SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 to CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): FEBRUARY 23, 1998
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-10560 74-2211011
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3000 TECHNOLOGY DRIVE, ANGLETON, TEXAS 77515
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (409) 849-6550
<PAGE>
The following materials are filed as exhibits to this Current
Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of businesses acquired.
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the Years Ended December 31,
1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
Balance Sheet as of September 30, 1997 (unaudited)
Statements of Income for the Nine Months Ended September
30, 1997 and 1996 (unaudited)
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (unaudited)
Notes to Financial Statements (unaudited)
(b) Pro Forma Financial Statements of Benchmark.
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)
Pro Forma Condensed Combined Statement of Operations for
the Year Ended December 31, 1996 (unaudited)
Pro Forma Condensed Combined Statement of Operations for
the Nine Months Ended September 30, 1997 (unaudited)
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements (unaudited)
(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
2 Purchase Agreement dated as of January 22, 1998 by and between
Benchmark Electronics, Inc. and Lockheed Martin Corporation.
(previously filed)
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<PAGE>
23 Consent of Ernst & Young LLP. (filed herewith)
99 Credit Agreement dated as of February 23, 1998 by and between
Benchmark Electronics, Inc. and Chase Bank of Texas, N. A.
(previously filed)
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<PAGE>
S I G N A T U R E
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 hereunto duly authorized.
BENCHMARK ELECTRONICS, INC.
Dated: March 30, 1998 By: /s/ DONALD E. NIGBOR
-------------------------
Donald E. Nigbor
President
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<PAGE>
ITEM 7(a)
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
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<PAGE>
AUDITED FINANCIAL STATEMENTS
LOCKHEED COMMERCIAL
ELECTRONICS COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
LOCKHEED MARTIN CORPORATION)
As of December 31, 1996 and 1995,
and for each of the three years in
the period ended December 31, 1996
<PAGE>
Lockheed Commercial Electronics Company
(A Wholly-Owned Subsidiary of Lockheed Martin Corporation)
Audited Financial Statements
As of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996
CONTENTS
Report of Independent Auditors................................................1
Audited Financial Statements
Balance Sheets................................................................2
Statements of Income..........................................................3
Statements of Cash Flows......................................................4
Notes to Financial Statements.................................................5
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<PAGE>
Report of Independent Auditors
Board of Directors
Lockheed Martin Corporation
We have audited the accompanying balance sheets of Lockheed Commercial
Electronics Company (the Company) as of December 31, 1996 and 1995, and the
related statements of income, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG
September 16, 1997
Boston, Massachusetts
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<PAGE>
Lockheed Commercial Electronics Company
(A Wholly-Owned Subsidiary of Lockheed Martin Corporation)
Balance Sheets
(IN THOUSANDS)
DECEMBER 31
1996 1995
-------- --------
ASSETS
Current assets:
Cash ..................................................... $ 71 $ 83
Accounts receivable, less allowance for doubtful
accounts of $831 and $200 in 1996 and 1995,
respectively ........................................... 32,781 26,022
Accounts receivable from affiliates ...................... 1,214 2,466
Inventories, net ......................................... 37,949 37,695
Other current assets ..................................... 41 54
-------- --------
Total current assets ....................................... 72,056 66,320
Fixed assets, net .......................................... 19,118 12,961
Goodwill, net .............................................. 34,720 35,894
-------- --------
Total assets ............................................... $125,894 $115,175
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable ......................................... $ 35,478 $ 27,466
Accrued liabilities ...................................... 6,288 4,782
Accounts payable to affiliates ........................... 358 318
-------- --------
Total current liabilities .................................. 42,124 32,566
Due to Parent .............................................. 18,768 22,091
Commitments and contingencies
Shareholder's equity:
Common stock, $1 par value, authorized 10,000
shares, issued 1,000 shares ............................ 1 1
Additional paid-in capital ............................... 57,401 57,401
Retained earnings ........................................ 7,600 3,116
-------- --------
Total shareholder's equity ................................. 65,002 60,518
-------- --------
Total liabilities and shareholder's equity ................. $125,894 $115,175
======== ========
SEE ACCOMPANYING NOTES
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<PAGE>
Lockheed Commercial Electronics Company
(A Wholly-Owned Subsidiary of Lockheed Martin Corporation)
Statements of Income
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
1996 1995 1994
--------------------------------
Net sales ................................. $365,506 $ 221,374 $ 194,073
Cost of sales ............................. 345,311 203,139 176,194
-------- --------- ---------
Gross profit .............................. 20,195 18,235 17,879
Operating expenses:
Selling, general and administrative ..... 6,984 6,218 5,347
Goodwill amortization ................... 1,174 1,174 1,174
Allocations from parent ................. 4,019 1,921 1,968
-------- --------- ---------
Total operating expenses .................. 12,177 9,313 8,489
-------- --------- ---------
Operating income .......................... 8,018 8,922 9,390
Other income (expense) .................... 30 (8) (115)
-------- --------- ---------
Income before income taxes ................ 8,048 8,914 9,275
Provision for income taxes ................ 3,564 3,901 4,039
-------- --------- ---------
Net income ................................ $ 4,484 $ 5,013 $ 5,236
======== ========= =========
SEE ACCOMPANYING NOTES.
