================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 7, 2000
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 1-10560 74-2211011
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Indentification No.)
3000 TECHNOLOGY DRIVE, ANGLETON, TEXAS 77515
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (409) 849-6550
================================================================================
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Independent Auditors' Report
AVEX Electronics, Inc. Combined Balance Sheets as of December 31, 1997
and 1998
AVEX Electronics, Inc. Combined Statements of Operations for the Years
Ended December 31, 1996, 1997, and 1998
AVEX Electronics, Inc. Combined Statements of Comprehensive Income
(Loss) for the Years ended December 31, 1996, 1997, 1998
AVEX Electronics, Inc. Combined Statements of Stockholders' (Deficit)
Equity for the Years Ended December 31, 1996, 1997, 1998
AVEX Electronics, Inc. Combined Statements of Cash Flows for the Years
Ended December 31, 1996, 1997, and 1998
Notes to Financial Statements
AVEX Electronics, Inc. Condensed Combined Balance Sheet as of June 30,
1999 (unaudited)
AVEX Electronics, Inc. Condensed Combined Statements of Operations for
the six months ended June 30, 1999 and 1998 (unaudited)
AVEX Electronics, Inc. Condensed Combined Statements of Comprehensive
Loss for the six months ended June 30, 1999 and 1998 (unaudited)
AVEX Electronics, Inc. Condensed Combined Statements of Cash Flows for
the six months ended June 30, 1999 and 1998 (unaudited)
Notes to Financial Statements (unaudited)
1
<PAGE>
SIGNATURE
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.
By: /s/ GAYLA J. DELLY
GAYLA J. DELLY
TREASURER
Dated: April 7, 2000
2
<PAGE>
ITEM 7(a)
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AVEX Electronics, Inc.:
We have audited the accompanying combined balance sheets of AVEX
Electronics, Inc., its subsidiaries, and certain related companies (all
ultimately wholly owned by J. M. Huber Corporation) as of December 31, 1998 and
1997, and the related combined statements of operations, comprehensive income
(loss), stockholders' (deficit) equity, and cash flows for each of the years in
the three-year period ended December 31, 1998. These combined financial
statements are the responsibility of the Companies' managements. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of AVEX Electronics,
Inc., its subsidiaries, and certain related companies as of December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Atlanta, Georgia
January 28, 1999
4
<PAGE>
AVEX ELECTRONICS, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------
1998 1997
------------ ----------
ASSETS
Current assets:
Cash and cash equivalents....... $ 10,306 $ 3,388
Marketable securities........... 232 310
Trade accounts receivable, net
of allowance for doubtful
accounts of $4,815 in 1998 and
$1,143 in 1997................. 154,280 136,638
Inventories, net................ 115,427 87,769
Notes and other receivables..... 844 4,909
Other current assets............ 1,660 7,802
------------ ----------
Total current assets....... 282,749 240,816
Property, plant, and equipment, net
of accumulated depreciation........ 86,294 78,560
Other noncurrent assets.............. 5,788 5,855
------------ ----------
$ 374,831 $ 325,231
============ ==========
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Notes payable................... $ 13,807 $ --
Current installments of
long-term debt................. 500 500
Trade accounts payable.......... 169,738 113,783
Accrued foreign taxes........... 616 768
Accrued expenses................ 37,774 21,230
Notes payable to Huber.......... 209,329 157,229
------------ ----------
Total current
liabilities............. 431,764 293,510
Long-term debt, excluding current
installments....................... 45 545
Pension liability.................... 1,716 1,716
Long-term debt, payable to Huber..... 3,878 4,425
Deferred income taxes................ 26 6,267
------------ ----------
Total liabilities.......... 437,429 306,463
------------ ----------
Stockholders' (deficit) equity:
Common stock.................... 1 1
Additional paid-in capital...... 41,662 39,080
Accumulated deficit............. (101,831) (17,405)
Accumulated other comprehensive
loss........................... (2,430) (2,908)
------------ ----------
Total stockholders'
(deficit) equity........ (62,598) 18,768
Commitments and contingencies........
------------ ----------
$ 374,831 $ 325,231
============ ==========
See accompanying notes to the combined financial statements.
5
<PAGE>
AVEX ELECTRONICS, INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Net sales............................ $ 841,045 686,962 717,124
Cost of sales........................ 857,407 667,714 661,730
---------- ---------- ----------
Gross profit (loss)........ (16,362) 19,248 55,394
Selling, general, and administrative
expenses........................... 37,040 28,025 27,665
Selling, general and administrative
expenses -- billed by parent....... 4,400 4,700 4,900
Research and development costs....... 2,925 1,979 1,612
Restructuring charge................. 15,687 -- --
---------- ---------- ----------
Income (loss) from
operations............... (76,414) (15,456) 21,217
Sundry (income) expense.............. 391 (1,150) (210)
Interest income...................... (275) (282) (495)
Interest expense..................... 1,912 303 1,319
Interest expense -- billed by
parent............................. 9,100 4,200 4,400
---------- ---------- ----------
Earnings (loss) before
income taxes............. (87,542) (18,527) 16,203
Income tax expense (benefit)......... (3,348) (2,767) 5,643
---------- ---------- ----------
Net earnings (loss).................. $ (84,194) (15,760) 10,560
========== ========== ==========
See accompanying notes to combined financial statements.
