U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 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 November 7, 1997
Common Stock, par value $0.01 7,818,635 shares
EFTC CORPORATION
FORM 10-Q
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -- 3
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Income -- 4
Three months and nine months ended September 30,
1997 and 1996
Condensed Consolidated Statements of Cash 5
Flows -- Nine months ended September 30, 1997 and
1996
Notes to Condensed Consolidated Financial 6
Statements -- September 30, 1997
Item 2. Management's Discussion and Analysis of Results of 9
Operations and Financial Condition
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
<TABLE>
<CAPTION>
EFTC CORPORATION
Condensed Consolidated Balance Sheets
ASSETS September 30, December 31,
1997 1996
<S> <C> <C>
Current assets
Cash and cash equivalents $2,226,217 $123,882
Accounts receivable, net of allowances
of $194,480 and 20,000 18,296,809 3,866,991
Inventories 32,754,622 9,146,505
Income taxes receivable 616,411
Deferred income taxes 492,037 427,059
Prepaid expenses and other current assets 701,841 69,196
Total current assets 54,471,526 14,250,044
Property, plant and equipment, at cost 24,304,095 12,392,267
Less accumulated depreciation (6,451,618) (3,872,443)
Net property, plant and equipment 17,852,477 8,519,824
Other assets 4,962,140 99,773
Goodwill 40,359,749 -
Total assets $117,645,892 $22,869,641
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit with bank $22,513,915 $1,800,000
Current portion of long-term debt 2,275,000 170,000
Accounts payable 21,125,734 2,320,871
Accrued expenses and other liabilities 8,145,581 1,450,684
Total current liabilities 54,060,230 5,741,555
Long-term debt, net of current portion 32,725,000 2,890,000
Deferred income taxes 674,264 315,859
Total liabilities 87,459,494 8,947,414
Shareholders' equity
Preferred stock, $.01 par value. Authorized
5,000,000 shares; none issued or outstanding - -
Common stock, $.01 par value. Authorized 45,000,000
shares; issued 7,812,135 and 3,942,660 shares 78,121 39,427
Additional paid-in capital 24,443,629 10,187,180
Retained earnings 5,664,648 3,695,620
Total shareholders' equity 30,186,398 13,922,227
Total liabilities and shareholders' equity $117,645,892 $22,869,641
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
EFTC CORPORATION
Condensed Consolidated Statements of Operations
Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $28,190,871 $13,631,921 $64,973,220 $44,576,291
Cost of goods sold 24,453,952 13,096,171 56,739,734 42,676,203
Gross profit 3,736,919 535,750 8,233,486 1,900,088
Selling, general, and administrative
expense 2,139,571 1,746,550 5,126,226 3,403,090
Goodwill amortization 67,115 - 156,716 -
Impairment of fixed assets - 725,869 - 725,869
Operating income (loss) 1,530,233 (1,936,669) 2,950,544 (2,228,871)
Other income (expense):
Interest expense (517,305) (141,898) (1,054,448) (384,511)
Gain (loss) on disposition of assets 1,152,430 (12,723) 1,152,430 (12,723)
Other, net 15,788 13,341 53,326 29,812
650,913 (141,280) 151,308 (367,422)
Income (loss) before income taxes 2,181,146 (2,077,949) 3,101,852 (2,596,293)
Income tax expense (benefit) 794,257 (718,626) 1,132,824 (920,203)
Net income (loss) $1,386,889 ($1,359,323) $1,969,028 ($1,676,090)
Income (loss) per common and common
equivalent share:
Primary $0.21 ($0.34) $0.34 ($0.42)
Fully diluted $0.21 ($0.34) $0.32 ($0.42)
Weighted average shares outstanding
Primary 6,498,450 3,968,417 5,854,460 3,968,417
Fully diluted 6,675,646 3,968,417 6,218,528 3,968,417
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
EFTC CORPORATION
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30,
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $1,969,028 ($1,676,090)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,417,407 999,454
Deferred income taxes 554,958 (10,103)
(Gain) loss on sale of fixed assets (1,149,638) 1,181,000
Changes in operating assets and liabilities
Accounts receivable (9,774,725) 1,561,968
Inventories (15,535,734) (287,678)
Prepaid expenses and other current assets (358,147) 250,848
Accounts payable and other accrued liabilities 13,291,195 (1,692,182)
Income taxes receivable 616,411 (909,753)
Income taxes payable 491,930 -
Other assets (3,871,536) 121,824
Net cash (used in) operating activities (12,348,851) (460,712)