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<PAGE>
Lockheed Commercial Electronics Company
(A Wholly-Owned Subsidiary of Lockheed Martin Corporation)
Statements of Cash Flows
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
1996 1995 1994
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................... $ 4,484 $ 5,013 $ 5,236
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization ............... 4,880 3,863 3,234
Loss on sale of fixed assets ............... 8 159
Changes in operating assets and liabilities:
Accounts receivable ...................... (6,759) (5,140) (6,244)
Accounts receivable from affiliates ...... 1,252 (122) 171
Inventories .............................. (254) (10,536) (3,466)
Other assets ............................. 13 (31) 244
Accounts payable ......................... 8,012 9,070 8,445
Accounts payable to affiliates ........... 40 (97) (661)
Accrued liabilities ...................... 1,506 606 1,875
-------- -------- -------
Net cash provided by operating activities ...... 13,182 2,626 8,993
INVESTING ACTIVITIES
Capital expenditures ........................... (9,875) (6,982) (4,348)
Proceeds from sales of fixed assets ............ 4 193 443
-------- -------- -------
Net cash used in investing activities .......... (9,871) (6,789) (3,905)
FINANCING ACTIVITIES
Net cash received from (paid to) parent ........ (3,323) 3,682 (5,253)
-------- -------- -------
Net decrease in cash ........................... (12) (481) (165)
Cash, beginning of period ...................... 83 564 729
-------- -------- -------
Cash, end of period ............................ $ 71 $ 83 $ 564
======== ======== =======
SEE ACCOMPANYING NOTES.
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<PAGE>
1. BACKGROUND AND DESCRIPTION OF BUSINESS
Lockheed Commercial Electronics Company (the Company), a wholly-owned subsidiary
of Lockheed Martin Corporation (Lockheed Martin or the Parent), provides
commercial contract electronics manufacturing services, including materials
acquisition, assembly, and testing of electronic circuit boards and systems, to
companies in the telecommunications, computer peripheral and medical
instrumentation industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company maintains its books using a 52/53 week year, ending on the last
Sunday in the month of December. For purposes of the financial statements, the
year end is stated as of December 31. The years ended December 31, 1996 and 1994
had 52 weeks. The year ended December 31, 1995 had 53 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of revenue and expenses for the years
reported. The most significant of these estimates and assumptions relate to
collectibility of accounts receivable and valuation of inventory. Actual results
could differ from these estimates.
FIXED ASSETS
Fixed assets are stated at cost and depreciated on the straight-line basis over
the estimated useful service lives of the related assets which range from 3 to 8
years.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill, which represents the excess of the cost of purchased businesses over
the fair value of the net assets acquired, is amortized using a straight-line
method over a forty-year period. Accumulated amortization was $12,226 and
$11,052 at December 31, 1996 and 1995, respectively. If facts and circumstances
indicate potential impairment, the Company assesses the recoverability of its
intangible assets based upon estimated undiscounted future cash flows. The
impairment, if any, is measured by the difference between the carrying value and
estimated fair value. Management believes there is no impairment of the recorded
goodwill.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
CONCENTRATION OF CREDIT RISK
The Company sells the majority of its products to companies engaged in the
manufacture and sale of electronic equipment throughout the United States. Sales
to the Company's recurring customers are generally made on an open account term.
The Company performs periodic credit evaluations of its ongoing customers and
generally does not require collateral. Reserves are maintained for potential
credit losses, and such losses have been within management's expectations.
REVENUE RECOGNITION
Revenue from sales of products or services is recognized as products are shipped
or as services are rendered.