6
<PAGE>
AVEX ELECTRONICS, INC.
COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- --------- ----------
Net earnings (loss).................. $ (84,194) (15,760) 10,560
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments................... 556 (2,303) 2,011
Unrealized holding gains
(losses) on securities........ (78) -- 150
---------- --------- ----------
Comprehensive income (loss).......... $ (83,716) (18,063) 12,721
========== ========= ==========
See accompanying notes to the combined financial statements.
7
<PAGE>
AVEX ELECTRONICS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
COMMON SHARES ADDITIONAL EARNINGS OTHER
------------- PAID-IN ACCUMULATED COMPREHENSIVE
AMOUNTS CAPITAL DEFICIT LOSS TOTAL
------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... $ 1 35,830 (6,415) (2,766) 26,650
Net earnings......................... -- -- 10,560 -- 10,560
Deemed contribution from Huber for
income taxes....................... -- 3,250 -- -- 3,250
Unrealized gain on securities........ -- -- -- 150 150
Currency translation adjustment...... -- -- -- 2,011 2,011
Other................................ -- -- 134 -- 134
------------- ---------- ----------- ------------- ---------
Balance at December 31, 1996......... 1 39,080 4,279 (605) 42,755
Net loss............................. -- -- (15,760) -- (15,760)
Dividends............................ -- -- (1,239) -- (1,239)
Deemed distribution to Huber for
income taxes....................... -- -- (4,690) -- (4,690)
Currency translation adjustment...... -- -- -- (2,303) (2,303)
Other................................ -- -- 5 -- 5
------------- ---------- ----------- ------------- ---------
Balance at December 31, 1997......... 1 39,080 (17,405) (2,908) 18,768
Net loss............................. -- -- (84,194) -- (84,194)
Deemed contribution from Huber for
income taxes....................... -- 2,582 -- -- 2,582
Unrealized loss on securities........ -- -- -- (78) (78)
Currency translation adjustment...... -- -- -- 556 556
Other................................ -- -- (232) -- (232)
------------- ---------- ----------- ------------- ---------
Balance at December 31, 1998......... $ 1 41,662 (101,831) (2,430) (62,598)
============= ========== =========== ============= =========
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
AVEX ELECTRONICS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Cash flows from operating activities:
Net earnings (loss)................ $ (84,194) (15,760) 10,560
Adjustments to reconcile net
earnings (loss) to net cash
(used in) provided by operating
activities:
Depreciation and
amortization............... 23,748 21,710 18,902
Other......................... (6,241) (641) (160)
(Increase) decrease in:
Inventories................ (27,658) (28,313) 3,474
Accounts receivable........ (17,642) (53,156) 9,330
Other current assets....... 10,352 (12,032) (2,273)
Increase (decrease) in:
Trade accounts payable..... 55,955 36,002 6,074
Other current
liabilities............. 16,392 (3,108) 11,316
---------- ---------- ----------
Net cash (used in)
provided by
operations.......... (29,288) (55,298) 57,223
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant, and
equipment....................... (22,882) (26,282) (21,760)
Acquisition of business............ (8,600) -- --
---------- ---------- ----------
Net cash used in
investing
activities......... (31,482) (26,282) (21,760)
---------- ---------- ----------
Cash flows from financing activities:
Repayments to Huber................ -- -- (36,208)
Repayments on notes payable........ -- (27,740) --
Contribution from Huber for income
taxes........................... 2,582 -- 3,250
Proceeds from notes payable........ 13,307 -- 1,142
Proceeds from Huber................ 51,553 111,888 --
Other.............................. 246 (2,298) 2,295
Distribution to Huber for income
taxes........................... -- (4,690) --
Dividends.......................... -- (1,239) --
---------- ---------- ----------
Net cash provided by
(used in) financing
activities......... 67,688 75,921 (29,521)
---------- ---------- ----------
Net change in cash.... 6,918 (5,659) 5,942
Cash and cash equivalents, beginning
of year............................ 3,388 9,047 3,105
---------- ---------- ----------
Cash and cash equivalents, end of
year............................... $ 10,306 3,388 9,047
========== ========== ==========
Supplemental disclosures of cash flow
information:
Income taxes paid................ $ 1,271 2,218 137
========== ========== ==========
Interest paid.................... $ 1,105 181 162
========== ========== ==========
See accompanying notes to the combined financial statements.
9
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
Avex Electronics, Inc. (together with its subsidiaries and related
companies, herein referred to as the Company) is an independent provider of
contract manufacturing and design services to original equipment manufacturers
(OEMs) in select industries, including the telecommunication, communications,
computer and consumer industries. The Company offers a full range of services
including product design, printed circuit board (PCB) assembly and fabrication,
material procurement, inventory management, final system assembly, and testing
and packaging. The components, subassemblies and finished products manufactured
by the Company incorporate advanced interconnect, miniaturization and packaging
technologies such as surface mount (SMT), multichip modules (MCM) and
chip-on-board (COB) technologies. The Company is headquartered in Huntsville,
Alabama, and has manufacturing operations in North and South America, Europe and
Asia.
