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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For The Fiscal Year Ended: December 31, 1996
or
[ ] 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: 0-25560
____________________________________
ACT MANUFACTURING, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2777507
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
108 FOREST AVENUE
HUDSON, MASSACHUSETTS 01749
--------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 562-1200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 25, 1997 (based on the closing sale price as quoted by
The Nasdaq National Market as of such date) was $73,456,021.
As of March 25, 1997, 8,818,000 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for the annual meeting of
stockholders to be held on or about May 14, 1997 to be filed pursuant to
Regulation 14A are incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
---------
ACT Manufacturing, Inc. (the "Company" or "ACT") provides value-added,
turnkey contract manufacturing services for emerging and major original
equipment manufacturers ("OEMs") in the commercial electronics industry. The
Company supplies OEMs with electronic interconnection assemblies, including
complex printed circuit board ("PCB") assemblies primarily utilizing advanced
surface mount technology ("SMT"), mechanical and molded cable and harness
assemblies, electro-mechanical sub-assemblies, and total system assembly and
integration. OEMs use the Company's assemblies in a wide range of applications
including local and wide area computer networking systems, computer
workstations and systems, mass data storage systems, telecommunications, and
medical and industrial control equipment. The Company delivers advanced
manufacturing and test engineering and responsive materials management together
with technologically-advanced, flexible and service-oriented manufacturing for
the complex, leading-edge products of its OEM customers throughout the full
product lifecycle.
The Company was incorporated in Massachusetts in 1982 under the name of
Advanced Cable Technologies, Inc. In December 1994, Automated Component
Technologies, Inc., a related company with common ownership, was merged into
the Company and the Company changed its name to ACT Manufacturing, Inc. The
Company's principal executive offices are located at 108 Forest Avenue, Hudson,
Massachusetts 01749, and its telephone number is (508) 562-1200.
ELECTRONIC CONTRACT MANUFACTURING INDUSTRY
The electronic contract manufacturing market was created in the 1960's
primarily to provide OEMs with additional manufacturing capacity during peak
production times when in-house manufacturing capabilities could not meet
production needs. Contract manufacturers typically were employed on a
consignment basis to provide assembly services only, while the OEM provided the
circuit and production designs, procured all components and performed final
product testing. Since the early 1980's, OEMs have increasingly relied on
turnkey contract manufacturers, in which the manufacturer directly sources all
or a substantial portion of the components necessary for product assembly.
OEMs are motivated to use turnkey contract manufacturers due to the increased
capital necessary to acquire modern, highly-automated manufacturing equipment,
the greater need for more sophisticated manufacturing processes, the OEMs'
incentive to reduce its component inventory, and the improved purchasing power,
labor efficiency and overall cost benefits of contract manufacturers. The
Company believes that many OEMs now view contract manufacturers as an integral
part of their manufacturing strategy rather than temporary manufacturing
sources during periods of peak production. More recently, OEMs have looked
increasingly toward turnkey contract manufacturers to provide an even broader
scope of value-added services, such as manufacturing engineering, just-in-time
component and finished product inventory management and various product
assembly and test services. This has enabled OEMs to focus their efforts,
capital and personnel resources on their core competencies such as product
research and development, marketing, sales and customer support.
The acceptance by OEMs of surface mount technology over pin-through-
hole ("PTH") printed circuit board interconnection in the late 1980's has been
a key element in the increased reliance by OEMs on contract manufacturers who
have expertise and manufacturing capacity in advanced technology. PTH assembly
involves inserting electronic components, such as integrated circuits, with
pins or leads through pre-drilled holes in a printed circuit board and
soldering the pins to the electrical circuits. PTH technology allows circuits
to be placed only on one side of the circuit board. SMT technology, an
advanced interconnection technology, was developed in response to the growing
need for electronic devices to contain greater numbers of components with
increasing
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functional density and interconnections. SMT is a largely automated
process that involves placing the semiconductor components directly on the
surface of both sides of a printed circuit board, thus providing benefits of
reduced size, enhanced signal speed and lower cost of assembly and testing
resulting from less manual labor than is required for the PTH process. SMT
requires substantial capital investment in expensive, highly-automated
production equipment and significant engineering expertise which generally can
only be supported by high utilization of this equipment.
Until the late 1970's, cable and harness assembly manufacturing
followed the prevailing OEM vertical integration strategy wherein substantially
all manufacturing was performed in-house. At that time, the outsourcing market
for cable and harness assemblies began to gain favor as OEMs realized the
benefits of external versus internal manufacturing. The ability of the
contract cable and harness assemblers to provide low cost assembly as a result
of their lower production and overhead costs and to produce high quality
products resulted in early market acceptance. Continued growth of the
outsourced cable and harness assembly market resulted in lower cable and
connector costs as the contract manufacturers' purchasing power grew. Today,
OEMs continue to realize the benefits of low cost and high quality
manufacturing and further benefit from manufacturing engineering services and
advanced technology offered by contract manufacturers.
The market for contract manufacturing services continues to expand as
OEMs begin to utilize the total system assembly and integration capabilities of
contract manufacturers. The production of electro-mechanical sub-assemblies
and development of test and product configuration capabilities will continue to
expand as contract manufacturers broaden their service offerings to the OEM
customer.
In today's environment of rapid technological change and high
competition, these OEMs are faced with increasingly shorter product life-cycles
and have a greater need to reduce the time it takes to bring a product to
market. OEMs also face increasing difficulties in planning, procuring and
managing their inventories efficiently, due to frequent design changes, short
product life-cycles, large investments in electronic components, component
price fluctuations, and the need to achieve economies of scale in materials
procurement. The OEMs' commercial electronics applications often include high
software functionality and value, causing many OEMs to focus their internal
resources primarily on software engineering. Due to the nature of their
businesses, many OEMs routinely make hardware and software upgrades to their
products to remain competitive in their product offerings and to enhance
product functionality and quality. In response to these pressures, this
segment of the OEM market requires a highly service-oriented and interactive
relationship between the OEM and its contract manufacturer in order to realize
the time-to-market, product cost savings, quality control and responsive
production and inventory requirements of these OEMs.
BUSINESS STRATEGY
The Company's strategy is to identify and develop strong, long-term
alliances with high-growth and market-leading OEMs of complex, leading-edge
products which require flexible, value-added manufacturing services. The
Company has invested in the capabilities to apply technologically-advanced
manufacturing and related services for the shorter and moderate-volume
production runs that are typically required in the OEM's rapidly changing
markets. The Company's goal is to provide its OEM partners with service-
oriented manufacturing solutions from the design phase through product maturity
and across product generations in order to attract the high-value, commercial
product manufacturing business of these OEMs.
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SERVICES PROVIDED BY THE COMPANY
The Company provides value-added, turnkey manufacturing services,
including advanced manufacturing and test engineering, materials management,
and manufacturing of electronic assemblies, including complex PCB assemblies,
cable and harness assemblies, electro-mechanical sub-assemblies, and total
system assembly and integration.
MANUFACTURING OF ELECTRONIC ASSEMBLIES
--------------------------------------
ACT offers manufacturing capabilities for PCB assemblies, cable and
harness assemblies, electro-mechanical sub-assemblies and total system assembly
and integration.
Printed Circuit Board Assemblies
--------------------------------
The Company's PCB assembly operations are oriented toward advanced
technology SMT applications. At the beginning of 1996, the Company added a
fifth Fuji SMT line. The Company also continues to support PTH technology and
related semi-automated and manual placement processes for existing and new
applications which require these technologies. ACT's manufacturing process is
supported by state-of-the-art, high-speed placement systems, screen printers,
epoxy dispensers, wave solderers, reflow and cleaning systems and a highly-
trained and experienced engineering and manufacturing workforce. ACT utilizes
environmentally clean, water-soluble and no-clean process technology which the
Company believes meets or exceeds all applicable environmental regulations.
ACT also provides testing services for substantially all completed PCB
assemblies in connection with the manufacturing process. In-circuit tests
verify that the components have been inserted properly and meet certain
functional standards and that the electrical circuits have been completed
properly. These tests are performed on industry standard testing equipment
using proprietary software developed either by the customer or the Company's
test engineers. In addition, using specialized testing equipment designed and
provided by the customer, the Company performs customized functional tests
designed to ensure that the PCB assembly will perform its intended functions.
Since defective components normally fail after a relatively short period of
use, normal process parameters require that certain PCB assemblies be subjected
to controlled environmental stresses, typically thermal or electrical stresses.
Cable and Harness Assemblies
----------------------------
ACT offers a wide range of custom manufactured cable and harness
assemblies for molded and mechanical applications. These assemblies include
ribbon, multiconductor, co-axial and fiber optic cable assemblies and discrete
wire harness assemblies. The Company uses advanced and diverse manufacturing
processes, in-line inspection and test and dedicated work cells to minimize
work in process time and focus on process efficiencies and quality. The cable
and harness assembly process is accomplished using both automated and semi-
automated preparation and insertion equipment and manual assembly techniques.
ACT tests substantially all of its cable and harness assemblies using automated
test equipment.
Electro-Mechanical Sub-Assemblies and Total System Assembly and
---------------------------------------------------------------
Integration
-----------
In response to the needs of its OEM customers, ACT offers products which
integrate its PCB and cable and harness assembly technologies into higher level
sub-assemblies and total system assembly and integration ("box build"). These
products utilize the full range of the Company's service offerings. With the
addition in February 1996 of its Mansfield, Massachusetts manufacturing
facility, the Company has enhanced its service capabilities. This facility
offers full integration and test capability and repair capability, as well as
traditional PCB assembly capabilities
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ADVANCED MANUFACTURING AND TEST ENGINEERING
-------------------------------------------
The Company provides its OEM partners with advanced manufacturing and test
engineering services during the design and implementation of new and upgraded
products, as well as throughout the manufacturing process. The Company's
engineering services are designed to ensure that OEM products are rapidly
brought to market and meet the market's expectation for quality.
The Company's advanced manufacturing engineers work closely with an OEM's
product designers at the early design stage in order to optimize the hardware
design in terms of manufacturability, testability, and product reliability.
The Company's advanced manufacturing engineers also participate in the OEM's
parts selection and materials utilization decisions at the design stage in
order to mitigate component availability issues which might arise during the
manufacturing cycle. The Company's engineers evaluate the ongoing
manufacturing process and recommend improvements to reduce manufacturing costs
or lead times, or to increase the quality of finished assemblies.
