SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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: MARCH 31, 1999
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
9351 Grant Street, Sixth Floor
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. [X] Yes [ ] 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 May 12, 1999
---------------------
Common Stock, par value $0.01 15,543,489 shares
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EFTC CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (unaudited) 3
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
Three months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
Three months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
EFTC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
(in Thousands)
ASSETS March 31, December 31,
1999 1998
Current assets
<S> <C> <C>
Cash and cash equivalents $ 863 $ 623
Trade receivables 35,251 34,123
Inventories 59,931 60,759
Income taxes receivable 125 125
Deferred income taxes 3,550 5,259
Prepaid expenses and other 1,631 2,241
--------- ---------
Total current assets 101,351 103,130
--------- ---------
Property, plant and equipment, at cost 47,636 45,578
Less accumulated depreciation (7,971) (6,959)
--------- ---------
Net property, plant and equipment 39,665 38,619
--------- ---------
Goodwill, net 44,457 44,848
Other assets, net 4,108 4,069
Deferred income taxes 1,001 -
--------- ---------
$ 190,582 $ 190,666
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 26,505 $ 28,043
Current portion of long-term debt 4,314 4,115
Accrued compensation 3,263 2,980
Deposit on inventory finance arrangement 5,600 5,600
Other accrued liabilities 2,312 3,355
--------- ---------
Total current liabilities 41,994 44,093
----------- ---------
Long-term debt, net of current portion 53,937 50,868
----------- ---------
Deferred income taxes - 725
----------- ---------
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; 15,543,489 issued and outstanding 156 156
Additional paid-in capital 91,990 91,990
Retained earnings 2,505 2,834
--------- ---------
Total shareholders' equity 94,651 94,980
--------- ---------
$ 190,582 $ 190,666
</TABLE>
See notes to condensed consolidated financial statements.
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EFTC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
(in Thousands, except per share amounts)
Three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Net sales $ 54,324 $ 54,200
Cost of goods sold 47,064 44,297
--------- ---------
Gross profit 7,260 9,903
Selling, general, and administrative 6,007 5,321
Merger costs - 1,048
Goodwill amortization 391 391
--------- ---------
Operating income 862 3,143
--------- ---------
Other income (expense):
Interest expense (1,264) (908)
Other, net 38 39
--------- ---------
(1226) (869)
--------- ---------
Income (loss) before income taxes (364) 2,274
Income tax (expense) benefit 35 (935)
--------- ---------
Net income (loss) $ (329) $ 1,339
========= =========
Pro forma information:
Historical net income (loss) $ (329) $ 1,339
Pro forma adjustment to income
tax expense - (317)
--------- ---------
Pro forma net income (loss) $ (329) $ 1,022
============ =========
Pro forma income (loss) per share:
Basic $ (0.02) 0.07
========= =========
Diluted $ (0.02) $ 0.07
========== =========
Weighted average shares outstanding:
Basic 15,543 13,645
========= =========
Diluted 15,543 14,440
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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EFTC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in Thousands)
Three months ended March 31,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (329) $ 1,339
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 1,595 1,358
Deferred income taxes (17) 46
Gain on sale of fixed assets - (4)
Changes in operating assets and liabilities:
Trade receivables (1,128) (3,454)
Inventories 828 (13,088)
Prepaid expenses and other 610 (644)
Other assets (39) 1,224
Accounts payable and accrued expenses (2,298) 10,734
Income taxes payable - 62
--------- ---------
Net cash used by operating activities (778) (2,427)
--------- ---------
Cash flows from investing activities:
Payments for business combinations - (37)
Purchase of property, plant and equipment (2,250) (9,450)
--------- ---------
Net cash used by investing activities (2,250) (9,487)
--------- ---------
Cash flows from financing activities:
Stock options and warrants exercised - 45
Other - (41)
Proceeds from long-term debt 4,143 7,605
Principal payments on long-term debt (875) (1,979)
Borrowings on notes payable, net - 5,000
--------- -------
Net cash provided by financing activities 3,268 10,630
--------- -------
Increase (decrease) in cash and cash equivalents 240 (1,284)
Cash and cash equivalents:
Beginning of period 623 1,877
--------- -------
End of period $ 863 $ 593
========= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
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EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The accompanying unaudited condensed consolidated 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
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. 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, Form 10-K for the year ended December 31, 1998.