The Company is wholly owned by J. M. Huber Corporation (J. M. Huber
Corporation and its non-AVEX affiliates are herein referred to as "Huber").
Huber has provided the Company with substantial amounts of debt and equity and
may be required (and has committed to do so) to provide additional debt/equity
in the future. Huber provides financing and other corporate services in return
for a fee. See Note 10 -- Related Party Transactions.
(B) PRINCIPLES OF COMBINATION
The combined financial statements include the financial statements of Avex
Electronics, Inc. and its wholly owned subsidiaries as well as the subsidiaries
of Huber that are managed by the Company. These statements have been prepared as
a combination of entities under the control of the Company's management rather
than a consolidation of subsidiaries legally owned by the Company. All
significant intercompany balances and transactions have been eliminated in the
combined statements. The following is a summary of the outstanding and
authorized shares of all companies included in these combined financial
statements:
SHARES SHARES
OUTSTANDING AUTHORIZED
----------- ----------
Avex Elektronikai Termekeket Gyarto
Vamszabadterulrtl Kft................. 3,000,000 3,000,000
Avex Electronics Ltd.................... 4,901,000 5,000,000
Avex Electronics Inc.................... 1,000 5,000
Avex Electronics do Brazil Ltda......... 1,000 1,000
Burle Caribe Holdings Limited........... 1,994,988 2,000,000
Burle Cayman Holdings Limited........... 1,994,988 2,000,000
Avex Electronics Ireland................ 3,989,974 6,000,000
Avex Electronics Servicios.............. 3,000 3,000
Avex Electronics de Mexico.............. 3,000 3,000
Avex Liberty Inc........................ 10 3,000
Avex Constitution Inc................... 10 3,000
Avex Electronics AB..................... 7,500 2,000,000
Avex Holdings Inc....................... 10 3,000
Avex International Corporation.......... 100 1,000
Avex Electronics Pte. Ltd............... 2,000,000 2,000,000
All dollar amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated.
10
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(C) CASH AND CASH EQUIVALENTS
Cash equivalents of $2.4 million and $-0- at December 31, 1998 and December
31, 1997 consist of overnight deposits. For purposes of the statements of cash
flows and balance sheet presentation, the Company considers all highly liquid
debt instruments with original maturities of three months or less to be cash
equivalents.
(D) MARKETABLE SECURITIES
Management determines the appropriate classification of its investments in
equity securities at the time of purchase and reevaluates such determination at
each balance sheet date. The Company's investment in marketable securities is
classified as available-for-sale. Available-for-sale securities are recorded at
fair value with any unrealized gains or losses, net of related tax effect,
excluded from earnings and reported as a separate component of accumulated other
comprehensive loss until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.
The following is the summary of investment securities at December 31:
1998 1997
--------- ---
(DOLLARS IN THOUSANDS)
Cost................................. $ 160 160
Fair value........................... 232 310
--------- ---
Unrealized gain................. $ 72 150
========= ===
(E) INVENTORIES
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the weighted average method, which approximates
the first-in first-out method and is comprised principally of raw materials.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation on plant and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets, ranging from three to seven years.
(G) OTHER ASSETS
Other assets consist principally of spare parts supplies, prepaid leases,
and goodwill. Spare parts supplies are expensed as used and prepaid leases are
expensed over the lease term. Goodwill is amortized over its estimated useful
life of 25 years.
(H) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(I) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. For
11
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
United States Federal income tax purposes, the Company has elected to file as
part of Huber's consolidated income tax return. However, for purposes of these
financial statements, taxes are calculated as if the Company filed a separate
tax return.
(J) CONCENTRATIONS OF BUSINESS RISK
The Company uses numerous suppliers of electronic components and other
materials for its operations. Some components used by the Company have been
subject to industry-wide shortages and suppliers have been forced to allocate
available quantities among their customers. The Company's inability to obtain
any needed components during raw material shortages could cause delays in
manufacturing and could adversely affect results of operations.
(K) REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product to its customers.
Such revenue is recorded net of estimated product return and warranty costs. At
December 31, 1998 and 1997, such estimated amounts are not considered material.
(L) YEAR 2000
In 1997, the Company initiated a plan ("Plan") to identify, assess, and
remediate "Year 2000" issues within each of its significant computer programs
and certain equipment which contain micro processors. The Plan is addressing the
issue of computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000, if a program or chip uses
only two digits rather than four to define the applicable year. The Company has
divided the Plan into five major phases-assessment, planning, conversion,
implementation and testing. After completing the assessment and planning phases,
the Company is currently in the conversion, implementation and testing phases.
Systems which have been determined not to be Year 2000 compliant are being
either replaced or reprogrammed, and thereafter tested for Year 2000 compliance.
The Plan anticipates that by third quarter 1999 the conversion, implementation,
and testing phases will be completed. The current budget for the remaining costs
of remediation (including replacement software and hardware) and testing, as set
forth in the Plan, is $500 thousand.
The Company is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the Company's
systems, regarding their plans and progress in addressing their Year 2000
issues. The Company has received varying information from such third parties on
the state of compliance or expected compliance. Contingency plans are being
developed in the event that any critical supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's operations, liquidity or financial
condition.
