-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D3WDQTV1Ga2IUxuSTBGovB74fJx0SqD7MV2Q9Zi09IrSdldz1x1OXGhVUl6dU80O 7z7yR47SCi+zZ0/bdn1bSA== 0000899733-99-000046.txt : 19990518 0000899733-99-000046.hdr.sgml : 19990518 ACCESSION NUMBER: 0000899733-99-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EFTC CORP/ CENTRAL INDEX KEY: 0000916797 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 840854616 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23332 FILM NUMBER: 99628286 BUSINESS ADDRESS: STREET 1: HORIZON TERRACE STREET 2: 9351 GRANT STREET SIXTH FL CITY: DENVER STATE: CO ZIP: 80229 BUSINESS PHONE: 3034518200 MAIL ADDRESS: STREET 1: HORIZON TERRACE STREET 2: 9351 GRANT STREET SIXTH FL CITY: DENVER STATE: CO ZIP: 80229 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONIC FAB TECHNOLOGY CORP DATE OF NAME CHANGE: 19940103 10-Q 1 3/31/99 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1999 [ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission file number: 0-23332 EFTC CORPORATION (Exact name of registrant as specified in its charter) Colorado 84-0854616 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 9351 Grant Street, Sixth Floor Denver, Colorado 80229 (Address of principal executive offices) (303) 451-8200 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class of Common Stock Outstanding at May 12, 1999 --------------------- Common Stock, par value $0.01 15,543,489 shares 1 EFTC CORPORATION FORM 10-Q INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements (unaudited) 3 Condensed Consolidated Balance Sheets March 31, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Operations Three months Ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows Three months Ended March 31, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION 13 Item 1. Legal Proceedings 13 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements EFTC CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in Thousands) ASSETS March 31, December 31, 1999 1998 Current assets Cash and cash equivalents $ 863 $ 623 Trade receivables 35,251 34,123 Inventories 59,931 60,759 Income taxes receivable 125 125 Deferred income taxes 3,550 5,259 Prepaid expenses and other 1,631 2,241 --------- --------- Total current assets 101,351 103,130 --------- --------- Property, plant and equipment, at cost 47,636 45,578 Less accumulated depreciation (7,971) (6,959) --------- --------- Net property, plant and equipment 39,665 38,619 --------- --------- Goodwill, net 44,457 44,848 Other assets, net 4,108 4,069 Deferred income taxes 1,001 - --------- --------- $ 190,582 $ 190,666 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 26,505 $ 28,043 Current portion of long-term debt 4,314 4,115 Accrued compensation 3,263 2,980 Deposit on inventory finance arrangement 5,600 5,600 Other accrued liabilities 2,312 3,355 --------- --------- Total current liabilities 41,994 44,093 ----------- --------- Long-term debt, net of current portion 53,937 50,868 ----------- --------- Deferred income taxes - 725 ----------- --------- Shareholders' equity Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued or outstanding - - Common stock, $.01 par value. Authorized 45,000,000 shares; 15,543,489 issued and outstanding 156 156 Additional paid-in capital 91,990 91,990 Retained earnings 2,505 2,834 --------- --------- Total shareholders' equity 94,651 94,980 --------- --------- $ 190,582 $ 190,666
See notes to condensed consolidated financial statements. 3 EFTC CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in Thousands, except per share amounts) Three months ended March 31, 1999 1998 ---- ---- Net sales $ 54,324 $ 54,200 Cost of goods sold 47,064 44,297 --------- --------- Gross profit 7,260 9,903 Selling, general, and administrative 6,007 5,321 Merger costs - 1,048 Goodwill amortization 391 391 --------- --------- Operating income 862 3,143 --------- --------- Other income (expense): Interest expense (1,264) (908) Other, net 38 39 --------- --------- (1226) (869) --------- --------- Income (loss) before income taxes (364) 2,274 Income tax (expense) benefit 35 (935) --------- --------- Net income (loss) $ (329) $ 1,339 ========= ========= Pro forma information: Historical net income (loss) $ (329) $ 1,339 Pro forma adjustment to income tax expense - (317) --------- --------- Pro forma net income (loss) $ (329) $ 1,022 ============ ========= Pro forma income (loss) per share: Basic $ (0.02) 0.07 ========= ========= Diluted $ (0.02) $ 0.07 ========== ========= Weighted average shares outstanding: Basic 15,543 13,645 ========= ========= Diluted 15,543 14,440 ========= =========
