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 August 28, 1999
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
September 30, 1999 was 6,416,995 shares.
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MERIX CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I Financial Information Page
Item 1. Financial Statements:
Balance Sheets as of August 28, 1999 and
May 29, 1999 2
Statements of Operations for the three months ended
August 28, 1999 and August 29, 1998 3
Statements of Cash Flows for the three months ended
August 28, 1999 and August 29, 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
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PART I. FINANCIAL INFORMATION
MERIX CORPORATION
BALANCE SHEETS
(Unaudited, in thousands)
<TABLE>
August 28, May 29,
1999 1999
---------------- ----------------
<S> <C> <C>
Assets
Cash and short-term investments $ 15,255 $ 13,381
Accounts receivable, net of allowance of $237 19,813 17,508
Inventories 8,280 6,537
Deferred tax asset 713 713
Other current assets 911 941
---------- ----------
Total current assets 44,972 39,080
Property, plant and equipment, net 58,174 60,892
Deferred tax asset 8,431 9,093
Other assets 503 318
========== ==========
Total assets $ 112,080 $ 109,383
========== ==========
Liabilities and Shareholders' Equity
Accounts payable $ 12,618 $ 12,104
Accrued compensation 3,244 2,512
Current portion of long-term debt 9,149 8,000
Other accrued liabilities 2,275 2,142
---------- ----------
Total current liabilities 27,286 24,758
Long-term debt 33,149 34,299
---------- ----------
Total liabilities 60,435 59,057
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 2000: 6,408 shares,
1999: 6,370 shares 45,477 45,194
Unearned compensation (1) (3)
Retained earnings 6,169 5,135
---------- ----------
Total shareholders' equity 51,645 50,326
========== ==========
Total liabilities and shareholders' equity $ 112,080 $ 109,383
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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MERIX CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
Three Months Ended
August 28, August 29,
1999 1998
------------- -------------
<S> <C> <C>
Net sales $ 34,098 $ 20,515
Cost of sales 28,019 27,627
---------- -----------
Gross profit (loss) 6,079 (7,112)
Operating expenses:
Engineering 1,028 1,027
Selling, general and administrative 2,375 2,802
Restructuring - 27,879
---------- -----------
Total operating expenses 3,403 31,708
---------- -----------
Operating income (loss) 2,676 (38,820)
Interest and other expense, net (981) (489)
---------- -----------
Income (loss) before income taxes 1,695 (39,309)
Income tax (expense) benefit (661) 14,938
---------- -----------
Net income (loss) $ 1,034 $ (24,371)
========== ===========
Net income (loss) per share:
Basic $ 0.16 $ (3.93)
========== ===========
Diluted $ 0.16 $ (3.93)
========== ===========
Shares used in per share calculations:
Basic 6,390 6,202
========== ===========
Diluted 6,499 6,202
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MERIX CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
Three Months Ended
August 28, August 29,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,034 $ (24,371)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,108 2,750
Deferred income taxes 662 (14,938)
Restructuring charge - 19,624
Contribution of common stock to defined contribution plan 280 -
Other 237 (22)
Changes in assets and liabilities:
Accounts receivable (2,305) 9,580
Inventories (1,743) 792
Other current assets 30 1,016
Accounts payable 514 (1,481)
Accrued compensation 732 3,004
Other accrued liabilities 133 6,926
----------- ----------
Net cash provided by operating activities 1,682 2,880
----------- ----------
Cash flows from investing activities:
Short-term investments:
Purchases - (9,345)
Maturities 7,107 7,395
Capital expenditures (3,298) (5,318)
Net proceeds from sale-leaseback of equipment 3,413 -
Proceeds from sale of assets 74 34
----------- ----------
Net cash provided by (used in) investing activities 7,296 (7,234)
----------- ----------
Cash flows from financing activities:
Principal payments on long-term debt - (2,170)
Proceeds from exercise of stock options 3 -
Reacquired common stock - (2)
----------- ----------
Net cash provided by (used in) financing activities 3 (2,172)
----------- ----------
Increase (decrease) in cash and cash equivalents 8,981 (6,526)
Cash and cash equivalents at beginning of period 5,874 15,430
----------- ----------
Cash and cash equivalents at end of period 14,855 8,904
Short-term investments 400 9,419
----------- ----------
Cash and short-term investments at end of period $ 15,255 $ 18,323
=========== ==========
Supplemental Disclosures:
Cash paid for:
Interest, net of amount capitalized $ 172 $ 157
Noncash transactions:
Surrender of unvested shares of restricted stock $ - 43
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Merix Corporation (the
Company) have been prepared pursuant to Securities and Exchange Commission rules
and regulations. 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. These 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 29, 1999.