(M) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
12
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(N) LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(O) COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income (loss) consists of net income
(loss) and items such as foreign currency translation adjustments, and net
unrealized gains (losses) on securities.
(P) TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's subsidiary in Mexico is the U.S.
dollar. Accordingly, all of the monetary assets and liabilities of this
subsidiary are translated into U.S. dollars at the current exchange rate as of
the applicable balance sheet dates, and all nonmonetary assets and liabilities
are remeasured at historical rates. Revenues and expenses are translated at the
average exchange rate prevailing during the period. Gains and losses resulting
from the translation of this subsidiary's financial statements are included in
the accompanying combined statements of operations.
The functional currency of the Company's operations in other countries is
their local currency. Accordingly, for these subsidiaries all assets and
liabilities are translated into U.S. dollars at the current exchange rate as of
the respective balance sheet dates. Revenues and expenses are translated at the
average exchange rate prevailing during the period. Cumulative translation gains
and losses from the translation of these operations' financial statements are
reported as a separate component of accumulated other comprehensive loss.
(Q) PENSION AND OTHER POSTRETIREMENT PLANS
On January 1, 1998, the Company adopted SFAS No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS. SFAS No. 132
revised employers' disclosures about pension and other postretirement benefit
plans. SFAS No. 132 does not change the method of accounting for such plans.
(R) RISK MANAGEMENT CONTRACTS
In the normal course of business, the Company (through Huber) utilizes
off-balance sheet financial instruments to manage market risks and reduce its
exposure resulting from fluctuations in foreign currency exchange rates.
Derivative instruments used include foreign currency forward contracts and
futures contracts.
Huber does not use such instruments for speculative purposes but instead
designates and assigns the financial instruments as hedges for specific assets,
liabilities or anticipated transactions. Huber recognizes the gain or loss on
the designated hedging financial instrument when the hedged asset or
13
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
liability is sold or extinguished or the anticipated transactions being hedged
are no longer expected to occur.
(2) ACQUISITION
In June 1998, the Company acquired the net assets of a security camera
manufacturing plant based in Cork, Ireland for cash of $8.6 million. The
acquisition has been accounted for as a purchase business combination.
Accordingly, its operations have been included in the Company since June 1998.
The Company recorded $1.4 million in goodwill on the acquisition. The amount
represents the excess of the acquisition cost over the book value of the
tangible assets acquired and is being amortized over 25 years.
(3) RESTRUCTURING AND OTHER COSTS
In 1998, the Company commenced a restructuring of certain of its operations
and recorded a restructuring charge of $15.7 million.
The major component of the restructuring charge relates to the elimination
of approximately 916 contractor and employee positions. As a result, $7.4
million of severance and related costs was included in the charge.
The Company also closed certain manufacturing facilities and discontinued
certain of its operating facilities. As a result, the restructuring charge also
included a $6.0 million write down to fair value of certain equipment and
leasehold improvements, and $2.0 million related to the write off of certain
prepaid assets.
Of the total restructuring charge, $2.5 million was paid out in 1998. The
Company expects to complete these restructuring activities and payments within
one year.
In addition to the restructuring costs, the Company recorded the write down
of various assets (inventory, accounts receivable, and other assets) totaling
$17.7 million. These costs are included in cost of sales and selling, general,
and administrative expenses.
The amount of restructuring and other costs is based on management's
estimates regarding the outcome of future events including the recoverability of
net realizable values of assets and the ultimate determination of liabilities
related to the restructuring plan. Actual results could substantially differ
from those estimates. Such differences, if any, will be recorded in the
statement of operations when they are known.
(4) INVENTORIES
Inventories at December 31, consisted of the following:
1998 1997
---------- ---------
(DOLLARS IN
THOUSANDS)
Raw materials........................ $ 109,547 76,048
Work in process...................... 4,873 6,338
Finished goods....................... 1,007 5,383
---------- ---------
Total........................... $ 115,427 87,769
========== =========
14
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment at December 31, consisted of the following:
1998 1997
------------ ---------
(DOLLARS IN THOUSANDS)
Land................................. $ 3,039 2,157
Buildings............................ 15,424 13,086
Machinery and equipment.............. 173,089 156,636
Construction in progress............. 4,960 3,292
Less accumulated depreciation........ (110,218) (96,611)
------------ ---------
Net property plant and
equipment..................... $ 86,294 78,560
============ =========
(6) NOTES PAYABLE
Notes payable at December 31, 1998 consisted of multiple short-term
borrowings from various Brazilian financial institutions. The notes payable
mature at various times from January 4, 1999 to March 15, 1999. The effective
annual interest rates on these notes ranged from 28.15% to 33.56% at December
31, 1998. These notes are used to finance the Company's operations in Brazil and
are denominated in Brazilian Reals. There were no notes payable to financial
institutions at December 31, 1997.
These facilities are secured by guarantees of Huber.