Note 2--Inventories
The components of inventories consist of the following:
(in Thousands)
March 31, 1999 December 31, 1998
-------------- -----------------
Purchased parts and completed
subassemblies $ 44,404 $ 44,216
Work-in-process 13,155 12,474
Finished Goods 2,372 4,069
-------------- -----------------
$ 59,931 $ 60,759
Note 3--Supplemental Disclosure of Cash Flow Information
Three Months Ended
March 31, 1999 March 31, 1998
Cash paid during the period for:
Interest $ 1,275 $ 978
Income taxes $ - $ 859
Conversion of notes payable to
shareholders' equity $ - $ 1,398
Note 4--Restructuring
In the fourth quarter of 1998, management initiated a plan to
consolidate and close its Rocky Mountain Operations in Greeley, Colorado.
Charges of $9,250,000 related to the closing were charged to operations for the
year ended December 31, 1998. Additional costs associated with closure and sale
of the facility will be incurred through the second quarter of 1999 or until the
facility is sold. The restructuring involved the termination of approximately
140 employees of which 123 were manufacturing related and 17
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administrative or indirect support personnel. Additionally, EFTC's relationships
with a number of customers whose products were no longer going to be produced by
EFTC were terminated. Total severance and salaries of employees performing exit
activities amounted to $463,000 of which $263,000 was included in cost of goods
sold and $200,000 in selling, general and administrative expenses in the fourth
quarter of 1998. At March 31, 1999, all of these costs had been paid and no
accrual was remaining that related to severance and exit activities. Inventory
allowances of $5,445,000, which were included in cost of goods sold in the
fourth quarter of 1998, were recorded to provide for losses to be incurred
related to disengaged customers who did not continue as customers of the
Company. At March 31, 1999, $717,046 remained as a reserve related to the
disposition of this inventory. In addition, a provision of $3,342,000 was
charged to operations in the fourth quarter of 1998 related to asset impairment
for land, building and various equipment. At March 31, 1999, $1,722,800 of the
provision remains, primarily related to the land and building.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provide information that EFTC's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein, as well as with the consolidated financial
statements, notes thereto and the related management's discussion and analysis
of financial condition and results of operations included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Results of Operations
Net Sales. The Company's net sales increased by .2% to $54.3 million
for the first quarter of 1999 compared to $54.2 million in the first quarter of
1998. Sales remained flat quarter over quarter but the product mix sold has
changed significantly. EFTC's Rocky Mountain location closed in January of 1999,
resulting in lower sales from the continuing operations which existed both in
first quarter 1998 and 1999. However, because of the inclusion of our Northeast
Operations and Midwest Operations, which were acquired in the last [two]
quarters of 1998, sales overall remained neutral.
Gross Profit. Gross profit decreased by 26.7% to $7.3 million for the
quarter ended March 31, 1999 compared to $9.9 million for the same period last
year. The gross profit percentage decreased to 13.4% for the quarter ended March
31, 1999 from 18.3% for the quarter ended March 31, 1998. The decline in gross
profit and gross profit margin percentage is primarily associated with costs of
the Rocky Mountain facility that were incurred in the first quarter of 1999
related to shutting down the facility, transferring inventory and equipment to
other sites, and unprofitable operations in January of 1999 associated with
final production for former customers.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SGA") expense increased by 12.9% to $6.0 million for the first
quarter ended March 31, 1999, compared with $5.3 million for the same period in
1998. As a percentage of net sales, SGA expense increased to 11.1% for the
quarter ended March 31, 1999 from 9.8% from the quarter ended March 31, 1998.
The increase in SGA costs is primarily due to increased costs of infrastructure
added in the later part of 1998 in sales and marketing, operations, quality, and
information technology areas that were not part of the Company in the first
quarter of 1998. Management believes these additional investments will help the
Company achieve additional sales growth without proportionate growth in SGA
expenses.
