U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q\A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-23332
EFTC CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-0854616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9351 Grant Street
Denver, Colorado 80229
(Address of principal executive offices)
(303) 451-8200
(Issuer's telephone number)
(not applicable)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class of Common Stock Outstanding at August 8, 1997
Common Stock, par value $0.01 5,937,410 shares
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INTRODUCTION
EFTC Corporation, (the "Company") hereby amends its Quarterly Report on
Form 10-Q for the three months ended June 30, 1997, by deleting its response to
Part I, Item 2, contained in its original filing and replacing such section with
the following:
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED JUNE 30, 1997
This information set forth below contains "forward looking statements"
within the meaning of the federal securities laws and other statements of
expectations, beliefs, plans, and similar expressions concerning matters that
are not historical facts. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in the statements.
RESULTS OF OPERATIONS
Net sales. Net sales are net of discounts and are recognized upon
shipment to a customer. The Company's net sales increased by 42.7% to
$22,745,473 for the second quarter of fiscal 1997, from $15,941,411 during the
same period in fiscal 1996. The increase in net sales is due primarily to the
inclusion of the operations from Current Electronics, Inc. (CE Company's) which
was acquired on February 24, 1997.
The Company's net sales increased by 18.9% to $36,782,349 during the
six months of fiscal 1997, from $30,944,370 during the same period of fiscal
1996. The increase in net sales is due primarily to the acquisition of Current
Electronics as noted above.
Gross profit. Gross profit equals net sales less cost of goods sold
(such as salaries, leasing costs, and depreciation charges related to production
operations); and non-direct, variable manufacturing costs (such as supplies and
employee benefits). In the second quarter of fiscal 1997 gross profit increased
291.0% to $2,989,002 compared to $764,516 for the same period in 1996. The gross
profit margin for the second quarter of fiscal 1997 was 13.1% compared to 4.8%
for the same period of fiscal 1996. The primary reason for the increase in gross
profit percentage is related to the operations of the CE Company's, which have a
higher gross profit percentage. Another reason for the increase in gross profit
is the adoption of the Asynchronous Process Manufacturing (APM) in the later
part of 1996 in the Rocky Mountain facility. APM standardizes processes and sets
them up in a parallel pattern on the manufacturing floor. Product can flow to
any process, i.e., any board to any line. This unique arrangement combined with
powerful proprietary information technologies allows for the manufacture of
high-mix product in a high speed mode. The key to making APM work is to increase
throughput by decreasing setup time, standardizing work centers and processing
smaller lot sizes. EFTC has done this by designating teams to set up off-line
feeders and standardizing loading methods regardless of
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product complexity. APM has allowed EFTC to increase productivity by producing
product with less people which ultimately reduces costs and increases gross
profit.
In the first six months of 1997 gross profit increased by 229.6% to
$4,496,567 compared to $1,364,338 for the first six months of fiscal 1996. The
gross profit margin for the first six months of fiscal 1997 was 12.2% compared
to 4.4% for the first six months of 1996. The reasons for these increases are
explained above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SGA expense) consist primarily of non-manufacturing
salaries, sales commissions, and other general expenses. SGA expense increased
by 122.9% to $1,883,680 in the second quarter of 1997, compared with $844,920 a
year earlier. As a percentage of net sales SGA expenses increased from 5.3% of
net sales in the second quarter of fiscal 1996 to 8.3% of net sales in fiscal
1997. The primary reason for the increase in SGA expense is the inclusion of the
CE Companies SGA expenses in 1997 of approximately $867,000 whereas their were
none in 1996.
Selling, general and administrative expenses increased by 80.3% to
$2,986,655 for the six months of fiscal 1997 compared with $1,656,540 a year
earlier. As a percentage of net sales, SGA increased to 8.1% in the first six
months of 1997 from 5.4% in the same period of fiscal 1996. The increase is
primarily due to the inclusion of the CE Companies SGA expenses in 1997 from
February 24 to June 30 in the amount of approximately $1,132,000.
Operating income. Operating income for the second quarter of fiscal
1997 increased 1391.6% to $1,038,529 from a loss of $80,404 for the second
quarter of fiscal 1996. Operating income as a percentage of net sales increased
to 4.6% in the second quarter of fiscal 1997 from (0.5%) in the same period last
year. The increase in operating income is attributable to increased efficiencies
associated with APM and the acquisition of the CE Companies as explained above.
