<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
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 (IRS Employer ID. No.)
incorporation or organization)
108 Forest Avenue 01749
Hudson, Massachusetts -----
---------------------- (Zip code)
(Address and zip code of
principal executive offices)
Registrant's telephone number, including area code: (978) 567-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 9,051,746 Shares
------------ -----------------
(Class) (Outstanding on November 12, 1997)
<PAGE>
ACT MANUFACTURING, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1--Financial Statements:
<S> <C>
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 1997 and
1996...................................................................................................... 3
Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 ...................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 ..... 5
Notes to Financial Statements.............................................................................. 6
ITEM 2--Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 8
PART II. OTHER INFORMATION
ITEM 6---Exhibits and Reports on Form 8-K.................................................................. 15
Signatures................................................................................................. 16
Exhibit Index ............................................................................................. 17
Exhibit 10 .................................................................................................
Exhibit 11 ................................................................................................
Exhibit 27 .................................................................................................
</TABLE>
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PART I. FINANCIAL INFORMATION
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED--IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales................................................. $ 62,306 $ 63,893
Cost of goods sold........................................ 58,916 55,785
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Gross profit ............................................ 3,390 8,108
Selling, general and administrative expenses............. 3,915 2,719
---------- ----------
Operating income (loss).................................. (525) 5,389
Interest and other expense, net.......................... 507 443
---------- ----------
Income(loss) before provision for income taxes........... (1,032) 4,946
Provision(credit) for income taxes....................... (412) 1,979
---------- ----------
Net income(loss)......................................... $ (620) $ 2,967
========== ==========
Net income(loss) per common share (Note 4)............... $(.07) $.33
Weighted average shares outstanding...................... 9,049,613 9,043,743
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales....................................... $ 204,919 $ 156,563
Cost of goods sold.............................. 182,992 137,159
---------- ----------
Gross profit................................... 21,927 19,404
Selling, general and administrative expenses... 9,728 7,185
---------- ----------
Operating income............................... 12,199 12,219
Interest and other expense, net................ 1,577 815
---------- ----------
Income before provision for income taxes....... 10,622 11,404
Provision for income taxes..................... 4,249 4,562
---------- ----------
Net income..................................... $ 6,373 $ 6,842
========== ==========
Net income per common share (Note 4)........... $.69 $.76
Weighted average shares outstanding............ 9,175,430 9,011,100
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------ ----------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 6,115 $ 5,054
Accounts receivable trade, net.................. 49,456 41,475
Inventories (Note 3)............................ 61,729 53,994
Deferred taxes.................................. 1,339 1,487
Prepaid expenses and other assets............... 2,081 489
-------- --------
Total current assets......................... 120,720 102,499
PROPERTY AND EQUIPMENT--Net....................... 7,638 4,635
OTHER ASSETS (Note 2)............................. 6,952 461
-------- --------
TOTAL............................................. $135,310 $107,595
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............... 379 38
Accounts payable................................ 34,303 26,154
Accrued expenses................................ 3,824 5,216
-------- --------
Total current liabilities.................... 38,506 31,408
-------- --------
LONG-TERM DEBT--Less current portion.............. 37,616 29,055
-------- --------
STOCKHOLDERS' EQUITY:
Common stock.................................... 91 88
Additional paid-in capital...................... 38,927 33,201
Cumulative effect of currency translation....... (46) --
Retained earnings............................... 20,216 13,843
-------- --------
Total stockholders' equity................... 59,188 47,132
-------- --------
TOTAL............................................. $135,310 $107,595
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months
-----------
ENDED SEPTEMBER 30,
-------------------
1997 1996
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,373 $ 6,842
--------- --------
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Deferred taxes............................................................... 148 15
Depreciation and amortization................................................ 1,404 757
Increase (decrease) in cash from:
Accounts receivable--trade................................................ (5,030) (17,959)
Inventory................................................................. (5,683) (20,785)
