UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ ] 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 0-23332
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EFTC CORPORATION
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(Exact name of registrant as specified in its charter)
COLORADO
(State or other jurisdiction of incorporation of organization)
84-0854616
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(I.R.S. Employer Identification No.)
2501 West Grandview Road
Phoenix, Arizona
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(Address of principal executive offices)
85023
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(Zip code)
Registrant's telephone number, including area code: (602) 789-6600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g)
of the Act:
Common Stock
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 28, 2001, the number of outstanding shares of common
stock was 15,933,489. As of such date, the aggregate market value of the shares
of common stock held by non-affiliates, based on the closing price of the Common
Stock on the Nasdaq National Market, was approximately $30,828,330.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for its 2001 Annual Meeting of
Shareholders is incorporated by reference in Part III of this Form 10-K.
PART I.
Item 1. Business
General
EFTC Corporation (the "Company") is an independent provider of
electronic manufacturing services to original equipment manufacturers. The
Company focuses on high-mix solutions that target the aerospace, industrial
controls and instrumentation, medical equipment, semiconductor capital
equipment, networking and telecommunications equipment industries. The Company's
manufacturing services consist of assembling complex printed circuit boards
(using both surface mount and pin-through-hole technologies), cables,
electro-mechanical devices and finished products. High mix manufacturing
involves processing printed circuit board assemblies in small-lots (25-100
assemblies per production run) in a flexible manufacturing environment.
Business Combination Proposal
The Company announced on February 1, 2001 that its board of directors
had received a proposal from K*Tec Electronics Corporation ("K*Tec")
contemplating a business combination of the Company and K*Tec. K*Tec is a
privately held company which was purchased in October 2000 by an affiliate of
Thayer-BLUM Funding, L.L.C., the Company's principal shareholder. Although the
proposal contemplates a non-cash transaction, neither a specific structure,
exchange ratio, nor other terms and conditions of the business combination were
included in the non-binding K*Tec offer. The Company's board of directors has
appointed a special independent committee to consider the proposal and has
authorized the committee to engage financial and legal advisors. The committee
has engaged such advisors and is in the process of considering the proposal. The
proposed business combination is subject to the approval of the special
independent committee, the board of directors and shareholders, as well as a
number of other material conditions, including negotiation of a definitive
agreement and compliance with all applicable regulatory and governmental
requirements. Accordingly, there can be no assurance that the parties will
consummate the proposed business combination.
The Company and K*Tec have entered into a Management and Cross-Services
Agreement as of March 1, 2001 pursuant to which, pending completion of the
business combination or the rejection of the proposal, the Company will provide
K*Tec with executive support, supervisory and management services similar to
those customarily provided by chief executive and chief financial officers as
well as advice and assistance to the Board of Directors in the development and
execution of an operating and business plan for K*Tec. K*Tec will provide the
Company with certain marketing, sales support and information systems technology
and will pay the Company a monthly management fee of $20,000.
Recapitalization
On March 30, 2000, the Company completed the first stage of a
recapitalization transaction with Thayer-BLUM Funding, L.L.C. ("Thayer-BLUM
Funding"), an entity formed by affiliates of Thayer Capital Partners ("Thayer")
and BLUM Capital Partners ("BLUM"). The first stage of the recapitalization
involved the issuance of a total of $54 million in Senior Subordinated
Exchangeable Notes (the "March Exchangeable Notes"), which was closed on March
30, 2000. On July 14, 2000, the Company issued an additional $14 million of
Senior Subordinated Exchangeable Notes (the "July Exchangeable Notes") to
Thayer-BLUM Funding in the second stage of the transaction. As described below,
on August 23, 2000, the March and July Exchangeable Notes were exchanged for
Senior Subordinated Convertible Notes (the "Convertible Notes") and Series B
Convertible Preferred Stock (the "Convertible Preferred Stock"), respectively.
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The recapitalization also involved a tender offer by Thayer-BLUM
Funding that was completed on August 23, 2000 for 5,625,000 shares of the
Company's outstanding common stock at a price of $4.00 per share. Upon the
completion of the final stage of the recapitalization, Thayer-BLUM Funding
obtained the right to designate a majority of the members of the Company's board
of directors and to approve any significant financings, acquisitions and
dispositions.
The March and July Exchangeable Notes initially provided for an
interest rate of 15% and were accompanied by warrants to purchase 3,093,154
shares of the Company's common stock at an exercise price of $.01 per share.
However, since shareholders approved the issuance of the Convertible Notes and
the Convertible Preferred Stock and the tender offer was consummated, the
warrants never became exercisable and expired.
Upon receipt of shareholder approval, the March Exchangeable Notes were
exchanged for the Convertible Notes in the principal amount of $57,284,850. The
Convertible Notes provide for interest at 8.875%, payable in kind, and may be
converted into the Company's common stock at $2.58 per share, subject to
adjustment. The July Exchangeable Notes were exchanged for the Convertible
Preferred Stock that accrues dividends, compounded quarterly, at 8.875% on the
liquidation preference thereof. The liquidation preference of the Convertible
Preferred Stock was initially equal to $14,233,333 (the aggregate principal
balance of the July Exchangeable Notes plus accrued interest through August 22,
2000). The Convertible Preferred Stock is convertible into the Company's common
stock at $1.80 per share.
On March 30, 2000, the Company entered into a new credit agreement with
Bank of America, N.A. to refinance the Company's revolving line of credit with
the Company's previous lender. The new credit facility provides for a $45
million revolving line of credit with a maturity date of March 2003. Initially,
the interest rate is the prime rate plus .5%. Total borrowings are subject to
limitation based on a percentage of eligible accounts receivable and
inventories, and substantially all of the Company's assets are pledged as
collateral for outstanding borrowings. The credit agreement requires compliance
with certain financial and non-financial covenants.
Acquisitions and Dispositions
Acquisitions
Northwest Operations Division. On February 24, 1997, the Company
acquired two affiliated entities, Current Electronics, Inc., an Oregon
corporation, and Current Electronics (Washington), Inc., a Washington
corporation, for total consideration of approximately $10.9 million, consisting
of 1,980,000 shares of Company common stock and approximately $5.5 million in
cash, including approximately $600,000 of transaction costs. During 1998, the
Company completed construction of a new manufacturing facility in Newberg,
Oregon at a total cost of approximately $7.0 million. The Newberg facility along
with one in Moses Lake, Washington comprises the Company's Northwest Operations
Division.
AlliedSignal Asset Purchase. During the period from August 1997 through
February 1998, the Company completed two transactions with AlliedSignal, Inc.,
now Honeywell International Inc. ("Honeywell") pursuant to which the Company
acquired inventories and equipment located in Fort Lauderdale, Florida and
Tucson, Arizona for an aggregate purchase price of approximately $19.0 million.
In connection with these activities, the parties entered into a long-term supply
agreement for the production of circuit card assemblies. Both these facilities
were closed in 2000.
3
EFTC Services Division. The Company acquired the Services Division in
September 1997 for approximately $35.7 million, consisting of 1,858,975 shares
of the Company's common stock and approximately $26.5 million in cash. The
Services Division had facilities in Memphis, Tennessee, Louisville, Kentucky and
Tampa, Florida and specialized in transportation hub-based warranty and repair
services for companies engaged in the computer and communications industries.
This division was sold in September 1999.
EFTC Express Division. In March 1998, the Company acquired RM
Electronics, Inc., doing business as Personal Electronics ("Personal"), in a
business combination accounted for as a pooling of interests. The Company issued
1,800,000 shares of common stock in exchange for all of the outstanding common
stock of Personal. Personal is based in Manchester, New Hampshire and
specializes in the quick turn, front-end prototype development, low volume, and
end-of-life high mix assembly services. Personal comprises the Company's EFTC
Express Division.
Northeast Operations Division. In September 1998, the Company acquired
the circuit card assembly operations of the Agfa Division of Bayer Corporation.
The Company purchased inventory and equipment for approximately $6.0 million and
the parties entered into a long-term supply agreement for the manufacture of
circuit card assemblies. This business is conducted in the Company's leased
facility in Wilmington, Massachusetts and comprises the Northeast Operations
Division.
Midwest Operations Division. In September 1998, the Company purchased
manufacturing equipment for approximately $1.5 million from AlliedSignal. In
connection with this transaction, AlliedSignal agreed to amend the existing
long-term supply agreement it has with the Company to include the production of
circuit card assemblies at the Company's new facility in Ottawa, Kansas. The
Kansas facility comprises the Company's Midwest Operations Division.
Southwest Commercial Operations Division. In March 1999, the Company
entered into a ten-year supply agreement with Honeywell that included the
acquisition of certain assets and inventory used in circuit card assembly
manufacturing. For the year ended December 31, 2000 and 1999, sales under this
agreement amounted to approximately $166 million and $28 million, respectively.
The manufacturing activities under this agreement are conducted in the Company's
leased facility in Phoenix, Arizona and a smaller facility in Tijuana, Mexico.
These facilities comprise the Company's Southwest Commercial Operations
Division. Effective November 2000, the supply agreement was replaced by a
memorandum of understanding which will govern the relationship between the
parties until the earlier of (i) implementation of a new contract or (ii)
October 31, 2001.
Relocation or Closure of Certain Facilities
Corporate Headquarters. In July 2000, the Company announced its plan to
relocate its corporate headquarters from Denver, Colorado to the Company's
existing Phoenix, Arizona site, the Company's largest manufacturing facility.
The move was completed by the end of 2000.
Greeley, Colorado. In December 1998, the Company announced a plan to
close the Rocky Mountain Division located in Greeley, Colorado and to
consolidate the remaining business into other facilities, in an effort to
improve capacity utilization and profitability. In October 1999, the Company
completed the sale of the building in Greeley for net proceeds of approximately
$3.8 million.
Sale of Services Division. On September 1, 1999, the Company sold
substantially all of the assets of its Services Division for approximately $28.1
million. In connection with this sale, the purchaser and the Company agreed to
an Earn-out Contingency (the "EC"). Under the EC, if the earnings for the year
ended August 31, 2000 related to the division sold are in excess of $4,455,000
("Target Earnings"), the Company would have been entitled to an additional
4
payment equal to three times the difference between the actual earnings and
Target Earnings. If actual earnings were less than Target Earnings, the Company
would have been required to refund an amount equal to three times the
difference. The maximum amount that either party would have been required to pay
under the EC was $2.5 million. In October 2000, the purchaser notified the
Company that actual earnings exceeded Target Earnings by $619,000, resulting in
an additional payment to the Company of $1,857,000 in December 2000.
Fort Lauderdale, Florida. In September 1999 the Company initiated a
plan to close its facility in Fort Lauderdale and consolidate the business from
that plant into three other EFTC facilities. In an effort to improve
company-wide utilization, Ft. Lauderdale was closed as a result of its higher
cost structure and the added benefits of transferring this business to
facilities that were in closer proximity to the affected customers. The Ft.
Lauderdale restructuring activities were substantially complete in the second
quarter of 2000.
Tucson, Arizona. In December 1999, the Company commenced negotiations
with Honeywell International, Inc. for the sale of inventory and equipment at
the Company's facility in Tucson and the sublease of the facility to Honeywell.
This sale closed in February 2000 and provided net proceeds to the Company of
$12.7 million.
Manufacturing Services
The Company provides a variety of manufacturing services ranging from
the assembly of printed circuit cards to the full box-level integration of
circuit cards, cables, harnesses and electro-mechanical assemblies. These and
the following services are performed at the Company's various manufacturing
locations that have obtained or are in the process of obtaining ISO-9002
certification from the International Organization of Standards.
Material Services. The Company consults with its customers and their
suppliers early in the component selection process. This early supplier
involvement works to ensure an efficient supply stream that focuses not only on
cost but also on availability of components and component life cycle. When
material obsolescence affects its customers' designs, the Company can provide
recommendations on alternative components through its Component Engineering
group.