(7) LONG-TERM DEBT
Long-term debt to third parties at December 31 consisted of the following:
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
1982 industrial revenue bonds with
interest payable quarterly at the tax-
exempt note rate (TENR) plus 1/2%
(4.6% at December 31, 1998) and
principal payable in annual
installments of $500,000. Secured by
guarantees of J.M. Huber and
collateralized on buildings of the
Company............................... $ 545 1,045
Less current installments............... (500) (500)
--------- ---------
Total long-term debt............... $ 45 545
========= =========
The aggregate annual maturities of third party debt subsequent to December
31, 1998 are as follows:
1999.................................... $ 500
2000.................................... 45
---------
$ 545
=========
15
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT TO HUBER
Long-term debt at December 31, consists of the following:
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
Note payable to Huber Resource
Corporation (a wholly owned subsidiary
of J. M. Huber Corporation), bearing
interest by reference to the
one-hundred ten percent (110%) AFR
Federal mid-term rate (6.9% at
December 31, 1997) due on the 5th
business day of each quarter with
principal due on November 18, 2002.... $ -- 1,288
Note payable to Huber Resource
Corporation, bearing interest at LIBOR
plus 200 basis points (7.628% at
December 31, 1998) due on the 5th
business day of each quarter with
principal due June 25, 2002........... 3,878 3,137
--------- ---------
$ 3,878 4,425
========= =========
(9) NOTES PAYABLE -- HUBER
Notes payable at December 31, consisted of the following:
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
Note payable to Huber Resource Corp.
bearing interest at rates
determined as noted below due on
June 30 and December 31 of each
year with principal due upon
demand............................. $ 175,127 125,067
Note payable to Huber Resource Corp.
bearing interest at rates
determined as noted below due on
February 23 of each year with no
fixed maturity date................ 4,946 2,906
Note payable to J. M. Huber
Corporation bearing interest at 0%
with principal due on December 31,
1999............................... 29,256 29,256
---------- ---------
Total........................... $ 209,329 157,229
========== =========
INTEREST RATE DETERMINATION
For all interest-bearing notes, interest is determined by reference to the
one-hundred ten percent (110%) AFR Federal Short-Term Rate specified under
Section 1274(d) of the Internal Revenue Code and released by the Internal
Revenue Service from time to time (4.66% and 6.25% at December 31, 1998 and
1997, respectively).
(10) RELATED PARTY TRANSACTIONS
Most of the Company's operations are financed or guaranteed by Huber. Huber
has provided the Company with substantial amounts of debt and equity and may be
required (and has committed to do so) to provide additional debt and equity in
the future. Huber provides the Company with financing in the form of
interest-bearing debt. The outstanding balances payable to Huber at December 31,
1998 and 1997 are disclosed in notes 8 and 9. Interest expense on related party
notes totaled $9.1 million, $4.2 million, and $4.4 million for the years ended
December 31, 1998, 1997 and 1996, respectively, and have been included in the
combined statements of operations for such periods.
Huber provides treasury services, including banking, foreign currency
support, factoring, centralized insurance services, human resources, tax
planning and compliance, information services, training, servicing of
postretirement benefits and other services and charges the Company a fee based
on its estimated percentage utilization of Huber's resources. The fees for these
services charged to the Company totaled $4.4 million, $4.7 million and $4.9
million for the years ended December 31, 1998,
16
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1997 and 1996, respectively, and have been included in the combined statements
of operations for such periods under selling, general, and administrative costs.
Beginning in 1998, the Company implemented a factoring program with an
affiliated company. Under this program, the Company factors certain of its
non-U.S. dollar denominated receivables in order to improve its cash flow,
finance its working capital requirements, and to mitigate its exposure to
foreign currency. For the year ended December 31, 1998, the Company sold $133
million of non-U.S. dollar denominated receivables on a nonrecourse basis to the
affiliate. As of December 31, 1998, the affiliate has uncollected factored
receivables purchased from the Company of $30.5 million.
For U.S. Federal tax purposes, the Company has elected to file as part of
Huber's consolidated tax return. However, for purposes of these financial
statements taxes are calculated as if the Company filed a separate tax return.
See note 13 -- Income Taxes.
(11) MAJOR CUSTOMERS
Net sales to major customers as a percentage of consolidated net sales for
the years ended December 31 were as follows:
1998 1997 1996
--------- --------- ---------
Customer A........................... 29% * *
Customer B........................... 15% 35% 22%
Customer C........................... 15% 21% 22%
Customer D........................... 13% * *
Customer E........................... * * 16%*
- ------------
* Net sales less than 10%
The Company has concentrations of credit risk as a result of sales to these
and other of the Company's significant customers. In particular, Customer A
accounts for approximately 25% of total accounts receivable at December 31,
1998. The concentration of credit risk is intensified due to the fact that the
majority of the Company's customers are in the same industry. The Company has
considered its concentration of credit risk in establishing its reserves for bad
debts and considers such reserves to be adequate.
(12) FOREIGN OPERATIONS
The Company conducts a substantial portion of its business outside the
United States through its foreign subsidiaries. Information regarding the
Company's foreign subsidiaries is summarized as follows:
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Net sales............................ $ 229,814 278,520 253,066
========== ========== ==========
Total assets......................... $ 91,538 60,205 62,538
========== ========== ==========
17
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES
For United States Federal income tax purposes, the Company has elected to
file as part of Huber's consolidated income tax return. As permitted by SFAS No.
109, for purposes of these combined company financial statements, income taxes
are calculated as if the Company files a separate income tax return.