Cash flows from investing activities
Proceeds from sale of equipment 2,419,820 10,157
Purchase of property, plant and equipment (6,418,212) (2,135,969)
Net assets acquired in business combinations and asset
acquisition, net of cash acquired (24,595,172) -
Net cash (used in) investing activities (28,593,564) (2,125,812)
Cash flows from financing activities
Common stock issued, net of issuance costs 112,960 5,994
Principal payments on long-term debt (18,644,625) (170,000)
Borrowings (payments) on notes payable, net 20,713,915 2,300,000
Proceeds from long-term debt 41,700,000 -
Payment of financing costs (837,500) -
Net cash provided by financing activities 43,044,750 2,135,994
Increase (decrease) in cash and
cash equivalents 2,102,335 (450,530)
Cash and cash equivalents:
Beginning of period 123,882 481,086
End of period $2,226,217 $30,556
See notes to condensed consolidated financial statements.
</TABLE>
EFTC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. 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 three month period and
nine months ending September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997.
The unaudited condensed consolidated financial statements should be read
in conjunction with the financial statements and footnotes thereto
included in the Company's annual report and Form 10-K for the year ended
December 31, 1996.
Note 2--Business Combinations and Asset Acquisitions
On September 30, 1997, the Company acquired three affiliated
companies, Circuit Test, Inc., Airhub Service Group L.C. and CTI
International, L.C. (the CTI Companies) for approximately $29.3 million
consisting of 1,858,975 shares of the Company's common Stock and
approximately $20.5 million in cash which includes approximately $1
million of transaction costs. In addition, the Company will make a $6
million contingent payment payable upon closing of a public offering of
securities. The Company recorded goodwill of approximately $32.4
million, which will be amortized over 30 years. The acquisition was
accounted for using the purchase method of accounting for business
combinations and, accordingly, the accompanying consolidated financial
statements include the results of operations of the acquired businesses
since the date of acquisition.
In August and September 1997, the Company completed the initial
elements of two transactions with AlliedSignal Inc. (AlliedSignal)
pursuant to which the Company acquired certain inventory and equipment
located in Fort Lauderdale, Florida, subleased the facility where such
inventory and equipment was located and employed certain persons formerly
employed by AlliedSignal at that location. The Company also hired
certain persons formerly employed by AlliedSignal in Arizona and agreed
with AlliedSignal to provide the personnel and management services
necessary to operate a related facility on behalf of AlliedSignal on a
temporary basis. Subject to the satisfaction of the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Company will
acquire AlliedSignal's inventory and equipment located at the Arizona
facility. The aggregate purchase price of all the assets to be acquired
by the Company from AlliedSignal is expected to approximated $15.0
million, of which $10.9 million had been paid through September 30, 1997.
The Company has also agreed to pay AlliedSignal one percent of gross
revenue for all electronic assemblies and parts made for customers other
than AlliedSignal at the Arizona or Florida facilities through December
31, 2006.
On February 24, 1997, the Company acquired two affiliated
entities, Current Electronics, Inc., an Oregon Corporation, and Current
Electronics (Washington), Inc., a Washington Corporation (the CE
Companies), for total consideration of approximately $10.9 million,
consisting of 1,980,000 shares of Company common stock and approximately
$5.5 million in cash which included approximately $600,000 of transaction
costs. The Company recorded goodwill of approximately $8.0 million in
connection with the acquisition, which is being amortized over 30 years.
The acquisition was accounted for using the purchase method of accounting
for business combinations and, accordingly, the accompanying consolidated
financial statements include the results of operations of the acquired
businesses since the date of acquisition.