Prepaid expenses and other assets......................................... (1,288) (351)
Accounts payable.......................................................... 5,765 2,398
Accrued expenses.......................................................... (2,780) 3,033
--------- --------
Total adjustments..................................................... (7,464) (32,892)
--------- --------
Net cash provided by (used for) operating activities............................. (1,091) (26,050)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (1,691) (1,794)
Purchases of businesses, net of cash acquired (Note 2)......................... (1,529) --
Increase in other assets....................................................... (208) (107)
--------- --------
Net cash used for investing activities......................................... (3,428) (1,901)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit agreements..................................... 187,408 107,521
Repayments under line-of-credit agreements..................................... (181,104) (80,978)
Repayments of long-term debt................................................... (1,157) (90)
Net proceeds from sale of stock................................................ 479 290
--------- --------
Net cash provided by (used for) financing activities............................. 5,626 26,743
--------- --------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH......................................... (46) --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. 1,061 (1,208)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................... 5,054 7,097
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ 6,115 $ 5,889
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ACT MANUFACTURING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim condensed consolidated financial statements furnished
herein reflect all adjustments, which in the opinion of management are of a
normal recurring nature, necessary to fairly state the Company's financial
position, cash flows and the results of operations for the periods presented and
have been prepared on a basis substantially consistent with the audited
financial statements.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the period ending
December 31, 1996 filed with the Securities and Exchange Commission.
2. ACQUISITIONS
Effective June 9, 1997, the Company acquired substantially all of the assets
and liabilities of Electronic Systems International (''ESI'') located in
Norcross, Georgia. ESI is a contract electronics manufacturer to customers
throughout the southeastern United States. Under the terms of the agreement, the
Company acquired assets and liabilities of ESI in exchange for 190,546 shares of
the Company's common stock plus acquisition costs. The per share market value of
the Company's common stock on the date of the purchase was $27.50.
Effective June 10, 1997, the Company acquired all of the outstanding stock of
SignMax Limited (''SignMax''), a cable and harness manufacturing company based
in Dublin, Ireland. Under the terms of the purchase agreement, substantially all
of the outstanding common shares of SignMax were acquired for cash of $1,000,000
plus acquisition costs.
The transactions were accounted for as purchases in accordance with APB
Opinion No.16 ''Business Combinations.'' The preliminary allocation of purchase
price for these transactions has resulted in goodwill of approximately
$5,945,000 including $5,070,000 attributed to the excess of purchase price over
net assets and $875,000 ($725,000 accrued) of acquisition costs, including costs
of consolidation of operations and professional fees. The Company attributes the
goodwill to the expected ability to expand sales in these new geographic
markets, utilizing the acquired existing business infrastructure, and geographic
market presence as a basis for expansion. Goodwill will be amortized over a
period of fifteen years using the straight-line method of amortization. The
operating results of the acquired businesses from the dates of purchase are
included in but did not have a material effect on the Company's Consolidated
Statements of Operations for the three and nine month periods ended September
30, 1997. Pro forma information has not been provided as the operations of the
acquired businesses are not material to the consolidated results of operations
or financial position of the Company.
3. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------- ----------------------
(in thousands)
<S> <C> <C>
Raw material........... $36,363 $37,698
Work in process........ 24,756 15,853
Finished goods......... 610 443
------- -------
Total............... $61,729 $53,994
======= =======
</TABLE>
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<PAGE>
4. EARNINGS PER SHARE
Net income per common share is based on the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are attributable to stock options and are calculated using the treasury
stock method.
In March 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) No. 128, ''Earnings Per Share,'' which the
Company will adopt in the fourth quarter of 1997. Had SFAS No. 128 been
effective for the periods ended September 30, 1997 and 1996, reported earnings
per share on a pro forma basis would have been as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
------------------------------ -----------------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ -----------------------------
1997 1996 1997 1996
--------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Basic........ $(.07) $ .34 $ .71 $ .78
Diluted...... (.07) .33 .69 .76
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying financial
statements for the periods specified and the associated notes. Further reference
should be made to the Company's Annual Report on Form 10-K for the period ending
December 31, 1996.