MATERIALS MANAGEMENT
--------------------
The Company is primarily a turnkey manufacturer, meaning the Company
directly sources all or a substantial portion of the components necessary for
its product assemblies. The Company procures components from a select group of
vendors which meet ACT's standards for timely delivery, high quality and cost
effectiveness. To help control inventory investment, components are generally
ordered when the Company has a purchase order or commitment from a customer to
purchase the completed assemblies. Material planning and procurement is
accomplished by the use of a state-of-the-art Materials Requirements Planning
(MRP) system. Communication with vendors is enhanced with the use of
Electronic Data Interchange (EDI) systems. Additionally, ACT uses just-in-time
inventory management techniques and manages its material pipelines and vendor
base in order to enable the Company's customers to increase or decrease volume
requirements within established frameworks.
MANUFACTURING PROCESS
The manufacturing process begins with the development of a complete set of
process documents. An inspection, test and quality control plan is established
to ensure quality while a material acquisition plan is developed to ensure
availability of supply and the timely delivery of components to the
manufacturing process. The Company analyzes each customer's materials
specifications to identify the suppliers from whom to purchase the materials.
The Company then plans and executes purchase orders and receives, inspects and
warehouses components, expedites critical components and delivers a complete
set of components to the production floor for assembly in sufficient time to
meet customer requirements. Labor efficiency and quality information is
continuously gathered and analyzed from the manufacturing processes to ensure
that quality and time of delivery objectives are met. In certain cases, the
Company creates customized tooling and processes for individual customer
products which advantageously positions the Company to supply upgrades and next
generation products.
The Company employs just-in-time manufacturing, statistical process
control and total quality management during the manufacturing process. Just-
in-time manufacturing is a production technique which minimizes work-in-process
inventory and manufacturing cycle time while enabling the Company to deliver
products to customers in the quantities and within the time frame required.
Statistical process control is a set of analytical and problem-solving
techniques based on statistics and process capability measurements, through
which the Company can track process inputs and resulting quality and determine
whether a process is operating within specified limits. In order to
effectively utilize labor, manufacturing equipment, and associated overhead,
shop floor control and process routing techniques are utilized. Total quality
management is a management philosophy which seeks to impart high levels of
quality in every operation of the Company and is accomplished
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by the setting of quality objectives for every operation, tracking performance
against those objectives, and identifying work flow and policy changes required
to achieve higher quality levels, all supported by the commitment of executive
management to initiate changes required to deliver higher quality. In November
1996, the Company's manufacturing facilities and associated systems were
recertified under ISO 9002 by TUV America, an internationally recognized
standards organization.
Responsiveness to customers, particularly as to engineering changes once
manufacturing has commenced, is an important component of the Company's
flexible manufacturing approach. Many products manufactured by the Company are
in the early stages of their product life cycle and therefore may have many
design or engineering changes. Upon receiving an engineering change notice,
the Company identifies and manages the impact on the production process,
current inventory and open purchase orders. The Company maintains regular
contact with its customers to assure adequate information exchange, document
control and activities coordination necessary to support a high level of
quality and on-time delivery.
The Company has made significant investments in advanced manufacturing
technology, including computer-aided manufacturing and test equipment, process
technology, information processing technology, and enhanced SMT capabilities
such as ball-grid array.
CUSTOMERS, MARKETING AND SALES
------------------------------
The Company serves a wide range of businesses from emerging growth
companies to multinational corporations in a wide variety of markets including
local and wide area computer networking systems, computer workstations and
systems, mass data storage systems, telecommunications, and medical and
industrial control equipment. The Company's principal sources of new business
originate from expansion in the volume and scope of services provided to
existing customers, referrals from existing customers and suppliers, direct
sales through senior management and a direct sales organization, and sales
obtained by selected independent sales representative firms principally in the
Eastern U.S. and Canada.
In many cases, the Company's OEM customers utilize more than one contract
manufacturer across their product lines. The Company's goal is to be the
primary contract manufacturer for its OEM customers, and to attract the OEMs'
high-value, leading-edge products. The Company believes that its close
interaction with the design engineering personnel of its customers at the
product development stage, together with the Company's established materials
pipeline and prototype production experience, enables the Company to
participate in its customers' new product offerings. The Company assigns each
customer a program manager whose responsibilities, as the primary contact into
the Company, include the development of the manufacturing relationship and the
assignment of Company resources to meet customer requirements.
The Company continues to focus on expanding and diversifying its customer
base to reduce dependence on any individual customer or industry segment, and
ACT is targeting emerging OEMs in high-growth industry segments. Turnkey
contract manufacturers generally face a long sales cycle and must perform
satisfactorily on a limited number of any OEM's assembly orders prior to
capturing significant orders from that OEM.
Cascade Communications, Inc. ("Cascade Communications"), 3Com Corporation
("3Com"), Motorola Corporation ("Motorola") and Bay Networks Corporation ("Bay
Networks") accounted for 20%, 17%, 13% and 13%, respectively, of the Company's
net sales for 1996. 3Com accounted for 41% of the Company's net sales for
1995. Chipcom Corporation (acquired by 3Com in 1995) accounted for 55% of the
Company's net sales in 1994.
The Company generally warrants that its products will be free from defects
in workmanship for twelve months, and passes on to the customer any warranties
provided by component manufacturers and material suppliers to the extent
permitted. During the warranty period, the Company's warranty provides that
the Company will take action to repair or replace failed products. The Company
tests substantially all of its
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assemblies prior to shipment. In addition, the Company's OEM customers
generally test or have tested final products on a sample basis prior to
deployment in the field. The Company's warranty costs have not been material to
date.
COMPETITION
The Company operates in a highly competitive market. The Company's
competitors include large national or multi-national contract manufacturers,
regional and local contract manufacturers, and OEMs which continually evaluate
the relative benefits of manufacturing internally. The Company's major
competitors include Solectron Corporation, SCI Systems, Inc., Jabil Circuit,
Inc., Lockheed Martin Commercial Electronics, the DII Group, Group Technologies
Corporation, Benchmark Electronics, Inc. and Sanmina Corporation, as well as a
number of regional and local competitors. The Company faces competition in the
cable and harness assembly market primarily from Volex Interconnect Systems,
Inc., Berg Electronics, Inc., AMP, Inc. and Molex, Inc. The Company in the
future may face competition from OEMs which market contract manufacturing
services and from OEMs which have technology alliances or other corporate
partnering relationships.
The Company believes that competition is primarily based on technology,
service, manufacturing capability, quality, regional access, price,
reliability, timeliness in delivering finished products and flexibility in
adapting to customers' needs. The Company believes it competes favorably in
these areas. However, several of its competitors have greater manufacturing,
marketing and financial resources than the Company. In addition, the Company
may face competition from offshore manufacturers which have significantly lower
labor costs which may allow them to compete favorably on the basis of price.
BACKLOG
The Company's backlog at December 31, 1996 was approximately $75.5 million
compared to $59.6 million at December 31, 1995. Backlog consists of firm
purchase orders and commitments with delivery dates scheduled within the next
six months, the majority of which will be shipped within the next ninety days.
Variations in the size and delivery schedules of purchase orders received by
the Company, as well as changes in customers' delivery requirements, may result
in substantial fluctuations in backlog from period to period. Because
customers may cancel or modify orders and commitments without penalty, the
Company believes that backlog cannot be considered a meaningful indicator of
long-term future financial results.
GOVERNMENTAL REGULATION
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management and health
and safety matters. Management believes that the Company complies with
applicable regulations promulgated by the Occupational Safety and Health
Administration and the Environmental Protection Agency and corresponding state
agencies pertaining to health and safety in the workplace and the use, storage,
discharge and disposal of chemicals used in its manufacturing processes. The
current costs of compliance are not material to the Company. Nevertheless, no
assurances can be given that additional or modified requirements will not be
imposed in the future and, if so imposed, will not involve substantial
additional expenditures by the Company.
EMPLOYEES
At December 31, 1996, the Company had 799 employees, including 736 in
manufacturing and related activities and 63 in sales, marketing and
administrative activities. The employees of the Company are not
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represented by a union and the Company has experienced no labor stoppages. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
-----------
The Company's principal manufacturing facilities are located in four
leased facilities containing an aggregate of 204,000 square feet. The
Company's Hudson, Massachusetts headquarters include a modern 102,000 square
foot manufacturing facility which houses the Company's PCB and systems assembly
businesses, another facility which contains the manufacturing capabilities for
the Company's mechanical and molded cable and harness assemblies and electro-
mechanical sub-assemblies, and a third facility which contains the Company's
warehousing and distribution functions. The Company occupies the Hudson
facilities under leases scheduled to expire in 2004, 2003, and 2003,
respectively.
In February 1996, the Company entered into a five year lease for a 44,000
square foot facility in Mansfield, Massachusetts to expand its manufacturing
operations. The lease expires in January 2001 and the Company has an option to
renew the lease for an additional five years. The Company believes that its
facilities will be sufficient for the Company's foreseeable activities.
ITEM 3. LEGAL PROCEEDINGS
-----------------
From time to time the Company is subject to claims or litigation incidental
to its business. The Company does not believe that any such claims or
litigation will have a material adverse effect on the operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year ended
December 31, 1996 to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol ''ACTM". Public trading of the Common Stock commenced on March 30, 1995.
Prior to that time, there was no public market for the Company's Common Stock.
The following table sets forth the high and low bid information for the Common
Stock as reported by Nasdaq for the periods indicated. Such information
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1995:
First quarter (from March 30).. $14 1/4 $13 1/4
Second quarter................. 14 3/4 11
Third quarter.................. 19 3/8 12 3/8
Fourth quarter................. 15 9
</TABLE>
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<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1996:
First quarter................. $12 1/2 $ 9 7/8
Second quarter................ 19 11 7/8
Third quarter................. 18 1/8 11 3/4
Fourth quarter................ 31 1/4 16 1/4
</TABLE>
On March 25, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $20.13 per share. As of March 25, 1997, there were
approximately 36 holders of record of the Common Stock. This number does not
include stockholders for whom shares were held in a "nominee" or "street name."
From November 1, 1987 to March 28, 1995, the Company elected to be treated
as an S Corporation for federal and state income tax purposes. In 1994 and
1995, the Company paid an aggregate of $4.2 million and $11.4 million,
respectively, of cash dividends and distributions to its S Corporation
shareholders, principally representing the amount of the Company's previously
taxed but undistributed S Corporation earnings. In connection with the initial
public offering of its Common Stock, the Company terminated its election to be
treated as an S Corporation on March 29, 1995. The Company does not presently
intend to declare cash dividends on the Common Stock in the foreseeable future
and expects to retain future earnings to fund future operations. Additionally,
the Company's bank revolving credit agreement prohibits the payment of cash
dividends on the Company's capital stock.