Operating Income. Operating income decreased to $.9 million for the
quarter ended March 31, 1999 from $3.1 million for the quarter ended March 31,
1998. Operating income as a percentage of net sales decreased to 1.6% for the
quarter ended March 31, 1999 from 5.8% for the quarter ended March 31, 1998.
Excluding one-time merger costs of $1.0 million in the first quarter of 1998,
operating income would have been $4.2 million or 7.7% of net sales. The decrease
in operating income is primarily due to the costs of closing the Rocky Mountain
facility.
Interest Expense. Interest expense was $1.3 million for the quarter
ended March 31, 1999, compared to $0.9 million for the same period in 1998. The
increase in interest is primarily the result of the incurrence of debt
associated with the growth of inventories and receivables that occurred with the
Bayer/Agfa asset
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purchase (the Northeast Operations) and the Allied Signal Kansas asset purchase
(the Midwest Operations) that occurred in the fall of 1998.
Income Tax Expense. The effective income tax rate for the quarter ended
March 31, 1999 was 9.6%, including pro forma income taxes, compared to 55.1% for
the same period in 1998. The Company's income tax rates are affected by the
nondeductible goodwill amortization.
Liquidity and Capital Resources
At March 31, 1999, working capital totaled $59.4 million compared to
$59.0 million at December 31, 1998.
Cash used in operating activities for the quarter ended March 31, 1999,
was $0.8 million compared to $2.4 million for the same period in 1998. Accounts
receivable increased 3.3% to $35.2 million at March 31, 1999 from $34.1 million
at December 31, 1998. Receivable turns (e.g., annualized sales divided by period
end accounts receivable) decreased to 6.2 for the quarter ended March 31, 1999
from 6.6 for fiscal 1998. Inventories decreased 1.4% to $59.9 million at March
31, 1999 from $60.8 million at December 31, 1998. A comparison of inventory
turns (i.e., annualized cost of sales divided by period end inventory) for the
quarter ended March 31, 1999 compared to December 31, 1998 shows a decrease to
3.1 from 3.3.
The Company used cash to purchase capital equipment totaling $2.3
million for the quarter ended March 31, 1999 compared to $9.5 million for the
quarter ended March 31, 1998. The decrease is primarily attributable to
construction payments for buildings and improvements in the Northwest,
Southwest, and Rocky Mountain locations that were completed in 1998.
The Company entered into a Credit Agreement, dated as of September
30, 1997 provided by Bank One, Colorado, N.A., (the "Bank One Loan"). The Bank
One Loan currently provides for a $40 million revolving line of credit, maturing
on September 30, 2000 and a $15.1 million term Loan maturing on September 30,
2002. The Bank One Loan currently bears interest at a rate based on either the
London Inter- Bank Offering Rate (LIBOR) or Bank One prime rate plus applicable
margins. Borrowings under 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 membership interests of the Company's
subsidiaries, whether now owned or later acquired. As of March 31, 1999, the
outstanding principal amount of borrowings under the Bank One Loan was $43.0
million and the amount available for borrowing was approximately $12.1 million.
In September 1997, the Company issued to a director of the Company $15
million in aggregate principal amount of subordinated notes, with a maturity
date of December 31, 2002 and bearing interest at LIBOR plus 2.0%, in order to
fund the Allied Signal Florida/Arizona Asset Purchase. As of March 31, 1999, the
outstanding principal amount of the subordinated notes is approximately $5
million.
In April 1999, the Company acquired from Honeywell, Inc. certain assets
associated with Honeywell's former Business and Commuter Aviation Systems (BCAS)
operation in Phoenix, Arizona and entered into a long term supply agreement for
the manufacture of circuit cards for Honeywell. The $3.5 million purchase price
for the BCAS assets other than inventory was paid in April. The Company
anticipates that the remainder of the purchase price, which is expected to
exceed $7 million, will be paid in the third quarter.
Honeywell and the Company are currently in discussions for similar
arrangements for Honeywell's Air Transport Systems (ATS) operations in Phoenix
and operations at a facility in Tijuana, Mexico.
