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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 Commission file number: 1-10560
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2211011
(State or other jurisdiction (I.R.S. employer
of incorporation) identification number)
3000 Technology Drive 77515
Angleton, Texas (Zip code)
(Address of principal executive offices)
(409)849-6550
(Registrant's telephone number, including area code)
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
----- -----
As of May 13, 1996 there were 4,031,900 shares of Common Stock, par value
$0.10 per share, outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BENCHMARK ELECTRONICS, INC.
Condensed Balance Sheets
(amounts in thousands)
March 31, December 31,
1996 1995
(unaudited)
-------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 81 $ 2,785
Accounts receivable 24,855 20,167
Income taxes receivable 393 393
Inventories 30,001 22,983
Prepaid expenses and other assets 194 255
Deferred tax asset 372 372
-------- ----------
Total current assets 55,896 46,955
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Land 306 306
Property, plant and equipment, at cost 20,709 17,650
Accumulated depreciation (8,460) (7,874)
-------- ----------
Net property, plant and equipment 12,555 10,082
-------- ----------
Deferred acquisition costs 176 -
-------- ----------
Total assets $68,627 $57,037
======== ==========
See accompanying notes to condensed financial statements.
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BENCHMARK ELECTRONICS, INC.
Condensed Balance Sheets
(amounts in thousands)
(continued)
March 31, December 31,
1996 1995
(unaudited)
----------- -----------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,221 $ 9,116
Accrued liabilities 922 554
Current taxes payable 1,141 -
--------- -------
Total current liabilities 19,284 9,670
--------- -------
Deferred income taxes 743 743
Shareholders' equity:
Preferred shares, $0.10 par value; 5,000,000
shares authorized, none issued - -
Common shares, $0.10 par value; 10,000,000
shares authorized; issued - 4,054,142 and
4,046,142, respectively; outstanding -
4,029,400 and 4,021,400, respectively 403 402
Additional paid-in capital 19,944 19,808
Retained earnings 28,313 26,474
Less treasury shares, at cost; 24,742
shares (60) (60)
--------- -------
Total shareholders' equity 48,600 46,624
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Total liabilities and shareholders'
equity $68,627 $57,037
========= =======
See accompanying notes to condensed financial statements.
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BENCHMARK ELECTRONICS, INC.
Condensed Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
-------------
1996 1995
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Sales $30,383 $23,115
Cost of sales 26,558 20,026
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Gross profit 3,825 3,089
Selling expense 383 314
General and administrative expense 501 398
------- -------
Operating expenses 884 712
------- -------
Income from operations 2,941 2,377
Interest income 38 75
Other income (expense) 1 7
------- -------
Income before income tax expense 2,980 2,459
Income tax expense (1,141) (890)
------- -------
Net income $1,839 $1,569
======= =======
Earnings per common share:
Net income $0.45 $0.38
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Weighted common shares outstanding 4,132 4,106
======= =======
See accompanying notes to condensed financial statements.
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BENCHMARK ELECTRONICS, INC.
Condensed Statements of Cash Flows
(amounts in thousands)
(unaudited)
Three Months Ended
March 31,
-------------------
1996 1995
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Cash flows from operating activities:
Net Income $ 1,839 $ 1,569
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 586 515
Deferred income taxes - 32
(Increase) in net accounts receivable (4,688) 1,367
(Increase) decrease in inventory (7,018) (2,349)
(Increase) decrease in prepaid expenses
and other assets 61 (119)
Increase (decrease) in accounts payable 8,105 (104)
Increase(decrease) in accrued liabilities 368 (186)
Increase in current income taxes
payable 1,141 784
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Total adjustments (1,445) (60)
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Net cash provided by operations 394 1,509
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Cash flows used in investing activities:
Capital expenditures, net (3,059) (109)
Deferred acquisition costs (176) --
Proceeds from exercise of employee stock options 137 55
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Cash flows used in investing activities (3,098) (54)
Net increase (decrease) in cash (2,704) 1,455
Cash at beginning of year 2,785 8,371
------- --------
Cash at March 31 81 9,826
======= =======
Supplemental disclosures of cash flow
information:
Income taxes paid $ - $ 74
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See accompanying notes to condensed financial statements.
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BENCHMARK ELECTRONICS, INC.