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 months ended August 28, 1999 are not
necessarily indicative of the results to be expected for the full year.
The Company's fiscal year is the 52 or 53-week period ending the last Saturday
in May. Fiscal year 2000 is a 52-week year ending May 27, 2000 and fiscal year
1999 was a 52-week year ended May 29, 1999.
Comprehensive income (loss)
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" which establishes requirements for
disclosure of comprehensive income. Comprehensive income (loss) did not differ
from reported net income (loss) in the periods presented.
Segment reporting
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). Based on definitions contained
within SFAS 131, the Company has determined that it operates within one segment.
Note 2. INVENTORIES
August 28, May 29,
1999 1999
------------- --------------
Raw materials $ 1,091 $ 1,170
Work in process 5,219 4,144
Finished goods 1,970 1,223
------------- --------------
Total $ 8,280 $ 6,537
============= ==============
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Note 3. PROPERTY, PLANT AND EQUIPMENT
August 28, May 29,
1999 1999
-------------- --------------
Land $ 2,190 $ 2,190
Buildings and grounds 24,451 24,065
Machinery and equipment 83,889 85,563
Construction in progress 1,347 1,618
-------------- --------------
111,877 113,436
Less accumulated depreciation (53,703) (52,544)
-------------- --------------
Property, plant and equipment, net $ 58,174 $ 60,892
============== ==============
Note 4. EQUIPMENT LEASE AGREEMENT
In August 1999, the Company entered into a lease agreement, which allows for the
sale and leaseback of up to $5,000 of manufacturing equipment. As of August 28,
1999, $3,791 of equipment has been sold under this agreement. Resulting gains
from these sales are deferred and amortized on a straight-line basis over the
life of the lease. The lease is classified as an operating lease in accordance
with SFAS No. 13, "Accounting for Leases." The lease agreement contains certain
financial covenants including minimum tangible net worth, maximum debt to
capitalization and minimum debt service coverage and cross-default provisions.
As of August 28, 1999 the Company was in compliance with all covenants. The
$5,000 commitment expires on May 31, 2000.
Note 5. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding for the period. Diluted net income 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. Incremental shares of 109,733, related to outstanding stock
options, were included in the calculation of diluted net income per share for
the first quarter of fiscal year 2000. For the first quarter of fiscal year
2000, stock options to purchase 869,100 shares had exercise prices above the
average market price of the underlying common stock.
Diluted net loss per share is computed using the weighted average number of
shares of common stock outstanding for the period. Stock options to purchase
1,185,830 shares were not included in the net loss per share calculation for the
first quarter of 1999, because to do so would have been antidilutive.
Note 6. RESTRUCTURING
In the first quarter of fiscal year 1999, the Company announced a restructuring
plan to improve capacity utilization and lower the Company's cost structure.
Pursuant to the restructuring plan, the Company closed its Loveland, Colorado
facility in October 1998, reduced approximately 35 employees from
administrative, engineering and support functions at its Forest Grove, Oregon
location and sold its Soladyne facility in San Diego, California in February
1999. Closure of the Loveland facility resulted in the layoff of approximately
340 manufacturing and support employees. The Company transferred a portion of
the production and manufacturing equipment used in the Loveland facility to its
Forest Grove site. Installation of the manufacturing equipment should be
complete by the end of calendar year 1999.
In connection with the restructuring plan in the first quarter of fiscal
year 1999, the Company recorded restructuring expense of $29,997, including a
charge of $2,118 to cost of sales for inventory write-offs. In the third quarter
of fiscal year 1999, the Company reversed $7,109 of the restructuring expense.
The reversal was the result of a favorable termination of the Loveland facility
lease, higher than estimated
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proceeds from the sale of excess equipment and the sale of the Soladyne
facility. All cash payments related to the restructuring charge were paid in
fiscal year 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Dollars in thousands)
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 29, 1999.
