UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23818
MERIX CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-1135197
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1521 Poplar Lane, Forest Grove, Oregon 97116
(Address of principal executive offices) (Zip Code)
(503) 359-9300
(Registrant's telephone number)
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 the filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock outstanding as of March
31, 1998 was 6,205,570 shares.
<PAGE>
MERIX CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I Financial Information Page
Item 1. Financial Statements:
Condensed Balance Sheets as of February 28, 1998 2
and May 31, 1997
Condensed Statements of Operations for the three 3
months and nine months ended February 28, 1998
and March 1, 1997
Condensed Statements of Cash Flows for the nine months 4
ended February 28, 1998 and March 1, 1997
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosure About Market Risk 12
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
1
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MERIX CORPORATION
CONDENSED BALANCE SHEETS
(unaudited, in thousands)
February 28, May 31,
1998 1997
----------- ----------
<S> <C> <C>
Assets
Cash and short-term investments $ 21,928 $ 25,097
Accounts receivable, net of $359 and $322 29,601 24,157
Inventories (Note 2) 10,315 8,642
Tax refund receivable - 2,308
Deferred income taxes 2,244 1,410
Other current assets 1,880 1,817
---------- ----------
Total current assets 65,968 63,431
Property, plant and equipment, net (Note 3) 67,177 63,398
Goodwill, net 2,068 2,292
Other assets 2,430 1,328
========== ==========
Total assets $ 137,643 $ 130,449
========== ==========
Liabilities and Shareholders' Equity
Accounts payable $ 13,033 $ 10,011
Accrued compensation 3,894 3,084
Current portion of long-term debt 2,260 2,260
Other accrued liabilities 2,305 2,490
---------- ----------
Total current liabilities 21,492 17,845
Long-term debt 42,299 42,390
Deferred income taxes 3,476 1,525
Other liabilities 1,273 1,273
---------- ----------
Total liabilities 68,540 63,033
Shareholders' equity:
Preferred stock, no par value; authorized 10,000 shares;
none issued - -
Common stock, no par value; authorized 50,000 shares;
issued and outstanding 1998: 6,195 shares,
1997: 6,167 shares 44,640 44,360
Unearned compensation (363) (622)
Retained earnings 24,826 23,678
---------- ----------
69,103 67,416
========== ==========
Total liabilities and shareholders' equity $ 137,643 $ 130,449
========== ==========
The accompanying notes are an integral part of the condensed financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
MERIX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Three months ended Nine months ended
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 46,416 $ 35,942 $ 137,546 $ 112,899
Cost of sales 38,278 32,252 117,176 96,771
------------ ----------- ------------ -----------
Gross profit 8,138 3,690 20,370 16,128
------------ ----------- ------------ -----------
Engineering 1,441 1,414 4,420 4,608
Selling, general and administrative 3,720 3,487 10,604 10,238
Restructuring expense (Note 5) - - 1,878 -
------------ ----------- ------------ -----------
Total operating expense 5,161 4,901 16,902 14,846
Operating income (loss) 2,977 (1,211) 3,468 1,282
Interest and other expense, net (591) (540) (1,700) (1,241)
------------ ----------- ------------ -----------
Income (loss) before taxes 2,386 (1,751) 1,768 41
Income tax expense (benefit) 890 (665) 620 14
------------ ----------- ------------ -----------
Net income (loss) $ 1,496 $ (1,086) $ 1,148 $ 27
============ =========== ============ ===========
Net income (loss) per share (Note 4)
Basic $ 0.24 $ (0.18) $ 0.19 $ 0.00
============ =========== ============ ===========
Diluted $ 0.24 $ (0.18) $ 0.18 $ 0.00
============ =========== ============ ===========
Shares used in per share calculations
Basic 6,195 6,147 6,190 6,139
============ =========== ============ ===========
Diluted 6,288 6,147 6,261 6,255
============ =========== ============ ===========
The accompanying notes are an integral part of the condensed financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
MERIX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended
February 28, March 1,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,148 $ 27
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,593 6,413
Deferred income taxes 1,250 668
Amortization of unearned compensation 189 359
Restructuring charge 1,138 -
Other 4 69
Changes in assets and liabilities:
Accounts receivable (5,444) 1,607
Inventories (1,673) (1,007)
Tax refund receivable 2,308 -
Other current assets (63) (1,983)
Accounts payable 3,022 55
Accrued compensation 810 (663)
Other accrued liabilities (1,278) 1,443
------------ ------------
Net cash provided by operating activities 9,004 6,988
------------ ------------
Cash flows from investing activities:
Capital expenditures (12,353) (14,609)
Short-term investments: purchases (12,500) (15,110)
maturities 13,594 9,429
Other long-term assets - (375)
Proceeds from sale of assets 31 169
------------ ------------
Net cash used in investing activities (11,228) (20,496)
------------ ------------
Cash flows from financing activities:
Long-term debt: proceeds - 40,000
principal payments (91) (21,930)
Proceeds from exercise of stock options 444 84
Common stock surrendered in connection with
restricted stock awards (204) -
------------ ------------
Net cash provided by financing activities 149 18,154
------------ ------------
Increase (decrease) in cash and cash equivalents (2,075) 4,646
Cash and cash equivalents at beginning of period 16,537 12,191
------------ ------------
Cash and cash equivalents at end of period 14,462 16,837
Short-term investments 7,466 12,848
------------ ------------
Cash and short-term investments at end of period $ 21,928 $ 29,685
============ ============
Supplemental disclosure of non-cash information:
Tax benefit related to stock-based compensation $ 133 $ 268
Asset acquired by recognition of liability 1,093 -
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,619 $ 1,087
The accompanying notes are an integral part of the condensed financial statements.