Prototype Manufacturing Services. The Company provides two locations
specializing in quick-turn manufacturing and prototype services that provide
customers with 24 hour to 10-day turns. Personal Electronics, located in
Manchester, New Hampshire, and the Company's new prototype manufacturing
operation, located in Phoenix, Arizona, both provide full turnkey solutions with
a high degree of customer service.
Design Services. The Company also contributes to its customers' product
design by providing "concurrent engineering," "design for manufacturability" and
"design for testability" reviews. These reviews engage the Company's engineering
group with the Company's customers early in the design process to reduce
variation, cost and complexity in new designs. Upon completion of the design,
the Company also offers third party design services to assist its customers in
getting their product to market.
Manufacturing Processes. The Company's manufacturing methodology is
central to supporting high mix manufacturing. While typical high volume
manufacturing companies use long high-volume runs to recover costs incurred in
the initial set-up for the manufacturing process, the Company's high mix
manufacturing technique focuses on parallel processing and setup reductions in
order to reduce initial set-up investments.
5
Testing Services. The Company offers in-circuit, functional and
environmental test screening. These tests verify that components have been
properly placed and electrical continuity exists at the proper places on the
circuit card. Functional testing is performed on the in-circuit testers or
separate test adapters and verifies the board or system is in compliance with
customer specifications. Environmental tests determine how the product will
function at various temperatures and seeks to identify and remove any latent
defects that might appear later in the product life cycle.
Customers and Sales
The Company seeks to serve traditional high mix OEMs and OEMs that
produce high-volume products. The Company's sales force is located regionally,
and the Company's sales approach is designed to align the Company's sales
efforts in close proximity to its customers and the Company's regional
manufacturing facilities. The Company continues to focus on the following
markets: (1) aerospace; (2) industrial controls and instrumentation; (3)
networking and telecommunications equipment; and (4) medical equipment and (5)
semiconductor capital equipment.
The following table presents the Company's net sales for manufacturing
services by industry segment for the years ended December 31, 2000, 1999 and
1998:
2000 1999 1998
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Aerospace 74% 60% 46%
Industrial controls and instrumentation 11% 19% 18%
Networking and telecommunications equipment
9% 6% 5%
Computer-related products 2% 14% 28%
Medical equipment, semiconductor capital
equipment and other 4% 1% 3%
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Total 100% 100% 100%
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Sales to significant customers as a percentage of total net sales for
the years ended December 31, 2000, 1999 and 1998, were as follows:
2000 1999 1998
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AlliedSignal, Inc. -- 46% 42%
Honeywell, Inc. 73% 10% 3%
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Pro Forma Combined 73% 56% 45%
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In December 1999, AlliedSignal and Honeywell completed their merger and
the combined company was named Honeywell International, Inc. The pro forma
disclosure above presents the customer concentration as if the merger had
occurred on January 1, 1998. The Company historically has relied on a small
number of customers to generate a significant percentage of its revenue. During
2000, the Company's ten largest customers accounted for 93% of the Company's net
revenue. The loss of Honeywell as a customer would, and the loss of any
significant customer could, have a material adverse effect on the Company's
financial condition and results of operations.
In December 2000, Honeywell announced a merger with General Electric
Company. In January 2001, the Honeywell shareholders approved the merger;
however, the consummation of the merger is subject to regulatory approvals and
other customer closing conditions. The effect of the merger on the Company's
6
relationship with Honeywell and the volume of business with Honeywell can not be
determined at this time.
In addition, the Company holds significant accounts receivable from
sales to certain customers. At December 31, 2000, approximately 69% of the
Company's net trade receivables were due from Honeywell and 5% of net trade
receivables were due from Bayer Corporation. The insolvency or other inability
of a significant customer to pay outstanding receivables could have a material
adverse effect on the Company's results of operations and financial condition.
If the Company is not able to expand its customer base, the Company
will continue to depend upon one customer for a significant percentage of its
net sales. Despite existing contractual arrangements, there can be no assurance
that current customers, including Honeywell, or future customers of the Company,
will not terminate their manufacturing arrangements with the Company or
significantly change, reduce or delay the amount of manufacturing services
ordered from the Company.
As is typical in the electronic manufacturing services industry, the
Company frequently does not obtain long-term purchase orders or commitments from
its customers, but instead works with them to develop nonbinding forecasts of
the future volume of orders. Based on such nonbinding forecasts, the Company
makes commitments regarding the level of business that it will seek and accept,
the timing of production schedules and the levels and utilization of personnel
and other resources. A variety of conditions, both specific to each individual
customer and generally affecting each 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, except, in some cases, for payment for services
rendered, materials purchased and, in limited circumstances, charges associated
with such cancellation, reduction or delay. Significant or numerous
cancellations, reductions or delays in orders by customers would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Backlog
Although the Company obtains firm purchase orders from customers, most
customers do not place firm purchase orders for products until 30-90 days prior
to the delivery date for the finished goods. Backlog covered by firm purchase
orders does not demonstrate a meaningful projection of the Company's future
sales since orders may be modified or canceled. Accordingly, backlog information
is not presented herein.
Competition
Competition in the electronic manufacturing services industry is
intense. The contract manufacturing services provided by the Company are
available from many independent sources. The Company also competes with in-house
manufacturing operations of current and potential customers. The Company
competes with numerous domestic and foreign EMS firms, including SCI Systems,
Inc., Solectron Corporation, Benchmark Electronics, Inc., Plexus Corp., Group
Technologies Corporation, Sanmina Corporation, Flextronics International Ltd.,
ACT Manufacturing, Inc., Manufacturers Services, Ltd. and others. The Company
also faces competition from its current and potential customers, who are
continually evaluating the relative merits of internal manufacturing versus
contract manufacturing for various products. Certain of the Company's
competitors have broader geographic presence than the Company, including
manufacturing facilities in foreign countries. Many of such competitors are more
established in the industry and have substantially greater financial,
manufacturing or marketing resources than the Company. The Company believes that
7
the principal competitive factors in its targeted market are quality,
reliability, ability to meet delivery schedules, technological sophistication,
geographic location and price.
Suppliers
The Company uses numerous suppliers of electronic components and other
materials for its operations. From time to time, some components used by the
Company have been subject to shortages, and suppliers have been forced to
allocate available quantities among their customers. Such shortages have
disrupted the Company's operations in the past, which has resulted in incomplete
or late shipments of products to the Company's customers. The Company's
inability to obtain any needed components during future periods of allocations
could cause delays in shipments to the Company's customers and could adversely
affect results of operations. The Company attempts to mitigate the risks of
component shortages by working with customers to delay delivery schedules or by
working with suppliers to provide the needed components using just-in-time
inventory programs.
Patents and Trademarks
The Company currently has two registered trademarks, which consist of
"EFTC" and "APM" (including the related design) and two unregistered trademarks
that consist of "APM" and "Asynchronous Process Manufacturing." The Company's
management does not believe that patent or trademark protection is material to
the Company's business.
Governmental Regulation
The Company's operations are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management,
health and safety matters, and there can be no assurance that material costs and
liabilities will not be incurred in complying with those regulations or that
past or future operations will not result in exposure to injury or claims of
injury by employees or the public. To meet various legal requirements, the
Company has modified its circuit board cleaning processes to utilize only
aqueous (water-based) methods in its cleaning processes.
Some risk of costs and liabilities related to these matters is inherent
in the Company's business, as with many similar businesses. Management believes
that the Company's business is operated in substantial compliance with
applicable environmental, waste management, health and safety regulations, the
violation of which could have a material adverse effect on the Company. In the
event of violation, these regulations provide for civil and criminal fines,
injunctions and other sanctions and, in certain instances, allow third parties
to sue to enforce compliance. In addition, new, modified or more stringent
requirements or enforcement policies could be adopted that may adversely affect
the Company.
The Company periodically generates and temporarily handles limited
amounts of materials that are considered hazardous waste under applicable law.
The Company contracts for the off-site disposal of these materials.
Employees
As of December 31, 2000, the Company had 1,863 full-time equivalent
employees, of whom 1,248 were engaged in manufacturing operations services, 549
in material handling and procurement, and 66 in finance, sales and
administration. The Company also engaged the full-time services of 410 temporary
laborers through employment agencies in manufacturing and operations. None of
the Company's employees is subject to a collective bargaining agreement.
Management believes that the Company's relationship with its employees is good.
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Special Considerations
Dependence on Honeywell. During 2000, Honeywell accounted for
approximately 73% of the Company's net revenues and at December 31, 2000,
approximately 69% of the Company's net trade receivables were due from
Honeywell. For the year ending December 31, 2001, the Company expects that
Honeywell will continue to account for a significant concentration of the
Company's business. Effective November 2000, the Company's ten-year supply
agreement with Honeywell was replaced with a Memorandum of Understanding which
will govern the relationship between the parties until the earlier of (i)
implementation of a new contract or (ii) October 31, 2001. There can be no
assurance that a new contract with Honeywell can be negotiated in a timely
manner, or at all, or that such contract can be negotiated on terms favorable to
the Company. In December, 2000, Honeywell announced a merger with General
Electric Company. In January 2001, the Honeywell shareholders approved the
merger; however, the consummation of the merger is subject to regulatory
approvals and other customary closing conditions. The effect of the merger on
the Company's relationship with Honeywell and the volume of business with
Honeywell can not be determined at this time. The loss of Honeywell as a
customer, a decline in the volume of business with Honeywell, implementation of
less favorable terms for the business with Honeywell, or Honeywell's insolvency
or inability or unwillingness to pay outstanding receivables in a timely manner,
would have a material adverse effect on the Company's results of operations and
financial condition.
Acquisition Strategy. The Company has actively pursued in the past, and
expects to actively pursue in the future, including consideration of the
business combination proposal from K*Tec, acquisitions in furtherance of its
strategy of expanding its operations, geographic markets, service offerings,
customer base and revenue base. Acquisitions involve numerous risks, including
difficulties in the integration of the operations, technologies, products and
services of the acquired companies and assets, the diversion of management's
attention and the Company's financial resources from other business activities,
the potential to enter markets in which the Company has no or limited prior
experience and where competitors in such markets have stronger market positions
and the potential loss of key employees and customers of the acquired companies.
In addition, during the integration of an acquired company, the financial
performance of the Company will be subject to the risks commonly associated with
an acquisition, including the financial impact of expenses necessary to realize
benefits from the acquisition and the potential for disruption of operations.
The Company may incur significant amounts of indebtedness in connection with
future acquisitions. Future acquisitions may also involve potentially dilutive
issuances of equity securities. There can be no assurance that the Company will
be able to identify suitable acquisition opportunities, to price such
acquisition opportunities properly, to consummate acquisitions successfully or
integrate acquired personnel and operations into the Company successfully.
Control by Thayer-BLUM Funding. After completion of the
recapitalization, Thayer-BLUM Funding now owns and is able to vote a majority of
the outstanding common stock of the Company based upon the number of shares
outstanding on February 28, 2001. With such share ownership, Thayer-BLUM Funding
is able to assure approval of any matters presented to a shareholder vote that
it wishes to approve, including electing the directors that it chooses.
Thayer-BLUM Funding is an entity established by affiliates of Thayer
Capital Partners and BLUM Capital Partners to hold securities of the Company and
is controlled solely by such affiliates. These entities in turn are controlled
by Thayer Capital Partners and BLUM Capital Partners.
Thayer Capital Partners is a private equity investment firm based in
Washington, DC. Thayer manages two private equity funds with more than $1.2
billion under management. The firm focuses on buyouts and growth equity
9
investments in four primary industries: information technology and services,
electronics and outsourced manufacturing, travel and leisure services, and
outsourced business services.
BLUM Capital Partners is a San Francisco-based private equity and
strategic block investment firm, which manages in excess of $3 billion in
capital both domestically and internationally. BLUM has invested in a wide
variety of businesses and has been successful initiating value-enhancing
strategies, including going-private transactions, equity infusions to either
restructure a balance sheet or provide growth capital, share repurchases,
acquisition programs, and business unit divestitures.