WARRANTY
The Company provides warranties on its products for various periods. The Company
reserves for future warranty costs based on historical failure rates and repair
costs. Anticipated costs related to warranties are charged to cost of sales at
the time of shipment.
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<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company's operations are included in the consolidated federal and combined
state income tax returns of the Parent. However, in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), for the purposes of these financial statements, the provision for income
taxes is calculated as if the Company were a separate taxpayer. Accordingly, the
provision for income taxes is based upon the Company's reported income before
income taxes. Income taxes, current and deferred, are considered to have been
paid or charged to Lockheed Martin and are recorded through the Due to Parent
account. Deferred tax assets and liabilities are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
EARNINGS PER SHARE
Earnings per share data has not been presented as historical earnings per share
is not relevant due to the ownership of the Company by a single entity.
3. RELATED-PARTY TRANSACTIONS
The Company is involved in material transactions with Lockheed Martin and its
affiliates as follows:
ALLOCATION OF PARENT EXPENSES
The Company relies on the Parent for certain services, including treasury, cash
management, employee benefits, tax compliance, risk management, internal audit,
financial reporting, contract administration and general corporate services to
the Company. Allocated costs related to these services are included in the
accompanying financial statements and amounted to $4,019, $1,921 and $1,968 in
1996, 1995 and 1994, respectively. These amounts would not be the same had the
Company been an independent entity.
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<PAGE>
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
SUPPORT ARRANGEMENTS
The Company has entered into informal support arrangements with the Parent. The
arrangements provide, among other things, that the Parent undertake to provide
certain services for and at the request of the Company including, but not
limited to, administration of the pension and savings plan, legal and other
general administrative services and group medical, liability and worker's
compensation insurance. Administrative fees allocated to the Company for these
services were $72, $45 and $39 for 1996, 1995 and 1994, respectively. The Parent
also has a centralized domestic cash management system whereby the Company's
cash surplus is transferred to the Parent's accounts on a daily basis and cash
disbursements are funded by the Parent, as needed, to maintain the disbursement
account at a zero balance.
The Due to Parent represents the net of the following transactions:
Cash advances to and from the Parent in connection with the cash management
system.
Federal and state income taxes payable to the Parent.
Other intercompany balances payable.
Employee benefit and insurance liabilities.
RETIREMENT PLANS
The Company's employees participate in a Lockheed Martin-sponsored contributory
defined benefit retirement plan covering employees from multiple operating units
of Lockheed Martin. The Parent's funding policy is to make contributions at
amounts that are tax deductible in accordance with Internal Revenue Code
regulations. Benefits generally are based on the employees' compensation and
years of service.
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<PAGE>
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
Net periodic expense includes the following components:
1996 1995 1994
------------------------------
Service cost--benefits earned during
the period ................................. $ 922 $ 688 $ 554
Interest cost on projected benefit
obligation ................................. 759 649 587
Return on plan assets ........................ (2,474) (3,645) (144)
Net amortization and deferral ................ 980 2,084 (825)
Employee contributions ....................... (166) (169) (160)
------------------------------
Net periodic pension expense (benefit) ....... $ 21 $ (393) $ 12
------------------------------
The accrued pension liability in 1996 and 1995 is included in Due to Parent on
the accompanying balance sheets and consists of the following:
1996 1995
-----------------------
Actuarial present value of projected benefit obligation:
Accumulated benefit obligation:
Vested ....................................... $ (6,892) $ (6,759)
Nonvested .................................... (521) (986)
Provision for future salary increases .......... (2,597) (1,680)
-----------------------
Projected benefit obligation ................... (10,010) (9,425)
Plan assets at fair value (primarily equity
and fixed income securities) ..................... 18,245 16,144
-----------------------
Excess of plan assets over projected
benefit obligation ............................... 8,235 6,719
Unrecognized net gain ............................ (10,426) (8,351)
Unrecognized prior service costs ................. 202 241
Unrecognized asset at transition, less
amortization at end of year .................... (350) (623)
-----------------------
Accrued pension liability .......................... $ (2,339) $ (2,014)
======================
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<PAGE>
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
The major assumptions used in accounting for the plan were:
1996 1995
---------------------
Discount rate .......................................... 7.8% 7.5%
Rate of increase in compensation levels ................ 5.0-8.5% 5.0-8.5%
Expected long-term rate of return on plan
assets ............................................... 9.0% 8.0%
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company's employees also participate in Lockheed Martin-sponsored health
care and life insurance plans for certain retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the defined plan eligibility requirements. These benefits are
funded primarily on a pay-as-you-go basis with the retiree generally paying a
portion of the cost through contributions, deductibles and coinsurance
provisions. Postretirement benefit expense included in the accompanying
financial statements was $360, $258 and $226 in 1996, 1995 and 1994,
respectively. The accrued postretirement benefit liability included in the Due
to Parent account was $1,460 and $2,086 at December 31, 1996 and 1995,
respectively.