OVERVIEW
The Company provides value-added, electronic manufacturing services for
original equipment manufacturers (''OEM's'') in the networking, computer,
telecommunications, medical and industrial equipment markets. The Company
targets high-mix, moderate volume production of the complex, leading-edge
commercial market applications of emerging and established OEM customers, which
generally require technologically-advanced and flexible manufacturing as well as
a higher degree of value-added services. The Company supplies OEMs with complex
printed circuit board (''PCB'') assemblies primarily utilizing advanced surface
mount technology (''SMT''), mechanical and molded cable and harness assemblies,
electro-mechanical sub-assemblies, total system assembly and integration. As an
integral part of its service to OEM customers, the Company provides advanced
manufacturing and test engineering, flexible materials management, and
comprehensive test services, as well as product repair, packaging, order
fulfillment and distribution services.
During the second quarter of 1997, the Company acquired businesses operating
in Norcross, Georgia and Dublin, Ireland, as described in Note 2 to the
Condensed Consolidated Financial Statements. The operating results of the
acquired businesses from the dates of purchase are included in but did not have
a material effect on the Company's Consolidated Statements of Operations for the
three and nine month periods ended September 30, 1997.
The Company manufactures at six leased facilities having an aggregate of
257,000 square feet. Four of the facilities are located in Massachusetts. In the
first quarter of 1998, the Company expects to occupy and begin manufacturing in
a 45,000 square foot addition to its Hudson, Massachusetts facilities. In the
second quarter of 1997, the Company acquired operations with leased facilities
in Norcross, Georgia and Dublin, Ireland. In early 1998, the Company expects to
occupy and begin manufacturing in a new 45,000 square foot leased facility in
Dublin, Ireland and consolidate operations from the existing Dublin facility
into the new plant.
As of September 30, 1997 the Company had 1,056 employees, up from 799
employees at December 31, 1996.
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales decreased 2% to $62.3 million for the three month period ended
September 30, 1997 from $63.9 million for the same period in 1996. The decline
in sales was principally due to a softness in demand from several major
customers resulting in the conversion of fewer forecasted orders than
anticipated as well as orders and commitments anticipated to ship prior to the
end of the quarter that were received too late for configuration and completion.
Additionally, there was some weakness in the development of new business
opportunities that were expected to generate greater revenue during the quarter.
Gross profit decreased 58% to $3.4 million for the three months ended
September 30, 1997 compared with $8.1 million for the same period in 1996.
Gross margin decreased to 5.4% for the three months ended September 30, 1997
from 12.7% for the same period in 1996. This decrease was attributed to a
change in product mix with shipments of lower margin products higher than
anticipated, lower than anticipated shipments resulting in manufacturing
overhead absorption issues, and higher than normal manufacturing efficiency
variances being incurred.
Selling, general and administrative (SG&A) expenses increased 44% to $3.9
million, or 6.3% of net sales, for the three months ended September 30, 1997
compared with $2.7 million, or 4.3% of net sales, for the three months
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<PAGE>
ended September 30, 1996. The increase in SG&A expenses as a percentage of net
sales for the third quarter of 1997 compared with the same period in 1996
reflects the full effect of acquisitions made in Ireland and Norcross, Georgia,
during the second quarter of 1997, the additional investment in the sales and
marketing programs at the Company and the comparison of expense to a
comparatively lower revenue amount in the third quarter of 1997 compared to
1996.
Operating income decreased with a loss of $0.5 million, or (.8%) of net sales,
for the three months ended September 30, 1997 compared with operating income of
$5.4 million, or 8.4% of net sales, for the same period in 1996 as a result of
the above factors.
Interest and other expense was $0.5 million for the three months ended
September 30, 1997 compared with $0.4 million for the same period in 1996.
Interest and other expense consisted principally of interest charges on debt.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales increased 31% to $204.9 million for the nine month period ended
September 30, 1997 from $156.6 million for the same period in 1996. The increase
was attributable principally to increased volume in PCB assembly sales to new
and existing customers, offset by lower sales to 3Com Corporation, a major
customer in 1996.