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Should Honeywell and the Company be successful in agreeing to the purchase of
the ATS assets by the Company, the Company anticipates that the cost of
acquiring those assets will exceed $35 million in the aggregate, and that
approximately $6 million of the costs (for assets other than inventory) will be
paid in the second quarter, with the approximately $30 million purchase price
for inventory being paid over a six-month period beginning in October 1999.
There can be no assurance that the Company and Honeywell will be successful in
reaching agreement as to the ATS purchase or that, if agreement is reached, that
the total acquisition costs will not exceed the amounts anticipated or that the
terms of the acquisition will not be amended.
In addition, the Company anticipates completing its acquisition of the
AlliedSignal Kansas assets in the second and third quarters of 1999, with
estimated inventory purchases in the aggregate amount of $3.5 million.
The Company may require additional capital to finance enhancements to, or
expansions of, its manufacturing capacity through internal growth or
acquisitions 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 believes
that it can fund the purchase price for the remaining AlliedSignal Kansas
inventory through the existing Bank One Loan, and is currently negotiating with
its lender to increase the Bank One Loan in order to fund the acquisition costs
and working capital requirements of the two Honeywell transactions. The Company
is also considering other sources to provide additional working capital, and may
seek additional funds, from time to time, through public or private debt or
equity offerings, asset-based or bank borrowing or leasing arrangements;
however, no assurance can be given that financing will be available on terms
acceptable to the Company.
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income", Statement No.131,
"Disclosures About Segments of an Enterprise and Related Information", Statement
No. 132 "Employers Disclosures About Pensions and Other Postretirement Benefits"
and, during 1998, Statement No. 134, Accounting for Mortgage-Backed Securities
Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise." During 1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities." The adoption of these pronouncements did not and is not
expected to have a significant effect on the Company's financial position or
results of operations.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which is effective for fiscal
quarters of fiscal years beginning after June 15, 1999. Statement No. 133
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts, and for
hedging securities. The Company will adopt the statement's disclosure
requirements in financial statements for the year ending December 31, 2000.
The Year 2000 (Y2K) Issue
The Y2K issue is a result of computer programs being written in the past
using only a two digit year to save memory space, in lieu of a full four digit
year. As a result, computer programs may recognize dates after the year 1999 as
being 19XX instead of 20XX. If not corrected, this could create system failures
or miscalculations causing disruptions in the operations of the Company and its
suppliers and customers.
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The Company has undertaken a project to address the Y2K issue across its
operating units. The initial evaluation of all primary systems was completed by
the end of 1998 with remediation scheduled for the first half of 1999. The
Company anticipates that its primary standard networks, operating systems,
Oracle and other packaged applications, and desktop systems are or will be
compliant upon the implementation of currently pending upgrades. Systems that
have Y2K issues are expected to be identified during the evaluation period. The
Company intends to either update or replace these systems as they are
identified. Any embedded program applications, such as machine controllers and
building systems, are to be evaluated and the manufacturers contacted for
remediation. This process has already begun at most sites, but is to be
formalized as part of the Company's Y2K project.
As part of the Company's Y2K project, the Company has contacted its
significant suppliers and customers at the site or division level to determine
the extent to which the Company is vulnerable to failure by those third party to
remediate their Y2K issues. As part of the Company's overall Y2K project this
activity is being tracked across the Company to more efficiently track activity
with common customers and suppliers. The Company will continue to contact
significant suppliers and customers throughout 1999 to follow-up on their
progress. However, there can be no assurance that the systems of the other
entities on which the Company's business relies will be timely converted or that
failure to convert, or a conversion that is incompatible with the Company's own
systems, will not have a material adverse affect on the Company and its
operations.
Expenditures in 1998 and the first quarter of 1999 for the Company's Y2K
project did not significantly impact the Company's operating results. Management
believes that expenditures in 1999 will not significantly impact the Company's
operating results, assuming no significant Y2K issues are discovered in
evaluating embedded technology.