The following unaudited pro forma information assumes that the
acquisitions of the CTI Companies and the CE Companies had occurred on
January 1, 1996 (in thousands):
Nine Months
ended Year ended
September 30, December 31,
1997 1996
Revenue . . . . . . . . . . . . $98,020 $115,910
Net loss. . . . . . . . . . . . (337) (2,109)
Loss per share, fully diluted . (.04) (.27)
The above pro forma information is not necessarily indicative of
future results.
Notes 3--Inventories
The components of inventory consist of the following:
September 30, December 31,
1997 1996
Purchased parts
and completed
subassemblies $13,263,807 $7,640,712
Work-in-process 19,082,167 1,256,570
Finished Goods 408,648 249,223
$32,754,622 $9,146,505
Note 4--Supplemental Disclosure of Cash Flow Information
Nine months ended September 30,
1997 1996
Cash paid during the period for:
Interest $ 1,054,448 $374,960
Income taxes paid (refunded) (402,392) $ 12,728
Common stock issued in business
combinations $14,182,182
Note 5--Notes Payable
The Company has incurred significant borrowings since December 31,
1996. (See Management's Discussion and Analysis Liquidity and Capital
section for details.)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 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
Three Months Ended September 30, 1997 Compared to Three Months
Ended September 30, 1996.
Net sales. Net sales are net of discounts and are recognized upon
shipment to a customer. The Company's net sales increased by 107.4% to
28.2 million for the third quarter of fiscal 1997, from $13.6 million
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 Companies), acquired on February 24, 1997, and the inclusion of
the operations of the Company's Fort Lauderdale facility, acquired from
AlliedSignal on August 11, 1997.
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). Gross profit increased by
640.0% to $3.7 million for the third quarter of 1997, from $0.5 million
during the third quarter of 1996. The gross profit margin for the three
months ended September 30, 1997 was 13.3% compared to 3.9% for the same
period in 1996. The increase in gross profit percentage is related to
the operations of the CE Companies, which have historically had a higher
gross profit percentage. In addition, as revenues have increased, fixed
overhead costs such as labor costs and depreciation have been absorbed in
cost of goods resulting in higher margins. Finally, the Company incurred
a restructuring charge in cost of goods sold of $0.5 million in the third
quarter of fiscal 1996, primarily related to severance pay and write-off
of inventory associated with the restructuring of the Company's customer
base, which accentuated the difference in gross profit between the three
months ended September 30, 1997 compared to the same period in fiscal
1996.
Selling, general and administrative expenses. Selling, general
and administrative ("SGA") expenses increased by 23.5% to $2.1 million
for the third quarter of 1997 compared to $1.7 million for the same
period in 1996. As a percentage of net sales, SGA expense decreased to
7.6% in the third quarter of 1997 from 12.8% in the third quarter of
1996. The Company incurred a restructuring charge of $0.9 million in the
third quarter of 1996, primarily from severance pay for terminated
employees at the Rocky Mountain facility. Without the restructuring
charge, SGA expense for the third quarter of 1996 would have been 6.2% of
net sales. The increase in SGA expense is due to the inclusion of the CE
Companies' SGA expenses, SGA expenses related to the Company's Fort
Lauderdale, Florida facility, and increased investment in information
technology and marketing.
Impairment of fixed assets. During the third quarter of 1996, the
Company incurred a write down associated with impaired assets in the
amount of $725,869. Statement of Financial Accounting Standards No. 121
"Accounting for impairment of long-lived assets and for long-lived assets
to be disposed of", requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events of changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Long-lived assets
and certain identifiable intangibles to be disposed of should be reported
at the lower of carrying amount or fair value less cost to sell. The
Company went through a corporate restructuring in the third quarter of
1996 which included a workforce reduction and the implementation of APM
which resulted in certain assets no longer being used in operations.
Certain software that will no longer be used, as well as equipment that
was sold, were written down to fair value in accordance with Statement
No. 121.
