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: JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO 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 August 5, 1999
--------------------- ------------------------------
COMMON STOCK, PAR VALUE $0.01 15,543,489 SHARES
<PAGE>
EFTC CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (unaudited) 3
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
Six months Ended June 30, 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 7
Item 3. Qualitative and Quantitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Submissions of Matters to a Vote of Security Holders 12
Item 6(a). Exhibits 12
Item 6(b). Reports on Form 8-K 12
SIGNATURES 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
EFTC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1999 1998
--------- ------------
(in Thousands)
ASSETS
Current assets
Cash and cash equivalents $ 144 $ 623
Trade receivables 35,395 34,123
Inventories 60,361 60,759
Income taxes receivable 86 125
Deferred income taxes 5,144 5,259
Prepaid expenses and other current assets 3,495 2,241
--------- ---------
Total current assets 104,625 103,130
--------- ---------
Property, plant and equipment, at cost 42,673 45,578
Less accumulated depreciation (8,856) (6,959)
--------- ---------
Net property, plant and equipment 33,817 38,619
--------- ---------
Other assets, net 6,072 4,069
Goodwill, net 44,065 44,848
Deferred income taxes 1,442 --
--------- ---------
Total Assets $ 190,021 $ 190,666
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 33,120 $ 28,043
Current portion of long-term debt 4,330 4,115
Accrued compensation 4,791 2,980
Deposit on inventory finance arrangement 4,000 5,600
Other accrued liabilities 1,106 3,355
--------- ---------
Total current liabilities 47,347 44,093
--------- ---------
Long-term debt, net of current portion 51,014 50,868
Deferred income taxes -- 725
--------- ---------
Total Liabilities 98,361 95,686
Shareholders' equity
Preferred stock, $.01 par value. Authorized
5,000 shares; none issued or outstanding -- --
Common stock, $.01 par value. Authorized 45,000
shares; issued and outstanding 15,543 shares 155 155
Additional paid-in capital 91,992 91,991
Retained earnings (deficit) (487) 2,834
--------- ---------
Total shareholders' equity 91,660 94,980
--------- ---------
Total liabilities and shareholders' equity $ 190,021 $ 190,666
========= =========
See notes to condensed consolidated financial statements
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<TABLE>
<CAPTION>
EFTC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in Thousands, except per share amounts)
Three months ended June 30, Six months ended June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 54,692 $ 61,328 $ 109,016 $ 115,527
Cost of goods sold 52,833 51,408 101,015 96,071
------------ ------------ ------------ ------------
Gross profit 1,859 9,920 8,001 19,456
Selling, general, and administrative expense 5,174 4,884 10,066 9,838
Merger costs -- -- -- 1,048
Goodwill amortization 391 391 782 782
------------ ------------ ------------ ------------
Operating income (loss) (3,706) 4,645 (2,847) 7,788
Other income (expense):
Interest expense (1,334) (1,047) (2,598) (1,956)
Other, net 52 109 90 148
------------ ------------ ------------ ------------
(1,282) (938) (2,508) (1,808)
Income (loss) before income taxes (4,988) 3,707 (5,355) 5,980
Income tax (expense) benefit 1,996 (1,483) 2,034 (2,417)
------------ ------------ ------------ ------------
Net income (loss) $ (2,992) $ 2,224 $ (3,321) $ 3,563
============ ============ ============ ============
Pro forma information:
Historical net income (loss) $ (2,992) $ 2,224 $ (3,321) $ 3,563
Pro forma adjustment to income
tax (expense) -- -- -- (317)
------------ ------------ ------------ ------------
Pro forma net income (loss) $ (2,992) $ 2,224 $ (3,321) $ 3,246
============ ============ ============ ============
Pro forma income (loss) per share:
Basic ($0.19) $0.16 ($0.21) $0.23
============ ============ ============ ============
Diluted ($0.19) $0.16 ($0.21) $0.22
============ ============ ============ ============
Weighted average shares outstanding:
Basic 15,543 14,190 15,543 13,919
============ ============ ============ ============
Diluted 15,543 14,825 15,543 14,586
============ ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
EFTC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended June 30,
-------------------------
1999 1998
-------- --------
(in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,321) $ 3,563
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 3,428 2,870
Deferred income taxes (2,052) 498
Gain on sale of fixed assets -- (12)
Changes in operating assets and liabilities:
Trade receivables (1,272) (12,424)
Inventories 398 (13,746)
Prepaid expenses and other current assets (1,254) (227)
Accounts payable, accrued compensation and
other accrued liabilities 4,639 4,631
Income taxes payable or receivable 39 (301)
Other assets (2,083) 1,024
-------- --------
Net cash used in operating activities (1,478) (14,124)
-------- --------
Cash flows from investing activities:
Payments for business combinations, net of cash acquired -- (37)
Purchase of property, plant and equipment (8,185) (13,031)
-------- --------
Net cash used in investing activities (8,185) (13,068)
-------- --------
Cash flows from financial activities:
Stock options and warrants exercised 1 1,077
Issuance of common stock for cash, net of costs -- 20,929
Deposit on inventory financing arrangement (1,600) --
Proceeds from long-term debt 12,533 7,605
Principal payments on long-term debt (1,750) (3,490)
-------- --------
Net cash provided by financing activities 9,184 26,121
-------- --------
Net decrease in cash and cash equivalents (479) (1,071)
Cash and cash equivalents:
Beginning of period 623 1,877
-------- --------
End of period $ 144 $ 806
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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EFTC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 and
six-month periods ended June 30, 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 on Form 10-K for the year ended December 31, 1998.