The Company's failure to resolve Y2K issues before December 31, 1999 could
result in system failures or miscalculations causing disruptions in operations,
including a temporary inability to manufacture products, process transactions,
send invoices or engage in other normal business activities. Additionally, the
failure of third parties upon whom the Company's business relies to timely
remediate their Y2K issues could result in disruptions in the Company's supply
of parts and materials, late or misapplied invoices, temporary disruptions in
order processing and other general problems related to the Company's daily
business operations. While the Company believes its Y2K project will adequately
address the Company's internal Y2K issues, until the Company can assess the Y2K
readiness of a more significant number of its suppliers and customers, the
overall risks associated with Y2K remain difficult to accurately describe and
quantify. Thus there can be no assurance that the Y2K issue will not have a
material adverse effect on the Company's operations.
The Company has initiated the contingency planning phase of the Y2K
project. All mission critical items are expected to be compliant before year end
or have contingency plans in place. The Company has added a Y2K compliance
resource to coordinate compliance and remediation across all divisions. Items
that are not mission critical to the Company, will continue to be addressed
during the next two quarters. Final Y2K compliance and validation for
non-critical items is expected to be complete by the end of the third quarter of
1999.
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Special Note Regarding Forward-looking Statements
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the federal securities laws. In addition, EFTC
or persons acting on its behalf sometimes make forward-looking statements in
other written and oral communications. Such forward-looking statements may
include, among other things, statements concerning the Company's plans,
objectives and future economic prospects, prospects for achieving cost savings,
increased capacity utilization, improved profitability, and other matters
relating to the prospects for future operations; and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
EFTC, or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward- looking
statements. Important factors that could cause such differences include, but are
not limited to, changes in economic or business conditions in general or
affecting the electronic products industry in particular, changes in the use of
outsourcing by original equipment manufacturers, increased material prices and
service competition within the electronic component, contract manufacturing and
repair industries, changes in the competitive environment in which the Company
operates, the continued growth of the industries targeted by the Company or its
competitors or changes in the Company's management information needs,
difficulties in implementing the Company's new management information system,
difficulties in managing the Company's growth or in integrating new businesses,
customers and production facilities, changes in customer needs and expectations,
the Company's success in retaining customers affected by the closure of the
Company's Greeley facility, the Company's success in limiting costs associated
with such closure, the Company's ability to keep pace with technological
developments, the risks associated with the Y2K issue, if the Company or its
material vendors or customers do not adequately resolve their Y2K issues,
governmental actions and other factors identified as "Risk Factors" or otherwise
described in the Company's filings with the Securities and Exchange Commission.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's Bank One Loan is comprised of a $40 million revolving
line of credit and a $15.1 million term loan. As of March 31, 1999, the Company
had borrowed an aggregate principal amount of $43.0 million. The interest rate
on Bank One Loan is based either on the Bank One prime rate or the LIBOR, plus
applicable margins. Therefore, as interest rates fluctuate, the Company may
experience changes in interest expense that could impact financial results. To
protect against the risk of interest rate fluctuations, the Company has entered
into an interest rate swap agreement that covers its term loan and has
effectively fixed the interest rate on the entire outstanding principal amount
of the term loan at 6.25%, plus applicable margins pursuant to the loan
agreement, through its maturity date of September 2002. If interest rates were
to increase or decrease by 1%, the result would be an annual increase or
decrease in interest expense of approximately $279,000 for the revolving line of
credit.
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 the
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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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Two legal proceedings, one in Colorado state court, the other in U.S.
District Court, were filed against the Company and certain of its officers,
directors and shareholders during September and October 1998. The proceedings
arise in connection with the decrease in the trading price of the Company's
common stock that occurred in August 1998 and make substantially the same
allegations. While both proceedings are in the pre-trial stage and the Company
therefore cannot make any assessment of their ultimate impact, the Company
believes the allegations made in the proceedings to be totally without merit.