Postretirement benefit expense includes the following components:
1996 1995 1994
----- ----- -----
Service cost--benefits earned during
the year .................................... $ 237 $ 158 $ 148
Interest cost on accumulated
postretirement benefit obligation ........... 207 145 108
Return on plan assets ......................... (84) (45) (30)
----- ----- -----
Postretirement benefit expense ................ $ 360 $ 258 $ 226
===== ===== =====
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<PAGE>
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
An analysis of the funded status and liability for the postretirement benefit
plan was as follows:
1996 1995
------- -------
Actuarial present value of benefit obligations:
Retirees: ........................................... $(1,300) $(1,501)
Actives:
Employees eligible to retire ...................... (395) (360)
Employees not eligible to retire .................. (1,136) (1,045)
------- -------
Accumulated postretirement benefit
obligation (APBO) ............................. (2,831) (2,906)
Plan assets at fair value ............................. 1,371 820
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets ................. $(1,460) $(2,086)
======= =======
The major assumptions used in accounting for the plan were:
1996 1995
------- -------
Discount rate ......................................... 7.8% 7.5%
Expected long-term rate of return on
plan assets ......................................... 9.0% 8.0%
The medical trend rates used in measuring the APBO were 7.5% in 1996 and 8.0% in
1995, and were assumed to gradually decrease to 4.5% by the year 2004. An
increase of one percentage point in the assumed medical trend rates would result
in an increase in the APBO of approximately 8.2% at December 31, 1996 and a 1996
post-retirement benefit cost increase of approximately 9.9%.
EMPLOYEE SAVINGS PLAN
Under various employee savings plans sponsored by Lockheed Martin, the Company
matches the contributions of participating employees up to a designated level.
The extent of the match, vesting terms and the form of the matching contribution
vary among the plans. Under these plans, the matching contributions, in cash,
Lockheed Martin common stock or both, reflected in the accompanying financial
statements for 1996, 1995 and 1994 were $512, $422 and $438, respectively.
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<PAGE>
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
INTEREST EXPENSE
Consistent with the Parent's current practice of not allocating interest expense
to its wholly-owned operating divisions and subsidiaries, the financial
statements do not include a charge for interest for any of the periods
presented.
NET SALES TO AFFILIATES
In 1996, 1995 and 1994, the Company recorded $15,688, $16,504 and $13,442,
respectively, of net sales to Lockheed Martin and its affiliates.
OTHER
The Company leases its manufacturing facility from the Parent (see Note 9).
Building lease expense reflected in the accompanying financial statements for
1996, 1995 and 1994 was $376, $382 and $408, respectively. The Company also
subleases a portion of the building to the Parent under the terms of an
agreement which is renewable annually and which amounted to $98, $109, and $117
for the years ended December 31, 1996, 1995 and 1994, respectively.
4. FIXED ASSETS
Fixed assets consist of the following at:
DECEMBER 31
-------------------
1996 1995
------- -------
Machinery and equipment ........................ $39,657 $30,745
Furniture and fixtures ......................... 1,658 1,658
------- -------
41,315 32,403
Less accumulated depreciation .................. 22,197 19,442
------- -------
$19,118 $12,961
======= =======
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<PAGE>
5. INVENTORIES
Inventories, net consist of the following:
DECEMBER 31,
1996 1995
------- -------
Raw materials .................................... $22,778 $26,862
Work in process and finished goods ............... 15,171 10,833
------- -------
$37,949 $37,695
======= =======
6. INCOME TAXES
The provision for income taxes consists of the following for the years ended
December 31:
1996 1995 1994
------ ------ -------
Federal income taxes
Current ............................... $2,853 $2,786 $ 3,824
Deferred .............................. 66 408 (534)
------ ------ -------
Total federal income taxes ........... 2,919 3,194 3,290
State income taxes
Current ............................... 630 616 867
Deferred .............................. 15 91 (118)
------ ------ -------
Total state income taxes ............. 645 707 749
------ ------ -------
Provision for income taxes ............... $3,564 $3,901 $ 4,039
====== ====== =======
The following is a reconciliation of the difference between the statutory tax
rate and the effective tax rate:
1996 1995 1994
------ ------ ------
Statutory federal tax rate ....................... 34.0% 34.0% 34.0%
Increase in tax rate resulting from:
Goodwill amortization ......................... 5.0 4.5 4.4
State income taxes, net of federal income
tax benefit ............................... 5.3 5.2 5.2
Other ......................................... -- .1 --
------ ------ ------
Effective tax rate ............................... 44.3% 43.8% 43.6%
====== ====== ======
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6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components of
the Company's deferred tax assets and liabilities at December 31, 1996 and 1995
which are included in the Due to Parent in the accompanying financial statements
were as follows:
1996 1995
------ ------
Deferred tax assets related to:
Accrued compensation and benefits ................. $ 931 $ 838
Inventory ......................................... 1,924 1,647
Other ............................................. 897 714
------ ------
3,752 3,199
Deferred tax liabilities related to:
Fixed assets ...................................... 2,014 1,380
------ ------
Net deferred tax asset .......................... $1,738 $1,819
====== ======
The Company believes that it is more likely than not that the net deferred tax
asset will be realized through future reduced income tax payments to the Parent.