NOTE 2-INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
(in Thousands)
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Purchased parts and completed subassemblies $ 42,291 $ 44,216
Work-in-process 14,748 12,474
Finished goods 3,322 4,069
--------- ---------
$ 60,361 $ 60,759
========= =========
NOTE 3-SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(in Thousands)
Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,619 $ 2,011
========= =========
Income taxes $ -- $ 2,144
========= =========
Conversion of capital lease to operating lease $ 10,240 $ --
========= =========
</TABLE>
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 the closure and
sale of the facility were incurred through the second quarter of 1999 and will
continue until the facility is sold. The restructuring involved the termination
of approximately 140 employees, 123 of which were manufacturing related
employees and 17 of which were administrative or indirect support personnel.
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 was
included in selling, general and administrative
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expenses in the fourth quarter of 1998. At June 30, 1999, all of these costs had
been paid and no accrual was remaining 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 June 30, 1999, $779,000 remained related to the disposition of this
inventory. In addition, an allowance of $3,342,000 related to asset impairment
for land, building and various equipment was charged to operations in the fourth
quarter of 1998. At June 30, 1999, $1,646,000 of the allowance remains,
primarily related to the land and building.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides 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 decreased by 10.8% to $54.7 million
for the second quarter of 1999 compared to $61.3 million in the second quarter
of 1998. Our Rocky Mountain Operation was closed in January 1999, decreasing
sales in the second quarter of 1999 compared to 1998. The Northeast Operations
and Midwest Operations were added in the third quarter of 1998, and the Company
had no sales from these operations in the second quarter of 1998. The Honeywell
operation in Phoenix, Arizona contributed minor revenue in the second quarter of
1999 to partially offset the loss of revenue from the Rocky Mountain Operation
which contributed $17.7 million in 1998.
The Company's net sales decreased by 5.6% from $115.5 million during
the six months of fiscal 1998 to $109.0 million during the same period in 1999.
The decrease was caused by the closure of the Rocky Mountain facility, which
contributed sales of $30.7 million in the first six months of 1998 versus sales
of $4.1 million in the first six months of 1999. The Northeast Operations,
Midwest Operations, and Southwest Commercial Operations, all acquired after June
30, 1998, partially offset lost revenue from the Rocky Mountain operation.
GROSS PROFIT. Gross profit decreased by 81.3% to $1.9 million for the
quarter ended June 30, 1999 compared to $9.9 million for the same period last
year. The gross profit margin percentage decreased to 3.4% for the quarter ended
June 30, 1999 from 16.2% for the quarter ended June 30, 1998. The decline in
gross profit and gross profit margin percentage is primarily associated with
decreased demand for our services business and certain revenue shortfalls in the
manufacturing business.
In the first six months of 1999, gross profit decreased by 60.6% to
$8.0 million compared to $19.5 million for the first six months of fiscal 1998.