Operating income for the first six months of fiscal 1997 increased
586.1% to $1,420,311 from a loss of $292,202 for the first six months of fiscal
1996. Operating income as a percentage of net sales increased to 3.9% in the
first six months of fiscal 1997 from (0.9%) in the same period last year. The
increase in operating income is attributable to increased efficiencies
associated with APM and the acquisition of the CE Companies as explained above.
Interest expense. Interest expense for the second quarter of 1997 was
$351,788 compared to $147,087 for the same period in fiscal 1996. The increase
in interest is primarily the result of the acquisition debt associated with the
merger and acquisition of the CE Companies and increased operating debt used to
finance both inventories and receivables for EFTC and the CE Companies in the
second quarter of 1997.
Interest expense for the first six months of 1997 was $537,143 compared
to $242,613 for the same period in fiscal 1996. The increase in interest is
primarily the result of the acquisition debt associated with the merger and
acquisition of the CE Companies and increased operating
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debt used to finance both inventories and receivables for EFTC and the CE
Companies in the first six months of fiscal 1997.
Income tax expense. The estimate of the Company's effective income tax
rate for the second quarter of fiscal 1997 and 1996 was 37.5% and 36.7%
respectively. This percentage fluctuates substantially because relatively small
dollar amounts tend to move the rate significantly as estimates change. The
Company expects that the rate will normalize in future quarters and be around
the 37% range.
The effective income tax rate for the first six months of fiscal 1997
was 36.8% compared to 38.9% from the same period a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1997 cash used in operations was
$1,275,419 compared to cash used in operations of $3,611,555 in the same period
last year. Increased profitability and an increase in working capital components
are the primary reasons for the decrease in the cash used in operations in 1997
when compared to 1996.
As of June 30, 1997, working capital totaled $10,717,844 compared to
$8,508,489 at December 31, 1996. The increase is attributable to the working
capital acquired related to the acquisition of the CE Companies that occurred on
February 24, 1997.
Accounts receivable decreased 1.8% to $7,032,934 at June 30, 1997 from
$7,164,174 at June 30, 1996. A comparison of receivable turns (i.e. annualized
sales divided by current accounts receivable) for the first six months of fiscal
1997 and the first six months of fiscal 1996 is 10.5 and 8.7 turns,
respectively. The 1997 receivable turn is distorted because the sales for the
first six months includes only four months and four days of the CE Companies
revenues. Based on historical annual revenues of the CE Companies and EFTC
combined, the receivable turns for the first six months of fiscal 1997 would be
12.7 times.
Inventories increased 65.1% to $17,859,385 at June 30, 1997 from
$10,816,201 at June 30, 1996. A comparison of inventory turns (i.e. annualized
cost of sales divided by current inventory) for the first six months of fiscal
1997 and 1996 shows a decrease to 3.6 from 5.5, respectively. The 1997 inventory
turn is distorted because the cost of sales for the first quarter includes only
one month and four days of the CE Companies costs. Based on historical annual
cost of sales of the CE Companies and EFTC combined, the inventory turns for the
first six months of fiscal 1997 would be 4.5 times.
The Company used cash to purchase capital equipment totaling $1,292,053
in the first six months of 1997, compared with $1,061,879 in the same period
last year. The Company also used cash to purchase the CE Companies, as explained
earlier in the amount of $7,398,728. Proceeds from debt of $6,700,000 were used
to help fund the purchase of the CE Companies.
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On February 24, 1997, the Company renegotiated its revolving line of
credit, negotiated a 90 day bridge loan and incurred additional equipment debt
in conjunction with the merger and acquisition of the CE Companies. The
revolving line of credit was increased to $15,000,000 and has a maturity date of
June 5,1998. This note was subsequently extended while new financing is being
put into place ( see below). Interest on this credit facility accrues at the
Bank One Prime rate plus .25% (8.75% on June 30, 1997). The credit facility is
collateralized by substantially all of the Company's assets, other than real
estate. The loan agreement from this facility contains restrictive covenants
relating to capital expenditures, borrowings and payment of dividends, and
certain financial statement ratios. The credit facility may be
withdrawn/cancelled at the banks option under certain conditions such as default
or in the event the Company experiences a material negative change in financial
condition. The short term bridge facility was for $4,900,000 and has a maturity
date of May 24, 1997. This note was extended as new financing is being
negotiated (see below). The interest rate accrues at the Bank One Prime rate
plus .25% (8.75% on June 30, 1997). The proceeds from this loan were used to pay
the cash portion of the consideration paid in the merger and acquisition noted
above. The Company has engaged in discussions for issuance of convertible debt
or preferred stock, the proceeds of which would be used to repay the bridge
facility. The bridge facility was conditioned on the Company's receipt of a
third party commitment for the purchase of the convertible debt or preferred
stock which has been obtained. The Company also issued a $1,800,000 five year
note with a maturity date of April 5, 2002. The interest rate will be 8.95% per
annum. The Company will pay this loan in 60 regular monthly payments of $36,983
and one final payment of $41,983. These payments include both principal and
interest. The proceeds of this loan were used to pay off equipment debt of the
CE Companies as per the merger agreement.
