
profit as a percentage of sales increased from 11.8% for the first nine months
of 1996 to 12.2% for the first nine months of 1997. 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
9
<PAGE>
pricing within 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 increase in gross profit as a percentage of sales
during the three and nine month periods ended September 30, 1997 as compared to
the same period in 1996 was due primarily to changes in the product mix and the
initiation of new programs.
Selling, general and administrative expenses were $3.2 million in the
third quarter, an increase of 77.8% from $1.8 million for the same quarter of
1996. Selling, general and administrative expenses were $9.4 million for the
first nine months of 1997, an increase of $147.4% from $3.8 million for the same
period of 1996. Selling, general and administrative expenses as a percentage of
sales increased from 2.9% for the third quarter of 1996 to 3.8% for the third
quarter of 1997. Selling, general and administrative expenses as a percentage of
sales increased from 3.0% for the first nine months of 1996 to 4.0% for the
first nine months of 1997. 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 continued to
add personnel. The increase in selling, general and administrative expenses
during the three and nine month periods of 1997 reflects these additional
personnel and related departmental expense, as well as the additional
administrative expenses resulting from the inclusion of EMD in the full nine
months of 1997. 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.
The amortization of goodwill associated with the acquisition of EMD for
the three and nine month periods ended September 30, 1997 was $417,000, and
$1,252,000, respectively, compared to $293,000 for the same periods of 1996.
Interest expense for the three and nine month periods ended September 30,
1997 was $616,000 and $1,857,000, respectively, which was incurred by the
Company on the debt incurred in connection with the acquisition of EMD. Interest
expense for the three and nine month periods ended September 30, 1996 was
$621,000 and $708,000, respectively.
Interest income was approximately $328,000 and $895,000, respectively, for
the three and nine month periods ended September 30, 1997. Interest income for
the three and nine month periods ended September 30, 1996 was $92,000 and
$130,000, respectively. The increase is due to the investment by the Company of
available cash in interest bearing marketable securities and cash equivalents.
Income tax expense in the third quarter of 1997 was $2,346,000, an
increase of 53.6% from the same period in 1996. 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 its common stock and, during 1996,
funds borrowed under its credit facilities. Prior to the second quarter of 1996
the Company had never borrowed any amounts under its available line of credit.
Cash provided by operating activities was $17.2 million for the nine
months ended September 30, 1997. Cash provided by operations was primarily the
result of increases in net income, depreciation and amortization, and accounts
payable offset by decreases in accrued
10
<PAGE>
liabilities and increases in inventories, accounts receivable, and prepaid
expenses and other current assets. The Company's accounts payable, and
inventories have increased $15.6 million, and $16.4 million, respectively,
during the first nine months of 1997, reflecting the Company's increased sales
during this period. The Company expects continued increases in accounts payable
and inventories to support the anticipated growth in sales. The Company is
continuing the practice of purchasing components only after customer orders are
received, which mitigates, but does not eliminate, the risk of loss on
inventories. Supplies of electronic components and other materials used in
operations are subject to industry-wide shortages. In certain instances,
suppliers may allocate available quantities to the Company. The Company has not
experienced significant supply constraints in the past year nor does it expect
to in the near future.
Cash used in investing activities, consisting primarily of capital
expenditures, was $10.5 million for the nine months ended September 30, 1997.
Capital expenditures were primarily concentrated in test equipment and
computers.
Cash provided by financing activities was $163,000 for the nine months
ended September 30, 1997.
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters. Some risk of costs and liabilities related to these matters is
inherent in the Company's business as with many similar businesses. Management
believes that the Company's business is operated in substantial compliance with
applicable environmental, waste management, health and safety regulations.
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, funds generated from operations, and
borrowings under the Company's credit facility will be sufficient to permit the
Company to meet its liquidity requirements in 1997 and for the foreseeable
future.
The Company does not hold or issue derivative financial instruments in the
normal course of business. Inflation and changing prices have not significantly
affected the Company's operating results or the markets in which the Company
performs services.
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.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal
proceedings.
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 during the three months ended
September 30, 1997.
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, 1997.
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)
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
27 Financial Data Schedule.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAONS CUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,620
<SECURITIES> 0
<RECEIVABLES> 39,771
<ALLOWANCES> 0
<INVENTORY> 64,485
<CURRENT-ASSETS> 127,682
<PP&E> 52,183
<DEPRECIATION> 20,820
<TOTAL-ASSETS> 193,943
<CURRENT-LIABILITIES> 45,881
<BONDS> 30,365
0
0
<COMMON> 1,152
<OTHER-SE> 115,167
<TOTAL-LIABILITY-AND-EQUITY> 193,943
<SALES> 237,062
<TOTAL-REVENUES> 237,062
<CGS> 208,198
<TOTAL-COSTS> 208,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,857
<INCOME-PRETAX> 17,387
<INCOME-TAX> 6,527
<INCOME-CONTINUING> 10,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,860
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
</TABLE>