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 2000 is a 52-week year ending May 27, 2000 and
fiscal year 1999 was a 52-week year ended May 29, 1999.
Net Sales. Net sales for the first quarter of fiscal year 2000 were $34,098
compared to net sales of $20,515 in the first quarter of fiscal year 1999. Net
sales increased in the first quarter of fiscal year 2000 primarily as a result
of higher levels of demand from both new and existing customers. Net sales in
the first quarter of fiscal year 1999 included sales from the Loveland and
Soladyne manufacturing facilities, which were closed or sold during fiscal year
1999. See Note 6 of Notes to Financial Statements and "Restructuring" below. Net
sales at the Forest Grove manufacturing facility have increased sequentially
over the last four fiscal quarters. Rapidly increasing demand for data
communications, primarily associated with the growth of the Internet, and
increasing use of wireless communications contributed to higher sales in the
communications segment.
Pricing of the Company's products, which had been affected by the electronics
industry slowdown beginning late in fiscal year 1998, began to stabilize during
the last half of fiscal year 1999 and remained stable during the first quarter
of fiscal year 2000. Continued price stability of the Company's products is
dependent on a variety of factors including, but not limited to, continued
strength in customer orders, growth of its customers and of the electronics
industry and potential future competition from both domestic and Asian printed
circuit companies.
Sales by market segments in dollars and as a percentage of net sales are shown
in the table below. The Company's five largest customers comprised 71.9% and
57.1% of total net sales in the first quarters of fiscal years 2000 and 1999,
respectively. Included in sales to the five largest customers are sales to
contract manufacturers, which previously have been reported in sales to the
original equipment manufacturer served by the contract manufacturer. Sales
through the contract manufacturing channel were $17,663 and 51.8% of net sales
in the first quarter of fiscal year 2000 and $4,682 and 22.8% of net sales in
the first quarter of fiscal year 1999. The loss of one or more principal
customers or a change in the mix of product sales could have a material adverse
effect on the Company's business, financial condition and results of operations.
<TABLE>
Three Months Ended
---------------------------------------------------------
August 28, 1999 August 29, 1998
------------------------- ------------------------
<S> <C> <C>
Market Segments
Computers $ 7,832 23.0% $ 6,324 30.8%
Communications 17,486 51.3 5,925 28.9
Test and Instruments 7,715 22.6 7,678 37.4
Other 1,065 3.1 588 2.9
----------- ---------- ---------- ----------
Total $34,098 100.0% $20,515 100.0%
=========== ========== ========== ==========
</TABLE>
7
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The Company's 90-day backlog was approximately $21,200 at August 28, 1999,
compared to approximately $18,000 at the end of fiscal year 1999. The Company
typically does not obtain long-term purchase orders or commitments from its
customers and a variety of conditions may cause customers to cancel, reduce or
delay previously placed orders. The Company cannot assure the timely replacement
of these orders. Accordingly, the Company's backlog is not necessarily
indicative of future quarterly or annual financial results.
The $21,000 capacity expansion project at the Forest Grove manufacturing
facility was substantially completed in May 1999. The Company continues to
install manufacturing equipment transferred from the closed Loveland facility
and expects to complete the installation by the end of calendar year 1999.
Completion of the expansion project and installation of the Loveland equipment
adds manufacturing capacity and positions the Company to take advantage of
increasing customer demand. However, the failure to increase sales to new and
existing customers and to successfully utilize the additional manufacturing
capacity in an effective manner could adversely affect the Company's business,
financial condition and results of operations.
Gross profit (loss). The Company's gross profit was $6,079 or 17.8% of net sales
in the first quarter of fiscal year 2000 compared to gross loss of ($7,112) or
(34.7%) of net sales in the same period of the prior year. Gross profit
increased in the first quarter of fiscal year 2000 primarily as a result of
higher capacity utilization and cost reductions. Gross loss in the first quarter
of fiscal year 1999 included the effect of a write-off of inventory related to
the restructuring. See Note 6 of Notes to Financial Statements and
"Restructuring" below.