Operating Income. Operating income increased to $1.5 million for
the third quarter of 1997 from a loss of $1.9 million for the third
quarter of 1996. Operating income as a percentage of net sales increased
to 5.4% in the third quarter of 1997 from negative 14.2% in the same
period of 1996. The increase in operating income is attributable to the
CE Merger, increased efficiencies associated with APM, and the
acquisition and operation of the Fort Lauderdale, Florida facility. The
Company also incurred a restructuring charge of $2.1 million in the third
quarter of 1996. Without this restructuring charge the 1996 operating
loss would have been $0.2 million and operating profit margin would have
been approximately negative 1.5%.
Interest expense. Interest expense was $517,305 for the third
quarter of 1997 as compared to $141,898 for the same period in 1996. The
increase in interest is primarily the result of the incurrence of debt
associated with the CE Merger and the AlliedSignal Asset Purchase in
Arizona and Florida, and increased operating debt used to finance both
inventories and receivables for the Company in the third quarter of
fiscal 1997.
Gain (loss) on disposition of assets. The gain on the disposition
of assets of $1.2 million in the third quarter 1997 compared to a loss of
$12,722 in the same period 1996 is primarily due to the sale of one
facility in the Rocky Mountains for $2.4 million. The remaining facility
will be expanded to allow all operations in the Rocky Mountain facility
to be under one roof. The expansion should be completed by the end of
the first quarter of 1998.
Income tax expense. The effective income tax rate for the third
quarter of fiscal 1997 was 36.4% compared to 34.6% for the same period a
year earlier. This percentage can fluctuate because relatively small
dollar amounts tend to move the rate significantly as estimates change.
The Company expects that the rate will be higher in the upcoming
quarters. This higher anticipated effective rate is due to the impact of
the non-deductible goodwill component of the CTI Merger and CE Merger.
Nine Months Ended September 30, 1997 Compared to Nine Months
Ended September 30, 1996.
Net sales. The Company's net sales increased by 45.8% to $65.0
million during the first nine months of 1997, from $44.6 million for the
nine months of 1996. The increase in net sales is due primarily to the
inclusion of the operations from the CE Companies, acquired on February
24, 1997, the inclusion of the operations of the Company's Fort
Lauderdale facility, acquired from AlliedSignal on August 11, 1997, and
increased orders from existing customers.
Gross profit. Gross profit increased by 333.3% to $8.2 million
during the first nine months of 1997, from $1.9 million during the first
nine months of 1996. The gross profit margin for the first nine months
of 1997 was 12.7% compared to 4.3% for the first nine months of 1996.
The increase in gross profit percentage is related to (i) the operations
of the CE Companies, which have historically had a higher gross profit
percentage and (ii) the adoption of APM in the later part of 1996 in the
Rocky Mountain facility which has resulted in greater operating
efficiencies. In addition, as revenues have increased, fixed overhead
costs such as labor costs and depreciation have been absorbed in cost of
goods resulting in higher margins. Finally, the Company incurred a
restructuring charge in cost of goods of $0.5 million in the third
quarter of fiscal 1996, primarily related to severance pay and the
write-off of inventory associated with the restructuring of the Company's
customer base, which accentuated the difference in gross profit between
the first nine months of 1996 and 1997.
Selling, general and administrative expenses. Selling, general
and administrative ("SGA") expenses increased by 50.6% to $5.1 million
for the first nine months of 1997 compared with $3.4 million for the same
period for the first nine months of 1996. As a percentage of net sales,
SGA expenses increased to 7.9% in the first nine months of 1997 from 7.7%
in the same period of 1996. The Company incurred a restructuring charge
of $0.9 million in the third quarter of 1996, primarily from severance
pay for terminated employees at the Rocky Mountain facility. Without the
restructuring charge, SGA expense for the first nine months of 1996 would
have been 5.6% of sales. The increase in SGA expenses is primarily due
to the inclusion of the CE Companies' SGA expenses, SGA expenses related
to the Company's Fort Lauderdale, Florida facility, and increased
investment in information technology and marketing.