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ITEM 6. SELECTED FINANCIAL DATA
------------------------
The selected financial data should be read in conjunction with, and are
qualified in their entirety by, the Company's financial statements, related
notes and other financial information included herein.
SUMMARY FINANCIAL DATA
----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PRO FORMA (1)(2)
-------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................. $225,900 $115,658 $85,848 $45,149 $27,278
Cost of goods sold......................... 197,530 101,449 72,574 36,718 22,178
-------- -------- ------- ------- -------
Gross profit............................... 28,370 14,209 13,274 8,431 5,100
Selling, general and administrative
expenses................................. 10,016 6,682 5,434 4,619 3,130
-------- -------- ------- ------- -------
Operating income........................... 18,354 7,527 7,840 3,812 1,970
Other income (expense)..................... (1,424) (62) (534) (196) (226)
-------- -------- ------- ------- -------
Income before
income taxes............................. 16,930 7,465 7,306 3,616 1,744
Taxes on income............................ 6,773 2,999 2,953 1,462 704
-------- -------- ------- ------- -------
Net income................................. $ 10,157 $ 4,466 $ 4,353 $ 2,154 $ 1,040
======== ======== ======= ======= =======
Net income per share....................... $1.12 $0.55 $0.65
======== ======== =======
Weighted average shares
outstanding.............................. 9,098 8,171 6,748
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 71,091 $ 35,070 $14,646 $ 2,945 $ 1,849
Total assets 107,595 61,095 33,618 15,873 8,661
Long-term debt, less current 29,055 2,638 10,255 1,071 1,470
portion
Total stockholders' equity 47,132 35,688 7,355 4,205 2,905
</TABLE>
(1) The Company had operated as an S Corporation for income tax purposes since
November 1, 1987, and accordingly had not been subject to federal income
taxes since such date and had been subject to state income taxes at a
reduced rate. Accordingly, the historical financial statements through
March 28, 1995 do not include a provision for federal and state income
taxes for such periods, except for certain state income taxes imposed at
the corporate level. Pro forma net income in 1995 and 1994 has been
computed as if the Company had been fully subject to federal and state
income taxes (based on the tax laws in effect during the respective
periods). See Note 2 to the accompanying financial statements.
(2) Pro forma net income per common share for the year ended December 31, 1994
reflects the assumed issuance of shares to fund the distribution of all
previously taxed but undistributed S Corporation earnings to the Company's
stockholders, consisting of Mr. Pino and certain trusts for his family
members. The calculation is based upon 650,000 additional shares assumed
to be outstanding during the year, which shares represent the approximate
number of shares which would be necessary to fund the distribution of
undistributed S Corporation earnings through December 31, 1994. See Note 2
to the accompanying financial statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW
The Company provides value-added, turnkey contract manufacturing services
for emerging and major OEMs in the commercial electronics industry. The
Company's manufacturing services include complex printed circuit board
assemblies, mechanical and molded cable and harness assemblies, electro-
mechanical sub-assemblies and total system assembly and integration. As an
integral part of its service to OEM customers, the Company provides advanced
manufacturing and test engineering and materials management across the full
range of the Company's assembly services.
The Company generally recognizes revenue upon shipment to customers. The
Company receives purchase orders from its customers typically requiring
delivery dates within the next twelve months. The level and timing of orders
placed by the Company's OEM customers vary due to customer attempts to manage
inventory, changes in the OEM's manufacturing strategy and variation in demand
for customer products due to, among other things, introduction of new products,
product life cycles, competitive conditions or general economic conditions.
Effective November 1, 1987, the Company elected to be treated as an S
Corporation for federal income tax purposes under Subchapter S of the Internal
Revenue Code of 1986, as amended, and for Commonwealth of Massachusetts income
tax purposes. As a result, the Company had not been subject to federal income
taxes since the effective date of the election and had been subject to state
income taxes at reduced rates. On March 28, 1995, the Company terminated its
election as an S Corporation, and thereafter became fully subject to federal
and state income taxes. Accordingly, the discussion of the Company's financial
condition and results of operations for the years ended December 31, 1995 and
1994 include pro forma income tax adjustments to the Company's statements of
income that reflect provisions for federal and state income taxes as if the
Company had not elected to be treated as an S Corporation.
The following discussion provides an analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Company's financial statements and related Notes thereto appearing elsewhere in
this Form 10-K.
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RESULTS OF OPERATIONS
The following table sets forth statement of income data as a percentage of
net sales for each fiscal year indicated and the percentage change in the
dollar amounts for each item as compared to the prior fiscal year:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
PRO FORMA
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 87.4 87.7 84.5
----- ----- -----
Gross profit 12.6 12.3 15.5
----- -----
Selling, general and administrative
expenses 4.5 5.8 6.4
----- ----- -----
Operating income 8.1 6.5 9.1
Other expense - net 0.6 0.0 0.6
----- ----- -----
Historical income before income taxes 7.5 6.5 8.5
Taxes on income 3.0 2.6 3.4
----- ----- -----
Net income 4.5% 3.9% 5.1%
===== ===== =====
</TABLE>
1996 COMPARED TO 1995
The Company's net sales increased 95.3% to $225.9 million in 1996 from
$115.7 million in 1995. This increase was attributed principally to an
expansion of business from existing customers and sales to new customers in the
PCB markets. As a percentage of total revenue, the Company's largest customers
in 1996 included Cascade Communications (20%), 3Com (17%), Bay Networks (13%)
and Motorola (13%). As a percentage of total revenue in 1995, 3Com was the
largest customer with 41% of net Company sales.
The Company does business with customers in the Networking, Telecom,
Computing, Industrial, and Medical markets.
<TABLE>
<CAPTION>
PERCENTAGE OF
-------------
TOTAL REVENUE
-------------
MARKET 1996 1995
------ ----- -----
<S> <C> <C>
Networking 54% 54%
Telecom 19 6
Computing 13 17
Industrial 12 17
Medical 2 6
---- ----
TOTAL 100% 100%
==== ====
</TABLE>
Net sales in the PCB assembly division (including system integration and
test operations) increased as a percentage of net sales to 87% in 1996 compared
to 73% in 1995. Net sales in the cable and harness assembly division accounted
for 13% of 1996 net sales compared to 27% of 1995 net sales.
Gross profit increased by $14.2 million or 100% to $28.4 million in 1996
compared to $14.2 million in 1995. Gross profit as a percentage of sales
("gross margin") increased to 12.6% in 1996 from 12.3% in 1995. This change is
primarily attributed to higher utilization of facilities and equipment, reduced
customer start-up costs and the effects of Company manufacturing cost
improvement programs.
12
<PAGE>
Selling, general and administrative expenses increased 50% to $10.0
million or 4.5% of net sales in 1996, compared to $6.7 million, or 5.8% of net
sales in 1995. This decrease as a percentage of net sales reflects the results
of the continued growth in the Company's business which allowed for a higher
utilization of fixed costs, a greater proportion of net sales being made
directly by the Company, and the effect of the Company's ongoing cost
management efforts.
Operating income increased 144% to $18.4 million or 8.1% of net sales, in
1996 compared to $7.5 million or 6.5% of net sales in 1995. This improvement
is the result of positive changes in gross profit and selling, general and
administrative performance as previously discussed.
Other expense-net increased to $1.4 million compared to $62,000 in 1995.
This increase is primarily attributed to interest expense associated with the
utilization of the Company's line of credit to fund working capital
requirements for inventory and accounts receivable as related to the growth of
the business.
1995 COMPARED TO 1994
Net sales increased to $1.4 million in 1995 from $85.8 million in 1994.
This increase was attributed principally to an expansion of business from
existing PCB customers and sales to new PCB customers. Net sales to 3Com
Corporation (acquiror of Chipcom Corporation) increased to $47.7 million in
1995 from $46.9 million in 1994, although sales to 3Com Corporation as a
percentage of net sales decreased from 54.7% in 1994 to 41.2% in 1995.
Gross profit increased by $0.9 million, or 7.0%, to $14.2 million in 1995
compared to $13.3 million for the prior year. Gross profit as a percentage of
sales ("gross margin") decreased to 12.3% in 1995 from 15.5% in 1994 as a
result of a shift in the Company's sales mix toward PCB assemblies, additional
costs associated with the Company's new manufacturing facility, increased
start-up costs associated with several new customers and absorption costs
relating to volume changes with the Company's largest customer.
Selling, general and administrative expenses increased 23% to $6.7
million, or 5.8% of net sales, in 1995 compared to $5.4 million, or 6.4% of net
sales in 1994. This decrease as a percentage of net sales reflects the results
of the continued growth in the Company's business which allowed for a higher
utilization of fixed costs, a greater proportion of net sales being made
directly by the Company, and the effect of the Company's ongoing cost
management efforts.
Operating income decreased 4.0% to $7.5 million, or 6.5% of net sales, in
1995 compared to $7.8 million, or 9.1% of net sales, in 1994 as a result of the
above factors.
Other expense - net declined to $62,000 in 1995 compared to $534,000 in
1994. Interest income which is included in other, consists of the proceeds
from the investment of the Company's cash and cash equivalents and marketable
securities. Interest and other expenses consisted principally of fees and
interest payable to the Company's bank lenders. The change resulted
principally from repayments under the Company's line of credit and the
investment of cash as a result of the Company's initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its growth and operations
through earnings and borrowings. The Company has experienced a significant
increase in working capital as the business has grown. At December 31, 1996,
the Company had working capital of $71.1 million compared to $35.1 million at
December 31, 1995. The net increase was due to the growth in accounts
receivable and the growth in inventories associated with an increase in sales
and the addition of new customers. This was offset by growth in accounts
payable and the repayments under the Company's line of credit facility.
13
<PAGE>
The Company had a secured revolving credit facility of $33.0 million at
December 31, 1996. Borrowings under this facility are subject to certain
borrowing base tests defined in terms of eligible specified accounts receivable
and inventory. This credit facility, which bears interest at the Bank of
Boston prime rate, expires on May 31, 1998. As of December 31, 1996, the
outstanding borrowing under the revolving credit facility was $28.7 million.
The Company has entered into certain operating lease transactions to lease
various plant and office equipment purchases with original equipment costs of
$10.1 million in 1996 and $2.2 million in 1995. These leases have terms
expiring through 1999. The future minimum rental payments under these leases
are $4.9 million in 1997, $4.8 million in 1998 and $4.4 in 1999. As of
December 31, 1996, the Company had an available equipment lease line of $20.0
million under which $13.2 million of commitments were outstanding.
The Company anticipates that its cash requirements for the next twelve
months will be satisfied by existing cash and cash equivalents, cash flow from
operations and the existing bank credit and equipment lease facilities.
NEWLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS" 121).
SFAS 121 requires that long-lived assets held and used by an entity be reviewed
for impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. It also requires that long-lived assets to be
disposed of be reported at the lower of the carrying amount or fair values less
the cost to sell. The Company adopted SFAS 121 effective January 1, 1996 and
SFAS 121 did not have a material effect on the Company's financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS" 123). This statement establishes financial accounting
and reporting standards for stock-based employee compensation plans. The
adoption of SFAS 123 did not have any impact on the Company's results of
operations or its financial position, as the Company elected to continue to
value stock options under the provisions of APB 25 (intrinsic value method) and
to disclose the effects of SFAS 123 (fair value method) in the Notes to the
accompanying financial statements.
FLUCTUATIONS IN NET SALES AND OPERATING RESULTS
The Company's future operating results may be affected by a number of
factors such as the level and timing of orders from, and shipments to, major
customers; customers' announcement and introduction of new products or new
generations of products; evolutions in the life cycles of customers' products;
timing of expenditures in anticipation of future orders; effectiveness in
managing manufacturing processes; changes in cost and availability of labor and
components; a shift in the Company's product and service mix which results in
fluctuating margins; and changes or anticipated changes in economic conditions.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") contains
certain safe harbors regarding forward-looking statements. From time to time,
information provided by the Company or statements made by its employees may
contain "forward-looking" information which involve risk and uncertainties.
Any statements in this report that are not statements of historical fact are
forward-looking statements (including, but not limited to, statements
concerning the characteristics and growth of the Company's market and
customers, the Company's objectives and plans for future operations, and the
Company's expected liquidity and capital resources). The following cautionary
statements should be considered carefully in evaluating the Company and its
business. The
14
<PAGE>
factors discussed in these cautionary statements, among other factors, could
cause actual results to differ materially from those contained in the forward-
looking statements made in this Annual Report and presented elsewhere by
management from time to time. These cautionary statements are being made
pursuant to the provisions of the act and with the intention of obtaining the
benefits of the safe harbor provisions of the Act. Reference is also made to
the "Risk Factors" described in the Company's Prospectus dated March 30, 1995.
CUSTOMER AND INDUSTRY CONCENTRATION
-----------------------------------
For fiscal 1996, the Company's four largest customers accounted for
approximately 63% of net sales. Sales to Cascade Communications, 3Com, Bay
Networks and Motorola were approximately 20%, 17%, 13% and 13%, respectively,
of the Company's net sales for fiscal 1996. The Company's results will depend
to a significant extent on the success achieved by its OEM customers in
marketing their products and the Company's ability to diversify its customer
base in order to reduce its reliance on its major customers. There can be no
assurance that the Company's principal customers will continue to purchase
products and services from the Company at current levels. The loss of one or
more major customers, a significant reduction in purchases from such customers,
or developments adverse to the Company's customers or their products could have
a material adverse effect on the Company's results of operations. In addition,
while the Company has not experienced any difficulty in being paid by its major
customers in recent years, the Company could be adversely affected if a major
customer were unable or unwilling to pay for products and services.
The Company's customer base has historically been concentrated in a
limited number of industries, most of which are subject to high competition,
rapid technological changes and consequent product obsolescence. Developments
adverse to such industries could have a negative effect on the Company. The
industries served by the Company are also subject to economic cycles and have
in the past experienced, and are likely in the future to experience,
recessionary periods. A recessionary period affecting one or more of the
industry segments served by the Company could have a material adverse effect
on the Company. In addition, the Company's results of operations could be
adversely affected due to a slowing of the manufacturing outsourcing trend.
VARIABILITY OF CUSTOMER REQUIREMENTS; NATURE AND EXTENT OF CUSTOMER
-------------------------------------------------------------------
COMMITMENTS ON ORDERS
----------------------
The level and timing of orders placed by the Company's OEM customers vary
due to customer attempts to manage inventory, changes in the OEM's
manufacturing strategy and variation in demand for customer products due to,
among other things, introduction of new products, product life cycles,
competitive conditions or general economic conditions. The Company generally
does not obtain long-term purchase orders or commitments but instead works with
its customers to anticipate the future volume of orders. Based on such
anticipated future volumes, the Company makes other significant commitments
regarding the levels of business that it will seek and accept, the timing of
production schedules and the levels and utilization of personnel and other
resources. From time to time, the Company will purchase components without a
customer commitment to pay for them. A variety of conditions, both specific to
the individual customer and generally affecting the customer's industry, may
cause customers to cancel, reduce or delay orders that were either previously
made or anticipated. Generally, customers may cancel, reduce or delay purchase
orders and commitments without penalty. Significant cancellations, reductions
or delays in orders by a customer or group of customers could adversely affect
the Company's results of operations.
FLUCTUATIONS IN OPERATING RESULTS
---------------------------------
The variability of the level and timing of orders from, and shipments to,
major customers may result in significant periodic and quarterly fluctuations
in the Company's results of operations. In addition to the variability
resulting from the short-term nature of its customers' commitments, other
factors have contributed, and may in the future contribute, to such
fluctuations. These factors include, among other things, customers'
announcement and introduction of new products or new generations of products,
evolutions in the life cycles of customers' products, timing of expenditures in
anticipation of future orders, effectiveness in managing
15
<PAGE>
manufacturing processes, changes in cost and availability of labor and
components, a shift in the Company's product and service mix which results in
fluctuating margins, and changes or anticipated changes in economic conditions.
Because the Company's operating expenses are based on anticipated revenue
levels and a high percentage of the Company's operating expenses are relatively
fixed, any unanticipated shortfall in revenue in a quarter may have an adverse
impact on the Company's results of operations for that quarter. Results of
operations in any period should not be considered indicative of the results to
be expected for any future period.
AVAILABILITY OF KEY COMPONENTS
-------------------------------
The Company and many of its customers rely on a single or limited number
of third-party suppliers for many components used in the assembly process.
Shortages of certain electronic components, including certain memory modules
and logic devices, have occurred from time to time. In addition, due to the
Company's utilization of just-in-time inventory techniques, the timely
availability of many components to the Company is dependent on the Company's
ability to continuously develop accurate forecasts of customer volume
requirements. Component shortages could result in manufacturing and shipping
delays or increased component prices which could have a material adverse effect
on the Company's results of operations. Because the Company purchases a
significant number of components manufactured in foreign countries, it is
subject to numerous risks, including economic disruptions, transportation
delays and interruptions, foreign exchange rate fluctuations, imposition of
tariffs and import and export controls and changes in governmental policies,
any of which could have a material adverse effect on the Company's business and
results of operations. The Company has historically been able to enter into
advantageous arrangements from time to time for the supply of certain limited
availability components. To the extent that the Company is unable to source key
components for the reasons cited above or otherwise, the Company's results of
operations could be materially adversely affected.
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
---------------------------------------------
The market for the Company's manufacturing services is characterized by
rapidly changing technology and continuing process development. The continued
success of the Company's business will depend in large part upon its ability to
maintain and enhance its technological capabilities, develop and market
manufacturing services which meet changing customer needs and successfully
anticipate or respond to technological changes in manufacturing processes on a
cost-effective and timely basis. Although management believes that the
Company's operations utilize the assembly and testing technologies and
equipment currently required by the Company's customers, there can be no
assurance that the Company's process development efforts will be successful or
that the emergence of new technologies, industry standards or customer
requirements will not render the Company's technology, equipment or processes
obsolete or uncompetitive. In addition, to the extent that the Company
determines that new assembly and testing technologies and equipment are
required to remain competitive, the acquisition and implementation of such
technologies and equipment are likely to require significant capital investment
by the Company.
COMPETITION
------------
The commercial electronics contract manufacturing industry is a highly
competitive industry. The Company competes against numerous domestic and
foreign contract manufacturers. The Company's major competitors in the PCB
assembly business include Solectron Corporation, SCI Systems, Inc., Jabil
Circuit, Inc., Lockheed Martin Commercial Electronics, The DII Group, Group
Technologies Corporation, Benchmark Electronics, Inc. and Sanmina Corporation.
The Company faces competition in the cable and harness assembly market
primarily from Volex Interconnect Systems, Inc., Berg Electronics, Inc., AMP,
Inc. and Molex, Inc. The Company also faces competition from a number of local
and regional contract manufacturers. In addition, current and prospective
customers continually evaluate the merits of manufacturing products internally
and certain large OEMs will from time to time offer contract manufacturing
services in order to utilize excess capacity. Certain of the Company's
competitors have substantially greater manufacturing, financial and marketing
resources than the Company. The Company may be operating at a cost disadvantage
compared to
16
<PAGE>
manufacturers who have greater direct buying power from component suppliers
or who have lower cost structures, particularly those with significant offshore
operations. The Company believes that the principal competitive factors in the
segments of the contract manufacturing industry in which it operates are
technology, service, manufacturing capability, quality, regional access, price,
reliability, timeliness and flexibility. There can be no assurance that
competition from existing or potential competitors will not have a material
adverse effect on the Company's results of operations.
MANAGEMENT OF GROWTH
---------------------
The Company has grown rapidly in recent years. A continuing period of
rapid growth could place a significant strain on the Company's management,
operations and other resources. The Company's ability to manage its growth will
require it to continue to invest in its operational, financial and management
information systems, and to retain, motivate and effectively manage its
employees. If the Company's management is unable to manage growth effectively,
the quality of the Company's services and products, its ability to retain key
personnel and its results of operations could be materially and adversely
affected.
DEPENDENCE UPON KEY PERSONNEL
------------------------------
The Company's continued success been largely dependent upon the skills and
efforts of John A. Pino, its President and Chief Executive Officer, and other
key employees. None of the senior management or other key employees of the
Company is subject to any employment contract. The loss of services of any of
its officers or other key personnel could have an adverse effect on the
operations of the Company. In addition, continued growth and development of the
Company will require that, despite significant competition, it attract,
motivate and retain additional skilled and experienced personnel. There can be
no assurance that the Company will be able to attract, motivate and retain
personnel with the skills and experience needed to successfully manage the
Company's business and operations.
CONCENTRATION OF PRINTED CIRCUIT BOARD BUSINESS IN NORTHEASTERN UNITED
----------------------------------------------------------------------
STATES
-------
The Company's PCB assemblies and related services are primarily marketed
and sold to customers operating in the Northeastern United States. The Company
attempts to mitigate any unique exposure to the Northeastern United States
economy by marketing to OEMs which deliver products to national and
international markets, but there can be no assurance that an economic downturn
or recession in the Northeastern United States would not have an adverse effect
on the Company.