The Company's gross margin in the first quarter of fiscal year 2000, as compared
to the fourth quarter of fiscal year 1999, was favorably impacted by a product
mix which included a higher than normal percentage of quick-turn (premium
priced) production. The Company expects quick-turn orders to return to normal
levels in the second quarter of fiscal year 2000, which is anticipated to reduce
gross margin by approximately one percentage point as compared to the first
quarter of fiscal year 2000. The Company's gross margins are affected by various
factors, including capacity utilization, product mix, production yields, price
changes and changes in the Company's cost structure.
Engineering. Engineering expenses were $1,028 and $1,027 in the first quarters
of fiscal years 2000 and 1999, respectively, and were 3.0% and 5.0% of net
sales, respectively. Engineering expenses in the first quarter of fiscal year
1999 were reduced by approximately $400 of capitalized engineering labor related
to the Forest Grove expansion project. Engineering expenses decreased in the
first quarter of fiscal year 2000 due to reduced headcount resulting from the
restructuring. See Note 6 of Notes to Financial Statements and "Restructuring"
below.
Selling, General and Administrative. Selling, general and administrative
expenses were $2,375 and $2,802 in the first quarters of fiscal years 2000 and
1999, respectively, and were 7.0% and 13.7% of net sales, respectively. These
expenses decreased due to reduced headcount resulting from the restructuring and
other cost controls. See Note 6 of Notes to Financial Statements and
"Restructuring" below.
Restructuring. In the first quarter of fiscal year 1999, the Company announced a
restructuring plan to improve capacity utilization and lower the Company's cost
structure. Pursuant to the restructuring plan, the Company closed its Loveland,
Colorado facility in October 1998, reduced approximately 35 employees from
administrative, engineering and support functions at its Forest Grove, Oregon
location and sold its Soladyne facility in San Diego, California in February
1999. Closure of the Loveland facility resulted in the layoff of approximately
340 manufacturing and support employees. The Company transferred a portion of
the production and manufacturing equipment used in the Loveland facility to its
Forest Grove site. Installation of the manufacturing equipment should be
complete by the end of calendar year 1999.
8
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In connection with the restructuring plan in the first quarter of fiscal year
1999, the Company recorded restructuring expense of $29,997, including a charge
of $2,118 to cost of sales for inventory write-offs. In the third quarter of
fiscal year 1999, the Company reversed $7,109 of the restructuring expense. The
reversal was the result of a favorable termination of the Loveland facility
lease, higher than estimated proceeds from the sale of excess equipment and the
sale of the Soladyne facility. All cash payments related to the restructuring
charge were paid in fiscal year 1999.
Interest and Other Expense, net. Interest and other expense, net was $981 and
$489 in the first quarters of fiscal years 2000 and 1999, respectively. In the
first quarter of fiscal year 1999, a portion of interest expense was capitalized
to the Forest Grove capacity expansion, while no interest was capitalized in the
first quarter of fiscal year 2000. Additionally, in the first quarter of fiscal
year 2000, interest income decreased due to lower cash balances, the Company
incurred finance charges in connection with the restructuring of its senior
unsecured notes and certain manufacturing equipment was retired.
Income Taxes. The Company's effective tax rate was approximately 39% in the
first quarter of fiscal year 1999 compared to 38% in 1999. The Company expects
its effective tax rate for fiscal year 2000 will approximate 39%.
Liquidity and Capital Resources
Cash and short-term investments at August 28, 1999 were $15,255, compared to
$13,381 at May 29,1999. Working capital increased to $17,686 at August 28, 1999
from $14,322 at May 29,1999, primarily as a result of increases in cash and
short-term investments, accounts receivable and inventories.
Cash provided by operating activities in the first quarter of fiscal year 2000
was $1,682, which primarily consisted of net income for the period and
adjustments for depreciation and amortization, primarily offset by increases in
accounts receivable and inventories. Accounts receivable and inventories
increased as a result of a higher level of sales.
Cash provided by investing activities in the first quarter of fiscal year 2000
was $7,296, which primarily consisted of maturities of short-term investments
and net proceeds from the sale-leaseback of equipment, offset by capital
expenditures for manufacturing equipment. The Company had capital commitments of
approximately $5,000 at August 28, 1999, primarily for manufacturing equipment.