The gross profit margin for the first six months of fiscal 1999 was 7.3%
compared to 16.8% for the first six months of 1998. The reasons for these
changes are explained in the previous paragraph.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("SG&A") expense increased by 0.6% to $5.2 million for the second
quarter of 1999, compared with $4.9 million for the same period in 1998. As a
percentage of net sales, SG&A expense increased to 9.5% for the quarter ended
June 30, 1999 from 8.0% for the quarter ended June 30, 1998. The increase in
SG&A expense is primarily due to increased costs of infrastructure added in the
later part of 1998 in sales and marketing, operations, quality, and information
technology. These additional investments are intended to help the Company grow
without proportionate growth in SG&A expense.
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SG&A expense increased by 2.3% to $10.1 million for the first six
months of fiscal 1999 compared to $9.8 million for the first six months of
fiscal 1998. As a percentage of net sales, SG&A increased to 9.2% in the first
six months of 1999 from 8.5% in the same period in 1998. The reasons for these
increases are explained in the previous paragraph.
OPERATING INCOME. Operating income (loss) decreased to a $3.7 million
loss for the quarter ended June 30, 1999 from $4.6 million of income for the
quarter ended June 30, 1998. Operating income (loss) as a percentage of net
sales decreased to (6.8%) for the quarter ended June 30, 1999 from 7.6% for the
quarter ended June 30, 1998. The decrease in operating income is primarily due
to the factors that impacted Gross Profit and SG&A, discussed above.
Operating income for the first six months of 1999 decreased to a loss
of $2.8 million from income of $7.8 million for the first six months of 1998.
Operating income (loss) as a percentage of net sales decreased to (2.6%) in the
first six months of 1999 from 6.7% in the same period last year. The decrease in
operating income is explained above.
INTEREST EXPENSE. Interest expense was $1.3 million for the quarter
ended June 30, 1999, compared to $1.0 million for the same period in 1998. The
increase in interest is primarily the result of increased debt associated with
the growth of inventories and receivables resulting from the acquisition of the
Northeast Operations and Midwest Operations in the fall of 1998 and the
acquisition of the Honeywell operations in Phoenix, Arizona in the second
quarter of 1999.
Interest expense for the first six months of 1999 was $2.6 million
compared to $2.0 million for the same period in 1998. The increase in interest
expense is primarily the result of the increases in debt as explained above.
INCOME TAX EXPENSE. The effective income tax rate for the quarters
ended June 30, 1999 and 1998, including pro forma income taxes, was 40.0%.
The effective income tax rate for the six months ended June 30, 1999
was 38.0% compared to 45.7% including proforma income taxes for 1998. The
decrease is due primarily to the non-deductible portion of merger costs in the
first six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, working capital totaled $57.2 million compared to
$59.0 million at December 31, 1998.
Cash used by operating activities for the six months ended June 30,
1999 was $1.5 million compared to $14.1 million for the same period in 1998.
Accounts receivable increased 0.4% to $35.4 million at June 30, 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 six months ended
June 30, 1999 from 6.1 for 1998. Inventories decreased 0.6% to $60.4 million at
June 30, 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
six months ended June 30, 1999 compared to December 31, 1998 shows an increase
to 3.4 from 3.3 respectively.
The Company used cash to purchase capital equipment totaling $8.2
million for the six months ended June 30, 1999 compared to $13.0 million for the
six months ended June 30, 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
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September 30, 2000 and a $14.1 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 limitations 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 June 30, 1999, the
outstanding principal amount of borrowings under the Bank One Loan was $50.5
million and the amount available for borrowing was approximately $3.6 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 purchase of certain operations located in Florida and Arizona from
AlliedSignal. As of June 30, 1999, the outstanding principal amount of the
subordinated notes is approximately $5 million.
In June 1998, the Company issued 1,770,000 shares of its common stock
in a public offering for proceeds of $21.4 million, which were used to repay a
portion of the Bank One Loan.
In December 1998, the Company entered into a sale-leaseback transaction
with a director and stockholder of the Company. Two manufacturing facilities
(one in Newberg, Oregon and one in Tucson, Arizona) were sold for $10.5 million
and leased back to the Company. The proceeds were used to pay down a portion of
the Bank One Loan. The lease was accounted for as a financing transaction, thus
the assets and related long-term debt were reflected on the Company's balance
sheet. The transaction has an imputed interest rate of 8.68%. The lease term is
for 5 years with monthly payments of $90,000. At the end of the lease term, the
Company had the option to repurchase the facilities for approximately $9.4
million. The Company can renew the lease for an additional 5 years under similar
terms, subject to adjustment for interest rates in effect at the time of
renewal. During the second quarter of 1999, the lease was amended to delete the
purchase option and change the lease from a capital lease to an operating lease.