Gross profit increased 13% to $21.9 million for the nine months ended
September 30, 1997 compared with $19.4 million for the same period in 1996.
Gross margin decreased to 10.7% for the nine months ended September 30, 1997
from 12.4% for the same period in 1996 as prior quarterly improvements in
manufacturing performance were offset by the gross profit reduction in the third
quarter of 1997.
Selling, general and administrative (SG&A) expenses increased 35% to $9.7
million, or 4.8% of net sales, for the nine months ended September 30, 1997
compared with $7.2 million, or 4.6% of net sales, for the nine months ended
September 30, 1996. The increase in SG&A expenses as a percentage of net sales
for the first nine months of 1997 compared with the same period in 1996 reflects
the effects of acquisitions made in Ireland and Norcross, Georgia, during the
second quarter of 1997, the continued investment in sales and marketing programs
at the Company, and the effects of lower third quarter 1997 revenue levels
affecting nine month comparative results.
Operating income remained flat at $12.2 million, or 6.0% of net sales, for the
nine months ended September 30, 1997 compared with $12.2 million, or 7.8% of
net sales, for the same period in 1996 as a result of the above factors.
Interest and other expense was $1.6 million for the nine months ended
September 30, 1997 compared with $0.8 million for the same period in 1996. The
increase in interest and other expense resulted principally from additional
borrowings on the Company's line of credit to support working capital
requirements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $82.2 million at September 30, 1997
compared with $71.1 million at December 31, 1996. Operating activities used
$1.1 million of cash for the first nine months of 1997 compared with $26.1
million of cash usage for the same period in 1996. Use of cash in the first nine
months of 1996 supported the Company's high level of growth in 1996. Cash used
for property, equipment and acquisition related investing activities was $3.4
million for the first nine months of 1997 compared with $1.9 million for the
same period in 1996.
On a consolidated basis, the Company had secured revolving credit facilities
of $50.0 million at September 30, 1997, of which $36.8 million was utilized and
$7.5 million was available for use. In addition, at September 30, 1997
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<PAGE>
the Company's equipment lease line of $20.0 million had $10.3 million available
for use and $9.7 million utilized for outstanding commitments.
The Company's need for, cost of and access to funds are dependent in the long-
term on future operating results as well as conditions external to the Company.
The Company believes that its current sources of and access to capital are
adequate to support operations for the next twelve months.
NEWLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) No. 128, ''Earnings Per Share,'' which
will be effective during the fourth quarter of 1997. SFAS No. 128 will require
the Company to restate all previously reported earnings per share information to
conform with the new pronouncement's requirements. See Notes to Condensed
Consolidated Financial Statements for pro forma information.
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 risks 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 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 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.
Customer and Market Concentration and Dependence on Electronics Industry
For the nine months ended September 30, 1997, the Company's five largest
customers accounted for approximately 75% of the Company's net sales. Sales to
Bay Networks, Inc. at 32% of net sales compared with 10% for the same period in
1996, Ascend Communications, Inc. (as successor to Cascade Communications, Inc.)
at 12% of net sales compared with 21% for 1996, EMC Corporation at 12% of net
sales compared with 6% for 1996, Motorola Corporation at 7% of net sales
compared with 14% for 1996 and 3Com Corporation at 12% of net sales compared
with 17% for 1996. As sales to individual customers fluctuate from period to
period the Company's results will depend on the extent to which these
fluctuations are offsetting. Also, 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, if at all. The loss of one or more
major customers, a significant reduction in purchases from such customers,
discontinuance of products manufactured by the Company, or developments adverse
to the Company's customers or their products could have a material adverse
effect on the Company's financial condition and results of operations. For
example, the Company experienced a reduction in net sales from the second to the
third quarters of 1995 as a result of a significant reduction in orders from its
then principal customer, Chipcom Corporation, which was subsequently acquired by
3Com Corporation. While 3Com Corporation remained an active customer of the
Company through the second quarter of 1997, 3Com Corporation altered its
outsourcing strategy and net sales to 3Com Corporation by the Company are
expected to be insignificant for the remainder of 1997. 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 on a timely basis or
at all.