See notes to condensed consolidated financial statements. 4 EFTC CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in Thousands) Three months ended March 31, 1999 1998 ---- ---- Cash flows from operating activities: Net income (loss) $ (329) $ 1,339 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,595 1,358 Deferred income taxes (17) 46 Gain on sale of fixed assets - (4) Changes in operating assets and liabilities: Trade receivables (1,128) (3,454) Inventories 828 (13,088) Prepaid expenses and other 610 (644) Other assets (39) 1,224 Accounts payable and accrued expenses (2,298) 10,734 Income taxes payable - 62 --------- --------- Net cash used by operating activities (778) (2,427) --------- --------- Cash flows from investing activities: Payments for business combinations - (37) Purchase of property, plant and equipment (2,250) (9,450) --------- --------- Net cash used by investing activities (2,250) (9,487) --------- --------- Cash flows from financing activities: Stock options and warrants exercised - 45 Other - (41) Proceeds from long-term debt 4,143 7,605 Principal payments on long-term debt (875) (1,979) Borrowings on notes payable, net - 5,000 --------- ------- Net cash provided by financing activities 3,268 10,630 --------- ------- Increase (decrease) in cash and cash equivalents 240 (1,284) Cash and cash equivalents: Beginning of period 623 1,877 --------- ------- End of period $ 863 $ 593 ========= =======
See notes to condensed consolidated financial statements. 5 EFTC CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1--Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's annual report, Form 10-K for the year ended December 31, 1998. Note 2--Inventories The components of inventories consist of the following: (in Thousands) March 31, 1999 December 31, 1998 -------------- ----------------- Purchased parts and completed subassemblies $ 44,404 $ 44,216 Work-in-process 13,155 12,474 Finished Goods 2,372 4,069 -------------- ----------------- $ 59,931 $ 60,759 Note 3--Supplemental Disclosure of Cash Flow Information Three Months Ended March 31, 1999 March 31, 1998 Cash paid during the period for: Interest $ 1,275 $ 978 Income taxes $ - $ 859 Conversion of notes payable to shareholders' equity $ - $ 1,398 Note 4--Restructuring In the fourth quarter of 1998, management initiated a plan to consolidate and close its Rocky Mountain Operations in Greeley, Colorado. Charges of $9,250,000 related to the closing were charged to operations for the year ended December 31, 1998. Additional costs associated with closure and sale of the facility will be incurred through the second quarter of 1999 or until the facility is sold. The restructuring involved the termination of approximately 140 employees of which 123 were manufacturing related and 17 6 administrative or indirect support personnel. Additionally, EFTC's relationships with a number of customers whose products were no longer going to be produced by EFTC were terminated. Total severance and salaries of employees performing exit activities amounted to $463,000 of which $263,000 was included in cost of goods sold and $200,000 in selling, general and administrative expenses in the fourth quarter of 1998. At March 31, 1999, all of these costs had been paid and no accrual was remaining that related to severance and exit activities. Inventory allowances of $5,445,000, which were included in cost of goods sold in the fourth quarter of 1998, were recorded to provide for losses to be incurred related to disengaged customers who did not continue as customers of the Company. At March 31, 1999, $717,046 remained as a reserve related to the disposition of this inventory. In addition, a provision of $3,342,000 was charged to operations in the fourth quarter of 1998 related to asset impairment for land, building and various equipment. At March 31, 1999, $1,722,800 of the provision remains, primarily related to the land and building. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provide information that EFTC's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein, as well as with the consolidated financial statements, notes thereto and the related management's discussion and analysis of financial condition and results of operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Results of Operations Net Sales. The Company's net sales increased by .2% to $54.3 million for the first quarter of 1999 compared to $54.2 million in the first quarter of 1998. Sales remained flat quarter over quarter but the product mix sold has changed significantly. EFTC's Rocky Mountain location closed in January of 1999, resulting in lower sales from the continuing operations which existed both in first quarter 1998 and 1999. However, because of the inclusion of our Northeast Operations and Midwest Operations, which were acquired in the last [two] quarters of 1998, sales overall remained neutral. Gross Profit. Gross profit decreased by 26.7% to $7.3 million for the quarter ended March 31, 1999 compared to $9.9 million for the same period last year. The gross profit percentage decreased to 13.4% for the quarter ended March 31, 1999 from 18.3% for the quarter ended March 31, 1998. The decline in gross profit and gross profit margin percentage is primarily associated with costs of the Rocky Mountain facility that were incurred in the first quarter of 1999 related to shutting down the facility, transferring inventory and equipment to other sites, and unprofitable operations in January of 1999 associated with final production for former customers. Selling, General and Administrative Expenses. Selling, general and administrative ("SGA") expense increased by 12.9% to $6.0 million for the first quarter ended March 31, 1999, compared with $5.3 million for the same period in 1998. As a percentage of net sales, SGA expense increased to 11.1% for the quarter ended March 31, 1999 from 9.8% from the quarter ended March 31, 1998. The increase in SGA costs is primarily due to increased costs of infrastructure added in the later part of 1998 in sales and