Management Information System and Outsourcing Arrangement. The
Company's management information system (the "MIS System") is based on
commercially available Oracle software products, that is designed to track and
control all aspects of its manufacturing services, as well as the Company's
financial accounting applications. The Company has outsourced its Oracle hosting
platform and its other information technology functions to a third party
provider. There can be no assurance that the MIS System will continue to operate
as designed or provide the Company's operations any additional efficiency. If
the MIS System fails to operate as designed or the Company's business processes
are not properly integrated with the MIS System, or the third party provider
does not perform functions properly or at all, the Company's operations could be
disrupted in a variety of ways including lost orders, orders that can not be
filled in a timely manner, inventory shortfalls and excess inventories, any or
all of which could result in lost customers and revenues. In addition, the
Company could be required to write-off costs associated with the MIS System if
the system acquisition and implementation costs are considered to be impaired.
Such disruptions or events could adversely affect results of operations and the
implementation of the Company's high mix manufacturing strategy.
Integration of Systems; Management of New Facilities. The Company
acquired or opened ten new facilities during 1997 and 1998, and two facilities
were opened in 1999. During 1999 the Company sold or closed four facilities and
two more facilities were closed in the first half of 2000. The Company's
expansion into new facilities across the country placed a significant strain on
the Company's management information, operating and financial systems, as well
as the Company's management resources. In order to maintain and improve results
of operations, the Company's management will be required to better integrate
these facilities, as well as any new facilities acquired in any future business
combinations, such as the one proposed by K*Tec, into the Company's existing
systems and management structure. The Company needs to continue to implement and
improve its management information, operating and financial systems and internal
controls, to attract and retain qualified management personnel, to develop the
management skills of its managers and supervisors and to train, motivate and
manage its employees. The Company's failure to effectively integrate and manage
its facilities could adversely affect the Company's results of operations.
New Management Team. The Company's entire senior management team has
only been working together since the completion of the initial stage of the
recapitalization by Thayer-BLUM, in July 2000. The Company's Chief Executive
Officer, Chief Financial Officer and Senior Vice President of Operations all
joined the Company in July 2000. If the management team cannot successfully work
together, the Company may not be able to execute its business strategy
successfully or compete effectively. Any failure to manage the Company's
operations or any proposed expansion effectively could harm the Company's
business.
Diversion of Management Attention. The Company and K*Tec have entered
into a Management and Cross-Services Agreement pursuant to which the Company
will provide executive support, supervisory and management services to K*Tec
similar to those customarily provided by chief executive and chief financial
officers as well as advice and assistance to the Board of Directors of K*Tec in
the development and execution of an operating and business plan for K*Tec.
Providing these services, as well as performing due diligence and handling
various other matters related to the K*Tec business combination proposal may
divert the attention of the management team from the day-to-day business and
operations of the Company which may disrupt or harm the Company's business and
operations or not enable the Company's business to grow or expand efficiently or
quickly.
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Item 2. Description of Property
The following table describes the Company's material properties during
2000.
Year Acquired/ Approximate Owned/
Location Opened Size Leased (1) Primary Services
-------- ------ ---- ---------- ----------------
Newberg, Oregon 1998 65,000 square feet Leased (2) Manufacturing
Moses Lake, Washington 1997 20,000 square feet Leased (3) Manufacturing
Ft. Lauderdale, Florida* 1997 97,000 square feet Subleased(4) Manufacturing
Tucson, Arizona * 1998 65,000 square feet Leased (5) Manufacturing
Phoenix, Arizona 1999 99,000 square feet Leased (6) Manufacturing
Phoenix, Arizona 1999 46,000 square feet Leased (6) Manufacturing and Executive Offices
Tijuana, Mexico 1999 30,000 square feet Leased (7) Manufacturing
Manchester, New Hampshire 1998 19,000 square feet Leased (8) Manufacturing
Wilmington, Massachusetts 1998 54,000 square feet Subleased (9) Manufacturing
Ottawa, Kansas 1998 40,000 square feet Owned (10) Manufacturing
Denver, Colorado * 1997 18,000 square feet Leased (11) Former Executive Offices
The Company believes its facilities are in good condition.
---------------
* This facility was closed by the Company in 2000.
(1) Pursuant to the terms of the Bank of America, N.A. Loan (as defined
below), substantially all of the Company's owned and leased property is
subject to liens and other security interests in favor of Bank of America
("Bank of America"), and any other lenders from time to time under the
Bank of America Loan.
(2) The Company purchased approximately 12 acres of land from an unaffiliated
third party and built a 65,000 square foot facility in Newberg, Oregon.
This facility was sold to a related party in December 1998 and was leased
back by the Company. The lease term is for 5 years.
(3) This facility is leased from an unaffiliated third party on a year-to-
year basis.
(4) The Company subleased a 97,000 square foot portion of a building from
Honeywell. In September 1999 the Company initiated a plan to consolidate
and close its operations in Fort Lauderdale, Florida. This sublease
agreement was terminated in April 2000.
(5) The Company purchased approximately 20 acres of land and a 65,000 square
foot building in Tucson, Arizona, for $1.8 million. The Company remodeled
and moved into the facility in February 1998. This facility was sold to a
related party in December 1998 and was leased back by the Company. The
lease term is for 5 years. The Company sold the assets and inventory
located at this facility to Honeywell in February 2000. Honeywell has
agreed to sublease the facility from the Company for at least 18 months
at the same cost as the Company pays to the landlord, with an option to
extend the term until December 2003 when the Company's primary lease term
expires.
(6) The Company leases two facilities that comprise 145,000 square feet from
an unrelated third party. The lease expires in July 2007 with two
additional option terms of 5 years each. During 2000, the Company
dedicated approximately 14,000 square feet of one of the buildings for
new executive offices.
(7) The Company utilizes this facility through a contractual arrangement with
an unrelated third party. This arrangement continues through July 2001,
and may be extended at the Company's option for subsequent one-year
periods.
(8) The Company leases a 19,000 square foot facility from an unrelated
third party. The lease expires in August 2001.
(9) The Company subleases a 54,000 square foot facility from Bayer-Agfa on a
year-to-year basis until March 31, 2003. The Company has provided notice
to its landlord that it will vacate this facility in March 2001 and
continues to occupy the space. The Company is in the process of locating
a new facility in Massachusetts.
(10) The Company purchased a 40,000 square foot facility from Honeywell,
remodeled this facility and commenced manufacturing operations in the
facility in December 1998.
(11) This facility is leased from an unaffiliated party through January 31,
2005. The Company has identified a tenant interested in subleasing a
portion of this space and is working to identify a tenant for the
remaining space.
11
Item 3. Legal Proceedings
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).
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 (District Court for the County of
Weld, Colorado, Case No. 99-CV-962).
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 arose in
connection with the decrease in the trading price of the Company's common stock
that occurred in August 1998 and made substantially the same allegations. The
Company has reached a settlement of all claims in the above-entitled lawsuits.
An order approving the terms of the settlement was approved by the state court
on August 31, 2000. On September 29, 2000, the parties filed a motion in federal
court to dismiss all claims with prejudice.
Pursuant to the settlement agreement with plaintiffs, in April 2000, the Company
transferred $3.1 million to the class settlement fund and the Company will issue
a total of 1.3 million shares of its common to members of the class and their
counsel once the procedures set forth in the settlement are completed. In
addition, the Company's insurer also contributed $2.9 million to the class
settlement fund. To date the Company has issued 390,000 shares of common stock
to plaintiff's counsel, per the terms of the settlement agreement. The Company
will issue the remaining 910,000 shares of common stock following completion of
the claims administration process by plaintiff's counsel.
Item 4. Submission of Matters to a Vote of Security Holders
On October 2, 2000, the Company held its Annual Meeting of Shareholders
for the purpose of: (i) electing one Class I director to serve until the 2001
annual meeting of shareholders, two Class II directors to serve until the 2002
annual meeting of shareholders, and two Class III directors to serve until the
2003 annual meeting of shareholders, (ii) approving an amendment to the
Company's Amended and Restated Articles of Incorporation eliminating the special
shareholder voting requirements applicable to certain transactions between the
Company and shareholders that beneficially own 10% or more of the Company's
voting stock, and (iii) ratifying the appointment of KPMG LLP as independent
auditors for the Company for the fiscal year ended December 31, 2000. Proxies
for the meeting were solicited pursuant to Section 14(a) of the Securities
Exchange Act of 1934 and there was no solicitation in opposition to these
solicitations.
12
In connection with the proposal for the election of directors, all of the
directors were elected based on the affirmative vote of the majority of the
total votes cast on the proposal as follows:
Number of Shares Voted:
----------------------------------
In Favor Against Abstained
Class I Director (term expires in 2001):
James K. Bass 14,951,710 300 --
Class II Directors (term expires in 2002):
Douglas P. McCormick 14,951,710 300 --
Jose S. Medeiros 14,951,710 300 --
Class III Directors (term expires in 2003):
Jeffrey W. Goettman 14,951,710 300 --
John C. Walker 14,951,710 300 --
The Company's other Class I directors are Richard L. Monfort and Allen S.
Braswell, Jr. The Company's other Class II director is Jack Calderon, who has
announced his resignation as a director effective March 31, 2001.
In connection with the proposed amendment to the Company's Amended and Restated
Articles of Incorporation eliminating the special shareholder voting
requirements applicable to certain transactions between the Company and
shareholders that beneficially own 10% or more of the Company's voting stock,
14,945,616 shares were voted in favor of the proposal, 1,394 shares were voted
against and 5,000 shares abstained from voting on the proposal. Accordingly, the
proposal was approved by the affirmative vote of a majority of the total votes
cast on this matter.
In connection with the proposal ratifying the appointment of KPMG LLP as
independent auditors for the Company for the fiscal year ended December 31,
2000, 14,952,010 shares were voted in favor of the proposal, no shares were
voted against and no shares abstained from voting on the proposal. Accordingly,
the proposal was approved based on the affirmative vote of the majority of the
total votes cast on the proposal.
For the Annual Meeting of Shareholders, the total outstanding shares of common
stock that were entitled to vote amounted to 15,933,489 shares. Additionally,
each outstanding share of Series B Convertible Preferred Stock was entitled to
the number of votes equal to the number of shares of common stock into which
each share of Series B Convertible Preferred Stock was convertible on the record
date, resulting in an additional 7,936,169 shares entitled to vote on the
proposals. Accordingly, the total shares entitled to vote on the proposals
amounted to 23,869,658 shares and the number of outstanding shares that were
represented by proxy amounted to 14,952,010 shares, or 62.6%.
13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock is quoted on the Nasdaq National Market
under the symbol "EFTC". On February 28, 2001, there were approximately 269
shareholders of record of the Company's Common Stock.
The following table sets forth the high and low sale prices for the
Company's common stock, as reported on the Nasdaq National Market, for the
quarters presented.
2000 Sales Prices 1999 Sale Prices
-------------------- -------------------
High Low High Low
---- --- ---- ---
First Quarter $3.22 $2.00 $5.75 $3.38
Second Quarter 3.19 1.69 6.75 4.00
Third Quarter 3.06 1.94 5.19 2.63
Fourth Quarter 2.06 1.03 3.59 1.50
Dividends
The Company has never paid dividends on its common stock and does not
anticipate that it will do so in the foreseeable future. The future payments of
dividends, if any, on common stock is within the discretion of the Board of
Directors and will depend on the Company's earnings, capital requirements,
financial condition and other relevant factors. However, the Company's loan
agreement with Bank of America as well as terms of the Convertible Notes
prohibits payment of dividends without the lender's consent.
Recent Sales of Unregistered Securities.
On March 31, 1998, the Company acquired Personal Electronics which
provided quick-turn, small scale, high mix electronic manufacturing services to
OEMs in the greater Boston area and New Hampshire for total consideration of
1,800,000 shares of the Company's common stock. The Company determined that the
issuance of such shares was exempt from registration under Section 4(2) of the
Securities Act, as a transaction by the issuer not involving a public offering
because the transaction involved the acquisition of a business from the owners
thereof based on private negotiations.