FUTURE ACQUISITIONS AND GEOGRAPHICAL EXPANSION
-----------------------------------------------
The Company may expand into other geographical areas within the United
States and internationally by acquiring contract manufacturing businesses or by
establishing new manufacturing operations in such areas. The Company may
compete for acquisition and expansion opportunities with entities having
significantly greater resources than the Company. Any such transactions may
result in potentially dilutive issuance of equity securities, the incurrence of
debt and amortization expenses related to goodwill and other intangible assets,
and other costs and expenses, all of which could materially adversely affect
the company's financial results following such a transaction. Such
transactions also involve numerous business risk, including difficulties in the
assimilation of the operations, technologies and products of the acquired
companies, the diversion of management's attention from other business concerns
and the potential loss of key employees from the combined company. In the
event that any such transaction does occur, there can be no assurance as to the
beneficial effect on the Company's business and financial results.
17
<PAGE>
ENVIRONMENTAL COMPLIANCE
-------------------------
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. A failure by the Company to comply with present and
future regulations could subject it to future liabilities or the suspension of
production. Such regulations could also restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses to comply with environmental
regulations.
POSSIBLE VOLATILITY OF STOCK PRICE
----------------------------------
There has been significant volatility in the market price of securities of
high technology companies. Factors such as announcements of technological
innovations by the Company, its competitors and other third parties, as well as
quarterly variations in the Company's results of operations and market
conditions in the industry, may cause the market price of the Company's Common
Stock to fluctuate significantly. In addition, the public stock markets have
historically experienced extreme price and trading volume volatility. This
volatility has significantly affected the market prices of securities of many
technology companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES
----------------------------------
INDEPENDENT AUDITORS' REPORT
ACT Manufacturing, Inc.:
We have audited the accompanying balance sheets of ACT Manufacturing, Inc. as
of December 31, 1996 and 1995, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in Item 14. These financial statements and financial statment
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 14, 1997
19
<PAGE>
ACT MANUFACTURING, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- - ------------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,054,366 $ 7,097,151
Accounts receivable u trade (less allowance for doubtful
accounts of $225,000 in 1996 and 1995) (Note 5) 41,474,676 19,585,466
Inventory (Notes 3 and 5) 53,993,681 30,386,870
Prepaid expenses and other assets 488,931 264,630
Deferred tax asset (Note 6) 1,487,000 505,000
------------ -----------
Total current assets 102,498,654 57,839,117
PROPERTY AND EQUIPMENT -- Net (Notes 4 and 5) 4,635,228 2,696,029
OTHER ASSETS 461,179 559,482
------------ -----------
TOTAL $107,595,061 $61,094,628
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 38,346 $ 70,617
Accounts payable 26,153,776 20,487,682
Accrued compensation and related taxes 1,527,584 834,131
Income tax payable 1,934,817 649,853
Accrued expenses 1,753,549 726,644
------------ -----------
Total current liabilities 31,408,072 22,768,927
============ ===========
LONG-TERM DEBT -- Less current portion (Note 5) 29,054,928 2,637,940
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
STOCKHOLDERS' EQUITY (Notes 2 and 7):
Preferred stock - $.01 par value; authorized, 5,000,000 shares; issued and
outstanding, none -
Common stock - $.01 par value; authorized, 20,000,000 shares; issued and outstanding,
8,817,200 shares in 1996 and 8,713,200 shares in 1995 88,172 87,132
Additional paid-in capital 33,200,677 31,914,331
Retained earnings 13,843,212 3,686,298
------------ -----------
Total stockholders' equity 47,132,061 35,687,761
------------ -----------
TOTAL $107,595,061 $61,094,628
============ ===========
</TABLE>
See notes to financial statements.
20
<PAGE>
ACT MANUFACTURING, INC.
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES (Note 9) $225,900,182 $115,657,550 $85,848,328
COST OF GOODS SOLD 197,529,503 101,448,106 72,574,205
------------ ------------ -----------
GROSS PROFIT 28,370,679 14,209,444 13,274,123
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 10) 10,016,851 6,682,863 5,433,918
------------ ------------ -----------
OPERATING INCOME 18,353,828 7,526,581 7,840,205
------------ ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense (Note 5) (1,555,697) (424,314) (515,962)
Other 131,783 362,418 (18,353)
------------ ------------ -----------
Total (1,423,914) (61,896) (534,315)
------------ ------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 16,929,914 7,464,685 7,305,890
PROVISION FOR INCOME TAXES 6,773,000 1,694,000 352,000
------------ ------------ -----------
NET INCOME $ 10,156,914 $ 5,770,685 $ 6,953,890
============ ============ ===========
PRO FORMA PRO FORMA
(Notes 2,6) (Notes 2, 6)
----------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 16,929,914 $ 7,464,685 $ 7,305,890
PROVISION FOR INCOME TAXES 6,773,000 2,999,000 2,953,000
------------ ------------ -----------
NET INCOME $ 10,156,914 $ 4,465,685 $ 4,352,890
============ ============ ===========
NET INCOME PER COMMON SHARE $ 1.12 $ 0.55 $ 0.65
============ ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,098,455 8,171,314 6,748,045
============ ============ ===========
</TABLE>
See notes to financial statements.
21
<PAGE>
ACT MANUFACTURING, INC.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------------------------------------------------
$.01 Par $.01 Par
Value Value Additional Total
Preferred Common Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 0 $56,000 $ 60,000 $ 4,089,176 $ 4,205,176
Net income - - - 6,953,890 6,953,890
S Corporation distributions
to stockholders - - - (3,803,631) (3,803,631)
------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 - 56,000 60,000 7,239,435 7,355,435
Net income - - - 5,770,685 5,770,685
Net proceeds from sale of stock - 31,132 31,792,943 - 31,824,075
S Corporation distributions
to stockholders - - (654,371) (9,323,822) (9,978,193)
Income tax benefit from employees'
exercise of stock options - - 715,759 - 715,759
------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 - 87,132 31,914,331 3,686,298 35,687,761
Net income - - - 10,156,914 10,156,914
Net proceeds from sale of stock - 1,040 522,721 - 523,761
Income tax benefit from employees'
exercise of stock options - - 763,625 - 763,625
------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 $ 0 $88,172 $33,200,677 $13,843,212 $47,132,061
======= ======= =========== =========== ===========
</TABLE>
See notes to financial statements.
22
<PAGE>
ACT MANUFACTURING, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - ----------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,156,914 $ 5,770,685 $ 6,953,890
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization 1,117,966 823,155 631,708
Deferred income taxes (982,000) (505,000) -
Provision for doubtful accounts 20,169 (1,594) 170,000
Increase (decrease) in cash from:
Accounts receivable -- trade (21,909,379) (4,122,014) (9,219,612)
Inventory (23,606,811) (15,648,071) (7,975,348)
Prepaid expenses and other assets (254,881) (26,595) (112,241)
Accounts payable 5,666,094 8,173,407 7,658,360
Accrued compensation and related taxes 693,453 (175,813) 197,584
Income tax payable 2,048,589 1,128,967 113,409
Accrued expenses 1,026,905 166,158 293,721
Net cash used for operating activities (26,022,981) (4,416,715) (1,288,529)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,026,585) (1,174,241) (1,172,823)
(Increase) decrease in other noncurrent assets 98,303 83,621 (90,182)
Proceeds from sale of assets - - 15,673
Net cash used for investing activities (2,928,282) (1,090,620) (1,247,332)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit agreements 167,079,696 34,488,658 78,801,876
Repayments under line-of-credit agreements (140,624,721) (42,034,833) (71,700,855)
Repayments of long-term debt (70,258) (439,509) (341,305)
Net proceeds from sale of stock 523,761 31,824,075 -
S Corporation distributions paid (11,425,123) (4,231,696)
Net cash provided by financing activities 26,908,478 12,413,268 2,528,020
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,042,785) 6,905,933 (7,841)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,097,151 191,218 199,059
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,054,366 $ 7,097,151 $ 191,218
</TABLE>
See notes to financial statements.
23
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - ACT Manufacturing, Inc. provides value-added, turnkey
contract manufacturing services for emerging and major original equipment
manufacturers in the commercial electronics industry. The Company
supplies these manufacturers with electronic interconnection assemblies,
including complex printed circuit board assemblies primarily utilizing
advanced surface mount technology, mechanical and molded cable and harness
assemblies and electro-mechanical subassemblies, and, more recently, the
Company has begun to emphasize total system assemblies.
STOCK SPLIT - All share and per share data have been retroactively
adjusted to reflect the 280-for-1 stock split of the Company's common
stock on March 23, 1995.
USE OF ESTIMATES - The preparation of the Company's financial statements
in conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates. Estimates include such
items as reserves for accounts receivable and inventory, useful lives of
other assets and property and equipment, and accrued liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of their short-term nature. The carrying amounts of the Company's
debt instruments approximate fair value (Note 5).
REVENUE RECOGNITION - Revenue from both product sales and assembly service
is recognized upon shipment of the product.
CASH AND CASH EQUIVALENTS - For the purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash equivalents.
INVENTORY - Inventory is valued at the lower of cost or market using the
first-in, first-out ("FIFO") method.
PROPERTY AND EQUIPMENT - Purchased property and equipment is recorded at
cost. Capital lease property and equipment is recorded at the lesser of
cost or the present value of the minimum lease payments required.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets (five to seven
years) and over the terms of the related leases (five years).
24
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
OTHER ASSETS - The present value of future payments required under a
noncompete agreement entered into in 1993 has been recorded as an
intangible asset. The total amount recorded was approximately $476,000.
The asset is being amortized over the term of the agreement (ten years).
Accumulated amortization of the asset was approximately $ 31,000 in 1996,
$24,000 in 1995 and $18,000 in 1994. A corresponding liability has been
recorded (see Note 5).
WARRANTY - The Company generally warrants that its hardware assemblies
will be free from defects in workmanship for 12 months and passes on to
the customer any warranties provided by component manufacturers and
material suppliers to the extent permitted. Warranty costs have not been
material to date, accordingly, no reserves have been provided for.
INCOME TAXES - In 1994 and a portion of 1995, the Company was taxed under
Subchapter S of the Internal Revenue Code. As a result, the Company was
not subject to federal income taxes, and the taxable income of the Company
was included in the stockholders' individual tax returns. The Company was
subject to income and excise taxes in accordance with the statutory
requirements of the Commonwealth of Massachusetts.
Effective immediately prior to the commencement of the Company's initial
public offering, the Company's S Corporation election was terminated, and
the Company has been subject to federal and state income taxes as a C
Corporation from that date forward.
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This
Statement requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in
the Company's financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of existing assets and
liabilities, using enacted tax rates in effect in the years in which the
differences are expected to reverse.