marketing, operations, quality, and information technology areas that were not part of the Company in the first quarter of 1998. Management believes these additional investments will help the Company achieve additional sales growth without proportionate growth in SGA expenses. Operating Income. Operating income decreased to $.9 million for the quarter ended March 31, 1999 from $3.1 million for the quarter ended March 31, 1998. Operating income as a percentage of net sales decreased to 1.6% for the quarter ended March 31, 1999 from 5.8% for the quarter ended March 31, 1998. Excluding one-time merger costs of $1.0 million in the first quarter of 1998, operating income would have been $4.2 million or 7.7% of net sales. The decrease in operating income is primarily due to the costs of closing the Rocky Mountain facility. Interest Expense. Interest expense was $1.3 million for the quarter ended March 31, 1999, compared to $0.9 million for the same period in 1998. The increase in interest is primarily the result of the incurrence of debt associated with the growth of inventories and receivables that occurred with the Bayer/Agfa asset 8 purchase (the Northeast Operations) and the Allied Signal Kansas asset purchase (the Midwest Operations) that occurred in the fall of 1998. Income Tax Expense. The effective income tax rate for the quarter ended March 31, 1999 was 9.6%, including pro forma income taxes, compared to 55.1% for the same period in 1998. The Company's income tax rates are affected by the nondeductible goodwill amortization. Liquidity and Capital Resources At March 31, 1999, working capital totaled $59.4 million compared to $59.0 million at December 31, 1998. Cash used in operating activities for the quarter ended March 31, 1999, was $0.8 million compared to $2.4 million for the same period in 1998. Accounts receivable increased 3.3% to $35.2 million at March 31, 1999 from $34.1 million at December 31, 1998. Receivable turns (e.g., annualized sales divided by period end accounts receivable) decreased to 6.2 for the quarter ended March 31, 1999 from 6.6 for fiscal 1998. Inventories decreased 1.4% to $59.9 million at March 31, 1999 from $60.8 million at December 31, 1998. A comparison of inventory turns (i.e., annualized cost of sales divided by period end inventory) for the quarter ended March 31, 1999 compared to December 31, 1998 shows a decrease to 3.1 from 3.3. The Company used cash to purchase capital equipment totaling $2.3 million for the quarter ended March 31, 1999 compared to $9.5 million for the quarter ended March 31, 1998. The decrease is primarily attributable to construction payments for buildings and improvements in the Northwest, Southwest, and Rocky Mountain locations that were completed in 1998. The Company entered into a Credit Agreement, dated as of September 30, 1997 provided by Bank One, Colorado, N.A., (the "Bank One Loan"). The Bank One Loan currently provides for a $40 million revolving line of credit, maturing on September 30, 2000 and a $15.1 million term Loan maturing on September 30, 2002. The Bank One Loan currently bears interest at a rate based on either the London Inter- Bank Offering Rate (LIBOR) or Bank One prime rate plus applicable margins. Borrowings under the revolving facility are subject to limitation based on the value of the available collateral. The Bank One Loan is collateralized by substantially all of the Company's assets, including real estate and all of the outstanding capital stock and membership interests of the Company's subsidiaries, whether now owned or later acquired. As of March 31, 1999, the outstanding principal amount of borrowings under the Bank One Loan was $43.0 million and the amount available for borrowing was approximately $12.1 million. In September 1997, the Company issued to a director of the Company $15 million in aggregate principal amount of subordinated notes, with a maturity date of December 31, 2002 and bearing interest at LIBOR plus 2.0%, in order to fund the Allied Signal Florida/Arizona Asset Purchase. As of March 31, 1999, the outstanding principal amount of the subordinated notes is approximately $5 million. In April 1999, the Company acquired from Honeywell, Inc. certain assets associated with Honeywell's former Business and Commuter Aviation Systems (BCAS) operation in Phoenix, Arizona and entered into a long term supply agreement for the manufacture of circuit cards for Honeywell. The $3.5 million purchase price for the BCAS assets other than inventory was paid in April. The Company anticipates that the remainder of the purchase price, which is expected to exceed $7 million, will be paid in the third quarter. Honeywell and the Company are currently in discussions for similar arrangements for Honeywell's Air Transport Systems (ATS) operations in Phoenix and operations at a facility in Tijuana, Mexico. 