Notes to Condensed Financial Statements
Note 1 - Basis of Presentation
Benchmark Electronics, Inc. (the "Company") is a Texas corporation
which provides contract manufacturing services to original equipment
manufacturers (OEMs) in the electronics industry, including manufacturers of
medical devices, communications equipment, industrial and business computers,
testing instrumentation, and industrial instruments.
The accompanying unaudited interim condensed financial statements
reflect all normal and recurring adjustments which in the opinion of management
are necessary for a fair presentation of the results of operations and cash
flows for the interim periods presented. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year. The accompanying unaudited condensed financial statements
should be read in conjunction with the financial statements and notes included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
Note 2 - Earnings Per Common Share
Earnings per common share are computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding.
For the purposes of this calculation, outstanding employee stock options are
considered common equivalent shares. Fully diluted earnings per share are
materially equivalent to primary earnings per share for all periods presented.
Weighted common shares outstanding for the three months ended March 31, 1996
and March 31, 1995 were 4,132,124 and 4,106,089 respectively.
Note 3 - Borrowing Facility
The Company has a short-term revolving line of credit with a
commercial bank which is available primarily to finance accounts receivable and
inventory requirements. The Company is entitled to borrow under the line of
credit up to the lesser of $10,000,000 or the sum of 80% of its eligible
accounts receivable and 25% of its eligible inventories. The Company's
borrowings under the line of credit may bear interest at the lower of the rate
applicable to Alternate Base Rate Loans or Eurodollar Loans as defined in the
credit agreement. The line of credit is collateralized by substantially all of
the Company's current assets. The line of credit agreement contains certain
financial covenants and restricts the ability of the Company to incur
additional debt without the consent of the bank. The line of credit matures on
November 30, 1996. As of March 31, 1996, the Company had no amount outstanding
under its line of credit.
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BENCHMARK ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
Note 4 - Inventories
Inventory costs are summarized as follows:
March 31, 1996 December 31, 1995
(unaudited)
--------------- --------------
Raw materials $ 19,976,373 $ 16,365,280
Work in process 10,024,260 6,617,875
--------------- --------------
$ 30,000,633 22,983,155
=============== ==============
Note 5 - Income Taxes
The provision for income taxes in the statement of operations is
summarized below:
Federal - current $1,027,755
Federal - deferred --
State 113,245
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TOTAL $1,141,000
==========
The provision for income taxes did not vary significantly from the amount
computed by applying the U.S. federal statutory rate for the three month period
ended March 31, 1996.
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BENCHMARK ELECTRONICS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The following table sets forth for the periods indicated certain
items in the Company's Condensed Statements of Operations as a percentage of
sales:
Three Months Ended
March 31,
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1996 1995
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Sales 100.0% 100.0%
Cost of sales 87.4 86.6
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Gross profit 12.6 13.4
Selling expense 1.3 1.4
General and administrative
expense 1.6 1.7
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Operating expenses 2.9 3.1
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Income from operations 9.7 10.3
Interest income 0.1 0.3
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Income before income tax 9.8 10.6
Income tax expense (3.8) (3.9)
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Net income 6.0% 6.8%
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BENCHMARK ELECTRONICS, INC.
Management's Discussion and Analysis of
Financial Condition and Result of
Operations (continued)
Sales for the first quarter of 1996 were approximately $30.4 million,
a 31% increase from sales of approximately $23.1 for the same quarter of 1995.
The Company's sales increased as a result of the Company's continued aggressive
sales efforts, which resulted in sales to new and existing customers, and the
continuing trend toward the use of surface mount technology by original
equipment manufacturers for turnkey contract manufacturing services. The
increase in sales resulted from increased production volumes as compared to the
first quarter of 1995. The increased production volumes were attributable to
sales to new customers and the fulfillment of orders which were subject to
customers' changes in production schedules and mix which the Company
experienced in the last quarter of 1995. The Company did not experience the
component shortages during the first quarter of 1996 which had caused delayed
shipments of products to customers during 1995.
Gross profit increased 24% to approximately $3.8 million in the first
quarter of 1996 from approximately $3.1 million in the same quarter of 1995.