STOCK BASED COMPENSATION - Effective January 1, 1996 the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation". As permitted by
SFAS 123, the Company accounts for stock option grants using the intrinsic
value method in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
the Company recognized no compensation expense for stock option grants.
NET INCOME PER COMMON SHARE - Net Income per share is based on the
weighted average number of common and dilutive common equivalent shares
(common stock options) outstanding.
SUPPLEMENTAL CASH FLOW INFORMATION - Selected cash payments and noncash
activities were as follows:
25
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash paid for interest $ 1,446,000 $ 358,000 $ 466,000
Cash paid for income taxes 5,713,000 1,070,000 239,000
Noncash investing and financing activities
Reduction in note receivable in exchange for services 4,546 4,403 7,500
Reduction in income taxes payable for disqualifying
common stock dispositions 763,625 715,759 -
</TABLE>
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARD - In March 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS" 121). SFAS 121
requires that long-lived assets held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. It also requires that long-lived assets to
be disposed of be reported at the lower of the carrying amount or fair
values less the cost to sell. The Company adopted SFAS 121 effective
January 1, 1996 and it did not have a material effect on the Company's
financial position or results of operations.
2. PRO FORMA INFORMATION
PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE - The pro forma
adjustments reflect what the effects on historical net income would have
been had the Company operated as a C Corporation for all periods
presented. The adjustments include a provision for state and federal
income taxes at an effective rate of approximately 40%, as if the Company
was subject to such taxes. In connection with its initial public
offering, the Company terminated its status as an S Corporation.
Pro forma net income per share is based on the weighted average number of
common and dilutive common equivalent shares (common stock options)
outstanding. Common equivalent shares are not included in the per share
calculations where the effect of their inclusion would be antidilutive,
except in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 83 (the "Bulletin"). The Bulletin required all
common shares issued and options to purchase shares of common stock
granted by the Company during the twelve-month period prior to the filing
of the initial public offering be included in the calculation as if they
were outstanding for all periods.
The pro forma weighted average number of shares outstanding has also been
adjusted to include the number of common shares (650,000) that the Company
would have needed to issue at the initial offering price ($12 per common
share) to fund the distribution of previously taxed but undistributed S
Corporation earnings through December 31, 1995 (actual was $ 7,893,806).
The actual amount distributed was adjusted to include the taxable income of
the Company for the period from January 1, 1995 through March 29, 1995, the
date immediately preceding the closing of the offering, less any state
income tax payable by the Company with respect to such income (an
additional $2,084,387 was distributed).
26
<PAGE>
3. INVENTORY
Inventory consisted of the following at December 31:
[CAPTION]
<TABLE>
1996 1995
<S> <C> <C>
Raw material $ 37,697,313 $ 22,601,608
Work in process 15,853,114 7,693,308
Finished goods 443,254 91,954
------------ ------------
Total $ 53,993,681 $ 30,386,870
============ ============
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Leasehold Improvements $ 2,265,416 $ 1,590,609
Equipment 3,628,600 2,537,956
Office furniture and equipment 2,718,289 1,457,155
Vehicles 115,036 115,036
------------ ------------
Total property and equipment 8,727,341 5,700,756
Less accumulated depreciation and amortization (4,092,113) (3,004,727)
------------ ------------
Property and equipment - net $ 4,635,228 $ 2,696,029
============ ============
</TABLE>
5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Bank line of credit $ 28,704,975 $ 2,250,000
Noncompete Covenant 388,299 418,520
Capital lease - equipment 0 40,037
------------ ------------
Total 29,093,274 2,708,557
Less current portion 38,346 70,617
------------ ------------
Long-term debt $ 29,054,928 $ 2,637,940
============ ============
</TABLE>
27
<PAGE>
BANK LINE OF CREDIT - The Company has a line of credit with a consortium
of banks which provides for borrowings up to an aggregate amount of
$33,000,000, limited to a certain percentage of accounts receivable and
inventory. The line-of-credit facility is not payable on demand until
1998; therefore, the outstanding balance is classified as noncurrent.
Interest is payable monthly at the bank's prime rate (8.25% at December
31, 1996). Borrowings are collateralized by substantially all of the
Company's assets. Based upon eligible accounts receivable and inventory,
the amount available for additional borrowings as of December 31, 1996 was
approximately $4,145,025. Per agreement with its bank, the Company is
required to maintain certain levels of net worth, total debt to net worth,
debt service coverage, net profit before taxes on an absolute basis and
net profit before taxes as a percentage of sales. The facility prohibits
capital expenditures in excess of certain amounts and payment of cash
dividends on the Company's capital stock. The Company is in compliance
with the financial covenants under its secured credit facility.
EQUIPMENT LEASES - As of December 31, 1996, the Company had an available
equipment lease line of $20.0 million under which $13.2 million of
commitments were outstanding.
28
<PAGE>
5. LONG-TERM DEBT (CONTINUED)
NONCOMPETE COVENANT - In 1993, the Company entered into an agreement with
its former sole stockholder which provides for monthly payments over a
ten-year period, in return for a promise not to compete. The liability is
recorded at the present value of the required future payments at an
interest rate of 8%.
Long-term debt at December 31, 1996 is due as follows:
<TABLE>
<CAPTION>
Bank Line Noncompete
of Credit Covenant Total
<S> <C> <C> <C>
1997 $ 0 $ 68,024 $ 68,024
1998 28,704,975 73,467 28,778,442
1999 - 79,344 79,344
2000 - 85,691 85,691
2001 - 92,547 99,950
Thereafter - 99,950 99,950
------------ ----------- -----------
Total $ 28,704,975 $ 499,023 $ 29,203,998
Less amount
representing interest - 110,724 110,724
------------ ----------- -----------
Present value of
minimum payments $ 28,704,975 $ 349,953 $ 29,054,928
============ =========== ===========
</TABLE>
29
<PAGE>
6. INCOME TAXES
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
1996 (Pro Forma) (Pro Forma)
<S> <C> <C> <C>
Current taxes:
Federal $ 5,922,000 $ 2,296,500 $ 2,244,250
State 1,833,000 765,500 748,750
------------- ------------ ------------
7,755,000 3,062,000 2,993,000
Deferred taxes: (982,000) (63,000) (40,000)
------------- ------------ ------------
$ 6,773,000 $ 2,999,000 $ 2,953,000
============= ============ ============
</TABLE>
Deferred income tax assets (liabilities) are attributable to the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accounts receivable $ 90,000 $ 90,000
Inventory 1,212,000 244,000
Depreciation (123,000) (63,000)
Accrued expenses 308,000 234,000
------------- ------------
Net deferred tax asset $ 1,487,000 $ 505,000
============= ============
</TABLE>
No valuation allowance is required as the net deferred tax asset is expected to
be fully realized.
A reconciliation of the expected tax rate at the U.S. statutory rate to the
effective tax rate on a pro forma basis is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
State income taxes, net of federal 6 5 5
Other - 1 1
----- ----- -----
Effective rate 40% 40% 40%
===== ===== =====
</TABLE>
30
<PAGE>
7. STOCK OPTIONS
The Company adopted a 1995 Stock Plan which provides for the grant of
incentive and nonqualified stock options to purchase up to an additional
500,000 shares. The Company adopted the 1995 Non-Employee Director Stock
Option Plan providing for the grant of options to purchase a maximum of
100,000 shares to nonemployee directors of the Company. The Company also has
an Incentive Stock Option Plan under which options for up to 690,664 shares
of common stock may be granted at an exercise price not less than fair market
value at the date of grant. Stock option activity was as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE FAIR VALUE
---------- ---------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1994 476,000 $ 2.22
Granted 102,664 4.57
------------
Outstanding at December 31, 1994 578,664 3.21
Granted 226,000 9.73 $8.35
Exercised (207,200) 2.41
Forfeited (112,800) 3.26
Outstanding at December 31, 1995 484,664 5.90
Granted 268,000 12.79 3.12
Exercised (104,000) 5.04
Forfeited (160,000) 10.91
------------
Outstanding at December 31, 1996 488,664 8.22
============
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- - ------------------------------------------------- ------------------------------------
WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
NUMBER OF RANGE OF REMAINING LIFE CURRENTLY EXERCISE
OPTIONS EXERCISE PRICE (IN YEARS) EXERCISABLE PRICE
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
44,800 $ 0.48 6 - $ 0.48
79,332 3.70 - 3.96 7 3,732 3.85
146,532 5.45 - 7.00 9 48,532 6.63
202,000 10.25 - 13.64 10 2,800 11.84
16,000 20.38 10 - 20.38
</TABLE>
The options vest over three and five-year periods.
The Company has reserved shares of common stock for issuance pursuant to the
1993 Stock Option Plan, 1995 Non-Employee Director Stock Option Plan and the
1995 Stock Plan for 403,864, 100,000 and 475,600 shares, respectively.
31
<PAGE>
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure
compensation, reported net income and net income per share would have been as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Income before income tax provision $16,500,914 $7,163,485
Income tax provision 6,773,000 2,999,000
----------- ----------
Net income $ 9,727,914 $4,164,485
=========== ==========
Earnings per common share $ 1.07 $ .51
=========== ==========
</TABLE>
The fair value of options on their grant date was measured using the
Black/Scholes option pricing model. Key assumptions used to apply this
pricing model are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Risk-free interest rate 6.4% 5.9%
Expected life of option grants 3 - 5 years 3 - 5 years
Expected volatility of underlying
stock 63% 66%
</TABLE>
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short lives. The options
granted to employees are not tradable and have contractual lives of up to ten
years. However, management believes that the assumptions used to value the
options and the model applied yield a reasonable estimate of the fair value
of the grants made under the circumstances.
8. EMPLOYEE BENEFITS PLAN
During 1994, the Company adopted a savings plan for its employees pursuant to
Section 401(k) of the Internal Revenue Code. Substantially all employees are
eligible to participate, and the plan allows a deferral ranging from a
minimum 1% to the maximum percentage of compensation permitted by law.
Company contributions to the plan are at the discretion of the Board of
Directors. Contributions to the Plan were $0 and $50,000 in 1996 and 1995,
respectively.
32
<PAGE>
9. MAJOR CUSTOMERS
The four largest customers accounted for 20%, 17%, 13% and 13%,
respectively of the Company's net sales for 1996. In 1995, the Company's
largest customer accounted for 41% of net sales for 1995. In 1994, the
Company's largest customer accounted for 55% of net sales for 1994.
10. TRANSACTIONS WITH RELATED PARTIES
The Company leases certain facilities and equipment from a realty trust
controlled by its principal stockholder under leases which expire in 2003.