In connection with the Merger and Acquisition and the Asset purchase
(as explained in footnote 2), the Company has negotiated a commitment letter
with Bank One comprised of a $30 million revolving line of credit, maturing on
September 30, 2000 and a $15 million term loan maturing on September 30, 2002.
The proceeds of the Bank One Loan may be used for (i) funding the Merger and
Acquisition; (ii) funding the Asset Purchase; (iii) funding the Real Property
Purchase; (iv) repayment of the existing Bank One line of credit and bridge
facility; and (v) working capital requirements. The Bank One Loan will bear
interest at a rate based on either the Bank One prime rate or the LIBOR plus
applicable margins ranging form 3.25% to 0.50% for the term facility and 2.75%
to 0.00% for the revolving facility. Borrowings on the revolving facility are
subject to limitation based on the value of the available collateral. The Bank
One Loan is collateralized by substantially all of the Company's assets,
including real estate, whether now owned or hereinafter acquired. The loan
agreement for the Bank One Loan is expected to contain restrictive covenants
relating to capital expenditures, limitations of investments, borrowings,
payment of dividends, mergers and acquisitions. In addition, the loan agreement
is expected to contain financial covenants relating to the following ratios: (i)
maximum senior debt to EBIDTA to interest; (ii) maximum total debt to EBIDTA;
(iii) minimum fixed charge coverage; (iv) minimum EBIDTA to interest (v) minimum
tangible net worth requirement with periodic step-up; (vi) maximum annual
capital expenditures; and (vii) excess cash flow recapture. The Bank One Loan is
subject to the negotiation of definitive loan documents, and there can be no
assurance that the Company will be able to obtain the Bank One Loan on terms
satisfactory to the Company.
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In addition to the Bank One Loan, the Company has agreed upon the terms
for the issuance of $15 million in Subordinated Notes, with a maturity date of
June 24, 2002 and bearing a fixed coupon of LIBOR plus 2.00%. The Subordinated
Notes are amortized yearly with payments of $50,000 and one final payment of
$14,800,000 and may be prepaid in whole or in part at any time, with any
prepayment subordinated to the Bank One Loan. The Subordinated Notes will be
accompanied by warrants for 500,000 shares of the Company's Common Stock at an
exercise price of $8.00. The holder of the Subordinated Notes will be Richard L.
Monfort, a director of the Company.
The Company has committed to construct a new manufacturing facility in
Oregon to replace the present location in Oregon at an approximate cost of
$5,000,000. The Company has agreed upon the terms for the financing of this new
facility and has started construction.
New accounting standard. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128")
which revised the calculation and presentation provisions of Accounting
Principles Board Opinion 15 and related interpretations. SFAS 128 is effective
for the Company's fiscal year ending December 31, 1997 and retroactive
application is required. The Company believes the adoption of SFAS 128 will not
have a material efect on its reported income per share.
The Company may require additional capital to finance enhancements to,
or expansions of, its manufacturing capacity in accordance with its business
strategy. Management believes that the need for working capital will continue to
grow at a rate generally consistent with the growth of the Company's operations.
Although no assurance can be given that financing will be available on terms
acceptable to the Company, the Company may seek additional funds, from time to
time, through public or private debt or equity offerings, bank borrowing, or
leasing arrangements.
QUARTERLY RESULTS
Although management does not believe that the Company's business is
affected by seasonal factors, the Company's sales and earnings may vary from
quarter to quarter, depending primarily upon the timing of customer orders and
product mix. Therefore, the Company's operating results for any particular
quarter may not be indicative of the results for any future quarter of the year.
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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 thereunto duly authorized.
EFTC CORPORATION
(Registrant)
Date: November 12, 1997 \s\ Brent Hoffmeister
------------------------
Brent Hoffmeister, Controller
(Chief Accounting Officer)
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