Impairment of fixed assets. During the third quarter of 1996, the
Company incurred a write down associated with impaired assets in the
amount of $725,869. See "Three Months Ended 1997 Compared to 1996,
Impairment of Fixed Assets."
Operating Income. Operating income increased to $3.0 million for
the first nine months of 1997 from a loss of $2.2 million for the first
nine months of 1996. Operating income as a percentage of net sales
increased to 4.5% in the first nine months of 1997 from negative 5.0% in
the same period of 1996. The increase in operating income is
attributable to the CE Merger, increased efficiencies associated with
APM, and the acquisition and operation of the Fort Lauderdale, Florida
facility. Without the $2.1 million write down in the third quarter of
1996, the nine months 1996 operating loss would have been $0.1 million,
and the operating profit margin would have been approximately breakeven.
Interest expense. Interest expense was $1.1 million for the first
nine months of 1997 as compared to $0.4 million for the same period in
1996. The increase in interest is primarily the result of the incurrence
of debt associated with the CE Merger and the AlliedSignal Asset Purchase
in Arizona and Florida, and increased operating debt used to finance both
inventories and receivables for the Company in the first nine months of
fiscal 1997.
Income tax expense. The effective income tax rate for the first
nine months of fiscal 1997 was 36.5% compared to 35.4% from the same
period a year earlier. This percentage can fluctuate because relatively
small dollar amounts tend to move the rate significantly as estimates
change. The Company expects that the rate will be higher in the upcoming
quarters. This higher anticipated effective tax rate is due to the
impact of the nondeductible goodwill component of the CTI Merger and CE
Merger.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, working capital totaled $411,296 compared
to $8.5 million at December 31, 1996. The decrease in working capital in
the first nine months of 1997 is attributable to the increased borrowings
under the Company's line of credit associated with the CTI Merger.
Cash used in operations for the first nine months of 1997 was
$12.3 million compared to $0.5 million in the same period last year. The
AlliedSignal Asset Purchase in Florida and Arizona and the CTI Merger
resulted in a significant use of funds, particularly in the purchase of
inventory and equipment in the third quarter of 1997. Accounts receivable
increased 434.9% to $18.3 million at September 30, 1997 from $3.4 million
at September 30, 1996. A comparison of receivable turns (i.e., annualized
sales divided by current accounts receivable) for the first nine months
of 1997 and the first nine months of 1996 is 4.7 and 17.4 turns,
respectively. The 1997 receivable turn is distorted because the sales
for the first quarter of 1997 includes only one month and four days of
the CE Companies' revenues. The balance sheet of the Company as of
September 30, 1997, includes the consolidation of the CTI Companies and
the AlliedSignal Asset Purchase, but there has been no corresponding
revenue recognition from the CTI Merger and only one month and 20 days of
the revenues from the operations in Fort Lauderdale, Florida and Tucson,
Arizona. Inventories increased 258.1% to $32.8 million at September 30,
1997 from $10.1 million at September 30, 1996. A comparison of inventory
turns (i.e., annualized cost of sales divided by current inventory) for
the first nine months of fiscal 1997 and 1996 shows a decrease to 2.3
from 5.6, respectively. The 1997 inventory turns are distorted because
the cost of sales for the first quarter includes only one month and four
days of the CE Companies' costs. Also the 1997 third quarter ending
balance sheet includes the consolidation of the CTI Companies and the
AlliedSignal Asset Purchase, but there has been no corresponding revenue
recognition from the CTI Companies and only one month and 20 days of
costs of running the Fort Lauderdale, Florida and Tucson, Arizona
operations. Inventory increases in the early stages of new turnkey
business may create delays and decrease the turning of inventory until
the new assemblies are in full production.
The Company used cash to purchase capital equipment totaling $6.4
million in the first nine months of 1997, compared with $2.1 million in
the same period last year. The Company also used cash to purchase the CE
Companies and CTI Companies, as explained earlier, in the amount of $24.6
million. Proceeds from long-term borrowings of $35.0 million were used
to help fund the purchase of the CE Companies and CTI Companies.