These commitments are included in Note 11. The Company pays all operating
costs of the building. Total payments to the realty trust were
approximately $364,000 in 1996, and $388,000 in 1995 and 1994,
respectively.
In 1993, the Company entered into a ten-year agreement with one of its
directors for future consulting services. Payments under the agreement
were approximately $240,000 in 1996, $222,000 in 1995 and $206,000 in
1994. Future commitments under this agreement are approximately $259,000
in 1997, $280,000 in 1998, $302,000 in 1999, $326,000 in 2000, $352,000 in
2001 and $613,000 thereafter. The agreement expires in 2003. A noncompete
agreement was also entered into with the same individual (see Notes 1 and
5). Payments under this agreement were $63,000 in 1996, $58,000 in 1995,
and $54,000 in 1994.
11. OPERATING LEASE COMMITMENTS
The Company leases various plant and office equipment under noncancelable
operating leases expiring through 2001. Rent expense in 1996, 1995 and
1994 was approximately $2,700,000, $1,345,000, and $1,083,000,
respectively. The future minimum rental payments under these leases over
the next five years are approximately as follows:
<TABLE>
<CAPTION>
RELATED-PARTY OTHER
COMMITMENTS COMMITMENTS TOTAL
<S> <C> <C> <C>
1997 $ 364,000 $ 4,545,000 $ 4,909,000
1998 341,000 4,419,000 4,760,000
1999 308,000 4,077,000 4,385,000
2000 308,000 3,421,000 3,729,000
2001 308,000 2,078,000 2,386,000
---------- ----------- -----------
Total $1,629,000 $18,540,000 $20,169,000
========== =========== ===========
</TABLE>
12. CONTINGENCIES
The Company is from time to time subject to routine claims or litigation
incidental to its business. The Company believes that the results of such
claims or litigations as of December 31, 1996 will not have a materially
adverse effect on the Company's financial position, results of operations
or liquidity.
* * * * * *
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
----------------------------------------
Information concerning the directors of the Company is hereby incorporated by
reference to the information contained under the heading "Election of Directors"
in the Registrant's definitive proxy statement for the Registrant's 1997 Annual
Meeting of Stockholders which will be filed with the Commission within 120 days
after the close of the fiscal year (the "Definitive Proxy Statement").
Certain information concerning directors and executive officers of the
Registrant is hereby incorporated by reference to the information contained
under the heading "Occupations of Directors and Executive Officers" in the
Registrant's Definitive Proxy Statement.
The information concerning compliance with Section 16(a) of the Exchange Act
required under this item is incorporated herein by reference to the Registrant's
Definitive Proxy Statement under the heading "Section 16 Reporting."
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information concerning executive compensation is hereby incorporated by
reference to the information contained under the heading "Compensation and Other
Information Concerning Directors and Officers" in the Definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference to the information contained
under the heading "Securities Ownership of Certain Beneficial Owners and
Management" in the Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information concerning certain relationships and related transactions is
hereby incorporated by reference to the information contained under the heading
"Certain Relationships and Related Transactions" in the Definitive Proxy
Statement.
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K
--------------------------------------------------------------------
(a)(1) INDEX TO FINANCIAL STATEMENTS
The following Financial Statements of the Registrant are filed as part of this
report:
Balance Sheets as of December 31, 1996 and 1995.
- - -----------------------------------------------
Statements of Income for the years ended December 31, 1996, 1995 and 1994.
Statements of Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994.
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.
Notes to Financial Statements.
Independent Auditors' Report.
(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedule of the Registrant is filed as part
of this report:
Page
----
Schedule II - Valuation and Qualifying Accounts and Reserves... S-1
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the accompanying
financial statements or Notes thereto.
(a)(3) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
<C> <S>
3.1(1) - Second Restated Articles of Organization of the Company.
3.2(2) - Amended and Restated By-Laws of the Company.
4.1(2) - Specimen certificate representing the Common Stock.
4.2 - Second Restated Articles of Organization of the Company (see
Exhibit 3.1).
4.3 - Amended and Restated By-Laws of the Company (see Exhibit 3.2).
10.1(2)# - 1995 Stock Plan.
10.2(2)# - 1995 Non-Employee Director Stock Option Plan.
</TABLE>
35
<PAGE>
<TABLE>
<C> <S>
10.3(2)# - Stock Option Plan dated April 15, 1993.
10.4(2)# - Stock Option Plan of Automated Component Technologies, Inc.
dated April 15, 1993.
10.5(2) Registration Rights Agreement dated February 8, 1995 by and
among the Company, John A. Pino and certain other stockholders
named therein.
10.6(2) - Loan and Security Agreement dated December 16, 1994 by and among
The First National Bank of Boston, State Street Bank and Trust
Company, Citizens Bank of Massachusetts, and the Company.
10.7(2) - Letter Agreement dated February 14, 1995 by and among The First
National Bank of Boston, State Street Bank and Trust Company,
Citizens Bank of Massachusetts and the Company regarding the
Amended and Restated Loan and Security Agreement, as amended by
the Letter Agreement dated March 22, 1995 by and among The First
National Bank of Boston, as agent for the lenders, and the
Company.
10.8(2) - Lease dated April 1, 1985 between Re-Act Realty Trust and the
Company, as amended by the First Amendment thereto dated October
25, 1988, the Second Amendment thereto dated August 4, 1993 and
the Third Amendment thereto dated February 7, 1995.
10.9(2) - Lease dated October 1, 1988 between Re-Act Realty Trust, as
amended by the First Amendment thereto dated August 4, 1993 and
the Second Amendment thereto dated February 7, 1995.
10.10(2) - Lease dated July 16, 1993 between Kane Industrial Trust and
Automated Component Technologies, Inc.
10.11(2) - Equipment Lease Agreement dated as of January 1, 1993 between Re-
Act Realty Trust and the Company.
10.12(2) - Master Lease Agreement dated October 27, 1992 between BancBoston
Leasing Inc. and the Company, Rider No. 1 to Master Lease
Agreement between BancBoston Leasing Inc. and the Company and
Rider No. 2 to Master Lease Agreement dated December 16, 1994
between BancBoston Leasing Inc. and the Company.
10.13(2) - Master Lease Agreement dated October 27, 1992 between BancBoston
Leasing Inc. and Automated Component Technologies, Inc., Rider No.
1 to Master Lease Agreement between BancBoston Leasing Inc. and
Automated Component Technologies, Inc., Rider No. 2 to Master
Lease Agreement dated December 16, 1994 between BancBoston Leasing
Inc. and the Company, and Assumption Agreement dated December 15,
1994 between BancBoston Leasing Inc., the Company and Automated
Component Technologies, Inc.
10.14(2) - Notice and Acknowledgment of Assignment for Automated Component
Technologies, Inc. Lease Schedules Nos. 1-6 dated June 20, 1994
between BancBoston Leasing Inc., ICON Cash Flow Partners L.P.,
Series E and Automated Component Technologies, Inc.
10.15(2) - Notice and Acknowledgment of Assignment for Automated Component
Technologies, Inc. Lease Schedules Nos. 7-9, 11 and 12 dated
December 30, 1994 between BancBoston Leasing Inc., Citizens
Leasing Corporation and the Company.
</TABLE>
36
<PAGE>
<TABLE>
<C> <S>
10.16(2) - Subordinated Security Agreement dated January 12, 1995 between
BancBoston Leasing Inc. and the Company.
10.17(2) - Stock Purchase Agreement dated as of January 1, 1993 between
Donald G. Polich, John A. Pino, the Company and Automated
Component Technologies, Inc., as amended by the First Amendment
dated February 8, 1995.
10.18(2) - Consulting Agreement dated as of August 4, 1993 between the
Company and Re-Act Consulting as amended by the First Amendment
thereto dated February 8, 1995.
10.19(2) - Consulting Agreement dated as of August 4, 1993 between Automated
Component Technologies, Inc. and Re-Act Consulting as amended by
the First Amendment thereto dated February 8, 1995.
10.20(2) - Noncompetition Agreement dated as of January 1, 1993 between the
Company, John A. Pino and Donald G. Polich.
10.21(2) - Noncompetition Agreement dated as of January 1, 1993 between
Automated Component Technologies, Inc., John A. Pino and Donald G.
Polich as amended by the First Amendment thereto dated February 8,
1995.
10.22(2) - Letter Agreement dated as of January 1, 1993 from the Company and
Automated Component Technologies, Inc. to Donald G. Polich, as
amended by the First Amendment thereto dated February 8, 1995.
10.23(3) - Second Amendment dated March 1, 1996 to the Amended and Restated
Loan and Security Agreement dated December 16, 1994 by and among
The First National Bank of Boston, State Street Bank and Trust
Company, Citizens Bank of Massachusetts, and the Company.
10.24(4) - Lease dated January 31, 1996 between Mansfield/Forbes Ltd.
Partnership and the Company.
10.25(5) - Letter Agreement dated June 1996 by and among The First National
Bank of Boston, State Street Bank and Trust Company, Citizen's
Bank of Massachusetts and the Company.
10.26(5) - Revolving Credit Note dated December 16, 1994, as amended and
restated, by the Company in favor of The First National Bank of
Boston.
10.27(5) - Third Amendment dated July 1, 1996 to the Amended and Restated
Loan and Security Agreement by and among The First National Bank
of Boston, State Street Bank and Trust Company, Citizen's Bank of
Massachusetts and the Company.
10.28(5) - Fourth Amendment dated August 16, 1996 to the Amended and
Restated Loan and Security Agreement by and among The First
National Bank of Boston, State Street Bank and Trust Company,
Citizen's Bank of Massachusetts and the Company.
10.29(5) - Fifth Amendment dated October 1, 1996 to the Amended and Restated
Loan and Security Agreement by and among The First National Bank
of Boston, State Street Bank and Trust Company, Citizen's Bank of
Massachusetts and the Company.
10.30(5) - Split-Dollar Life Insurance Agreement Dated September 5, 1996 by
and between the John A. Pino and Janet M. Pino Family Maintenance
Trust and the Company.
</TABLE>
37
<PAGE>
<TABLE>
<C> <S>
10.31* - Sixth Amendment dated November 6, 1996 to the Amended and
Restated Loan and Security Agreement dated December 16, 1994 by
and among The First National Bank of Boston, State Street Bank and
Trust Company, Citizens Bank of Massachusetts, and the Company.
11.1.* - Statement re: computation of earnings per share.
21.1(1) - Subsidiaries of Registrant
23.1* - Consent of Deloitte & Touche LLP.
24.1 - Power of Attorney (see Page 39 of this Form 10-K).