In November 1999, the Company issued to Richard L. Monfort, a director
of the Company, $5 million in subordinated notes. These notes bore interest at
10% and matured on March 30, 2000. The proceeds of these subordinated notes were
used for general operating purposes. On March 30, 2000, the Company repaid $2
million (plus accrued interest on the full $5 million) of the outstanding $5
million. The note agreement was amended to provide for issuance of $3 million in
aggregate principal amount of subordinated notes, with a maturity date of March
30, 2004 and bearing interest at 10%. The Company determined that the issuance
of the subordinated notes was exempt from registration under Section 4(2) of the
Securities Act because it involved a director of the Company.
In December 1999, the Company issued warrants to purchase an aggregate
of 10,000 shares of the Company's common stock at a price of $4.00 per share to
a financial advisor as additional consideration for services rendered to the
Company. The Company determined that the issuance of such warrant was exempt
from registration under Section 4(2) of the Securities Act.
14
On March 30, 2000, in connection with the recapitalization described in
Item 1, the Company issued $54 million of Senior Subordinated Exchangeable Notes
due on June 30, 2006, with paid in kind interest at 15%. Upon consummation of
the recapitalization on August 23, 2000, the Exchangeable Notes were exchanged
for $57,284,850 in principal amount of Senior Subordinated Convertible Notes due
June 30, 2006, with paid in kind interest at 8.875%. The Convertible Notes, plus
accrued interest, are convertible to common stock at $2.58 per share. These
notes were accompanied by warrants to purchase 3,093,154 shares of the Company's
common stock at an exercise price of $0.01 per share. These warrants never
became exercisable and expired. The Company determined that the issuance of the
subordinated notes and warrants was exempt from registration under Section 4(2)
because the transaction involved a negotiated purchase of securities by an
accredited investor.
In April 2000, the Company issued warrants to purchase an aggregate of
525,000 shares of the Company's common stock at a price of $3.00 per share to
two financial advisors as additional consideration for services rendered to the
Company. The Company determined that the issuances of such warrants were exempt
from registration under Section 4(2) of the Securities Act.
On July 14, 2000, in connection with the recapitalization described in
Item 1, the Company issued an additional $14 million of Senior Subordinated
Exchangeable Notes due on June 30, 2006, with paid in kind interest at 15%. Upon
consummation of the recapitalization on August 23, 2000, the Exchangeable Notes
were exchanged for Series B Convertible Preferred Stock, with accrued dividends
at 8.875% on the liquidation preference thereof. The liquidation preference of
the Convertible Preferred Stock was initially equal to $14,233,333 (the
aggregate principal balance of the July Exchangeable Notes plus accrued interest
through August 22, 2000). The Series B Convertible Preferred Stock, plus accrued
dividends, is convertible to common stock at $1.80 per share. The Company
determined that the issuance of the Exchangeable Notes and the Series B
Convertible Preferred Stock was exempt from registration under Section 4(2)
because the transaction involved a negotiated purchase of securities by an
accredited investor.
On September 29, 2000, the Company issued 390,000 shares of its common
stock to plaintiff's counsel in connection with the settlement of a class action
securities lawsuit that was filed in 1998 and settled in 2000. The Company
determined that the issuance of such shares was exempt from registration under
Section 4(2) of the Securities Act.
Volatility
Since the Company completed its initial public offering in 1994, the
Company's common stock has experienced significant price volatility, and such
volatility may continue to occur in the future. Factors such as announcements of
large customer orders, order cancellations, new product introductions by the
Company, events affecting the Company's competitors and changes in general
conditions in the electronics industry, as well as variations in the Company's
actual or anticipated results of operations, may cause the market price of the
Company's common stock to fluctuate significantly. Furthermore, the stock market
has experienced extreme price and volume fluctuations in recent years, often for
reasons unrelated to the operating performance of the specific companies. These
broad market fluctuations may materially adversely affect the price of the
Company's common stock. There can be no assurance that the market price of the
Company's common stock will not experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's performance.
15
Item 6. Selected Financial Data.
The following selected financial data as of December 31, 2000 and 1999,
and for each of the years in the three-year period ended December 31, 2000, are
derived from the audited financial statements of the Company included in Item 8
and should be read in conjunction with such financial statements and the notes
thereto. The data presented below as of December 31, 1998, 1997 and 1996, and
for the years ended December 31, 1997 and 1996, are derived from audited
financial statements of the Company that are not included in this report.
Year Ended December 31,
--------------------------------------------------------------------------
Statement of Operations Data: 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands, except per share data)
Net sales $327,444 $221,864 $ 226,780 $122,079 $ 60,910
Cost of goods sold 311,485 229,892 200,581 102,166 56,277
------------ ----------- ------------ ------------ ------------
Gross profit (loss) 15,959 (8,028) 26,199 19,913 4,633
Selling, general and administrative 23,926 25,389 22,838 12,711 5,916
Recapitalization transaction costs 5,336 -- -- -- --
Severance, retention, closure and 4,579 300 200 -- --
relocation
Impairment of long-lived assets 1,662 2,822 3,342 -- 726
Litigation settlement -- 6,400 -- -- --
Merger costs -- -- 1,048 -- --
Goodwill amortization 267 1,133 1,564 547 --
------------ ----------- ------------ ------------ ------------
Operating income (loss) (19,811) (44,072) (2,793) 6,655 (2,009)
Interest expense (9,556) (6,516) (4,312) (2,411) (576)
Gain (loss) on sale of assets 4,369 (20,880) 400 1,156 50
Other, net (15) (55) (104) 139 50
------------ ----------- ------------ ------------ ------------
Income (loss) before income taxes (25,013) (71,523) (6,809) 5,539 (2,485)
Income tax benefit (expense) -- (2,180) 2,631 (2,118) 867
------------ ----------- ------------ ------------ ------------
Net income (loss) $(25,013) $(73,703) $ (4,178) $ 3,421 $ (1,618)
============ =========== ============ ============ ============
Net Income (Loss) Applicable to Common
Stockholders:
Net income (loss) $(25,013) $(73,703) $ (4,178) $ 3,421 $ (1,618)
Pro forma tax adjustment -- -- (317) (41) 10
Accrued dividends on preferred (450) -- -- -- --
stock
Deemed dividend on preferred stock (2,022) -- -- -- --
------------ ----------- ------------ ------------ ------------
Net income (loss) applicable to
common stockholders $(27,485) $(73,703) $ (4,495) $ 3,380 $ (1,608)
============ =========== ============ ============ ============
Earnings Per Share:
Basic $ (1.72) $ (4.74) $ (.31) $ .40 $ (.28)
============ =========== ============ ============ ============
Diluted $ (1.72) $ (4.74) $ (.31) $ .38 $ (.28)
============ =========== ============ ============ ============
Weighted Average Shares:
Basic 15,978 15,543 14,730 8,502 5,742
============ =========== ============ ============ ============
Diluted 15,978 15,543 14,730 8,955 5,742
============ =========== ============ ============ ============
EBITDA Disclosures:
EBITDA(1)(3) $ (7,042) $(57,765) $ 3,747 $ 10,580 $ (657)
============ =========== ============ ============ ============
Adjusted EBIDTA(2)(3) $ 166 $(27,363) $ 7,937 $ 9,424 $ 634
============ =========== ============ ============ ============
(1) EBITDA represents net income (loss) from operations before interest, taxes,
depreciation and amortization.
(2) Adjusted EBITDA represents EBITDA excluding recapitalization transaction
costs, severance, retention, closure and relocation costs, impairment of
long-lived assets, litigation settlement, merger costs, and gain (loss) on
sale of assets.
(3) The primary measure of operating performance is net income (loss). "EBITDA"
and "Adjusted EBITDA" should not be construed as alternatives to net income
(loss), determined in accordance with generally accepted accounting
principles ("GAAP"), as an indicator of operating performance or as an
alternative to cash flows from operating activities, determined in
accordance with GAAP. In addition, the measure of EBITDA presented herein
by the Company may not be comparable to other similarly titled measures of
other companies.
16
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands, except per share data)
Cash Flow Data:
Cash provided (used) by:
Operating activities $ (67,526) $ (9,873) $(18,181) $(29,414) $ (508)
Investing activities 7,682 17,752 (21,924) (42,074) (1,837)
Financing activities 59,171 (7,786) 38,851 72,958 2,049
December 31,
--------------------------------------------------------------------------
Balance Sheet Data: 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Working capital $ 72,037 $ 26,232 $ 59,037 $ 43,634 $ 9,284
Total assets 159,572 131,129 190,666 148,825 24,037
Total debt 90,652 42,994 54,983 44,959 5,917
Shareholders' equity 14,205 21,278 94,979 75,221 13,850
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information set forth below contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the statements. See
"--Special Note Regarding Forward-Looking Statements."
General
EFTC Corporation (the "Company") is an independent provider of
electronic manufacturing services to original equipment manufacturers. The
Company focuses on high-mix solutions that target the aerospace, industrial
controls and instrumentation, medical equipment, semiconductor capital
equipment, networking and telecommunications equipment industries. The Company's
manufacturing services consist of assembling complex printed circuit boards
(using both surface mount and pin-through-hole technologies), cables,
electro-mechanical devices and finished products. High mix manufacturing
involves processing printed circuit board assemblies in small-lots (25-100
assemblies per production run) in a flexible manufacturing environment.
Business Combination Proposal
The Company announced on February 1, 2001 that its board of directors
had received a proposal from K*Tec Electronics Corporation ("K*Tec")
contemplating a business combination of the Company and K*Tec. K*Tec is a
privately held company which was purchased in October 2000 by an affiliate of
Thayer-BLUM Funding, L.L.C., the Company's principal shareholder. Although the
proposal contemplates a non-cash transaction, neither a specific structure,
exchange ratio, nor other terms and conditions of the business combination were
included in the non-binding K*Tec offer. The Company's board of directors has
appointed a special independent committee to consider the proposal and has
authorized the committee to engage financial and legal advisors. The proposed
business combination is subject to the approval of the special independent
committee, the board of directors and shareholders, as well as a number of other
material conditions, including negotiation of a definitive agreement and
compliance with all applicable regulatory and governmental requirements.
Accordingly, there can be no assurance that the proposed business combination
will be consummated.
17
During 1997 and 1998, the Company made several acquisitions of
businesses and assets in connection with an aggressive growth strategy. Between
the fourth quarter of 1998 and the fourth quarter of 2000, the Company has
implemented a series of actions to improve liquidity and operating results.
These actions included the disposal or closure of several of the Company's
business units. In order to understand the Company's financial condition and
results of operations over the past three years, it is important to understand
the acquisitions, dispositions and closures that were occurring during this
period. Accordingly, a summary of these activities is presented below.
Northwest Operations Division. On February 24, 1997, the Company
acquired two affiliated entities, Current Electronics, Inc., an Oregon
corporation, and Current Electronics (Washington), Inc., a Washington
corporation, for total consideration of approximately $10.9 million, consisting
of 1,980,000 shares of Company common stock and approximately $5.5 million in
cash, including approximately $600,000 of transaction costs. During 1998, the
Company completed construction of a new manufacturing facility in Newberg,
Oregon at a total cost of approximately $7.0 million. The Newberg facility along
with one in Moses Lake, Washington comprises the Company's Northwest Operations
Division.
AlliedSignal Asset Purchases. During the period from August 1997
through February 1998, the Company completed two transactions with AlliedSignal,
Inc., now Honeywell International Inc. ("Honeywell"), pursuant to which the
Company acquired inventories and equipment located in Fort Lauderdale, Florida
and Tucson, Arizona for an aggregate purchase price of approximately $19.0
million. In connection with these activities, the parties entered into a
long-term supply agreement for the production of circuit card assemblies.
In September 1999 the Company initiated a plan to close its facility in
Fort Lauderdale and consolidate the business from that plant into three other
EFTC facilities. In an effort to improve company-wide utilization, Ft.
Lauderdale was closed as a result of its higher cost structure and the added
benefits of transferring this business to other EFTC facilities that were in
closer proximity to the affected customers. The Ft. Lauderdale restructuring
activities were substantially complete in the second quarter of 2000.