9 Should Honeywell and the Company be successful in agreeing to the purchase of the ATS assets by the Company, the Company anticipates that the cost of acquiring those assets will exceed $35 million in the aggregate, and that approximately $6 million of the costs (for assets other than inventory) will be paid in the second quarter, with the approximately $30 million purchase price for inventory being paid over a six-month period beginning in October 1999. There can be no assurance that the Company and Honeywell will be successful in reaching agreement as to the ATS purchase or that, if agreement is reached, that the total acquisition costs will not exceed the amounts anticipated or that the terms of the acquisition will not be amended. In addition, the Company anticipates completing its acquisition of the AlliedSignal Kansas assets in the second and third quarters of 1999, with estimated inventory purchases in the aggregate amount of $3.5 million. The Company may require additional capital to finance enhancements to, or expansions of, its manufacturing capacity through internal growth or acquisitions in accordance with its business strategy. Management believes that the need for working capital will continue to grow at a rate generally consistent with the growth of the Company's operations. The Company believes that it can fund the purchase price for the remaining AlliedSignal Kansas inventory through the existing Bank One Loan, and is currently negotiating with its lender to increase the Bank One Loan in order to fund the acquisition costs and working capital requirements of the two Honeywell transactions. The Company is also considering other sources to provide additional working capital, and may seek additional funds, from time to time, through public or private debt or equity offerings, asset-based or bank borrowing or leasing arrangements; however, no assurance can be given that financing will be available on terms acceptable to the Company. During 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 130, "Reporting Comprehensive Income", Statement No.131, "Disclosures About Segments of an Enterprise and Related Information", Statement No. 132 "Employers Disclosures About Pensions and Other Postretirement Benefits" and, during 1998, Statement No. 134, Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." During 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities." The adoption of these pronouncements did not and is not expected to have a significant effect on the Company's financial position or results of operations. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), which is effective for fiscal quarters of fiscal years beginning after June 15, 1999. Statement No. 133 establishes accounting and reporting standards for derivative instruments, including some derivative instruments embedded in other contracts, and for hedging securities. The Company will adopt the statement's disclosure requirements in financial statements for the year ending December 31, 2000. The Year 2000 (Y2K) Issue The Y2K issue is a result of computer programs being written in the past using only a two digit year to save memory space, in lieu of a full four digit year. As a result, computer programs may recognize dates after the year 1999 as being 19XX instead of 20XX. If not corrected, this could create system failures or miscalculations causing disruptions in the operations of the Company and its suppliers and customers. 10 The Company has undertaken a project to address the Y2K issue across its operating units. The initial evaluation of all primary systems was completed by the end of 1998 with remediation scheduled for the first half of 1999. The Company anticipates that its primary standard networks, operating systems, Oracle and other packaged applications, and desktop systems are or will be compliant upon the implementation of currently pending upgrades. Systems that have Y2K issues are expected to be identified during the evaluation period. The Company intends to either update or replace these systems as they are identified. Any embedded program applications, such as machine controllers and building systems, are to be evaluated and the manufacturers contacted for remediation. This process has already begun at most sites, but is to be formalized as part of the Company's Y2K project. As part of the Company's Y2K project, the Company has contacted its significant suppliers and customers at the site or division level to determine the extent to which the Company is vulnerable to failure by those third party to remediate their Y2K issues. As part of the Company's overall Y2K project this activity is being tracked across the Company to more efficiently track activity with common customers and suppliers. The Company will continue to contact significant suppliers and customers throughout 1999 to follow-up on their progress. However, there can be no assurance that the systems of the other entities on which the Company's business relies will be timely converted or that failure to convert, or a conversion that is incompatible with the Company's own systems, will not have a material adverse affect on the Company and its operations. Expenditures in 1998 and the first quarter of 1999 for the Company's Y2K project did not significantly impact the Company's operating results. Management believes that expenditures in 1999 will not significantly impact the Company's operating results, assuming no significant Y2K issues are discovered in evaluating embedded technology. The Company's failure to resolve Y2K issues before December 31, 1999 could result in system failures or miscalculations causing disruptions in operations, including a temporary inability to manufacture products, process transactions, send invoices or engage in other normal business activities. Additionally, the failure of