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The Company's customer base has historically been concentrated in a limited
number of segments within the electronics industry. These industry segments, and
the electronics industry as a whole, are subject to high competition, rapid
technological changes, significant fluctuation in product demand, relatively
short product life-cycles, and consequent product obsolescence. Developments
adverse to such industry segments could have a negative effect on the Company.
The industry segments 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 or other event leading to excess
capacity or downturn affecting the electronics industry generally or one or more
of the industry segments served by the Company would likely result in
intensified price competition, reduced gross margins and a decrease in net sales
versus the Company's operating expectations, all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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 industry 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 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 or numerous cancellations, reductions or delays in
orders by a customer or group of customers could have a material adverse effect
on the Company's business, financial condition and results of operations.
Fluctuations in Operating Results
The Company's quarterly operating results have varied and may continue to
fluctuate significantly from period to period, including on a quarterly basis.
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. A substantial portion of net sales in a given
quarter may depend on obtaining and fulfilling orders for assemblies to be
manufactured and shipped in the same quarter in which those orders are received.
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
manufacturing processes, changes in cost and availability of labor and
components, efficiencies achieved by the Company in managing inventory and fixed
assets, a shift in the Company's product and service mix which results in
fluctuating margins, capacity utilization, inventory obsolescence, currency
exchange rate movements, acquisitions and related charges and expenses,
competition in the electronic manufacturing services market, trends in the
electronic industry and changes or anticipated changes in economic conditions.
An interruption in manufacturing resulting from shortages of parts or equipment,
fire, earthquake or other natural disaster, equipment failure or otherwise could
have a material adverse effect on the Company's business, financial condition
and results of operations. 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 business, financial
condition and results of operations for that quarter. In the quarter ended
September 30, 1997, the Company experienced lower than anticipated revenues
which had an adverse impact on the Company's business, financial condition and
results of operations for such quarter. Results of operations in any period
should not be considered indicative of the results to be expected for any future
period.
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As a result of the foregoing or other factors, it is possible that in some
future period the Company's results of operations may fail to meet the
expectations of securities analysts or investors, and the price of the Company's
Common Stock would then be materially adversely affected.
Competition
The electronics manufacturing services industry is a highly competitive
industry. The Company competes against numerous U.S. and foreign contract
manufacturers. 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. Certain of
the Company's competitors have substantially greater manufacturing, financial,
systems and marketing resources than the Company. In addition, these competitors
may have the ability to respond more quickly to new or emerging technologies,
may adapt more quickly to changes in customer requirements and may devote
greater resources to the development, promotion and sale of their services than
the Company. The Company may be operating at a cost disadvantage compared to
manufacturers who have greater direct buying power from component suppliers or
who have lower cost structures. The Company's manufacturing processes are
generally not subject to significant proprietary protection, and companies with
significant resources or international operations may enter the market.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which could have a material adverse effect on the
Company's business, financial condition and results of 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, geographic location, price, reliability,
timeliness in delivering finished products and flexibility in adapting to
customers needs. 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 and continues to expand its
operations, all of which has placed, and will continue to place, a significant
strain on the Company's management, operations, technical, financial, systems
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, as well as to develop further the management skills of its managers and
supervisors 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. Competition
for personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain additional highly qualified employees in
the future, especially engineering personnel. The failure to hire and retain
such personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence Upon Key Personnel and Skilled Employees
The Company's continued success has been largely dependent upon the skills and
efforts of John A. Pino, its President and Chief Executive Officer, and other
key executive and managerial, sales and technical employees. None of the senior
management or other key employees of the Company is subject to any employment
contract and the Company does not maintain any key-man life insurance on any of
its key executives. The loss of services of any of its officers or other key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, continued growth and
development of the Company will require that, despite significant competition,
it attract, motivate and retain additional skilled and experienced managerial,
sales and technical 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.