In December 1999, the Company commenced negotiations with Honeywell
International, Inc. for the sale of inventory and equipment at the Company's
facility in Tucson and the sublease of the facility to Honeywell. This sale
closed in February 2000 and provided net proceeds to the Company of $12.7
million. In July 2000, the Company completed the build-out for facilities in
Phoenix designed to accommodate the manufacturing services of the non-Honeywell
customers that were transitioned from Tucson and which are now conducted in the
Phoenix facility.
EFTC Services Division. The Company acquired the Services Division in
September 1997 for approximately $35.7 million, consisting of 1,858,975 shares
of the Company's common stock and approximately $26.5 million in cash. The
Services Division had facilities in Memphis, Tennessee, Louisville, Kentucky and
Tampa, Florida and specialized in transportation hub-based warranty and repair
services for companies engaged in the computer and communications industries.
On September 1, 1999, the Company sold substantially all of the assets
of its Services Division for approximately $28.1 million. In connection with
this sale, the purchaser and the Company agreed to an Earn-out Contingency (the
"EC"). Under the EC, if the earnings for the year ended August 31, 2000 related
to the division sold are in excess of $4,455,000 ("Target Earnings"), the
Company would have been entitled to an additional payment equal to three times
the difference between the actual earnings and Target Earnings. If actual
earnings were less than Target Earnings, the Company would have been required to
refund an amount equal to three times the difference. The maximum amount that
18
either party would have been required to pay under the EC was $2.5 million. In
October 2000, the purchaser notified the Company that actual earnings exceeded
Target Earnings by $619,000, resulting in an additional payment to the Company
of $1,857,000 in December 2000.
EFTC Express Division. In March 1998, the Company acquired RM
Electronics, Inc., doing business as Personal Electronics ("Personal"), in a
business combination accounted for as a pooling of interests. The Company issued
1,800,000 shares of common stock in exchange for all of the outstanding common
stock of Personal. Personal is based in Manchester, New Hampshire and
specializes in quick turn, front-end prototype development, low volume, and
end-of-life high mix assembly services. Personal comprises the Company's EFTC
Express Division.
Northeast Operations Division. In September 1998, the Company acquired
the circuit card assembly operations of the Agfa Division of Bayer Corporation.
The Company purchased inventory and equipment for approximately $6.0 million and
the parties entered into a long-term supply agreement for the manufacture of
circuit card assemblies. This business is conducted in the Company's leased
facility in Wilmington, Massachusetts and comprises the Northeast Operations
Division.
Midwest Operations Division. In September 1998, the Company purchased
manufacturing equipment for approximately $1.5 million from AlliedSignal. In
connection with this transaction, AlliedSignal agreed to amend the existing
long-term supply agreement with the Company to include the production of circuit
card assemblies at the Company's new facility in Ottawa, Kansas. The Kansas
facility comprises the Company's Midwest Operations Division.
Rocky Mountain Division. In December 1998, the Company announced a plan
to close the Rocky Mountain Division located in Greeley, Colorado and to
consolidate the remaining business into other facilities, in an effort to
improve capacity utilization and profitability. In October 1999, the Company
completed the sale of the building in Greeley for net proceeds of approximately
$3.8 million.
Southwest Commercial Operations Division. In March 1999, the Company
entered into a long-term supply agreement with Honeywell that included the
acquisition of certain assets and inventory used in circuit card assembly
manufacturing. For the year ended December 31, 2000 and 1999, sales under this
agreement amounted to approximately $166 million and $28 million, respectively.
The manufacturing activities under this agreement are conducted in the Company's
leased facility in Phoenix, Arizona and a smaller facility in Tijuana, Mexico.
These facilities comprise the Company's Southwest Commercial Operations
Division. Effective November 2000, the supply agreement was replaced by a
memorandum of understanding which will govern the relationship between the
parties until the earlier of (i) implementation of a new contract or (ii)
October 31, 2001.
Corporate Headquarters. In July 2000, the Company announced its plan to
relocate its corporate headquarters from Denver, Colorado to the Company's
existing Phoenix, Arizona site, the Company's largest manufacturing facility.
The move was completed by the end of 2000.
Results of Operations
The Company's results of operations are affected by several factors,
primarily the level and timing of customer orders (especially orders from
Honeywell). The level and timing of orders placed by a customer vary due to the
customer's attempts to balance its inventory, changes in the customer's
manufacturing strategy, and variation in demand for its products due to, among
other things, product life cycles, competitive conditions and general economic
conditions. In the past, changes in orders from customers have had a significant
effect on the Company's quarterly results of operations. Other factors affecting
19
the Company's quarterly results of operations may include, among other things,
the Company's performance under the agreement with Honeywell, price competition,
disposition of divisions and closure of operating units, the ability to obtain
inventory from its suppliers on a timely basis, the Company's level of
experience in manufacturing a particular product, the degree of automation used
in the assembly process, the efficiencies achieved by the Company through
managing inventories and other assets, the timing of expenditures in
anticipation of increased sales, and fluctuations in the cost of components or
labor.
The following table sets forth certain operating data as a percentage of net
sales:
Year Ended December 31,
---------------------------------------------------
2000 1999 1998
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 95.1% 103.6% 88.4%
-------------- -------------- --------------
Gross profit (loss) 4.9% (3.6%) 11.6%
Selling, general and administrative 7.3% 11.5% 10.0%
Recapitalization transaction costs 1.6% -- --
Severance, retention, closure and relocation 1.4% 0.1% 0.1%
Impairment of long-lived assets 0.5% 1.3% 1.5%
Litigation settlement -- 2.9% --
Merger costs -- -- 0.5%
Goodwill amortization 0.1% 0.5% 0.7%
-------------- -------------- --------------
Operating loss (6.0%) (19.9%) (1.2%)
============== ============== ==============
2000 Compared to 1999
Net Sales. Net sales for the year ended December 31, 2000 were $327.4
million compared to $221.9 million for the year ended December 31, 1999, an
increase of 47.6%. The Company experienced major changes in its customers and
facilities since the beginning of 1999. At the start of 1999, the Company had
eleven facilities. Six of these facilities were either sold or closed by
December 31, 2000. However, the Company also added facilities in Phoenix and
Mexico during 1999 to support the new business with Honeywell in connection with
the long-term supply agreement entered into in March 1999. Approximately 51% of
the Company's sales for the year ended December 31, 2000 were made under the
Honeywell agreement at the Phoenix location as opposed to 12.6% of the Company's
sales in 1999. However, this increased revenue under the Honeywell supply
agreement was offset by the loss of revenue from the Services Division that was
sold on September 1, 1999, and the Company's Tucson assets that were sold on
February 17, 2000. The Services division and the Tucson assets generated revenue
of $55.5 million in the year ended December 31, 1999 compared to $4.4 million in
the comparable period of 2000.
After eliminating sales (excluding sales related to customers who
agreed to transition the manufacture of their products to another facility
operated by the Company) related to facilities that were either closed or sold,
adjusted net sales for 2000 amounted to $323.0 million compared to $166.4
million for 1999, which is an increase of $156.6 million, or 94.1%.
Approximately $138 million of this increase is attributable to an increase in
sales generated at the Company's Phoenix location under the long-term supply
agreement with Honeywell.
Gross Profit (Loss). The Company realized gross profit of 4.9% in 2000
compared to a loss of 3.6% in 1999. This 1999 loss was primarily attributable to
charges related to decisions to sell assets and close certain facilities,
including its Rocky Mountain operations, the Services Division, its Southeast
20
Operations and its Tucson facility. The operations sold or closed accounted for
a loss of $6.2 million during 1999 compared to a loss of $2.1 million for 2000.
During 1999, product pricing at the Tucson facility resulted in
negative margins of $3.5 million. Additionally, in 1999 the Company incurred (i)
charges included in cost of goods sold for $1.5 million due to inventory
allowances and operating charges related to the closure of the Greeley facility,
(ii) charges for excess and obsolete inventories and other charges to cost of
goods sold totaling $7.1 million related to the closure of the Fort Lauderdale
facility and (iii) approximately $0.9 million in charges related to excess and
obsolete inventories in connection with the Services Group.
In addition to poor performance at the facilities that were sold or
closed, the Company's other facilities also performed poorly due to capacity
utilization issues, difficulties in dealing with rapid growth issues at the new
Phoenix plant, and difficulties in managing a business that was undergoing
dramatic and complex changes at a time when financial resources were not
adequate. The improvement in gross profit during 2000 was due to higher capacity
utilization at most of the Company's facilities. The improvement in capacity
utilization has been partially offset by generally higher compensation and
benefits costs during 2000 compared to 1999. During the second half of 2000,
profitability was favorably impacted by heightened management focus on
operational issues and the renegotiation of unfavorable contracts with
customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG & A") decreased 5.8% to $23.9 million during 2000
compared to $25.4 million in 1999. SG & A expenses for the year ended December
31, 2000 includes $3.1 million for consulting services intended to accelerate
operational improvement at each of the Company's facilities. SG & A expenses for
2000 include a charge of $1.9 million for accelerated depreciation and
amortization of assets that could not be used after the Company relocated its
corporate headquarters and $0.6 million for SG & A expenses at divisions that
were sold or closed by the end of 2000. For 1999, the Company incurred SG & A
expense of $11.3 million related to the divisions that were sold or closed, and
approximately $0.4 million for start-up costs at the Phoenix facility.
After excluding all of the charges discussed above, SG & A expense for
2000 amounted to $18.3 million compared to $13.7 million in 1999. The increase
in SG & A in 2000 is primarily attributable to an increase in compensation and
benefits costs of $2.7 million, and information technology expenses of $1.4
million.
Severance, Retention, Closure and Relocation Costs. The Company also
recognized charges of $4.6 million in 2000 for severance, recruiting and other
costs associated with changes in management and the relocation of corporate
headquarters. This compares to $0.3 million in 1999 that was primarily
attributable to severance costs for administrative employees in connection with
the closure of the Southeast Division.
Recapitalization Transaction Costs. In connection with the
recapitalization described below, during 2000 the Company incurred charges
totaling $5.3 million for financial advisor fees, a fee paid to Thayer-BLUM
Funding, and due diligence costs for legal, accounting and management
consultants. The Company capitalized costs directly associated with the March
and July Exchangeable Notes and the new revolving credit agreement with Bank of
America, and all other costs were charged to operations.
Impairment of Long-lived Assets. During 2000, the Company recognized an
impairment charge of $1.7 million. This charge consists of $1.3 million for
software that was abandoned and an additional $0.4 million for impaired
equipment related to headquarters and plant closures. For 1999, the Company
recognized impairment expense of $2.8 million that was incurred in connection
with the sale and closure of four divisions. For 1999, the Company recognized
21
$1.0 million of impairment related to equipment at the Ft. Lauderdale facility,
$1.2 million for the Tucson assets that were held for sale at year-end, $0.4
million for Services Group assets that were sold in September 1999, and $0.2
million for impaired assets at other locations.
Goodwill Amortization. Goodwill amortization for 2000 amounted to $0.3
million compared to $1.1 million in 1999. The decrease in 2000 was attributable
to the sale of the Services Division on September 1, 1999, and the corresponding
write-off of $36.5 million of goodwill that was included in the calculation of
the 1999 loss on sale of the Services Division.
Litigation Settlement. In 1999 the Company recognized a provision of
$6.4 million for the settlement of litigation that was initiated in 1998.
Interest Expense. Interest expense increased 46.7% to $9.6 million in
2000 compared to $6.5 million in 1999. For the year ended December 31, 2000, the
Company's weighted average borrowings were $73.8 million compared to $52.1
million during 1999. The increased debt level in 2000 is attributable to the
issuance of $54 million of March Exchangeable Notes that accrued interest at 15%
until August 22, 2000. Upon shareholder approval of the issuance of the
Convertible Notes, on August 23, 2000 the March Exchangeable Notes were
exchanged for Convertible Notes that bear interest at 8.875%. The Company also
incurred interest expense at a rate of 15% on the $14 million of July
Exchangeable Notes for 40 days. The July Exchangeable Notes were exchanged for
Convertible Preferred Stock on August 22, 2000 and, accordingly, the Company no
longer incurs interest cost related to this financing. In addition to the higher
rate on the Exchangeable Notes, during 2000 interest expense was adversely
affected by increases in the prime rate, which impacts the interest rate on the
Company's revolving credit facility.