third parties upon whom the Company's business relies to timely remediate their Y2K issues could result in disruptions in the Company's supply of parts and materials, late or misapplied invoices, temporary disruptions in order processing and other general problems related to the Company's daily business operations. While the Company believes its Y2K project will adequately address the Company's internal Y2K issues, until the Company can assess the Y2K readiness of a more significant number of its suppliers and customers, the overall risks associated with Y2K remain difficult to accurately describe and quantify. Thus there can be no assurance that the Y2K issue will not have a material adverse effect on the Company's operations. The Company has initiated the contingency planning phase of the Y2K project. All mission critical items are expected to be compliant before year end or have contingency plans in place. The Company has added a Y2K compliance resource to coordinate compliance and remediation across all divisions. Items that are not mission critical to the Company, will continue to be addressed during the next two quarters. Final Y2K compliance and validation for non-critical items is expected to be complete by the end of the third quarter of 1999. 11 Special Note Regarding Forward-looking Statements Certain statements in this Report constitute "forward-looking statements" within the meaning of the federal securities laws. In addition, EFTC or persons acting on its behalf sometimes make forward-looking statements in other written and oral communications. Such forward-looking statements may include, among other things, statements concerning the Company's plans, objectives and future economic prospects, prospects for achieving cost savings, increased capacity utilization, improved profitability, and other matters relating to the prospects for future operations; and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of EFTC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Important factors that could cause such differences include, but are not limited to, changes in economic or business conditions in general or affecting the electronic products industry in particular, changes in the use of outsourcing by original equipment manufacturers, increased material prices and service competition within the electronic component, contract manufacturing and repair industries, changes in the competitive environment in which the Company operates, the continued growth of the industries targeted by the Company or its competitors or changes in the Company's management information needs, difficulties in implementing the Company's new management information system, difficulties in managing the Company's growth or in integrating new businesses, customers and production facilities, changes in customer needs and expectations, the Company's success in retaining customers affected by the closure of the Company's Greeley facility, the Company's success in limiting costs associated with such closure, the Company's ability to keep pace with technological developments, the risks associated with the Y2K issue, if the Company or its material vendors or customers do not adequately resolve their Y2K issues, governmental actions and other factors identified as "Risk Factors" or otherwise described in the Company's filings with the Securities and Exchange Commission. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The Company's Bank One Loan is comprised of a $40 million revolving line of credit and a $15.1 million term loan. As of March 31, 1999, the Company had borrowed an aggregate principal amount of $43.0 million. The interest rate on Bank One Loan is based either on the Bank One prime rate or the LIBOR, plus applicable margins. Therefore, as interest rates fluctuate, the Company may experience changes in interest expense that could impact financial results. To protect against the risk of interest rate fluctuations, the Company has entered into an interest rate swap agreement that covers its term loan and has effectively fixed the interest rate on the entire outstanding principal amount of the term loan at 6.25%, plus applicable margins pursuant to the loan agreement, through its maturity date of September 2002. If interest rates were to increase or decrease by 1%, the result would be an annual increase or decrease in interest expense of approximately $279,000 for the revolving line of credit. 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 the customer orders and product mix. Therefore, the Company's operating results for any particular quarter may not be indicative of the results for any future quarter of the year. 