-12-
<PAGE>
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 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 business, financial condition 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 may require
significant expense or capital investment by the Company.
Risks of International Operations
The Company has recently acquired operations in Dublin, Ireland and is
currently expanding its Dublin operations. In addition, the Company may expand
into other geographic regions. The Company is affected by economic and political
conditions in the countries in which it does business, including fluctuations in
the value of currency, duties, possible employee turnover, labor unrest, less
developed infrastructure, longer payment cycles, greater difficulty in
collecting accounts receivable and the burdens and costs of compliance with a
variety of foreign laws. Changes in policy by the U.S. or foreign governments
resulting in, among other things, increased duties, increased regulatory
requirements, higher taxation, currency conversion limitations, restrictions on
the transfer of funds or limitations on imports or exports could also have a
material adverse effect on the Company. The Company could also be adversely
affected if the current policies encouraging foreign investment or foreign trade
by its host countries were to be reversed.
Expanding Facilities and Manufacturing Capacity
The Company believes its long-term competitive position depends in part on its
ability to increase manufacturing capacity. The Company may obtain such
additional capacity through acquisitions or expansion of its current facilities.
The Company is currently expanding its Hudson, Massachusetts facilities by
45,000 square feet and expects to relocate its Dublin, Ireland operations to a
new 45,000 square foot facility currently under construction. The acquisition
and expansion of facilities will require substantial additional capital, and
there can be no assurance that such capital will be available from cash
generated by current operations. Further, there can be no assurance that the
Company will be able to acquire sufficient capacity or successfully integrate
and manage such
-13-
<PAGE>
additional facilities. In addition, the Company's expansion of its manufacturing
capacity has significantly increased and will continue to significantly increase
its fixed costs, and the future profitability of the Company will depend on its
ability to utilize its manufacturing capacity in an effective manner. The
failure to obtain sufficient capacity or to successfully integrate and manage
additional manufacturing facilities could adversely impact the Company's
relationships with its customers and materially adversely affect the Company's
business, financial condition and results of operations.
Acquisitions and Geographical Expansion
In June 1997, the Company acquired substantially all of the assets of
Electronic Systems International located in Norcross, Georgia. The acquired
company provides electronics manufacturing services, primarily consisting of PCB
assemblies and systems assemblies to customers based primarily in the
southeastern United States. In addition, also in June 1997, the Company
completed the acquisition of SignMax Limited, located in Dublin, Ireland.
SignMax Limited is a contract manufacturer of cable and harness assemblies. The
Company has limited experience in integrating acquired companies into its
operations, in expanding the scope of operations of acquired businesses, and in
operating in the southeastern United States or overseas. Therefore, there can be
no assurance that the Company will operate the acquired businesses profitably
during the next year or in the future.
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 risks, 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. Therefore, there can be no assurance
that the key employees and businesses of acquired companies will be successfully
integrated with the Company, that any acquired business will contribute
significantly to the Company's sales or earnings, or that sales and earnings of
the Company will not be adversely affected by the integration process or other
factors.
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
The Company's Common Stock has experienced significant price and volume
volatility historically, including most recently in the quarter ended September
30, 1997, and such volatility is expected to occur in the future. In addition,
there has been significant volatility in the market price of securities of
technology companies generally. Factors such as announcements of significant
customer orders, customer additions or subtractions, developments affecting
major customers or their products, announcements or activities of competitors,
changes in securities analysts' recommendations or general conditions and
developments in the electronics manufacturing service
industry and in the electronics industry as a whole, 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
-14-
<PAGE>
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, as it did in the third quarter of
1997.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10. Ninth Amendment dated September 23, 1997 to the Amended and Restated Loan
and Security Agreement by and among BankBoston N.A., State Street Bank
and Trust Company, Citizens Bank of Massachusetts and ACT Manufacturing,
Inc.
11. Weighted Shares Used in Computation of Earnings per Share
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1997.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 13, 1997 ACT MANUFACTURING, INC.
/s/ Douglass C. Greenlaw
---------------------------
Douglass C. Greenlaw
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
No.