Gain (Loss) on Sale of Assets. During 1999, the Company recognized a
loss of $20.6 million in connection with the sale of substantially all of the
assets of the Services Division due to the write-off of $36.5 million of
goodwill from the 1997 acquisition of the Services Division. The 1999 loss gave
effect to the deferral of $2.5 million of the proceeds for a post closing
earn-out contingency. During 2000, the Company was paid $1.9 million under the
Earn-Out Contingency agreed to between the Company and the purchaser in
connection with the sale of the Services Division. Accordingly, the Company
recognized a gain of $4.4 million in 2000, consisting of $2.5 million of the
1999 proceeds that the Company was entitled to retain and additional
consideration of $1.9 million that was received in 2000.
Income Tax Benefit (Expense). Due to significant net losses in 1999,
the Company recorded a valuation allowance for all of its net deferred tax
assets. As a result, the Company recorded deferred tax expense of $2.2 million
in 1999 despite a pre-tax loss of $71.5 million. Due to significant net losses
in 1999 and 2000, the Company recorded a valuation allowance for all of its net
deferred tax assets again in 2000. The Company has a significant net operating
loss carryforward that is available for financial reporting and income tax
purposes. However, a portion of this carryforward is subject to limitation in
future years due to changes in ownership in 2000.
1999 Compared to 1998
Net Sales. Net sales for 1999 were $221.9 million compared to $226.8
million in 1998, which is a decrease of 2.0%. Despite the minor decrease in
revenue, the Company experienced major changes in its customers and facilities
during 1999. At the start of 1999, the Company had eleven facilities. Six of
these facilities were sold or closed by April 2000. However, the Company also
added facilities in Phoenix and Mexico during 1999 to support the new business
in connection with the long-term supply agreement entered into with Honeywell in
March 1999 which offset the loss of revenue from other divisions. The Company's
22
sales for 1999 include approximately $28 million of revenue under this
agreement. The Northeast Operations Division (acquired September 1, 1998) and
the Midwest Operations Division (acquired September 30, 1998) accounted for $11
million of revenue in 1998 compared to $36 million in 1999. However, this
increase was offset by the loss of revenue from the Services Group that was sold
on September 1, 1999. The Services Group accounted for $41 million of revenue in
1998 compared to only $22 million in 1999. The closure of the Greeley, Colorado
facility in 1999 also contributed to lower revenue, despite the transfer of part
of this business to other facilities.
Gross Profit (Loss). The Company had gross profit of 11.6% in 1998 and
a deficiency of 3.6% in 1999. During 1998, the Company increased its workforce,
and invested substantial amounts in new facilities, equipment and information
systems to prepare for an expected increase in sales in 1999. This higher cost
structure combined with a decrease in sales was the primary contributor to the
significant decrease in 1999 gross profit. The Company incurred restructuring
charges for the Greeley facility in the fourth quarter of 1998, including a $5.7
million charge to cost of goods sold, primarily for a provision for inventory
allowances. During 1999, unfavorable product pricing at the Tucson facility
resulted in negative margins of $3.5 million. Additionally, in 1999 the Company
incurred (i) charges included in cost of goods sold for $1.5 million due to
inventory allowances and operating charges related to the closure of the Greeley
facility, (ii) charges for excess and obsolete inventories and other charges to
cost of goods sold totaling $7.1 million related to the closure of the Fort
Lauderdale facility and (iii) approximately $0.9 million in charges related to
excess and obsolete inventories in connection with the Services Group.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased 11.1% to $25.4 million in 1999
compared to $22.8 million in 1998. During 1999, the Company also recognized
charges of $5.1 million for uncollectible receivables compared to 1998 when the
Company recognized bad debt expense of $0.6 million. The 1999 charges included
(i) settlements reached with Honeywell with respect to business conducted at the
Ft. Lauderdale and Tucson facilities, (ii) charges for uncollectible receivables
related to the Services Group, and (iii) $0.4 million for start-up costs at the
Phoenix facility.
Severance, Retention, Closure and Relocation Costs. The Company
recognized charges of $0.3 million in 1999 for severance and retention costs
related to administrative employees in connection with the closure of the
Southeast Division. This compares to $0.2 million in 1998 that was primarily
attributable to administrative employees in connection with the closure of the
Rocky Mountain Division.
Impairment of Long-Lived Assets. During 1999, the Company recognized
impairment expense of $2.8 million compared to $3.3 million in 1998 which is a
decrease of 15.6%. The impairment in 1998 related solely to land, building and
equipment at the Greeley facility. For 1999, the Company recognized $1.0 million
of impairment related to equipment at the Ft. Lauderdale facility, $1.2 million
for the Tucson assets that were held for sale at year-end, $0.4 million for
Services Group assets that were sold in September 1999, and $0.2 million for
impaired assets at other locations.
Goodwill Amortization. Goodwill amortization for 1999 amounted to $1.1
million compared to $1.6 million in 1998. The decrease in 1999 was attributable
to the sale of the Services Division on September 1, 1999, and the corresponding
write-off of $36.5 million of goodwill that was included in the calculation of
the loss on sale of the Services Division.
Litigation Settlement. In 1999 the Company recognized a provision of
$6.4 million for the settlement of litigation that was initiated in 1998.
Interest Expense. Interest expense increased 51.1% to $6.5 million in
1999 compared to $4.3 million in 1998. The increase in 1999 was partially
attributable to an increase in amortization of debt issuance costs of $0.9
23
million. The increase in amortization in 1999 was attributable to accelerated
amortization of debt issuance costs and additional costs incurred in connection
with amendments to the credit agreement that accelerated the maturity date.
Interest expense was also higher in 1999 due to increases in the prime rate, as
well as increases in the rate charged by the Company's lenders due to increased
credit risk.
Loss on Sale of Assets. The Company recognized a loss of $20.6 million
in connection with the sale of the Services Division due to the write-off of
$36.5 million of goodwill from the 1997 acquisition of the Services Division. In
1999, the Company also incurred a loss of $0.3 million on the sale of other
property and equipment.
Income Tax Benefit (Expense). Due to significant net losses in 1999,
the Company recorded a valuation allowance for all of its net deferred tax
assets. As a result, the Company recorded deferred tax expense of $2.2 million
in 1999 despite a pre-tax loss of $71.5 million. During 1998, the Company
recognized an income tax benefit of $2.6 million based on a pre-tax loss of $6.8
million.
24
Quarterly Results.
The following table presents unaudited quarterly operating data for the
most recent eight quarters during the two-year period ended December 31, 2000.
The information includes all adjustments, consisting only of normal recurring
adjustments, that management considers necessary for a fair presentation
thereof.
Year Ended December 31, 2000 Year Ended December 31, 1999
----------------------------------------- ------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- --
(In Thousands, Except Per Share Amounts)
Net sales $ 63,526 $ 75,944 $ 86,281 $101,693 $ 54,325 $ 54,690 $ 50,434 $ 62,415
Cost of sales 62,197 76,220 80,514 92,554 48,184 52,833 60,902 67,973
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Gross profit (loss) 1,329 (276) 5,767 9,139 6,141 1,857 (10,468) (5,558)
SG&A 4,848 8,232 8,903 6,522 5,011 5,174 8,966 6,538
Recapitalization costs 4,874 5 424 33 -- -- -- --
Impairment of long-lived -- 1,662 -- -- -- -- 1,541 1,281
assets
Goodwill amortization 67 67 67 66 391 391 283 68
Litigation settlement -- -- -- -- -- -- -- 6,400
---------- --------- --------- ---------- ---------- --------- ---------- ----------
--
Operating income (loss) (8,460) (10,242) (3,627) 2,518 739 (3,708) (21,258) (19,845)
Interest expense (1,608) (2,780) (2,877) (2,291) (1,264) (1,334) (1,947) (1,971)
Gain (loss) on sale of (2) (8) 4,361 18 120 5 (20,631) (374)
assets
Other, net (30) 2 14 (1) 37 47 (294) 155
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Income (loss) before taxes (10,100) 13,028 (2,129) 244 (368) (4,990) (44,130) (22,035)
Income tax benefit (expense) -- -- -- -- 39 1,996 -- (4,215)
---------- --------- --------- ---------- ---------- --------- ---------- ----------
Net income (loss) $(10,100) $(13,028) $ (2,129) $ 244 $ (329) $ (2,994) $(44,130) $(26,250)
========== ========= ========= ========== ========== ========= ========== ==========
Net income (loss) per share
applicable to common
shareholders-
Basic and Diluted $ (.65) $ (.84) $ (.27) $ -- $ (.02) $ (.19) $ (2.84) $ (1.69)
========== ========= ========= ========== ========== ========= ========== ==========
Weighted average
common shares
outstanding 15,543 15,543 15,590 16,843 15,543 15,543 15,543 15,543
========== ========= ========= ========== ========== ========= ========== ==========
Although management does not believe that the Company's business is materially
affected by seasonal factors, the Company's sales and earnings (loss) may vary
from quarter to quarter, depending primarily upon the timing of 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 or year.
Liquidity and Capital Resources
Working Capital and Operating Cash Flows. At December 31, 2000, working
capital totaled $72.0 million compared to $26.2 million at December 31, 1999.
The increase in working capital in 2000 is primarily attributable to the
proceeds from the issuance of $54 million in principal amount of the March
Exchangeable Notes and $14 million in principal amount of the July Exchangeable
Notes.
Cash used by operating activities for the year ended December 31, 2000
was $67.5 million compared to cash used by operating activities of $9.9 million
in 1999. During 1999, the Company incurred a significant operating loss that
utilized approximately $24.7 million of cash. In 1999, the Company also utilized
cash of $12.1 million to fund an increase in inventories and other current
assets. These amounts were partially financed by an increase in operating
payables of $26.9 million, including over $18 million of payables to suppliers
that were outside of established payment terms at the end of 1999.
25
During 2000, the Company incurred an operating loss that utilized $6.1
million of cash. However, due to the 47.6% increase in sales in 2000, the
Company used additional cash of $17.2 million to finance the increase in
receivables and $35.6 million for additional inventories necessary to support
the increased volume of business. Additionally, in 2000 the Company utilized
$11.0 million to reduce payables, including payment of amounts that were outside
of established terms at the end of 1999. At December 31, 2000, the Company did
not have any significant past due balances with its suppliers. During 2000, the
Company's operating cash flows were favorably affected by collection of an
income tax refund of $2.1 million and a reduction in prepaid expenses and other
assets of $0.3 million.
Receivable turns (e.g., annual sales divided by period end accounts
receivable) decreased to 7.5 for the year ended December 31, 2000 compared to
8.5 for the year ended December 31, 1999. Receivable turns at the end of 2000
were adversely impacted by a change from 10-day to 30-day payment terms with
Honeywell.
Inventories increased 36.7% to $82.2 million at December 31, 2000 from
$60.2 million at December 31, 1999. Inventory turns (i.e., annual revenue
divided by period end current inventory) for the year ended December 31, 2000
indicate that the Company is turning its inventories 4.0 times per year. This
compares to 3.7 times for the year ended December 31, 1999. During 1999 and
2000, one of the Company's biggest challenges involved financing the higher
levels of inventories required to support increased sales at the Phoenix
facility. During the last half of 1999 and much of 2000, these difficulties were
worsened by industry-wide shortages of components that ultimately delayed
shipment of finished goods to customers. By the fourth quarter of 2000, the
component shortages had diminished and the Company had generally improved its
inventory management practices which contributed to improved inventory turns in
2000 compared to 1999.