The Company has a secured note payable to Tektronix, Inc. with $2,299
outstanding at August 28, 1999. The note bears interest at 7.5% and is payable
in annual installments of $1,149 in June 2000 and $1,150 in June 2001.
The Company has $40,000 outstanding under a private placement of senior
unsecured notes with two insurance companies, with interest payable
semi-annually at 7.92%. The notes provide for semi-annual principal payments of
$4,000 commencing in September 1999 with a final principal payment of $8,000
payable in September 2003. The notes contain certain financial covenants
(including minimum net worth, debt ratio and interest coverage covenants) and
cross-default provisions. As of August 28, 1999 the Company was in compliance
with all covenants.
In August 1999, the Company entered into a lease agreement, which allows for the
sale and leaseback of up to $5,000 of manufacturing equipment. As of August 28,
1999, $3,791 of equipment has been sold under this agreement. The lease is
classified as an operating lease in accordance with SFAS No. 13, "Accounting for
Leases." The lease agreement contains certain financial covenants including
minimum tangible net worth, maximum debt to capitalization and minimum debt
service coverage and cross-default provisions. As of August 28, 1999 the Company
was in compliance with all covenants. The $5,000 commitment expires on May 31,
2000.
9
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The Company believes that its existing capital resources and cash generated from
operations should be sufficient to meet its working capital and capital
expenditure requirements during its 2000 fiscal year. To the extent necessary,
the Company may also satisfy capital requirements through additional bank
borrowings or other debt or equity financing arrangements, if available on
satisfactory terms.
Year 2000 Disclosure
The Company has developed a program to perform assessment, remediation and
testing of its computer software programs and operating systems, including IT
and non-IT systems, to determine their readiness for the Year 2000 (the "Year
2000 Program"). For this purpose, the term "computer software programs and
operating systems" includes systems that are commonly thought of as information
technology ("IT") systems, including enterprise software, operating systems,
networking components, application and data servers, PC hardware, accounting,
data processing and other information systems, as well as systems that are not
commonly thought of as IT systems, such as shop-floor control and manufacturing
control systems, telephone systems, fax machines, and other miscellaneous
systems and equipment. Both IT and non-IT systems may contain imbedded
technology, which complicates the Company's Year 2000 assessment, remediation
and testing efforts. The inability of computer software programs and operating
systems to accurately recognize, interpret and process date codes designating
the Year 2000 and beyond could cause these programs and systems to yield
inaccurate results or encounter operating problems, including disruption of the
business operations these programs and systems control.
The Company has completed its assessment, remediation and testing of its
computer software programs and operating systems. The Company's testing included
running programs with dates including and after the Year 2000. During the
testing, the Company did not experience problems processing data or effecting
transactions. There can be no assurance, however, that the Company's testing of
its systems was sufficient to discover all Year 2000 issues. Year 2000 issues
not discovered by the Company could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company also may be exposed to risks from computer systems of parties with
which the Company transacts business. The Company has contacted its critical
suppliers and performed certain on-site assessments 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. Responses from the critical suppliers and
from the on-site assessments indicate that the Company's critical suppliers are
Year 2000 compliant. In addition, based on contact with its major customers and
given their general size and sophistication, the Company believes they will not
experience material Year 2000 compliance issues which would result in loss or
postponement of significant orders to the Company.
Based on its assessments to date, the Company believes it will not experience
any material disruption as a result of Year 2000 issues in its computer software
programs and operating systems used in its internal operations, its interface
with key suppliers and customers, or processing orders and billing. However, a
software program or system Year 2000 compliance failure, with respect to the
Company's internal systems and software or that of its critical suppliers or
major customers, could prevent the Company from fulfilling or obtaining customer
orders. The lost revenues that would result could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company currently estimates that it will spend between $450 and $600 in
addressing the Year 2000 issues, of which approximately $410 has been incurred
through August 28, 1999. The source of these funds is working capital of the
Company. The estimates are subject to change as additional information is
obtained in connection with the Year 2000 Program.
The Company believes its most reasonably likely worst-case Year 2000 scenario
would relate to problems with the systems of third parties rather than with the
Company's internal systems, because the Company has less control over assessing
and remediating the Year 2000 problems of third parties. The Company believes
its risks are greatest with regard to infrastructure (e.g., electricity supply,
water and sewer service), telecommunications and transportation supply channels.