7. INDUSTRY AND SIGNIFICANT CUSTOMERS
INDUSTRY
The Company operates primarily in one industry segment, contract manufacturing,
with sales to customers in the United States and Europe. Approximately 86% of
the Company's net sales in 1996 were in the United States and the remaining 12%
were export sales. Export sales were less than 10% in 1995 and 1994.
SIGNIFICANT CUSTOMERS
As a percentage of net sales, net sales to significant customers were as
follows:
1996 1995 1994
---- ---- ----
EMC .................................. 49% 51% 61%
Shiva Corporation .................... 11% 7% 4%
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<PAGE>
7. INDUSTRY AND SIGNIFICANT CUSTOMERS (CONTINUED)
Accounts receivable pertaining to these customers as a percentage of total trade
accounts receivable were as follows at December 31:
1996 1995 1994
---- ---- ----
EMC .................................. 33% 37% 52%
Shiva Corporation .................... 14% 13% 9%
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment under noncancellable operating leases.
Leases covering major items of equipment contain renewal and/or fair market
value purchase options which may be exercised by the Company. The Company also
leases a building from an affiliate of the Parent. At December 31, 1996, future
minimum payments for operating leases with initial or remaining terms in excess
of one year were as follows:
BUILDING EQUIPMENT TOTAL
-------- --------- ------
1997 $ 376 $ 398 $ 774
1998 376 398 774
1999 262 327 589
2000 254 -- 254
2001 254 -- 254
Thereafter 190 -- 190
------ ------ ------
$1,712 $1,123 $2,835
====== ====== ======
Rent expense related to all operating leases was $621, $590 and $519 in 1996,
1995 and 1994, respectively.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims which arise
during the ordinary course of business. In the opinion of management, the
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations or cash flows of the
Company.
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<PAGE>
UNAUDITED FINANCIAL STATEMENTS
LOCKHEED COMMERCIAL
ELECTRONICS COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
LOCKHEED MARTIN CORPORATION)
As of September 30, 1997, and for
the nine-month periods ended September 30,
1997 and 1996
<PAGE>
Balance Sheet
(IN THOUSANDS)
SEPTEMBER 30,
1997
----------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 57
Accounts receivable, less allowance for
doubtful accounts of $1,481 23,475
Accounts receivable from affiliates 1,013
Inventories, net 37,143
Other current assets 100
-------------
Total current assets 61,788
Fixed assets, net 17,549
Goodwill, net 33,840
-------------
Total Assets $ 113,177
=============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 18,947
Accrued liabilities 4,613
Accounts payable to affiliates 357
-------------
Total current liabilities 23,917
Due to Parent 23,574
Commitments and Contingencies
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, authorized 10,000
shares, issued 1,000 shares 1
Additional paid in capital 57,401
Retained earnings 8,284
------------
Total shareholder's equity 65,686
------------
Total Liabilities and Shareholder's Equity $ 113,177
============
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
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<PAGE>
Statements of Income
(IN THOUSANDS)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
1997 1996
------- -------
(Unaudited)
Net sales ....................................... $214,225 $272,545
Cost of sales ................................... 204,493 259,254
------- -------
Gross profit .................................... 9,732 13,291
Operating expenses:
Selling, general and administrative .......... 4,655 4,876
Goodwill amortization ........................ 880 880
Allocations from Parent ................... 2,882 3,014
------- -------
Total operating expenses ................ 8,417 8,770
------- -------
Operating income ................................ 1,315 4,521
Other income .................................... 42 457
------- -------
Income before income taxes ...................... 1,357 4,978
Provision for income taxes ...................... 673 2,206
------- -------
Net income ...................................... $ 684 $ 2,772
======= =======
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
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<PAGE>
Statements of Cash Flows