</TABLE>
4
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MERIX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
pursuant to Securities and Exchange Commission rules and regulations. The
financial information as of May 31, 1997 is derived from the Merix Corporation
(the Company) financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The accompanying financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended May 31, 1997.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. The
results of operations for the three and nine months ended February 28, 1998 are
not necessarily indicative of the results to be expected for the full fiscal
year.
Note 2. INVENTORIES
<TABLE>
<CAPTION>
February 28, May 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 3,880 $ 2,506
Work in process 4,575 4,790
Finished goods 1,860 1,346
----------- -----------
Total $ 10,315 $ 8,642
=========== ===========
Note 3. PROPERTY, PLANT AND EQUIPMENT
February 28, May 31,
1998 1997
----------- -----------
Land $ 2,190 $ 2,190
Buildings and grounds 24,268 23,618
Machinery and equipment 100,187 90,219
----------- -----------
Total 126,645 116,027
Less accumulated depreciation (59,468) (52,629)
----------- -----------
Property, plant and equipment, net $ 67,177 $ 63,398
=========== ===========
</TABLE>
Note 4. NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS
128 changes the standards for computing and presenting earnings per share (EPS)
and supersedes Accounting Principles Board Opinion No. 15, "Earnings per Share."
SFAS 128 simplifies the standards for computing earnings per share and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods,
and requires restatement of all prior-period EPS data presented. As it relates
to the Company, the principal differences between the provisions of SFAS 128 and
previous
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authoritative pronouncements are the exclusion of common stock equivalents in
the determination of basic earnings per share and the market price at which
common stock equivalents are calculated in the determination of diluted earnings
per share.
Basic earnings per share is computed using the weighted average number of shares
of common stock outstanding for the period. Diluted earnings per share is
computed using the weighted average number of shares of common stock and
dilutive common equivalent shares related to stock options outstanding during
the period.
The following is a reconciliation of the denominators of the basic and diluted
computations of earnings (loss) per share. There are no reconciling items for
the numerators, which consist of net income (loss) for all periods presented.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
February 28, 1998 March 1, 1997
---------------------- ----------------------
Per Share Per Share
Shares Amount Shares Amount
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share: 6,195 $ 0.24 6,147 $ (0.18)
Effect of dilutive securities:
Stock options 93
-------- --------- -------- ---------
Diluted earnings (loss) per share: 6,288 $ 0.24 6,147 $ (0.18)
======== ========= ======== =========
Nine Months Ended
-------------------------------------------------
February 28, 1998 March 1, 1997
----------------------- ----------------------
Per Share Per Share
Shares Amount Shares Amount
--------- --------- -------- ---------
Basic earnings per share: 6,190 $ 0.19 6,139 $ 0.00
Effect of dilutive securities:
Stock options 71 (0.01) 116
-------- --------- -------- ---------
Diluted earnings per share: 6,261 $ 0.18 6,255 $ 0.00
======== ========= ======== =========
</TABLE>
The adoption on SFAS 128 had no effect on previously reported income (loss) per
share amounts for the three and nine month periods ended March 1, 1997. For the
three months ended March 1, 1997, options to purchase 152 shares of the
Company's common stock were not included in the loss per share calculation as
they would have been anti-dilutive.