Gross profit as a percentage of sales decreased from 13.4% for the first
quarter of 1995 to 12.6% for the first quarter of 1996. The increase in gross
profit and the decrease in gross profit as a percentage of sales were due
primarily to the initiation of new programs and secondarily to the use during
the first quarter of 1995 of some components that had been previously reserved
as obsolete.
Selling expenses were $383,000 in the first quarter of 1996, an
increase of 22% from the first quarter of 1995. General and administrative
expenses were $501,000, an increase of 26% from $398,000 for the same quarter
of 1995. In order to satisfy the increased level of business activity and to
continue the development and improvement of the systems and processes necessary
to accomodate future growth, the Company has added management personnel. The
full financial impact of the additional personnel and related costs was first
experienced during the first quarter of 1996, resulting in the increase in
selling and general and administrative expenses. Interest income in the first
quarter of 1996 was $38,000, which was earned by the Company from the temporary
investment of excess cash in interest bearing marketable securities.
Income tax expense in the first quarter of 1996 was $1,141,000, an
increase of 28% from the same period in 1995. The increase is due to higher
pre-tax income.
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BENCHMARK ELECTRONICS, INC.
Management's Discussion and Analysis of Financial
Condition and Result of Operations (continued)
Liquidity and Capital Resources
The Company has financed its historical growth and operations through
funds generated from operations and proceeds from the sale of its common stock.
The Company continued the expansion of its production capacity during
the first quarter of 1996 through the addition of three surface-mount
production lines. The Company now has twelve surface mount assembly lines in
operation. The additional equipment for these lines was financed through funds
generated from operations.
The Company has a short-term revolving line of credit with a
commercial bank which is available primarily to finance accounts receivable and
inventory requirements. As of March 31, 1996, the Company had no amount
outstanding under its line of credit and the Company had never borrowed any
amount thereunder. The Company is entitled to borrow under the line of credit
up to the lesser of $10 million or the sum of 80% of its eligible accounts
receivable and 25% of its eligible inventories. The Company has no other
arrangements for the borrowing of money.
The line of credit is collateralized by substantially all of the
Company's current assets. The line of credit agreement contains certain
financial covenants and restricts the ability of the Company to incur
additional debt without the consent of the bank. The Company believes that it
is in compliance with the financial covenants contained in the line of credit
agreement. See Note 3 of Notes to Condensed Financial Statements. The line of
credit matures on November 30, 1996 and the Company expects that, if it is not
replaced by the indebtedness to be incurred in connection with the pending
acquisition described below, the Company will be able to extend or renew this
borrowing facility prior to its maturity.
The Company may require additional capital to finance enhancements to
or acquisitions or expansions of its manufacturing capacity. Management
believes that the level of working capital will continue to grow at a rate
generally consistent with the growth of the Company's operations. Although no
assurance can be given that future financing will be available on terms
acceptable to the Company, the Company may seek additional funds from time to
time through public or private debt or equity offerings or through bank
borrowings. Management also believes that, if the Company's current revolving
credit agreement is not replaced by the indebtedness to be incurred in
connection with the pending acquisition described below, existing cash
balances, funds generated from operations, and borrowings under the current
revolving credit facility will be sufficient to permit the Company to meet its
liquidity requirements in 1996 and for the foreseeable future.
The Company does not hold or issue derivative financial instruments in
the normal course of business.
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BENCHMARK ELECTRONICS, INC.
Management's Discussion and Analysis of
Financial Condition and Result of
Operations (continued)
Pending Acquisition
On March 27, 1996 the Company entered into an agreement with EMD
Technologies, Inc. ("EMD") and its two principal shareholders pursuant to
which the company would acquire EMD in a merger (the "Acquisition"). EMD is
located in Winona, Minnesota and, through its operating subsidiary EMD
Associates, Inc., provides engineering services and contract manufacturing to
original equipment manufacturers in the electronics industry.