(IN THOUSANDS)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
1997 1996
---------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 684 $ 2,772
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization ....................... 3,815 3,613
(Gain) loss on sale of fixed assets .............. 5
Changes in operating assets and liabilities:
Accounts receivable ............................ 9,306 (20,284)
Accounts receivable from affiliates ............ 201 1,271
Inventories .................................... 806 (5,898)
Other assets ................................... (59) 24
Accounts payable ............................... (16,533) 10,982
Accounts payable to affiliates ................. (1) (102)
Accrued liabilities ............................ (1,675) (980)
---------------------
Net cash used by operating activities ............ (3,456) (8,992)
INVESTING ACTIVITIES
Capital expenditures ................................... (1,364) (9,603)
---------------------
FINANCING ACTIVITIES
Net cash received from parent .......................... 4,806 19,901
---------------------
Net increase (decrease) in cash ........................ (14) 1,306
Cash, beginning of period .............................. 71 83
---------------------
Cash, end of period .................................... 57 1,389
=====================
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
-3-
<PAGE>
September 30, 1997
NOTES TO UNAUDITED INTERIM INFORMATION
1. UNAUDITED INTERIM INFORMATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. The accompanying unaudited financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and, therefore, should
be read in conjunction with the audited financial statements.
2. INVENTORIES
Inventories, net consist of the following:
Raw materials 26,154
Work in process and finished goods 10,989
------------------
37,143
==================
3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims which arise
during the ordinary course of business. In the opinion of management, the
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations or cash flows of the
Company.
4. SUBSEQUENT EVENT
On February 23, 1998, Lockheed Commercial Electronics Company was sold to
Benchmark Electronics, Inc. for a purchase price of $70 million.
-4-
<PAGE>
Item 7(b)
PRO FORMA FINANCIAL STATEMENTS OF BENCHMARK
-5-
<PAGE>
BENCHMARK ELECTRONICS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed combined financial statements
(unaudited) are based upon (i) the historical consolidated financial statements
of Benchmark included in its Annual Report on Form 10-K for the year ended
December 31, 1996 and the Form 10-Q for the period ended September 30, 1997
previously filed by Benchmark with the Securities and Exchange Commission and
(ii) the historical financial statements of Lockheed Commercial Electronics
Company (LCEC) which are included elsewhere in this report, and should be read
in conjunction with such financial statements and notes thereto.
The historical condensed balance sheets present the financial position
of Benchmark and LCEC as of September 30, 1997. The unaudited pro forma
condensed combined balance sheet as of September 30, 1997 assumes the
acquisition of LCEC by Benchmark occurred as of that date.
The unaudited pro forma condensed combined statements of operations for
the year ended December 31, 1996 and the nine-months ended September 30, 1997
were prepared assuming that the acquisition of LCEC and EMD by Benchmark was
consummated as of January 1, 1996. The unaudited pro forma condensed combined
statements of operations give effect to (i) the acquisition under the purchase
method of accounting and (ii) certain estimated operational and financial
combination benefits that are a direct result of the acquisition.
The unaudited pro forma condensed combined financial statements have
been prepared based upon assumptions deemed appropriate by Benchmark and may not
be indicative of actual results of the future operations of the combined
companies.
The allocation of the purchase price is, in certain instances, based on
preliminary information and is therefore subject to revision when additional
information concerning asset and liability valuations is obtained. In the
opinion of Benchmark's management, such asset and liability valuations will not
be materially different from those shown in the accompanying condensed pro forma
financial statements.
-6-
<PAGE>
Benchmark Electronics, Inc.