The components of income taxes for the years ended December 31, 1998, 1997,
1996 consisted of the following:
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Current:
Federal............................ $ -- (5,789) 4,589
State and local.................... 50 50 75
Foreign............................ 359 2,514 2,247
--------- --------- ---------
Total......................... 409 (3,225) 6,911
--------- --------- ---------
Deferred:
Federal and state.................. (3,757) 458 (1,268)
Foreign............................ -- -- --
--------- --------- ---------
Total......................... (3,757) 458 (1,268)
--------- --------- ---------
Total provision for income
taxes...................... $ (3,348) (2,767) 5,643
========= ========= =========
The Corporation's effective tax rate expense (benefit) differs from the
statutory federal tax rate of 35% in 1998, 1997, and 1996 as follows:
1998 1997 1996
--------- --------- ---------
Statutory federal tax rate.............. (35.0)% (35.0) 35.0
Foreign taxes........................... 2.2 12.4 3.4
Change in valuation allowance........... 39.1 28.2 9.1
Other items, net........................ (10.1) (20.5) (12.7)
--------- --------- ---------
Effective tax rate................. (3.8)% (14.9) 34.8
========= ========= =========
18
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities computed on a
separate return basis and before consideration of the Company's tax sharing
agreement with Huber at December 31, 1998 and 1997, consisted of the following
(in thousands):
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
Deferred tax assets:
Other post employment
benefits...................... $ 3,444 3,093
Deferred compensation........... 644 (273)
Asset valuation and
restructuring reserves........ 8,693 741
Vacation pay.................... 699 559
Other........................... 1,897 1,483
Net operating loss (NOL)
carryforwards................. 30,631 7,756
---------- ---------
Total gross deferred tax
assets.................. 46,008 13,359
Less valuation allowance........ (45,982) (10,849)
---------- ---------
26 2,510
---------- ---------
Deferred tax liabilities-excess tax
depreciation....................... (26) (6,267)
---------- ---------
Worldwide net deferred tax
(liability)............. $ -- (3,757)
========== =========
On a separate return basis, the Company has unused Federal net operating
loss carryovers consisting of approximately $60 million and unused foreign net
operating loss carryovers of approximately $14 million at December 31, 1998.
Those net losses have been used by Huber in their consolidated income tax
return.
The Company does not have a formal tax sharing agreement with Huber.
However, based upon a tentative agreement effective January 1, 1999
("Agreement"), the Company computes a separate stand alone income tax
provision and settles balances due or from Huber on this basis. All benefits
derived from deferred tax assets as defined in the Agreement (which include net
operating loss, asset valuation and restructuring reserves and other post
employment benefits, etc.) that arose prior to the final effective date of the
Agreement will be allocated to Huber. Accordingly, the Company will not receive
any benefit from the gross deferred tax assets calculated on a separate return
basis at December 31, 1998. However, deferred tax liabilities were allocated to
the Company (which give rise to the Company's net deferred tax liability of $26
thousand at December 31, 1998 and $6.3 million at December 31, 1997). After the
effective date of the Agreement, to the extent the tax computation produces a
tax benefit for the Company, Huber will be required to pay such amounts to the
Company only if and when realized by Huber by the reduction in income taxes
payable with respect to the current tax period.
(14) RETIREMENT AND OTHER BENEFIT PLANS
All eligible employees of AVEX Electronics, Inc. participate in a defined
benefit retirement plan. The plan provides benefits based on years of service
and compensation of eligible employees. The net periodic pension cost for this
plan was $1.1 million and $0.9 million for the years ended December 31, 1998 and
1997, respectively. The accumulated benefit at December 31, 1998 and 1997 was
unfunded and amounted to $1.7 million at each date. The obligation was accounted
for as a long-term liability.
19
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign AVEX entities also maintain retirement plans covering eligible
employees. These plans are subject to regulations in the countries in which the
entities are located. The total cost of these plans was not material.
Huber sponsors unfunded defined benefit plans that provide post-retirement
medical and life insurance benefits to full-time employees who meet minimum age
and service requirements. The plans are subject to cost-sharing features such as
deductibles and co-insurance.
Key data related to the AVEX portion of the overall Huber post-retirement
benefit plan are summarized as follows:
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
Accumulated benefit obligation at
December 31........................ $ 7,700 5,401
Accrued post-retirement benefits..... 7,700 6,231
Benefit cost charged to
participants....................... 1,030 858
Benefits paid to participants........ 135 233
Weighted-average assumptions as of
December 31:
Discount rate................... 7.0% 7.5
Rate of compensation increase... N/A N/A
For measurement purposes, a 6.5% annual rate of increase in the health care
trend rate was assumed for 1999, the rate was assumed to decrease gradually to
5% in 2001 and remain at that level thereafter. The accrual for post-retirement
benefit plans is included in notes payable to Huber.
The Company has a defined contribution plan qualified under Section 401(k)
of the Internal Revenue Service covering substantially all of its U.S.
employees. Currently, the Company contributes an amount equal to the sum of 100%
of the first 3% of a participant's compensation contributed to the plan, plus
20% of the next 7% of a participant's compensation contributed to the plan.
During the years ended December 31, 1998, 1997, and 1996, the Company made
contributions to the U.S. plan of $1.6 million, $1.4 million, and $1.3 million,
respectively. The Company may also make discretionary contributions to the plan.