Note 5. RESTRUCTURING
Results of operations for the second quarter of fiscal 1998 included a $1,878
charge for the costs associated with a restructuring plan undertaken to improve
the Company's profitability, which included a work force reduction in the
support and administrative functions, the write-down of certain manufacturing
equipment, and other miscellaneous costs. The charge for the work force
reduction of approximately $700 included the reduction of 85 positions in the
Company's support and administrative functions, including purchasing, materials,
administration and computer automated tooling. In the third quarter of fiscal
1998, the Company paid all outstanding liabilities associated with the workforce
reduction, which had been accrued at the end of the second quarter of fiscal
1998. In connection with the restructuring plan, the Company analyzed its
manufacturing equipment based on Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-lived Assets and For Long-lived
Assets To Be Disposed Of", and based on that analysis, recorded a charge for the
write-off of approximately $1,100 of manufacturing equipment located primarily
at the Company's Loveland, Colorado facility.
6
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Note 6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" which establishes requirements for
disclosure of comprehensive income and is effective for the Company's fiscal
year ending May 1999. Reclassification of earlier financial statements for
comparative purposes is required.
In June 1997, the FASB issued Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), which redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about operating
segments, and is effective for the Company's fiscal year ending May 1999. For
purposes of SFAS 131, the Company has not yet completed an analysis of its
operating segments.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)
This discussion and analysis is designed to be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Merix Corporation (the Company) Form 10-K for the
fiscal year ended May 31, 1997.
Results of Operations
Fiscal year. The Company's fiscal year is the 52 or 53 week period ending the
last Saturday in May. Fiscal year 1998 is a 52-week year and fiscal year 1997
was a 53-week year, with the extra week occurring in the first quarter.
Net Sales. Net sales for the third quarter of fiscal 1998 were $46,416, an
increase of 29.1% over net sales of $35,942 in the third quarter of fiscal 1997.
Net sales for the first nine months of fiscal 1998 were $137,546, an increase of
21.8% over net sales of $112,899 in the first nine months of fiscal 1997. The
increases in net sales were primarily attributable to higher production volumes
and shipments caused by increased customer demand.
Historically, the Company's sales have been concentrated in relatively few
customers. As shown in the table below, the Company's five largest customers
comprised 72% and 73% of net sales in the three month periods ended February 28,
1998 and March 1, 1997, respectively, and 74% in both of the nine month periods
ended February 28, 1998 and March 1, 1997. One of the Company's objectives is to
diversify its customer base in order to grow sales and reduce the risks
associated with a concentration of sales to a relatively small number of
customers. Manufacturing constraints limited the capacity available to meet the
production needs of both current and new customers.
In December 1997, the Company announced plans for a major expansion of its
Forest Grove manufacturing capacity, which is expected to cost approximately
$21,000. Approximately $6,500 is for the retrofit of existing manufacturing
facilities and the remainder is for the purchase and installation of new
manufacturing equipment. The expansion is underway and is expected to be
completed in the first half of fiscal 1999, and support approximately $35,000 to
$40,000 of additional sales annually. While the Company expects this increased
capacity will allow it to accept volume production orders from new customers, it
also expects that a relatively few customers will continue to account for a
substantial portion of its sales.
The Company's 90 day backlog was approximately $23,900 at February 28, 1998,
compared to $26,400 at May 31, 1997. A substantial portion of the Company's
backlog is typically scheduled for delivery within 60 days. A portion of the
Company's backlog is subject to cancellation or postponement without significant
penalty. Accordingly, the Company's backlog is not necessarily indicative of
future sales or earnings.
8
<PAGE>
Sales by market segments and major customers as a percent of net sales were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- -------------------------------------------
February 28, March 1, February 28, March 1,
1998 (a) 1997 1998 (a) 1997
------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Segments
Computers 32% $ 14,673 30% $ 10,675 29% $ 39,851 29% $ 32,382
Communications 24 11,275 21 7,449 25 34,548 22 24,475
Test and Instruments 41 18,979 34 12,150 42 57,812 33 37,791
Contract Mfg. (a) - - 14 5,009 - - 14 15,991
Other 3 1,489 1 659 4 5,335 2 2,260
----- ---------- ----- ---------- ----- ----------- ------ ----------
Total 100% $ 46,416 100% $ 35,942 100% $ 137,546 100% $ 112,899
----- ---------- ----- ---------- ----- ----------- ------ ----------
Largest Customers
Hewlett-Packard
Company 32% $ 14,960 26% $ 9,522 28% $ 38,791 27% $ 30,084
Tektronix, Inc. 12 5,747 19 6,611 16 22,310 19 21,814
Motorola, Inc. 7 3,153 9 3,200 9 11,738 13 15,030
Teradyne, Inc. 14 6,447 10 3,452 13 18,516 7 7,902
Storage Technology
Corporation 7 3,044 9 3,386 8 10,591 8 8,846
Others 28 13,065 27 9,771 26 35,600 26 29,223
----- ---------- ----- ---------- ----- ----------- ------ ----------
Total 100% $ 46,416 100% $ 35,942 100% $ 137,546 100% $ 112,899
----- ---------- ----- ---------- ----- ----------- ------ ----------
(a) Amounts shown in the table for contract manufacturers in fiscal 1997
represent sales to those contract manufacturers. Amounts for contract
manufacturers in fiscal 1998 are reflected in sales to the original
equipment manufacturer (OEM) served by the contract manufacturer.