If certain critical third party suppliers, such as those supplying
infrastructure (e.g., electricity supply, water and sewer service),
telecommunications and
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<PAGE>
transportation supply channels experience difficulties resulting in disruption
of service to the Company, a shutdown of the Company's operations could occur
for the duration of the disruption. The inability of the Company to operate its
manufacturing facility for any significant period, or any other failure, if not
quickly remedied, could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company has developed contingency plans to address potential Year 2000
issues, including availability of IT personnel and critical manufacturing
support personnel on site on December 31, 1999 and January 1, 2000, development
of workarounds and redundancy for critical systems and equipment, maintenance of
increased stock of critical materials on site and with suppliers and
arrangements for the transmission of customer and supplier data via courier or
other alternative methods. However, with respect to major infrastructure (e.g.,
electricity supply, water and sewer service) and telecommunications, the Company
has no contingency plans that would mitigate the lack of such services. The
Company continues to be in contact with the suppliers of these services to
obtain assurance that there will be no material disruption as a result of Year
2000 issues. The Company is relying on information provided to it by its
infrastructure suppliers to assess their Year 2000 readiness, and therefore
cannot provide assurance that the Company will not be adversely affected by
their Year 2000 issues. Contingency plans will continue to be refined throughout
the remainder of calendar year 1999 as the Company learns more about the
vulnerabilities, if any, of critical third parties regarding year 2000 issues.
There can be no assurance that the Company will be able to identify, avoid or
develop contingency plans to address all possible worst-case scenarios.
Forward-looking Statements
Information set forth in this Report on Form 10-Q relating to fiscal year 2000
and beyond, including changes in product mix, gross margin, customer demand,
competition from Asian suppliers, increases in manufacturing capacity, effective
tax rate and Year 2000 matters constitute forward-looking statements.
Information contained in forward-looking statements is based on current
expectations and is subject to change, and actual results may differ materially
from the forward-looking statements.
Many factors could cause actual results to differ materially from the
forward-looking information. This Report on Form 10-Q discusses certain of these
factors, including declines in customer orders; pricing and other competitive
pressures in the industry; product mix; ability to manage and utilize
manufacturing capacity; significant customer concentration; risks related to
customer cancellation, postponement or reduction of orders; and unanticipated
costs associated with any required modifications to the Company's financial,
shop floor control and manufacturing equipment control systems and other risks
related to the Year 2000 issue. Other factors include business conditions and
growth in the general economy and the electronic and interconnect industries;
dependence on the electronics industry; raw material availability; production
delays; customer acceptance of new technologies; costs and yield issues
associated with production; the ability to attract and retain a talented
workforce; unanticipated costs to comply with environmental laws; ability to
execute financing strategies; 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
The Company does not currently use derivative financial instruments for
speculative purposes which expose the Company to market risks. The Company is
exposed to cash flow and fair value risk due to changes in interest rates with
respect to its outstanding debt. Information required by this item is set forth
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Report.
11
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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 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K reporting the change in the Company's certifying
accountant, under Item 4, was filed on August 10, 1999. No other reports on Form
8-K were filed during the quarter ended August 28, 1999.
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 11th day of October, 1999.
MERIX CORPORATION
By: JANIE S. BROWN
--------------------
Janie S. Brown
Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<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 quarter ended August 28, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-27-2000
<PERIOD-START> MAY-30-1999
<PERIOD-END> AUG-28-1999
<CASH> 15,255
<SECURITIES> 0
<RECEIVABLES> 20,050
<ALLOWANCES> 237
<INVENTORY> 8,280
<CURRENT-ASSETS> 44,972
<PP&E> 111,877
<DEPRECIATION> 53,703
<TOTAL-ASSETS> 112,080
<CURRENT-LIABILITIES> 27,286
<BONDS> 0
0
0
<COMMON> 45,477
<OTHER-SE> 6,168
<TOTAL-LIABILITY-AND-EQUITY> 112,080
<SALES> 34,098
<TOTAL-REVENUES> 34,098
<CGS> 28,019
<TOTAL-COSTS> 28,019
<OTHER-EXPENSES> 3,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,695
<INCOME-TAX> 661
<INCOME-CONTINUING> 1,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,034
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