(15) FINANCIAL INSTRUMENTS
Short term financial instruments, including cash, cash equivalents,
accounts payable, short term borrowings and notes payable have a carrying value
that approximates fair value due to their short term nature.
(16) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company is obligated under noncancelable operating leases for office
facilities, furniture and fixtures, and equipment through 2008. Rental expense
for all cancelable and noncancelable operating leases for each of the years
ended December 31, 1998, 1997, and 1996 amounted to $7.5 million, $2.6 million
and $1.4 million, respectively.
Aggregate annual rental payments on future lease commitments at December
31, 1998 is as follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Lease commitments....................... $ 6,700 5,100 1,300 1,000 1,000 1,400
</TABLE>
17
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(B) CONTRACTUAL COMMITMENTS
The Company enters into contractual commitments to deliver products and
services in the ordinary course of business. The Company believes that all such
contractual commitments will be met or renegotiated such that no material
adverse financial impact on the Company's financial position or results of
operations or liquidity will result from these commitments.
(C) CONTINGENCIES
The Company is subject to lawsuits, claims, and other complaints arising
out of the ordinary conduct of business. While the ultimate results and outcomes
from these matters cannot be determined precisely, management, based in part
upon the advice of legal counsel, believes that all matters are adequately
covered by insurance or, if not covered, are without merit or are of such
amounts as they would not have a material adverse effect on the Company's
financial position or results of operations or liquidity.
20
<PAGE>
AVEX ELECTRONICS, INC.
CONDENSED COMBINED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
JUNE 30,
1999
-----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 11,552
Accounts receivable, net........ 135,599
Inventories..................... 115,941
Prepaid expenses and other
assets......................... 11,563
-----------
Total current assets....... 274,655
-----------
Property, plant and equipment, net of
accumulated depreciation........... 77,258
Other assets, net.................... 4,605
-----------
$ 356,518
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable................... $ 29,599
Accounts payable................ 126,010
Income taxes payable............ 1,106
Accrued liabilities............. 34,645
Notes payable to parent,
including $7,727 of OPEB
liability...................... 234,626
-----------
Total current
liabilities............... 425,986
Long term debt, less current
portion............................ --
Deferred income taxes................ 26
Other long term liability............ 1,716
Notes payable to parent.............. 1,919
Shareholders' deficit:
Common stock.................... 1
Additional paid-in capital...... 41,662
Accumulated deficit............. (111,566)
Accumulated other comprehensive
loss........................... (3,226)
-----------
Total shareholders'
deficit................... (73,129)
Commitments and contingencies........
-----------
$ 356,518
===========
See accompanying notes to condensed combined financial statements.
21
<PAGE>
AVEX ELECTRONICS, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
(UNAUDITED)
Sales................................ $ 505,916 $ 352,627
Cost of sales........................ 485,659 354,176
---------- ----------
Gross profit (loss)............. 20,257 (1,549)
Selling, general and administrative
expense............................ 15,460 15,454
---------- ----------
Selling, general and administrative
expenses, billed by parent......... 2,150 2,200
---------- ----------
Income (loss) from operations... 2,647 (19,203)
Interest expense..................... (6,450) --
Interest expense, billed by parent... (5,103) (4,318)
---------- ----------
Other income (expense), net.......... 262 (196)
---------- ----------
Loss before income taxes........ (8,644) (23,717)
Income tax expense................... 1,091 253
---------- ----------
Net loss........................ $ (9,735) $ (23,970)
========== ==========
See accompanying notes to condensed combined financial statements.
22
<PAGE>
AVEX ELECTRONICS, INC.
CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
(UNAUDITED)
Net loss............................. $ (9,735) $ (23,970)
Other comprehensive loss, net of tax:
Foreign currency translation
adjustments.................... (673) (360)
Unrealized holding losses on
securities..................... (123) --
---------- ----------
Comprehensive loss................... $ (10,531) $ (24,330)
========== ==========
See accompanying notes to condensed combined financial statements.
23
<PAGE>
AVEX ELECTRONICS, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30
----------------------
1999 1998
---------- ----------
(UNAUDITED)
Cash flows from operating activities:
Net loss........................ $ (9,735) $ (23,970)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization expense.... 11,475 11,860
Changes in operating assets and
liabilities:
Accounts receivable........ 18,681 39,523
Inventories................ (514) (13,891)
Other current assets....... (7,644) 3,011
Trade accounts payable..... (37,633) (23,018)
Other current
liabilities............. (2,639) (2,315)
---------- ----------
Net cash used in
operations......... (28,009) (8,800)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and
equipment...................... (8,534) (19,894)
Proceeds from sale of property,
plant and equipment............ -- 1,000
---------- ----------
Net cash used in
investing
activities......... (8,534) (18,894)
---------- ----------
Cash flows from financing activities:
Net proceeds from Huber......... 23,338 33,945
Proceeds from notes payable..... 15,247 --
Other........................... (796) (1,200)
---------- ----------
Net cash provided by
financing
activities......... 37,789 32,745
---------- ----------
Net change in cash................... 1,246 5,051
Cash and cash equivalents at
beginning of year.................. 10,306 3,388
---------- ----------
Cash and cash equivalents at June
30................................. $ 11,552 $ 8,439
========== ==========
Supplemental disclosures of cash flow
information:
Income taxes paid............... $ 1,091 $ 253
========== ==========
Interest paid................... $ 11,553 $ 4,318
========== ==========
See accompanying notes to condensed combined financial statements.