Cash Requirements for Investing Activities. The Company used cash for
capital expenditures totaling $14.4 million in 1999 (primarily attributable to
leasehold improvements and equipment related to the build-out for the Company's
new facility in Phoenix in preparation for manufacturing services under the
Honeywell supply agreement) compared with $6.2 million in 2000. Capital
expenditures in 2000 included payments related to the relocation of corporate
headquarters and expansion activities in Phoenix.
During 2000, the Company also paid $0.5 million for commissions related
to the 1999 sale of the Services Division and the Company received $1.8 million
of additional net proceeds from the sale of the Services Division in 2000. In
February 2000, the Company received net proceeds of $12.7 million related to the
sale of assets at the Company's former facility in Tucson to Honeywell. The
agreement with Honeywell required the Company to utilize $10.5 million of the
proceeds to pay past due amounts to suppliers and the remaining proceeds were
utilized to repay bank debt.
Financing Sources and Related Activities.
Public Offering. In June 1998, the Company issued 1,770,000 shares of
its common stock in a public offering for proceeds of $24.1 million which were
used to repay a portion of the Company's senior bank debt.
26
Honeywell Supply Agreement. In March 1999, the Company entered into a
long-term supply agreement with Honeywell International, Inc. While this
contract provides a significant source of revenue to the Company, it also
requires significant amounts of working capital to finance inventories and
receivables, and the Company was required to incur significant costs for
leasehold improvements and equipment at a new facility in Phoenix, Arizona.
Effective November 2000, the supply agreement was replaced by a memorandum of
understanding which will govern the relationship between the parties until the
earlier of (i) implementation of a new contract or (ii) October 31, 2001.
The Company took a series of actions in 1999 that were designed to
provide the necessary capital to meet existing obligations to suppliers and
banks, and to have access to financing to meet the additional working capital
requirements under the new Honeywell agreement. The first significant action
after obtaining the Honeywell business was on September 1, 1999, when the
Services Division was sold, resulting in net cash proceeds of $28.0 million. On
September 30, 1999, the Company initiated the consolidation of its Ft.
Lauderdale plant into three other EFTC facilities. In October 1999, the Company
sold its facility in Greeley, Colorado for proceeds of $3.8 million.
Recapitalization. Beginning in September 1999, the Company began
searching for debt and equity financing that would permit the Company to also
attract a new senior lender to replace the existing bank group. As a result of
these efforts, on March 30, 2000, the Company completed the first stage of a
recapitalization transaction with Thayer-BLUM Funding, L.L.C. ("Thayer-BLUM
Funding"), an entity formed by affiliates of Thayer Capital Partners ("Thayer")
and BLUM Capital Partners ("BLUM"). The first stage involved the issuance of a
total of $54 million in Senior Subordinated Exchangeable Notes (the "March
Exchangeable Notes"), which was funded on March 30, 2000. On July 14, 2000, the
Company issued an additional $14 million of Senior Subordinated Exchangeable
Notes (the "July Exchangeable Notes") to Thayer-BLUM Funding in the second stage
of the transaction. As described below, on August 23, 2000, the March and July
Exchangeable Notes were exchanged for the Senior Subordinated Convertible Notes
(the "Convertible Notes") and the Series B Convertible Preferred Stock (the
"Convertible Preferred Stock"), respectively.
The recapitalization also involved a tender offer by Thayer-BLUM
Funding that was completed on August 23, 2000 for 5,625,000 shares of the
Company's outstanding common stock at a price of $4.00 per share. Upon
completion of the final stage of the recapitalization, Thayer-BLUM Funding
obtained the right to designate a majority of the members of the Company's board
of directors and to approve any significant financings, acquisitions and
dispositions.
The March and July Exchangeable Notes initially provided for an
interest rate of 15% and were accompanied by warrants to purchase 3,093,154
shares of the Company's common stock at an exercise price of $.01 per share.
However, since shareholders approved the issuance of the Convertible Notes and
the Convertible Preferred Stock and the tender offer was consummated, the
warrants never became exercisable and they expired.
Upon receipt of shareholder approval, the March Exchangeable Notes were
exchanged for the Convertible Notes in the principal amount of $57,284,850. The
Convertible Notes provide for interest at 8.875%, payable in kind, and may be
converted into the Company's common stock at $2.58 per share, subject to
adjustment. The July Exchangeable Notes were exchanged for the Convertible
Preferred Stock that accrues dividends, compounded quarterly, at 8.875% on the
liquidation preference thereof. The liquidation preference of the Convertible
Preferred Stock was initially equal to $14,233,000 (the aggregate principal
balance of the July Exchangeable Notes plus accrued interest through August 22,
2000). The Convertible Preferred Stock is convertible into the Company's common
stock at $1.80 per share, subject to adjustment.
Refinancing of Bank Debt. On March 30, 2000, the Company entered into a
new credit agreement with Bank of America, N.A. to refinance the Company's
revolving line of credit with the Company's previous lender. The new credit
facility provides for a $45 million revolving line of credit with a maturity
date of March 2003. Initially, the interest rate is the prime rate plus .5%.
Total borrowings are subject to limitation based on a percentage of eligible
accounts receivable and inventories, and substantially all of the Company's
assets are pledged as collateral for outstanding borrowings. The credit
agreement requires compliance with certain financial and non-financial
27
covenants. At December 31, 2000, the outstanding principal balance was $28.6
million and the borrowing base calculation supported borrowings up to the
maximum of $45 million under the credit agreement.
Debt Issuance Costs. In connection with the recapitalization and
refinancing in 2000, the Company paid $2.8 million for debt issuance costs. This
compares to $0.6 million in 1999.
Issuance of Subordinated Notes to Director. A director of the Company
purchased $15 million in aggregate principal amount of subordinated notes issued
by the Company on September 9, 1997. The subordinated notes had a maturity date
of December 31, 2002 and provided for interest at a variable rate (adjusted
monthly) equal to 2.00% over the applicable LIBOR rate. The proceeds of these
notes were used to acquire certain assets from Honeywell (formerly AlliedSignal,
Inc.). The Company prepaid $10.0 million of the outstanding principal amount of
these notes early in December 1997 from the proceeds of a loan from the
Company's senior lender. In connection with such prepayment, the Company agreed
to pay the director a fee of approximately $325,000 in equal monthly
installments through the original stated maturity date of the notes.
In November 1999, the same director purchased $5 million in aggregate
principal amount of subordinated notes issued by the Company. These notes had a
maturity date of March 31, 2000 and provided for interest at a rate of 10%. In
connection with the recapitalization transaction described above, the Company
repaid the entire principal amount outstanding under the September 1997 note and
$2 million of the principal amount outstanding under the November 1999
subordinated notes. In addition, the November note agreement was amended to
reflect the $3.0 million in aggregate principal amount outstanding of
subordinated notes, with a maturity date of March 30, 2004 and bearing interest
at 10%. In addition, the Company paid the remaining outstanding prepayment fee
of approximately $150,000 due in connection with the prepayment of the September
1997 notes and a fee of $100,000 due upon maturity of the November 1999 note.
Sale-Leaseback Transaction. In December 1998, the Company entered into
a sale-leaseback transaction with a director and stockholder of the Company. Two
manufacturing facilities (one in Newberg, Oregon and one in Tucson, Arizona)
were sold for $10.5 million and leased back to the Company. The proceeds were
used to pay down a portion of the BankOne Loan. The lease was accounted for as a
financing transaction; thus the assets and related long-term debt were included
on the Company's 1998 balance sheet. The transaction had an imputed interest
rate of 8.68%. The lease term is for 5 years with monthly payments of $90,000.
At the end of the lease term, the Company had the option to repurchase the
facilities for approximately $9.4 million. In May 1999, the lease was amended to
eliminate the purchase option, which resulted in the re-characterization of the
lease from a capital lease to an operating lease. Accordingly, the buildings and
the related debt have been removed from the balance sheet at December 31, 1999.
The Company subleased the Tucson facility to Honeywell in February 2000 for an
eighteen month term.
Based on the financing activities completed in March and July 2000,
management believes the Company has adequate capital resources to fund working
capital and other cash requirements during 2001. However, depending on the
timing and ability of the Company to improve operational performance, the
Company may need to seek additional funds through public or private debt or
equity offerings, bank borrowings or leasing arrangements. However, no assurance
can be given that, if additional financing is needed, it will be available on
terms acceptable to the Company.
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
28
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, estimated costs related to the
relocation of corporate headquarters and changes in management, prospects for
achieving cost savings, increased capacity utilization, increased sales and
profitability, the success of consulting services designed to improve
operational results, 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, the loss of Honeywell as a customer or
Honeywell's inability to pay, or inability or unwillingness to pay in a timely
manner, its outstanding receivables held by the Company, the Company's ability
to pay its suppliers in a timely manner, 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 industry, 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 managing the Company's
growth or in integrating new businesses, changes in customer needs and
expectations, the Company's success in retaining customers affected by the
closure of Company facilities, the Company's success in limiting costs
associated with such closures, the Company's ability to keep pace with
technological developments, increases in interest rates, governmental actions
and other factors identified as "Risk Factors" or otherwise described in the
Company's filings with the Securities and Exchange Commission.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
On March 30, 2000, the Company entered into a $45 million revolving
line of credit with Bank of America, N.A. The interest rate on this loan will be
based either on the prime rate or LIBOR rates, plus applicable margins.
Therefore, as interest rates fluctuate, the Company may experience changes in
interest expense that could impact financial results. The Company has not
entered into any interest rate swap agreements, or similar instruments, to
protect against the risk of interest rate fluctuations. Assuming outstanding
borrowings of $45 million, if interest rates were to increase or decrease by 1%,
the result would be an annual increase or decrease in interest expense of
approximately $450,000 under this loan.
29
Item 8. Financial Statements and Supplementary Data.