Sales through the contract manufacturing channel were 26.3% and 21.6%
of net sales for the three and nine month periods ended February 28,
1998.
</TABLE>
Recent information, including press releases of OEM's, contract manufacturers,
competitors and discussions with customers indicates there is a general
slow-down in the electronics industry and that excess capacity exists in the
domestic printed circuit industry. The slow-down may negatively impact the level
and pricing of customer orders, including those in the Company's fourth quarter
ended May 30, 1998. There can be no assurances that actions to increase and
utilize manufacturing capacity, enhance product mix or increase sales to new and
existing customers will be successful. The loss of one or more principal
customers, significant pricing pressures, failure to fully utilize manufacturing
capacity, changes in the mix of product sales or decline in customer demand
could have a material adverse effect on the Company's business and financial
performance.
As a result of recent economic events in Asia, many Asian printed circuit board
manufacturing plants have excess capacity. Some of these Asian companies are
turning to the U.S. domestic market as a source of new customers to utilize that
capacity. Historically, the Asian printed circuit suppliers have primarily
competed in the less technologically advanced, six layer and lower market. The
Company's customers are increasingly demanding more sophisticated products,
which incorporate high technology and increasing layer counts. As a result, the
Company expects its sales percentage of six layer and lower product to continue
to decrease. The Company's focus continues to be on providing high technology
products and processes, and it currently does not expect to encounter direct
competition from Asian suppliers in the high technology segment of the printed
circuit market in the near future. However, there can be no assurances that the
Company's high technology focus will successfully insulate it from Asian
competition.
As printed circuit technology increases, the Company expects its use of certain
high performance raw materials to increase. These materials are often produced
by a limited number of suppliers. From time to time, the Company has experienced
difficulties in obtaining sufficient quantities of these materials. A
9
<PAGE>
significant shortage of these materials could have an adverse impact on the
Company's sales and profitability.
Gross Margins. The Company's gross margin was 17.5% and 10.3% in the third
quarters of fiscal 1998 and fiscal 1997, respectively, and 14.8% and 14.3% in
the first nine months of fiscal 1998 and fiscal 1997, respectively. The
improvement in gross margin was attributable to a higher sales volume, improved
product pricing, improved product mix and cost reductions from the restructuring
which occurred in the second quarter of fiscal 1998. The Company's gross margins
are affected by various factors, including sales volumes, product mix,
production yields, price changes and changes in the Company's cost structure.
In order to improve profitability, the Company will continue to focus on cost
reductions and operational efficiencies. Expected cost savings from the
restructuring which occurred in the previous quarter were realized this quarter
and significant progress was made in reducing scrap costs. Manufacturing
processes performed by subcontractors were substantially reduced in the third
quarter of fiscal 1998, compared to the first two quarters of fiscal 1998. In
addition, the Company continues to focus on sales of higher complexity products
which generally have higher prices and gross margins. However, there can be no
assurance that these efforts will result in higher sales or profits.
Restructuring Expense. Results of operations for the first nine months of fiscal
1998 included a $1,878 charge for the costs associated with a restructuring plan
undertaken to improve the Company's profitability. Without the effect of the
restructuring charge, operating income and diluted earnings per share for the
first nine months of fiscal 1998 were $5,346 and $0.38, respectively.