27.1* - Financial Data Schedule
</TABLE>
- - -------------------
(1) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(2) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-89532), as amended.
(3) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1996.
(4) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1996.
(5) Incorporated herein by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1996.
* Filed herewith.
(#) Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) REPORTS ON FORM 8-K
Not applicable.
(c) EXHIBITS
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) above.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ACT MANUFACTURING, INC.
Date: March 28, 1997 By: /s/ John A. Pino
----------------------------
John A. Pino
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints John A. Pino and Douglass C. Greenlaw, jointly and
severally, his attorney-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Report on Form 10-K and
to file same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<S> <C> <C>
/s/ John A. Pino President, Chief Executive Officer March 28, 1997
- - -------------------------- and Director (Principal Executive
John A. Pino Officer)
/s/ Douglass C. Greenlaw Vice President of Finance and March 28, 1997
- - -------------------------- Administration and
Douglass C. Greenlaw Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Edward T. Cuddy Director March 28, 1997
- - --------------------------
Edward T. Cuddy
/s/ Bruce R. Gardner Director March 28, 1997
- - --------------------------
Bruce R. Gardner
/s/ Donald G. Polich Director March 28, 1997
- - --------------------------
Donald G. Polich
</TABLE>
39
<PAGE>
SCHEDULE II
-----------
ACT MANUFACTURING, INC.
VALUATION AND QUALIFYING ACCOUNTS
for the YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions
Balance at Charged to Costs Balance at
Beginning of Period and Expenses Deductions End of Period
------------------- ---------------- ---------- -------------
Allowance for Doubtful
Accounts:
<S> <C> <C> <C> <C>
For the years ended December 31, $ 150,000 $ 170,000 $ 95,000 $ 225,000
1994.............................
For the years ended December 31, 225,000 1,594 1,594 225,000
1995.............................
For the years ended December 31, 225,000 23,169 23,169 225,000
1996.............................
Inventory Reserve:
For the years ended December 31, $ 215,000 $ 390,176 $ 165,176 $ 440,000
1994.............................
For the years ended December 31, 440,000 301,476 160,156 581,320
1995.............................
For the years ended December 31, 581,320 2,648,541 325,744 2,904,117
1996.............................
</TABLE>
<PAGE>
- - --------------------------------------------------------------------------------
SIXTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
- - --------------------------------------------------------------------------------
November 8, 1996
Effective: November 4, 1996
THIS SIXTH AMENDMENT IS made to the Amended and Restated Loan and
Security Agreement (the "LOAN AGREEMENT"), which Amended and Restated Loan and
Security Agreement took effect on April 6, 1995 as an amendment and restatement
of the December 16, 1994 Loan and Security Agreement made between
The First National Bank of Boston, a national banking association with
offices at 100 Federal Street, Boston, Massachusetts, as agent for the ratable
benefit of the "LENDERS" being:
The First National Bank of Boston;
and
State Street Bank and Trust Company, a Massachusetts trust company
with offices at 225 Franklin Street, Boston, Massachusetts 02110;
and
Citizens Bank of Massachusetts, a Massachusetts savings bank with
offices at 55 Summer Street, Boston, Massachusetts 02110
and
ACT Manufacturing, Inc., a Massachusetts corporation with its
principal executive offices at 108 Forest Avenue, Hudson, Massachusetts 01749
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
O. AGREEMENT TO AMEND
------------------
Provided each of those "Conditions to Amendment" set forth in Section
2, below, is satisfied on or before November 8, 1996, the Loan Agreement shall
be amended, as set forth below, such amendment to take effect as of November 4,
1996.
1
<PAGE>
SECTION 1-1 of the Loan Agreement (Section Preceding Section 1-1(a) is
amended to read as follows:
The Lenders hereby severally (and not jointly) establish a revolving
line of credit (hereinafter, the "REVOLVING CREDIT") in the Borrower's favor
pursuant to which each Lender, subject to, and in accordance with, the within
Agreement, and acting through the Agent, shall make loans and advances (each, a
"REVOLVING CREDIT LOAN") to and for the account of the Borrower as provided
herein, in each instance equal to that Lender's Commitment Percentage (defined
below) of the Revolving Credit up to the maximum amount of that Lender's
Commitment (defined below). The amount of the Revolving Credit shall be
determined by the Agent by reference to Availability (as defined below), as
determined by the Agent from time to time hereafter. All loans made by the
Lenders under this Agreement, and all of the Borrower's other Liabilities (as
defined below) to the Lenders under or pursuant to this Agreement, are payable
as provided herein.
SECTION 1-1(D) of the Loan Agreement (Definition of "Loan Cap") is
amended to read as follows:
"LOAN CAP": The following amount between the dates indicated Minus, in
each instance, the then aggregate Stated Amount of all L/C's:
<TABLE>
<CAPTION>
From To Loan Cap
<S> <C> <C>
September 4, 1996 October 18, 1996 $32,000,000.00
October 19, 1996 November 3, 1996 $28,000,000.00
November 4, 1996 February 28, 1997 $33,000,000.00
March 1, 1997 Termination $28,000,000.00
- - --------------------------------------------------------------------------------
</TABLE>
SECTION 1-8 of the Loan Agreement is amended by the deletion of
Section (e) thereof.
ARTICLE 3 (Definitions of "Commitment" and "Commitment Percentage")
are amended to read as follows:
2
<PAGE>
"COMMITMENT and COMMITMENT PERCENTAGE": the following amounts and Percentages:
<TABLE>
<CAPTION>
REVOLVING CREDIT:
COMMITMENTS AND PERCENTAGE COMMITMENTS
===========================================================================================
LENDER
COMMITMENT PERCENTAGE
DOLLAR COMMITMENT TO REVOLVING OF REVOLVING
CREDIT LOANS ($ MILLIONS) CREDIT LOANS
=======================================================================
Through March 1, 1997 to
February 28, 1997 Termination Date
===========================================================================================
<S> <C> <C> <C>
THE FIRST 19.8 16.8 60%
NATIONAL
BANK OF
BOSTON
STATE STREET 6.6 5.6 20%
CITIZENS 6.6 5.6 20%
===========================================================================================
TOTALS...... $33.0 $28.0 100%
===========================================================================================
</TABLE>
EXHIBIT 9-11 (CAPITAL EXPENDITURE LIMITATION) of the Loan Agreement is amended
to read as follows:
3. CAPITAL EXPENDITURES: The Borrower will not permit its aggregate
Capital Expenditures to exceed the following for the periods indicated:
October 30, 1994 to
September 30, 1995 : $ 8,750,000.00
October 1, 1995 to
February 28, 1997 : 15,000,000.00
March 1, 1997 to
Termination Date : The aggregate of (a) plus (b), where:
3
<PAGE>
(a) is $8,750,000.00
(b) is the greater of zero or:
(i) $ 15,000,000.00
Minus
(ii) Capital Expenditures for the
period October 1, 1995 to
February 28, 1997.
0. CONDITIONS TO EFFECTIVENESS OF AMENDMENT
----------------------------------------
The within Amendment shall be effective if each of the following conditions
is satisfied on or before November 8, 1996 and on the date on which such
amendment is to take effect, no Suspension Event (as defined in the Loan
Agreement) is extant:
() Receipt by the Agent of a Certificate setting forth the text of
the resolutions adopted by the Directors of the Borrower authorizing the
Borrower's execution of the within Amendment, and attesting to the authority of
the persons who executed the within Amendment on behalf of the Borrower.
(a) Receipt by the Agent of a Certificate, executed by the
Borrower's President and its Chief Financial Officer, respectively confirming
that no Suspension Event is then extant.
(b) Receipt by the Agent of an opinion of counsel to the Borrower as
to the due execution and effectiveness of the within Amendment (which opinion is
subject only to the same qualifications as had been included in the opinion
delivered by that counsel at the initial execution of the Loan Agreement).
(c) Receipt by the Agent of an Amendment Fee of $10,000.00, which
fee, the Agent shall distribute to the Lenders in accordance with the terms of
the Agency Agreement, as amended, between the Lenders, on the one hand, and the
Agent, on the other.
The Borrower hereby represents that, at the execution of the within
Agreement, no Suspension Event has occurred.
4
<PAGE>
Except as amended hereby, or by the First, Second, Third, Fourth, and Fifth
Amendments to the Loan Agreement, all terms and conditions of the Loan Agreement
shall remain in full force and effect.
ACT MANUFACTURING, INC.
(The "BORROWER")
By: /s/ Douglass C. Greenlaw
Its: Chief Financial Officer
THE FIRST NATIONAL BANK OF BOSTON
("AGENT")
By: /s/ George M. Mandt
Its: Director
The "LENDERS"
THE FIRST NATIONAL BANK STATE STREET BANK
OF BOSTON AND TRUST COMPANY
By: /s/ George M. Mandt By: /s/ F. Andrew Beise
Its: Director Its: Vice President
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Anne Forbes Van Nest
Its: Vice President
5
<PAGE>
EXHIBIT 11.1
ACT MANUFACTURING, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
PRO FORMA
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Net income...................................... $10,157 $4,466 $4,353
Weighted average number of common ======= ====== ======
and common equivalent shares
outstanding:
Common Stock.............................. 8,762 7,894 5,600
Stock Options............................. 336 0 0
Common Shares used to fund
S Corporation distribution.............. 0 0 650
------- ------ ------
Subtotal.............................. 9,098 7,894 6,250
Effects of SAB 83......................... 0 277 498
------- ------ ------
Total..................................... 9,098 8,171 6,748
======= ====== ======
Net income per common share..................... $ 1.12 $ .55 $ .65
======= ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
91964 of ACT Manufacturing, Inc. on Form S-8 of our report dated February 14,
1997, appearing in this Annual Report on Form 10-K of ACT Manufacturing, Inc.
for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,054,366
<SECURITIES> 0
<RECEIVABLES> 41,474,676
<ALLOWANCES> 225,000
<INVENTORY> 53,993,681
<CURRENT-ASSETS> 102,498,654
<PP&E> 8,727,341
<DEPRECIATION> 4,092,113
<TOTAL-ASSETS> 107,595,061
<CURRENT-LIABILITIES> 31,408,072
<BONDS> 29,054,928
0
0
<COMMON> 88,172
<OTHER-SE> 47,043,889
<TOTAL-LIABILITY-AND-EQUITY> 107,595,061
<SALES> 225,900,182
<TOTAL-REVENUES> 225,900,182
<CGS> 197,529,503
<TOTAL-COSTS> 207,546,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,423,914
<INCOME-PRETAX> 16,929,914
<INCOME-TAX> 6,773,000
<INCOME-CONTINUING> 10,156,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,156,914
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