Joshua Grayck, Philip and Angelique Signorelli, William McBride, Mark
Norris, Michael Keister, and Aiming Kiao v. EFTC Corporation, Jack Calderon,
Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman,
L. Reid, and Lloyd McConnell (United States District Court for the District of
Colorado, Case No. 98-S- 2178). Plaintiffs are shareholders of EFTC who
originally filed this lawsuit on October 8, 1998. Plaintiffs filed an amended
complaint on January 22, 1999. Plaintiffs allege that during the class period
April 6, 1998 to August 20, 1998, defendants made false and misleading
statements regarding EFTC's business performance, implementation of a new
computer system, manufacturing quality systems, operating margins, relationships
with its largest customers, and future prospects for earnings growth. The
amended complaint alleges violations of Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder, as well as Section 11 of the
Securities Act of 1933. In addition, plaintiffs allege that by reason of their
positions as officers and/or directors of EFTC, Messrs. Calderon, Reid,
Fuhlendorf and Hofmeister had the power and authority to cause EFTC to engage in
the wrongful conduct alleged in the complaint. Plaintiffs allege, therefore,
that EFTC and these individual defendants violated Section 20(a) of the
Securities and Exchange Act of 1934 and Section 15 of the Securities Act of
1933. Plaintiffs seek the following relief: (a) certification of the complaint
as a class action on behalf of all persons who purchased or otherwise acquired
the common stock of EFTC between April 6, 1998 and August 20, 1998; (b) an award
of compensatory damages, interest, costs and attorneys' fees to all members of
the class; and (c) equitable relief available under federal and state law.
Defendants moved to dismiss the case on March 8, 1999 on the grounds
that the complaint is without merit. That motion is pending.
Craig Anderson, Todd Sichelstiel, Phillip and Angelique Signorrelli,
Christy J. Baldwin and Patricia Conlon v. EFTC Corporation, Jack Calderon,
Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman,
Lucille A. Reid, Lloyd A. McConnell and Salomon Smith Barney (United States
District Court for the District of Colorado, Case No. 99-S-63). Plaintiffs are
shareholders of EFTC who filed this lawsuit originally in the District Court for
the County of Weld, Colorado. Defendants removed the case to federal court on
January 11, 1999. Plaintiffs allege that during the class period April 6, 1998
to August 20, 1998, defendants made false and misleading statements regarding
EFTC's business performance, implementation of a new computer system,
manufacturing quality systems, operating margins, relationships with its largest
customers, and future prospects for earnings growth. The complaint alleges
violations of Sections 11-51-501(1)(a, b, and c) and 11-51-604(3) of the
Colorado Securities Act. In addition, plaintiff alleges that by reason of their
positions as officers and/or directors of EFTC, Messrs. Calderon, Reid,
Fuhlendorf, Hofmeister, Bruehlman, McConnell, and
13
<PAGE>
Ms. Reid are controlling persons of EFTC and, therefore, that these defendants
violated Section 11-51- 604(5) of the Colorado Securities Act. Plaintiffs also
allege that defendants conduct occurred in connection with the offer, sale or
purchase of EFTC securities in the secondary offering in violation of Section
11-51-604(4) of the Colorado Securities Act. Plaintiff seeks the following
relief: (a) certification of the complaint as a class action on behalf of all
persons who purchased or otherwise acquired the common stock of EFTC between
April 6, 1998 and August 20, 1998; (b) an award of compensatory and/or punitive
damages, interest, costs and attorneys' fees to all members of the class; and
(c) equitable relief available under state law.
After removal to federal court, on January 15, 1999, defendants moved
to dismiss the Complaint pursuant to the Securities Litigation Uniform Standards
Act of 1998, Pub. L. 105-353, in that the Complaint only asserts claims arising
under the Colorado Securities Act, which are now pre-empted by federal law.
Plaintiffs have filed a motion seeking to have the case remanded to state court.
In any event, defendants deny the allegations of the complaint and intend to
vigorously defend against the lawsuit.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6(a). Exhibits
Exhibit Number
27.1 Financial Data Schedule
ITEM 6(b). Reports on Form 8-K
The Company did not file any report on Form 8-K during the three months
ended March 31, 1999.
14
<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, thereunto duly authorized.
EFTC CORPORATION
(Registrant)
Date: May 14, 1999
/s/ Jack Calderon
----------------------------------------
Jack Calderon
Chairman and Chief Executive Officer
Date: May 14, 1999
/s/ Stuart W. Fuhlendorf
----------------------------------------
Stuart W. Fuhlendorf
Chief Financial Officer
Date: May 14, 1999
/s/ Brent L. Hofmeister
----------------------------------------
Brent L. Hofmeister, CPA
Controller
15
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