The restructuring plan consisted of a work force reduction in the support and
administrative functions, the write-down of certain manufacturing equipment, and
other miscellaneous costs. The charge for the work force reduction of
approximately $700 included the reduction of 85 positions in the Company's
support and administrative functions, including purchasing, materials,
administration and computer automated tooling. No direct manufacturing jobs were
eliminated. In connection with the restructuring plan, the Company analyzed its
manufacturing equipment based on Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-lived Assets and For Long-lived
Assets To Be Disposed Of", and based on that analysis, recorded a charge for the
write-off of approximately $1,100 of manufacturing equipment located primarily
at the Company's Loveland, Colorado facility. In the third quarter of fiscal
1998, the Company paid all outstanding liabilities associated with the workforce
reduction, which had been accrued at the end of the second quarter of fiscal
1998, and realized pre-tax savings of approximately $1,100 related to the
restructuring plan.
Engineering. Engineering expenses were $1,441 and $1,414 in the third quarters
of fiscal 1998 and 1997, respectively, and were 3.1% and 3.9% of net sales,
respectively. Engineering expenses were $4,420 and $4,608 in the first nine
months of fiscal 1998 and 1997, respectively, and were 3.2% and 4.1% of net
sales, respectively.
Selling, General and Administrative. Selling, general and administrative
expenses were $3,720 and $3,487 in the third quarters of fiscal 1998 and 1997,
respectively, and were 8.0% and 9.7% of net sales, respectively. Selling,
general and administrative expenses were $10,604 and $10,238 in the first nine
months of fiscal 1998 and 1997, respectively, and were 7.7% and 9.1% of net
sales, respectively. Selling, general and administrative expenses have increased
principally as a result of increased sales and marketing personnel, and costs
associated with the reorganization and relocation of the Company's sales force.
Interest and Other Expense, net. Interest and other expense, net was $591 and
$540 in the third quarters of fiscal 1998 and 1997, respectively, and $1,700 and
$1,241 for the first nine months of fiscal 1998 and 1997, respectively. The
increases in the first nine months of fiscal 1998 primarily resulted from the
issuance of $40,000 in senior notes in September 1996.
Income Taxes. In the first nine months of fiscal 1998, the Company recorded an
income tax provision of $620. The Company estimates that its effective income
tax rate for fiscal 1998 will be approximately 37%.
10
<PAGE>
Liquidity and Capital Resources
Cash and short-term investments at February 28, 1998 were $21,928 compared with
$25,097 at May 31, 1997. Working capital was $44,476 at February 28, 1997
compared with $45,586 at May 31, 1997.
Cash provided by operating activities in the first nine months of fiscal 1998
was $9,004, which primarily consisted of net income, adjustments for
depreciation and amortization, the effect of the restructuring charge taken in
the second quarter of fiscal 1998, collection of a tax refund, and increases in
accounts receivable, inventories and accounts payable.
Cash used in investing activities in the first nine months of fiscal 1998 was
$11,228, primarily consisting of $12,353 in capital expenditures for
manufacturing equipment, $12,500 of purchases of short-term investments, and
$13,594 of maturities of short-term investments. The Company's policy is to hold
such short-term investments to maturity.
The Company has $40,000 outstanding under a private placement of senior
unsecured notes with two insurance companies. The notes bear interest at 7.92%,
payable on a semi-annual basis, with payment of principal in five equal annual
installments commencing on September 15, 1999.
The Company has an unsecured $30,000 bank line of credit against which it had no
borrowings at February 28, 1998. Borrowings under this line of credit would bear
interest at the agent's prime or LIBOR based rates available at the time of
borrowing (6.66% at February 28, 1998). The line of credit expires on September
30, 1998.
The senior unsecured notes and the line of credit include certain financial
covenants (including minimum net worth, debt ratio, quick ratio and interest
coverage requirements) and cross-default provisions. As of February 28, 1998,
the Company was in compliance with all covenants.
The Company had capital commitments of approximately $15,470 at February 28,
1998, related to expansion of manufacturing capacity. This includes some amounts
related to the expansion of the Forest Grove manufacturing facility, which is
expected to cost approximately $21,000 and is scheduled for completion in the
first half of fiscal 1999. The Company currently expects to finance the
expansion with available resources.
The Company believes that its existing capital resources and cash generated from
operations will be sufficient to meet its working capital and capital
expenditure requirements for the next twelve months.
Year 2000 Disclosure
The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in its
financial, shop-floor control and manufacturing systems. The inability of
computer software programs to accurately recognize, interpret and process date
codes designating the year 2000 and beyond could cause systems to yield
inaccurate results or encounter operating problems, including interruption of
the business operations these systems control. The Company is in the process of
analyzing its internal computer-based systems to identify potential
vulnerabilities and implement corrections or changes that may be required.