24
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
AVEX Electronics, Inc. (together with its subsidiaries and related
companies), herein referred to as the Company, is an independent provider of
contract manufacturing and design services to original equipment manufacturers
(OEMs) in select industries, including the telecommunications, communications,
computer and consumer industries.
The condensed combined 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 financial position, 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
combined financial statements should be read in conjunction with the audited
annual financial statements and notes included elsewhere herein.
(2) BORROWING FACILITIES
DUE TO PARENT
The Company is a wholly-owned subsidiary of J. M. Huber Corporation
(Huber). Huber provides the Company with financing in the form of
interest-bearing debt. Debt payable to Huber at June 30, 1999 consisted of the
following:
Short Term:
Note payable to Huber Resource
Corp. bearing interest at
rates determined as noted
below due on June 30 and
December 31 of each year with
principal due upon demand..... $ 199,641,000
Note payable to Huber Resource
Corp. bearing interest at
rates determined as noted
below due on February 23 of
each year with no fixed
maturity...................... 5,729,000
Note payable to J.M. Huber
Corporation bearing interest
at 0% with principal due on
December 31, 1999............. 29,256,000
---------------
Total................. $ 234,626,000
===============
Long Term:
Note payable to Huber Resource
Corporation, bearing interest
at LIBOR plus 200 basis points
(7.368% at June 30, 1999) due
on the 5th business day of
each quarter with principal
due June 25, 2002............. $ 1,919,000
For all interest-bearing notes payable to Huber, interest is determined by
reference to the one-hundred ten percent (110%) AFR Federal Short-Term Rate
specified under Section 1274(d) of the Internal Revenue Code and released by the
Internal Revenue Service from time to time (5.48% at June 30, 1999).
NOTES PAYABLE
Notes payable at June 30, 1999 consisted mainly of multiple short-term
borrowings from various Brazilian financial institutions. The notes are
repayable at various times from July 1999 to August 1999. The effective annual
interest rate on these notes ranged from 20.25% to 28.5% at
25
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1999. These notes are used to refinance the Company's operations in
Brazil and are denominated in Brazilian Reals.
(3) INVENTORIES
Inventory costs are summarized as follows:
JUNE 30,
1999
---------------
Raw materials........................ $ 87,015,000
Work in process...................... 20,984,000
Finished goods....................... 7,942,000
---------------
$ 115,941,000
===============
(4) INCOME TAXES
Income tax expense consists of the following:
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
------------ ------------
US Federal........................... $ -- $ --
State................................ -- --
Foreign.............................. 1,091,000 253,000
------------ ------------
Total................................ $ 1,091,000 $ 253,000
============ ============
(5) RESTRUCTURING
In 1998, the Company commenced a restructuring of certain of its operations
and recorded a restructuring charge of $15.7 million.
The major component of the restructuring charge related to the elimination
of approximately 916 contractor and employee positions. As a result, $7.4
million of severance and related costs was included in the charge of which
approximately $2.4 million was paid in 1998. During the six months ended June
30, 1999, $5.4 million was paid to satisfy all severance and related costs;
$400,000 paid in excess of the original estimate was charged to restructuring
charges in 1999.
The Company also closed certain manufacturing facilities and discontinued
certain of its operating facilities. As a result, the restructuring charge also
included a $6.0 million write down to fair value of certain equipment and
leasehold improvements, and $2.0 million related to the write off of certain
prepaid assets. At June 30, 1999, $5.6 million reserve remains for the equipment
and leasehold improvement write down. The Company expects to complete the
disposition of these assets by December 31, 1999 and believes that these
estimates remain appropriate. Management reduced these reserves by $400,000
during 1999 and credited this reduction to the restructuring charge.
The amount of restructuring and other costs is based on management's
estimates regarding the outcome of future events including the recoverability of
net realizable values of assets and the ultimate determination of liabilities
related to the restructuring plan. Actual results could substantially differ
from those estimates. Such differences, if any, will be recorded in the
statement of operations when they are known.
26
<PAGE>
AVEX ELECTRONICS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) CONTINGENCIES
The Company is subject to lawsuits, claims, and other complaints arising
out of the ordinary conduct of business. While the ultimate results and outcomes
from these matters cannot be determined precisely, management, based in part
upon the advice of legal counsel, believes that all matters are adequately
covered by insurance or, if not covered, are without merit or are of such
amounts as they would not have a material adverse effect on the Company's
financial position or results of operations or liquidity.
(7) SUBSEQUENT EVENT
On July 2, 1999, Benchmark Electronics Inc. (Benchmark) and Huber announced
a stock purchase agreement providing for Benchmark to acquire all of the
outstanding capital stock of the Company. In consideration of the capital stock
of the Company, Benchmark has agreed to pay $255 million in cash, subject to
certain adjustments, and issue one million shares of common stock of Benchmark
to Huber. Certain members of Company management will receive a transaction
incentive bonus from Huber if a transaction is consummated.
27