In connection with the CTI Merger and the AlliedSignal Asset
Purchase, the Company entered into the Bank One Loan comprised of a $25
million revolving line of credit, maturing on September 30, 2000 and a
$20 million term loan maturing on September 30, 2002. The proceeds of
the Bank One Loan were used for (i) funding the CTI Merger and (ii)
repayment of the then-existing Bank One line of credit, bridge facility
and equipment loan. The Bank One Loan bears interest at a rate based on
either the LIBOR or Bank One prime rate plus applicable margins ranging
from 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 and all of the outstanding capital stock and
memberships of the Company's subsidiaries, whether now owned or later
acquired. The agreement for the Bank One Loan contains covenants
restricting liens, capital expenditures, investments, borrowings, payment
of dividends, mergers and acquisitions and sale of assets. In addition,
the loan agreement contains financial covenants restricting maximum
annual capital expenditures, recapturing excess cash flow and requiring
maintenance of the following ratios: (i) maximum senior debt to EBITDA
(as defined in the agreement for the Bank One Loan); (ii) maximum total
debt to EBITDA; (iii) minimum fixed charge coverage; (iv) minimum EBITDA
to interest; and (v) minimum tangible net worth requirement with periodic
step-up. As of September 30, 1997, the borrowing availability under the
Bank One Loan was approximately $2.5 million.
In addition to the Bank One Loan, the Company has issued the
Subordinated Notes in the aggregate principal amount of $15 million, with
a maturity date of December 31, 2002 and bearing a rate of the London
Inter-Bank Offered Rate, adjusted monthly ("LIBOR"), plus 2.00% in order
to fund the AlliedSignal Asset Purchase. The Subordinated Notes are
payable in four annual installments of $50,000 and one final payment of
$14.8 million at maturity, but may be prepaid in whole or in part at the
option of the Company at any time. All payments and prepayments in
respect of the Subordinated Notes are fully subordinated to all payments
in respect of the Bank One Loan. The Subordinated Notes are accompanied
by warrants for 500,000 shares of the Company's Common Stock at an
exercise price of $8.00 (the "Warrants"). The Warrants were exercised on
October 9, 1997. The holder of the Subordinated Notes is Richard L.
Monfort, a director of the Company. See "Certain Relationships and
Related Transactions."
The Company has begun construction of new manufacturing facility
in Oregon to replace its present facility located in Oregon at an
approximate cost of $5.8 million. The Company will fund this from
operational cash flow and, to the extent necessary, available lines of
credit.
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. The Company may seek additional funds, from
time to time, through public or private debt or equity offerings, bank
borrowing or leasing arrangements; however, no assurance can be given
that financing will be available on terms acceptable to the Company.
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 effect
on its determination of earnings per share.
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.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant held a special meeting of shareholders on September
30, 1997, for the purpose of soliciting proxies by the Board of Directors
of the Company for use at the special meeting of shareholders. Proxies
for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitations.
The proposal to approve the issuance of 1,858,975 shares of the
Company's Common Stock, par value $.01 per share in accordance with
Nasdaq Stock Market rules in connection with the Merger of Circuit Test,
Inc., a Florida Corporation, with and into CTI Acquisition Corp., a
Florida Corporation and a wholly-owned subsidiary of the Company, in
exchange for the EFTC equity.
Shares Voted Shares Not
"For" "Against" "Abstain" Voted
3,841,046 0 5,450 2,092,014
To approve an amendment to the Company's Equity Incentive Plan to
increase the number of shares of the Company's Common Stock reserved for
issuance thereunder from 995,000 to 1,995,000 and to make certain other
changes.
Shares Voted Shares Not
"For" "Against" "Abstain" Voted
3,841,046 0 5,450 2,092,014
To approve an amendment to the Company's Stock Option Plan for
Non-Employee Directors to increase the number of shares of the Company's
Common Stock reserved for issuance thereunder from 160,000 to 300,000 and
to make certain other changes.