The Company also may be exposed to risks from computer systems of parties with
which the Company transacts business. In response to this, the Company is taking
steps, including contacting its major suppliers, to determine the extent to
which the Company may be vulnerable to those parties' failure to remedy their
own year 2000 issues and to ascertain what actions, if needed, may be taken by
the Company in response to such risks.
The Company has expended and will continue to expend appropriate resources to
address this issue on a timely basis. The analysis is expected to be completed
by the second quarter of fiscal 1999, and until that time, no estimate of the
expected total cost of this effort can be made. Furthermore, there can be no
assurances that unknown costs ultimately necessary
11
<PAGE>
to update systems or address potential system interruptions will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
Forward-looking Statements
Information set forth in this Quarterly Report on Form 10-Q relating to the
remainder of fiscal year 1998 and beyond, including Company goals with respect
to cost savings, customer diversification, orders from new customers, changes in
product mix and increases in manufacturing capacity constitute forward-looking
statements. Information contained in forward-looking statements is based on
current expectations and is subject to change and may differ materially from
actual results.
From time to time, information provided by the Company or statements made by its
employees may contain other forward-looking information that involves a number
of risks and uncertainties. Factors that could cause actual results to differ
materially from the forward-looking information include, but are not limited to,
the matters discussed in this Form 10-Q as well as the following: customer
demand; risks of business conditions and growth in the general economy, and the
electronic and interconnect industries; delays in the completion of the
expansion project; raw material availability; unrealized cost savings; capacity
constraints; idle capacity; production delays; product mix; the highly
competitive interconnect environment; the ability to attract new customers;
cancellation or reduction of orders; pricing pressures, customer acceptance of
new technologies; costs and yield issues associated with production; the ability
to attract and retain a talented workforce; ability to execute financing
strategies; unanticipated costs associated with any required modifications to
the Company's computer systems and associated software related to the Year 2000
issue; and other risks listed from time to time in the Company's Securities and
Exchange Commission reports or otherwise disclosed by the Company. Any
forward-looking statements should be considered in light of these factors.
Forward looking statements speak only as of date made. The Company undertakes no
obligation to publicly release the results of any revision to forward looking
statements which may be made to reflect subsequent events or circumstances or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
Exhibit
No.
-------
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February
28, 1998.
12
<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 this 14th day of April, 1998.
MERIX CORPORATION
By: /s/ JOSEPH H. HOWELL
------------------------------------------
Joseph H. Howell
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements found in the Company's Quarterly Report on
Form 10-Q for the nine months ended February 28, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 21,928
<SECURITIES> 0
<RECEIVABLES> 29,960
<ALLOWANCES> 359
<INVENTORY> 10,315
<CURRENT-ASSETS> 65,968
<PP&E> 126,645
<DEPRECIATION> 59,468
<TOTAL-ASSETS> 137,643
<CURRENT-LIABILITIES> 21,492
<BONDS> 0
0
0
<COMMON> 44,640
<OTHER-SE> 24,463
<TOTAL-LIABILITY-AND-EQUITY> 137,643
<SALES> 137,546
<TOTAL-REVENUES> 137,546
<CGS> 117,176
<TOTAL-COSTS> 117,176
<OTHER-EXPENSES> 16,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,768
<INCOME-TAX> 620
<INCOME-CONTINUING> 1,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,148
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a restated earnings per share amount labeled as "primary"
which was re-computed using Statement of Accounting Standards No. 128, and
contains summary financial information extracted from the consolidated financial
statements found in the Company's Annual Report on Form 10-K for the fiscal year
ended May 25, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-25-1996
<PERIOD-START> MAY-28-1995
<PERIOD-END> MAY-25-1996
<CASH> 12,191
<SECURITIES> 7,167
<RECEIVABLES> 24,617
<ALLOWANCES> 78
<INVENTORY> 6,435
<CURRENT-ASSETS> 50,921
<PP&E> 101,731
<DEPRECIATION> 46,155
<TOTAL-ASSETS> 111,170
<CURRENT-LIABILITIES> 16,874
<BONDS> 0
0
0
<COMMON> 43,733
<OTHER-SE> 23,357
<TOTAL-LIABILITY-AND-EQUITY> 111,170
<SALES> 155,634
<TOTAL-REVENUES> 155,634
<CGS> 118,234
<TOTAL-COSTS> 118,234
<OTHER-EXPENSES> 5,019
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 1,333
<INCOME-PRETAX> 20,339
<INCOME-TAX> 7,546
<INCOME-CONTINUING> 12,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,793
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 1.98
</TABLE>