Pro Forma Condensed Combined Balance Sheet
As of September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ------------------------
PRO FORMA
BENCHMARK LCEC COMBINED
9/30/97 9/30/97 ADJUSTMENTS 9/30/97
------- ------- ----------- -------
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 20,620 $ 57 $ (19,457)(e) $ 1,220
Accounts receivable, net ............................. 39,771 23,475 63,246
Accounts receivable from affiliates .................. -- 1,013 1,013
Inventories .......................................... 64,485 37,143 101,628
Prepaid expenses and other assets .................... 1,715 100 1,815
Deferred tax asset ................................... 1,091 -- 3,988(e) 5,079
--------- --------- --------- --------
Total current assets .............................. 127,682 61,788 (15,469) 174,001
--------- --------- --------- --------
Net property, plant and equipment ........................ 31,363 17,549 48,912
Goodwill, net ............................................ 23,098 33,840 (33,840)(e) 37,491
14,393 (e)
Marketable securities .................................... 11,543 -- (11,543)(e) --
Other assets ............................................. 257 -- 257
--------- --------- --------- --------
$ 193,943 $ 113,177 $ (46,459) $260,661
========= ========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................... $ 182 $ -- $ $ 182
Accounts payable ..................................... 39,948 18,947 58,895
Accrued liabilities .................................. 5,712 4,613 10,325
Accounts payable to affiliates ....................... -- 357 357
Income taxes payable ................................. 39 -- 39
--------- --------- --------- --------
Total current liabilities ......................... 45,881 23,917 -- 69,798
--------- --------- --------- --------
Long-term debt, less current portion ..................... 30,365 -- 40,000(e) 70,365
Deferred tax liability ................................... 1,378 -- 2,801(e) 4,179
Due to parent ............................................ -- 23,574 (23,574)(e) --
--------- --------- --------- --------
Total liabilities ................................. 77,624 47,491 19,227 144,342
Shareholders' Equity
Preferred shares ..................................... -- -- --
Common shares ........................................ 1,152 1 (1) (e) 1,152
Additional paid-in capital ........................... 69,089 57,401 (57,401) (e) 69,089
Retained earnings .................................... 46,198 8,284 (8,284) (e) 46,198
Less treasury shares, at cost ........................ (120) -- (120)
--------- --------- --------- --------
Total shareholders' equity ........................ 116,319 65,686 65,686 116,319
--------- --------- --------- --------
$ 193,943 $ 113,177 $ 46,459 $260,661
========= ========= ========= ========
</TABLE>
See accompanying notes to pro forma condensed financial statements
-7-
<PAGE>
Benchmark Electronics, Inc.
Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------- ------------------------------------------
EMD
BENCHMARK SEVEN MONTHS
CONSOLIDATED PRIOR TO LCEC
YEAR ENDED ACQUISITION TWELVE MONTHS EMD LCEC COMBINED
12/31/96 7/31/96 12/31/96 ADJUSTMENTS ADJUSTMENTS 12/31/96
-------- ------- -------- ----------- ----------- --------
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Sales ....................................... $201,296 $91,002 $365,506 $657,804
Cost of sales ............................... 177,981 83,997 345,311 607,289
-------- ------- -------- --------
Gross profit ................................ 23,315 7,005 20,195 50,515
Selling, general & administrative
expenses ................................ 7,228 4,524 11,003 (233)(a) 22,522
Amortization of goodwill .................... 696 -- 1,174 974 (b) (214)(f) 2,630
-------- ------- -------- ----------- ----------- --------
Income from operations ...................... 15,391 2,481 8,018 (741) (214) 25,363
Interest and other income ................... 534 758 30 (170)(g) 1,152
Interest expense ............................ (1,442) (803) (1,727)(c) (2,700)(h) (6,672)
-------- ------- -------- ----------- ----------- --------
Income before taxes ......................... 14,483 2,436 8,048 (2,468) (2,656) 19,843
Income taxes ................................ 5,619 840 3,564 (580)(d) (1,048)(i) 8,396
-------- ------- -------- ----------- ----------- --------
Net income .................................. $ 8,864 $ 1,596 $ 4,484 $ (1,888) $ (1,608) $11,447
======== ======= ======== =========== =========== ========
Earnings per common share -
Diluted.................................. $ 0.96 $ 1.08
Earnings per common share -
Basic.................................... $ 0.99 $ 1.11
Wtd Avg Common Shares O/S -
Diluted.................................. 9,222 10,572
Wtd Avg Common Shares O/S -
Basic.................................... 8,976 10,326
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
-8-
<PAGE>
Benchmark Electronics, Inc.