The purchase price to be paid by the Company in the Acquisition will
be approximately $51.0 million, with 60% of the consideration to consist of
cash and 40% of the consideration to consist of shares of common stock. The
shares of common stock to be issued by the Company in the Acquisition, which
are expected to represent in the aggregate slightly less than 20% of the
Company's common stock outstanding, will be offered to the shareholders of EMD
only by means of a prospectus and approximately 14% of such shares will be
subject to certain restrictions on the transferability and voting thereof for a
three year period after consummation of the Acquisition. If the number of
shares of common stock to be issued in the Acquisition were to meet or exceed
20% of the shares of common stock outstanding, the Company will issue shares of
a new series of the Company's preferred stock (which will be convertible into
shares of the Company's common stock upon approval of the holders of the
Company's outstanding common stock) for the amount of such excess. The cash
portion of the consideration will be obtained through borrowings under a credit
facility to be established with a commercial bank or other financial
institution.
Consummation of the Acquisition is subject to the satisfaction of
numerous conditions precedent contained in the agreement, including without
limitation completion of certain due diligence matters, receipt of third party
and approval of the shareholders of EMD. The transaction is intended to
qualify as a tax free reorganization under the Internal Revenue Code and will
be accounted for using the purchase method of accounting. Accordingly,
acquired assets and assumed liabilities will be recorded at their estimated
fair values.
Although the Company in the past has had a revolving line of credit
available, as of March 31, 1996 it has never been required to draw on such
facility. In order to consummate the Acquisition, however, the Company will be
required to incur indebtedness of approximately $55.0 million, with such funds
to be used to pay the cash portion of the merger consideration as well as to
discharge certain existing indebtedness of EMD (collectively, the "Acquisition
Indebtedness"). While the terms of the agreements relating to the Acquisition
Indebtedness have not yet been negotiated, the Company anticipates that such
agreements will replace the Company's existing revolving line of credit and
will contain restrictions on the Company's ability to pay dividends on its
outstanding capital stock, as well as affirmative and negative covenants
relating to the operation of the
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BENCHMARK ELECTRONICS, INC.
Management's Discussion and Analysis of
Financial Condition and Result of
Operations (continued)
Company's business. Incurrence of the Acquisition Indebtedness could reduce
the Company's operational flexibility, including its ability to further
increase its existing manufacturing capacity at its Angleton, Texas and
Beaverton, Oregon, facilities. The Company may elect to refinance all or a
portion of the Acquisition Indebtedness through the sale of common stock, the
incurrence of other indebtedness, or both, after the Acquisition has been
consummated. No assurance may be given, however, that such additional
financing will be available on terms acceptable to the Company, or that such
additional financing will not contain additional restrictions on the operations
of the Company.
The Company has been actively examining opportunities for the
establishment or acquisition of a third manufacturing facility that satisfies
its criteria for such expansion, including without limitation substantial
customer base, geographic expansion and management philosophy. While the
Company believes that the Acquisition satisfies these criteria, no assurance
may be given that it will be consummated or, if consummated, that it will have
a positive effect on the Company's results of operations, or that it will not
be dilutive to earnings. If the Acquisition is not consummated, the Company
will continue to examine opportunities to establish or acquire an additional
manufacturing facility meeting the foregoing criteria.
Quarterly Results
Although Management does not believe that the Company's business is
affected by seasonal factors, the Company's sales and earnings may vary from
quarter to quarter, depending primarily upon the timing of manufacturing
orders. Therefore, the Company's operating results for any particular quarter
may not be indicative of the results for any future quarter or for the year.
Accounting for Income Taxes
For income tax purposes, certain items of expense are reported in
periods different from their inclusion in determining income for financial
accounting purposes. The income tax effects of timing differences are allocated
to the periods in which the amounts are included in the statement of
operations.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
2 Agreement and Plan of Merger dated as of March
27, 1996, by and among the Company, Electronics
Acquisition, Inc., EMD Technologies, Inc., David H.
Arnold and Daniel M. Rukavina. (incorporated herein
by reference to Exhibit 2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended
March 31, 1996.
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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 on May 13, 1996.
BENCHMARK ELECTRONICS, INC.
(Registrant)
By: /s/ Donald E. Nigbor
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Donald E. Nigbor
President
(Principal Executive Officer)
By: /s/ Cary T. Fu
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Cary T. Fu
Executive Vice President
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- - ------- ----------------------
2 Agreement and Plan of Merger dated as of March 27,
1996, by and among the Company, Electronics
Acquisition, Inc., EMD Technologies, Inc., David
H. Arnold and Daniel M. Rukavina. (incorporated
herein by reference to Exhibit 2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
27 Financial Data Schedule