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Two legal proceedings, one in Colorado state court, the other in U.S. District Court, were filed against the Company and certain of its officers, directors and shareholders during September and October 1998. The proceedings arise in connection with the decrease in the trading price of the Company's common stock that occurred in August 1998 and make substantially the same allegations. While both proceedings are in the pre-trial stage and the Company therefore cannot make any assessment of their ultimate impact, the Company believes the allegations made in the proceedings to be totally without merit. Joshua Grayck, Philip and Angelique Signorelli, William McBride, Mark Norris, Michael Keister, and Aiming Kiao v. EFTC Corporation, Jack Calderon, Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman, L. Reid, and Lloyd McConnell (United States District Court for the District of Colorado, Case No. 98-S- 2178). Plaintiffs are shareholders of EFTC who originally filed this lawsuit on October 8, 1998. Plaintiffs filed an amended complaint on January 22, 1999. Plaintiffs allege that during the class period April 6, 1998 to August 20, 1998, defendants made false and misleading statements regarding EFTC's business performance, implementation of a new computer system, manufacturing quality systems, operating margins, relationships with its largest customers, and future prospects for earnings growth. The amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, as well as Section 11 of the Securities Act of 1933. In addition, plaintiffs allege that by reason of their positions as officers and/or directors of EFTC, Messrs. Calderon, Reid, Fuhlendorf and Hofmeister had the power and authority to cause EFTC to engage in the wrongful conduct alleged in the complaint. Plaintiffs allege, therefore, that EFTC and these individual defendants violated Section 20(a) of the Securities and Exchange Act of 1934 and Section 15 of the Securities Act of 1933. Plaintiffs seek the following relief: (a) certification of the complaint as a class action on behalf of all persons who purchased or otherwise acquired the common stock of EFTC between April 6, 1998 and August 20, 1998; (b) an award of compensatory damages, interest, costs and attorneys' fees to all members of the class; and (c) equitable relief available under federal and state law. Defendants moved to dismiss the case on March 8, 1999 on the grounds that the complaint is without merit. That motion is pending. Craig Anderson, Todd Sichelstiel, Phillip and Angelique Signorrelli, Christy J. Baldwin and Patricia Conlon v. EFTC Corporation, Jack Calderon, Gerald J. Reid, Stuart W. Fuhlendorf, Brent L. Hofmeister, August P. Bruehlman, Lucille A. Reid, Lloyd A. McConnell and Salomon Smith Barney (United States District Court for the District of Colorado, Case No. 99-S-63). Plaintiffs are shareholders of EFTC who filed this lawsuit originally in the District Court for the County of Weld, Colorado. Defendants removed the case to federal court on January 11, 1999. Plaintiffs allege that during the class period April 6, 1998 to August 20, 1998, defendants made false and misleading statements regarding EFTC's business performance, implementation of a new computer system, manufacturing quality systems, operating margins, relationships with its largest customers, and future prospects for earnings growth. The complaint alleges violations of Sections 11-51-501(1)(a, b, and c) and 11-51-604(3) of the Colorado Securities Act. In addition, plaintiff alleges that by reason of their positions as officers and/or directors of EFTC, Messrs. Calderon, Reid, Fuhlendorf, Hofmeister, Bruehlman, McConnell, and 13 Ms. Reid are controlling persons of EFTC and, therefore, that these defendants violated Section 11-51- 604(5) of the Colorado Securities Act. Plaintiffs also allege that defendants conduct occurred in connection with the offer, sale or purchase of EFTC securities in the secondary offering in violation of Section 11-51-604(4) of the Colorado Securities Act. Plaintiff seeks the following relief: (a) certification of the complaint as a class action on behalf of all persons who purchased or otherwise acquired the common stock of EFTC between April 6, 1998 and August 20, 1998; (b) an award of compensatory and/or punitive damages, interest, costs and attorneys' fees to all members of the class; and (c) equitable relief available under state law. After removal to federal court, on January 15, 1999, defendants moved to dismiss the Complaint pursuant to the Securities Litigation Uniform Standards Act of 1998, Pub. L. 105-353, in that the Complaint only asserts claims arising under the Colorado Securities Act, which are now pre-empted by federal law. Plaintiffs have filed a motion seeking to have the case remanded to state court. In any event, defendants deny the allegations of the complaint and intend to vigorously defend against the lawsuit. ITEM 2. Changes in Securities None ITEM 3. Defaults upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 5. Other Information None ITEM 6(a). Exhibits Exhibit Number 27.1 Financial Data Schedule ITEM 6(b). Reports on Form 8-K The Company did not file any report on Form 8-K during the three months ended March 31, 1999. 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EFTC CORPORATION (Registrant) Date: May 14, 1999 /s/ Jack Calderon ---------------------------------------- Jack Calderon Chairman and Chief Executive Officer Date: May 14, 1999 /s/ Stuart W. Fuhlendorf ---------------------------------------- Stuart W. Fuhlendorf Chief Financial Officer Date: May 14, 1999 /s/ Brent L. Hofmeister ---------------------------------------- Brent L. Hofmeister, CPA Controller 15 EX-27.1 2
5 1,000 3-MOS DEC-31-1999 MAY-31-1999 863 0 36,252 1,001 59,931 101,351 47,636 7,971 190,582 41,994 58,251 0 0 156 94,495 190,582 54,324 54,324 47,064 47,064 6,398 0 1,264 (364) 35 (329) 0 0 0 (329) (.02) (.02)
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