The assets and related debt were removed from the balance sheet.
In July 1999, the Company announced an agreement with Jabil Circuit,
Inc. ("Jabil") to sell its repair and warranty business to Jabil for a purchase
price of approximately $30 million, plus adjustments based on contingent
earn-out provisions. The Company and Jabil expect to establish a business
relationship whereby Jabil will provide repair and warranty services to the
Company's customers. In addition, Jabil will offer employment to certain people
that are currently employed by the Company in that operation. The Company
expects to incur pre-tax charges of $25 million. There can, however, be no
assurance the deal will be consummated and closing of this transaction is
contingent upon negotiation of definitive agreements and various other customary
closing conditions for transactions of this type. This transaction is expected
to close in the third quarter of 1999.
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 may seek
additional funds, from time to time, through public or private debt or equity
offerings, bank borrowing, or leasing arrangements; no assurance, however, can
be given that financing will be available on terms acceptable to the Company.
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NEW ACCOUNTING PRONOUNCEMENTS
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" ("Statement No. 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 ISSUE
The Year 2000 ("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 a date
using a "00" year code as the year 1900 instead of the year 2000. In addition,
many systems have not been programmed correctly to recognize 2000 as a leap
year. This could create system failures or miscalculations causing disruptions
in the operations of the Company and its suppliers and customers.
The Company has undertaken a project to address the Y2K issue across
its operating units. The initial evaluation of all primary systems was completed
at the end of 1998. All items, including hardware and software, have been
inventoried and assessed. The Company's primary standard networks, operating
systems, Oracle (COMPASS) and other packaged applications, have been upgraded
and are currently compliant. All other remaining equipment and systems have been
identified and are in the process of being updated or replaced. Any embedded
program applications, such as machine controllers and building systems, have
also been evaluated and either repaired or replaced.
As part of the Company's Y2K project, the Company has been in contact
with all of its related suppliers and customers to determine the extent to which
the Company is vulnerable to those third party failures to remediate their Y2K
issues. As part of the Company's overall Y2K project, this activity will be
continually monitored across the Company to track activity with common suppliers
and customers. The Company will continue to contact its suppliers and customers
throughout 1999 to follow-up on their progress. To date, a significant portion
of the supply base has been confirmed compliant or will be compliant by
year-end. However, there can be no assurance that the systems of the other
companies 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 to date related to the Company's Y2K project have not
significantly impacted the Company's operating results. Management believes that
future expenditures in 1999 will not significantly impact the Company's
operating results, assuming no significant Y2K issues are discovered in the
remaining phases of validation.
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
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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, 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 currently compliant and contingency
plans are in place. Contingency planning is currently being finalized for the
remaining items. The Company has added additional Y2K resources to coordinate
compliance and remediation efforts across all divisions. Final Y2K compliance
and validation for non-critical items is expected to be complete by the end of
the third quarter of 1999.
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,
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, 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 $14.1 million term loan. As of June 30, 1999, the Company
had borrowed an aggregate principal amount of $50.5 million. The interest rate
on the 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 $409,000 for the revolving line of
credit.
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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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in either of the two legal
proceedings that were filed against the Company and certain of its offices,
directors, and shareholders during September and October 1998. Please see the
Company's Quarterly Report on Form 10-Q filed on May 17, 1999 for a current
report on these legal proceedings.
ITEM 2. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant held its annual meeting of shareholders on June 4, 1999,
for the purpose of re-electing 3 members of the board of directors and approving
the appointment of auditors. 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.
All of management's nominees for directors as listed in the proxy
statement were elected.
The proposal to ratify the selection of KPMG LLP as the independent
auditors to audit the financial statements of the Company for the fiscal year
ending December 31, 1999 was approved with the following vote:
FOR AGAINST ABSTAIN
13,692,640 12,640 4,096
Total votable shares represented by proxy: 13,709,376
Percentage of the outstanding votable shares: 88.20%
Outstanding votable shares: 15,542,989
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 quarter ended
June 30, 1999.
12
<PAGE>
SIGNATURES
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: August 16, 1999
/s/ JACK CALDERON
----------------------------------------
Jack Calderon
Chairman and Chief Executive Officer
Date: August 16, 1999
/s/ STUART W. FUHLENDORF
----------------------------------------
Stuart W. Fuhlendorf
Chief Financial Officer
13
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