---
<S> <C>
10. Ninth Amendment dated September 23, 1997 to the Amended and Restated Loan and Security
Agreement by and among BankBoston N.A., State Street Bank and Trust Company, Citizens Bank of
Massachusetts and ACT Manufacturing, Inc.
11. Weighted Shares Used in Computation of Earnings per Share
27. Financial Data Schedule
</TABLE>
-17-
<PAGE>
EXHIBIT 10
================================================================================
NINTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
================================================================================
..............., 1997
Effective: September 15,1997
THIS NINTH 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
BankBoston, N.A. (Formerly known as "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:
BankBoston, N.A.;
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,
<PAGE>
WITNESSETH:
SECTION 1-1(d) of the Loan Agreement is amended so that the Definition of
"Inventory Cap" included therein reads as follows:
"Inventory Cap": Until September 15, 1997 :$7,500,000.00.
September 16, 1997 to
November 30, 1997 :15,000,000.00.
Thereafter :12,500,000.00.
The Borrower recognizes that the execution of the within Amendment by the
Agent and by each Lender does not constitute the waiver, by any of them, of any
Suspension Event (as defined in the Loan Agreement) presently extant.
Except as amended hereby, or by the First through Eighth to the Loan
Agreement, all terms and conditions of the Loan Agreement shall remain in full
force and effect.
ACT MANUFACTURING, INC.
(the "Borrower")
/s/ Douglass C. Greenlaw
By__________________________
CHIEF FINANCIAL OFFICER
Its_________________________
<PAGE>
BANKBOSTON, N.A.
("Agent")
/s/ George M. Mandt
By________________________
Director
Its_______________________
The "Lenders"
BANKBOSTON, N.A. STATE STREET BANK
AND TRUST COMPANY
/s/ George M. Mandt
By_______________________ By______________________
Director
Its______________________ Its_____________________
CITIZENS BANK OF MASSACHUSETTS
By_______________________
Its______________________
<PAGE>
BANKBOSTON, N.A.
("Agent")
By________________________
Its_______________________
The "Lenders"
BANKBOSTON, N.A. STATE STREET BANK
AND TRUST COMPANY
By_______________________ By______________________
Its______________________ Its_____________________
CITIZENS BANK OF MASSACHUSETTS
/s/ Bruce A. Berme
By_______________________
Vice President
Its______________________
<PAGE>
BANKBOSTON, N.A.
("Agent")
By________________________
Its_______________________
The "Lenders"
BANKBOSTON, N.A. STATE STREET BANK
AND TRUST COMPANY
/s/ F. Andrew Beise
By_______________________ By______________________
VICE PRESIDENT
Its______________________ Its_____________________
CITIZENS BANK OF MASSACHUSETTS
By_______________________
Its______________________
<PAGE>
EXHIBIT 11
ACT MANUFACTURING, INC.
WEIGHTED SHARES USED IN COMPUTATION OF EARNINGS PER SHARE
Shares used in the net income per common share computation are the weighted
average number of common shares outstanding plus common share equivalents (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended NINE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding ..... 9,050 8,772 8,918 8,739
Common share equivalents ................................. 0 272 257 272
----- ----- ----- -----
TOTAL................................................... 9,050 9,044 9,175 9,011
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,115
<SECURITIES> 0
<RECEIVABLES> 49,456
<ALLOWANCES> 325
<INVENTORY> 61,729
<CURRENT-ASSETS> 120,720
<PP&E> 13,134
<DEPRECIATION> 5,496
<TOTAL-ASSETS> 135,310
<CURRENT-LIABILITIES> 38,506
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 59,097
<TOTAL-LIABILITY-AND-EQUITY> 135,310
<SALES> 204,919
<TOTAL-REVENUES> 204,919
<CGS> 182,992
<TOTAL-COSTS> 192,720
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,577
<INCOME-PRETAX> 10,622
<INCOME-TAX> 4,249
<INCOME-CONTINUING> 6,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,373
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