Pro Forma Condensed Combined Statement of Operations
As of September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------------------
BENCHMARK
CONSOLIDATED LCEC PRO FORMA
NINE MONTHS NINE MONTHS COMBINED
9/30/97 9/30/97 ADJUSTMENTS 9/30/97
------- ------- ----------- -------
($ in thousands, except per share amounts)
<S> <C> <C> <C>
Sales ............................................... $ 237,062 $ 214,225 $ 451,287
Cost of sales ....................................... 208,198 204,493 412,691
--------- --------- --------- -------
Gross profit ........................................ 28,864 9,732 38,596
Selling, general & administrative
expenses ....................................... 9,394 7,537 16,931
Amortization of goodwill ............................ 1,252 880 (160)(f) 1,972
--------- --------- --------- -------
Income from operations .............................. 18,218 1,315 (160) 19,693
Interest and other income ........................... 1,026 42 (849)(g) 219
Interest expense .................................... (1,857) (2,025)(h) (3,882)
--------- --------- --------- -------
Income before taxes ................................. 17,387 1,537 (2,714) 16,030
Income taxes ........................................ 6,527 673 (759)(i) 6,441
--------- --------- --------- -------
Net income .......................................... $ 10,860 $ 684 $ (1,955) $ 9,589
Earnings per common share - Diluted ................. $ 0.90 $ 0.80
Earnings per common share - Basic ................... $ 0.94 $ 0.83
Wtd Avg Common Shares O/S - Diluted ................. 12,021 12,021
Wtd Avg Common Shares O/S - Basic ................... 11,494 11,494
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
-9-
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
On February 23, 1998, Benchmark acquired all of the outstanding stock of
Lockheed Commercial Electronics Company (LCEC), located in Hudson, New
Hampshire, for $70 million in cash, a portion of which was funded by
bank debt.
On July 30, 1996, Benchmark acquired the outstanding stock of EMD
Technologies, Inc. (EMD). This business, headquartered in Winona,
Minnesota, was acquired for 1,349,928 shares of common stock,
$30,447,033 in cash and approximately $2,200,000 in acquisition costs.
These acquisitions are accounted for using the purchase method of
accounting for business combinations. Each of Benchmark's, EMD's and
LCEC's fiscal years end December 31.
2. PRO FORMA ADJUSTMENTS
EMD PRO FORMA ADJUSTMENTS
a. The adjustment to selling, general and administrative expense
reflects the estimated cost savings realized through
consolidation of duplicative executive functions as a direct
result of the merger.
b. The adjustment to amortization expense reflects the amortization
of goodwill incurred in connection with the transaction over an
estimated useful life of 15 years. Goodwill recorded represents
the purchase price in excess of the fair value of assets acquired
of EMD. The application of purchase accounting was based on a
total purchase price of $53,165,975.
c. The adjustment to interest expense reflects the additional
interest expense, at an interest rate of 8% per annum, which
reflects the interest rate on the debt incurred in connection
with the transaction.
d. The adjustment to income taxes reflects the tax effect (federal
and state) associated with the above pro forma adjustments.
LCEC PRO FORMA ADJUSTMENTS
e. The pro forma entries to cash and cash equivalents, goodwill,
deferred taxes, marketable securities, debt, due to Parent and
equity reflect the application of purchase accounting based on a
total purchase price of $70,000,000 plus approximately
$1,000,000 of estimated closing costs, which include
professional and financial advisory fees. Goodwill recorded
represents the purchase price in excess of the fair value of
assets acquired of LCEC. The debt entries record the borrowing
used to finance the acquisition.
f. The adjustment to amortization expense reflects the amortization
of goodwill incurred in connection with the acquisition over an
estimated useful life of 15 years net of reversal of LCEC
goodwill amortization.
g. The adjustment to interest and other income reflects the loss of
interest income from the use of investments for a portion of the
acquisition purchase price.
h. The adjustment to interest expense reflects the additional
interest expense, at an interest rate of 6.75% per annum, which
reflects rates currently available to the Company, on the debt
incurred in connection with the acquisition.
i. The adjustment to income taxes reflects the tax effect (federal
and state) associated with the above pro forma adjustments.
-10-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
23 Consent of Ernst & Young LLP.
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-61660, 333-28997 and 333-26805) of Benchmark
Electronics, Inc. of our report dated September 16, 1997, with respect to the
balance sheets of Lockheed Commercial Electronics Company as of December 31,
1996 and 1995, and the related statements of income, and cash flows for each of
the three years in the period ended December 31, 1996, which report appears in
this Amendment No. 1 to Current Report of Benchmark Electronics, Inc. for Form
8-K/A dated February 23, 1998.
Ernst & Young LLP
Boston, Massachusetts
March 25, 1998
<PAGE>