Shares Voted Shares Not
"For" "Against" "Abstain" Voted
3,841,046 0 5,450 2,092,014
Item 6(A). EXHIBITS
EXHIBIT
NUMBER
27 Financial Data Schedule
ITEM 6(B). REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K with the Securities
and Exchange Commission during the quarter ended September 30, 1997. The
following items were reported in Form 8-K dated August 26, 1997.
Item 2. Acquisition or Deposition of Assets.
The Company entered into a Master Agreement with AlliedSignal
Avionics, Inc.(Avonics), A Kansas corporation and AlliedSignal, Inc.,
Equipment Systems Unit(AES)on July 15, 1997. Pursuant to the Master
Agreement, the Company agreed (i) to purchase certain assets owned by
AlliedSignal that are located at AlliedSignal production facilities
located in Tucson, Arizona, and Fort Lauderdale, Florida, (ii) to enter
into certain related transaction with respect to each location and (iii)
to enter into a Supplier Partnering Agreement with AlliedSignal to
manufacture electronic assemblies for it at those facilities.
Item 7. Financial Statements and exhibits.
The following exhibits were included in said report:
Exhibit
Number
2.1 Master Agreement regarding asset purchase and related
transactions by and between the Company, Avionics, and AES,
Inc., dated as of July 14, 1997 as amended by the First
Amendment to the Master Agreement Regarding Asset Purchase
and Related Transactions dated as of July 31, 1997 and as
further amended by the Second Amendment to the Master Agreement
Regarding Asset Purchase and Related Transactions dated as of
August 11, 1997.
2.2 AlliedSignal Aerospace Supplier Partnership Agreement, dated as
of July 15, 1997, by and between the Company and AlliedSignal,
Inc.
2.3 License Agreement dated as of August 4, 1997 by and between
the Company and ASTI.
2.4 Premises License Agreement, dated as of August 4, 1997, by
and between the Company and AES.
2.5 Facilities Management and Transition Services Agreement dated
as of August 4, 1997, between the Company and AES and as
amended by a First Amendment to Facilities Management and
Transition Services Agreement dated as of July 31, 1997.
2.6 Sublease Agreement dated as of August 11, 1997 between the
Company and AlliedSignal, Inc.
2.7 Transition Services Agreement dated as of August 11, 1997
between the Company and Avionics.
2.8 Agreement Regarding Use of Personal Property dated as of August
11, 1997 by and between the Company and Avionics.
2.9 Agreement to Extend Avionics Personal Property Asset Transfer
Date dated August 15, 1997 by and between the Company, Avionics
and AES.
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 14, 1997 /s/Jack Calderon_____________________
Jack Calderon
President and Chief Executive Officer
Date: November 14, 1997 /s/Stuart W. Fuhlendorf______________
Stuart W. Fuhlendorf
Treasurer and Chief Financial Officer
Date: November 14, 1997 /s/Brent L. Hofmeister_______________
Brent L. Hofmeister
Controller
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,226,217
<SECURITIES> 0
<RECEIVABLES> 18,491,289
<ALLOWANCES> 194,480
<INVENTORY> 32,754,622
<CURRENT-ASSETS> 54,471,526
<PP&E> 24,304,095
<DEPRECIATION> 6,415,618
<TOTAL-ASSETS> 117,645,892
<CURRENT-LIABILITIES> 54,060,230
<BONDS> 32,725,000
0
0
<COMMON> 78,121
<OTHER-SE> 30,108,277
<TOTAL-LIABILITY-AND-EQUITY> 117,645,892
<SALES> 64,973,220
<TOTAL-REVENUES> 64,973,220
<CGS> 56,739,734
<TOTAL-COSTS> 56,739,734
<OTHER-EXPENSES> 5,282,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,054,448
<INCOME-PRETAX> 3,101,852
<INCOME-TAX> 1,132,824
<INCOME-CONTINUING> 1,969,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,969,028
<EPS-PRIMARY> .34
<EPS-DILUTED> .32
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