The following financial statements and supplementary data are included in the
report:
Page
Financial Statements:
Independent Auditors' Report 31
Consolidated Balance Sheets 32-33
Consolidated Statements of Operations 34
Consolidated Statements of Shareholders' Equity 35
Consolidated Statements of Cash Flows 36-37
Notes to Consolidated Financial Statements 38-54
Supplementary Data:
Independent Auditors' Report 55
Schedule II- Valuation and Qualifying Accounts 56
30
Independent Auditors' Report
The Board of Directors and Shareholders
EFTC Corporation:
We have audited the accompanying consolidated balance sheets of EFTC Corporation
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EFTC Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Denver, Colorado
January 31, 2001
31
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in Thousands, Except Per Share Amounts)
ASSETS
2000 1999
----- -----
Current Assets:
Cash and equivalents $ 43 $ 716
Trade receivables, net of allowance for doubtful
accounts of $1,671 and $3,689, respectively 42,270 26,094
Receivable from sale of assets 500 -
Income taxes receivable - 2,106
Inventories, net 82,220 60,167
Prepaid expenses and other 1,380 2,795
---------- ----------
Total Current Assets 126,413 91,878
---------- ----------
Property, Plant and Equipment, at cost:
Leasehold improvements 4,249 2,797
Buildings and improvements 2,127 1,172
Manufacturing machinery and equipment 15,432 16,496
Furniture, computer equipment and software 13,149 12,726
---------- ----------
Total 34,957 33,191
Less accumulated depreciation and amortization (14,581) (9,614)
---------- ----------
Net Property, Plant and Equipment 20,376 23,577
---------- ----------
Intangible and Other Assets:
Goodwill, net of accumulated amortization
of $1,025 and $758, respectively 6,997 7,264
Intellectual property, net of accumulated amortization
of $2,403 and $699, respectively 2,585 4,289
Debt issuance costs, net of accumulated amortization
of $811 and $97, respectively 2,470 460
Deposits and other 731 3,661
---------- ----------
Total Intangible and Other Assets 12,783 15,674
---------- ----------
$ 159,572 $ 131,129
========== ==========
32
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
December 31, 2000 and 1999
(Dollars in Thousands, Except Per Share Amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
----- -----
Current Liabilities:
Accounts payable $ 39,944 $ 46,985
Outstanding checks in excess of cash balances 5,471 -
Accrued compensation and benefits 7,463 4,993
Other accrued liabilities 1,498 8,650
Current maturities of long-term debt - related party - 5,018
---------- ----------
Total Current Liabilities 54,376 65,646
Long-term Liabilities:
Long-term debt, net of current maturities:
Banks 28,559 33,184
Convertible Notes, including accrued interest 59,093 -
Related parties 3,000 4,792
Other 339 6,229
---------- ----------
Total Liabilities 145,367 109,851
---------- ----------
Commitments and Contingencies (Notes 8 and 11)
Shareholders' Equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; issued
and outstanding 14,233 shares of Series B Convertible Preferred
Stock in 2000 14,683 -
Common stock, $.01 par value. Authorized 75,000,000 shares;
issued and outstanding 15,933,489 and 15,543,489 shares, respectively 159 155
Additional paid-in capital related to common stock 93,222 91,992
Settlement obligation to issue 910,000 shares of common stock 2,303 -
Deferred stock compensation cost (280) -
Accumulated deficit (95,882) (70,869)
---------- ----------
Total Shareholders' Equity 14,205 21,278
---------- ----------
$ 159,572 $ 131,129
========== ==========
33
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2000, 1999 and 1998
(Dollars In Thousands, Except Per Share Amounts)
2000 1999 1998
---- ---- ----
Net Sales $ 327,444 $ 221,864 $ 226,780
Cost of Goods Sold 311,485 229,892 200,581
----------- ----------- -----------
Gross profit (loss) 15,959 (8,028) 26,199
Operating Costs and Expenses:
Selling, general and administrative expenses 23,926 25,389 22,838
Recapitalization transaction costs 5,336 - -
Severance, retention, closure and relocation costs 4,579 300 200
Impairment of long-lived assets 1,662 2,822 3,342
Goodwill amortization 267 1,133 1,564
Litigation settlement - 6,400 -
Merger costs - - 1,048
----------- ----------- -----------
Total operating costs and expenses 35,770 36,044 28,992
----------- ----------- -----------
Operating loss (19,811) (44,072) (2,793)
Other Income (Expense):
Interest expense (9,556) (6,516) (4,312)
Gain (loss) on sale of assets 4,369 (20,880) 400
Other, net (15) (55) (104)
----------- ----------- -----------
Loss before income taxes (25,013) (71,523) (6,809)
Income Tax Benefit (Expense) - (2,180) 2,631
----------- ----------- -----------
Net loss $ (25,013) $ (73,703) $ (4,178)
=========== =========== ===========
Net Loss Applicable to Common Shareholders:
Net loss $ (25,013) $ (73,703) $ (4,178)
Pro forma adjustment to income taxes - - (317)
Accrued dividends related to preferred stock (450) - -
Deemed dividend related to beneficial
conversion feature of preferred stock (2,022) - -
----------- ----------- -----------
Net loss applicable to common shareholders $ (27,485) $ (73,703) $ (4,495)
=========== =========== ===========
Net Loss Per Share Applicable to Common
Shareholders- Basic and Diluted $ (1.72) $ (4.74) $ (0.31)
=========== =========== ===========
Weighted Average Common Shares Outstanding-
Basic and Diluted 15,978,000 15,543,000 14,730,000
=========== =========== ===========
34
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
Additional Deferred Retained
Preferred Stock Common Stock Paid-in Settlement Stock Earnings
Shares Amount Shares Amount Capital Obligation Compensation (Deficit) Total
Balances at December 31, 1997 - $ - 13,641,776 $ 136 $ 68,040 $ - $ - $ 7,045 $ 75,221
Conversion of notes payable to
shareholders' equity - - - - 1,398 - - - 1,398
Issuance of common stock in secondary
offering, net of costs of $3,500 - - 1,770,000 18 21,314 - - - 21,332
Stock options and warrants exercised - - 131,213 1 512 - - - 513
Tax benefit from exercise of stock options - - - - 693 - - - 693
Termination of S Corporation tax status
of pooled company - - - - 33 - - (33) -
Net loss - - - - - - - (4,178) (4,178)
------ -------- ---------- ----- -------- ------- ------ -------- ---------
Balances at December 31, 1998 - - 15,542,989 155 91,990 - - 2,834 94,979
Stock options exercised - - 500 - 2 - - - 2
Net loss - - - - - - - (73,703) (73,703)
------ -------- ---------- ----- -------- ------- ------ -------- ---------
Balances at December 31, 1999 - - 15,543,489 155 91,992 - - (70,869) 21,278
Fair value of warrants issued for services - - - - 536 - - - 536
Compensation cost related to stock
options granted to employees - - - - 367 - (367) - -
Amortization of deferred stock
compensation cost - - - - - - 87 - 87
Conversion of exchangeable notes for
preferred stock, net of issuance
costs 14,233 14,233 - - (206) - - - 14,027
Common stock issued in lawsuit
settlement - - 390,000 4 983 - - - 987
Obligation to issue common stock in
lawsuit settlement - - - - - 2,303 - - 2,303
Preferred stock dividend requirement - 450 - - (450) - - - -
Net loss - - - - - - - (25,013) (25,013)
------ -------- ---------- ----- -------- ------- ------ -------- ---------
Balances at December 31, 2000 14,233 $ 14,683 15,933,489 $ 159 $ 93,222 $ 2,303 $ (280) $(95,882) $ 14,205
====== ======== ========== ===== ======== ======= ====== ======== ========
35
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
2000 1999 1998
---- ---- ----
Cash Flows from Operating Activities:
Net loss $ (25,013) $ (73,703) $ (4,178)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 8,415 7,242 6,244
Amortization of debt issuance costs 901 1,147 241
Impairment of property, plant and equipment 1,662 2,822 3,342
Deferred income tax expense (benefit) - 4,534 (4,859)
Accrued interest on exchangeable and convertible notes 5,326 - -
Provision for excess and obsolete inventories 5,640 7,287 6,975
Provision for doubtful accounts receivable 1,033 5,091 600
Loss (gain) on sale of assets (4,369) 20,880 (400)
Stock-based compensation and services expense 297 - -
Changes in operating assets and liabilities, net
of effects of purchase and sale of businesses:
Decrease (increase) in:
Trade receivables (17,209) (338) (9,311)
Inventories (35,612) (8,899) (21,667)
Income taxes receivable 2,106 (1,981) (125)
Prepaid expenses and other 300 (843) (2,289)
Increase (decrease) in:
Accounts payable (7,041) 19,047 4,463
Accured compensation and benefits 2,470 3,631 616
Other accrued liabilities (6,432) 4,210 2,167
--------- --------- --------
Net cash used by operating activities (67,526) (9,873) (18,181)
--------- --------- --------
Cash Flows from Investing Activities:
Proceeds from sale of assets, net of cash transferred 14,392 32,171 1,000
Payment of commissions on sale of division (500) - -
Capital expenditures (6,210) (14,419) (22,924)
--------- --------- --------
Net cash provided (used) by investing activities 7,682 17,752 (21,924)
--------- --------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt 392,902 153,157 16,865
Principal payments on long-term debt (336,427) (154,756) (5,459)
Payments for debt issuance costs (2,775) (588) -
Increase in outstanding checks in excess of cash balances 5,471 - -
Proceeds from exercise of stock options and warrants - 1 513
Issuance of common stock for cash, net of costs - - 21,332
Receipts (payments) under inventory financing arrangement - (5,600) 5,600
--------- --------- --------
Net cash provided (used) by financing activities 59,171 (7,786) 38,851
--------- --------- --------
Net increase (decrease) in cash and equivalents (673) 93 (1,254)
Cash and Equivalents:
Beginning of year 716 623 1,877
--------- --------- --------
End of year $ 43 $ 716 $ 623
========= ========= ========
36
EFTC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
2000 1999 1998
---- ---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 3,571 $ 5,320 $ 4,344
======= ======= =======
Cash paid (received) for income taxes $(2,106) $ (184) $ 1,116
======= ======= =======
Supplemental Schedule of Non-cash Investing and
Financing Activities:
Issuance of preferred stock for exchangeable notes,
net of debt issuance costs of $205 $14,027 $ - $ -
======= ======= =======
Obligation to issue common stock in lawsuit settlement $ 2,303 $ - $ -
======= ======= =======
Issuance of 390,000 shares of common stock in
connection with lawsuit settlement $ 987 $ - $ -
======= ======= =======
Proceeds from sale of assets placed in escrow
account $ 500 $ - $ -
======= ======= =======
Stock options granted for deferred compensation $ 367 $ - $ -
======= ======= =======
Issuance of warrants to purchase common stock
for debt issuance costs $ 326 $ - $ -
======= ======= =======
Conversion of capital lease for property, plant
and equipment to an operating lease $ - $10,240 $ -
======= ======= =======
Conversion of notes payable to shareholders' equity $ - $ - $ 1,398
======= ======= =======
37
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
1. Nature of Business and Significant Accounting Policies
Nature of Business
EFTC Corporation (the "Company") is an independent provider of electronic
manufacturing services to original equipment manufacturers. The Company
focuses on high-mix solutions that target the aerospace, industrial
controls and instrumentation, medical equipment, semiconductor capital
equipment, networking and telecommunications equipment industries. The
Company's manufacturing services consist of assembling complex printed
circuit boards (using both surface mount and pin-through-hole
technologies), cables, electro-mechanical devices and finished products.
High mix manufacturing involves processing printed circuit board
assemblies in small-lots (25-100 assemblies per production run) in a
flexible manufacturing environment.
The Company operates in one business segment and substantially all of its
operations are conducted in the United States.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of EFTC Corporation and its wholly-owned subsidiaries since the date of
formation or acquisition, as described in Note 2. All intercompany
balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. The actual results
could differ significantly from those estimates.
The Company's consolidated financial statements are based on several
significant estimates, including the allowance for doubtful accounts, the
provision for excess and obsolete inventories, and the selection of
estimated useful lives of intangible assets and property, plant and
equipment.
Cash and Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of standard cost (which approximates
weighted average cost) or market. Finished goods and work-in-process
inventories include material, labor and manufacturing overhead.
Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of cash and equivalents, trade receivables,
accounts payable and accrued liabilities approximate fair value because
of the short maturity of these instruments. The carrying amount of bank
debt approximates fair value due to the variable interest rate. Due to
the complexity of the terms of the Senior Subordinated Convertible Notes
38
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
described in Note 4, it is not practicable to estimate the fair value of
this financial instrument.
Revenue Recognition
The Company recognizes revenue upon shipment of products to customers or
when services are provided.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Material expenditures
that increase the life of an asset are capitalized and depreciated over
the estimated remaining useful life of the asset. The cost of normal
maintenance and repairs is charged to operating expenses as incurred. For
the year ended December 31, 1998, the Company incurred interest costs of
$4,762, of which $450 was capitalized for assets under construction. Upon
disposal of an asset, the cost of the properties and the related
accumulated depreciation are removed from the accounts, and any gains or
losses are reflected in current operations. Leasehold improvements are
amortized over the lesser of the life of the lease or the estimated life
of the improvement. Depreciation is computed using the straight-line
method over the following estimated useful lives:
Years
Buildings and improvements 30 to 40
Manufacturing machinery and equipment 5 to 10
Furniture, computer equipment and software 3 to 7
For the years ended December 31, 2000, 1999 and 1998, the Company
recognized depreciation and amortization expense of $6,444, $5,751 and
$4,548, respectively.
Goodwill and Other Intangible Assets
Debt issuance costs are being amortized over the term of the related debt
using the interest method. Goodwill is amortized using the straight-line
method over 30 years. Intellectual property costs, consisting of circuit
board assembly designs and specifications, are being amortized over
periods ranging from 5 to 10 years using the straight-line method. For
the years ended December 31, 2000, 1999 and 1998, the Company recognized
amortization expense related to goodwill and intellectual property of
$1,971, $1,491 and $1,696, respectively.
Impairment of Long-Lived Assets
The Company assesses impairment whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset,
including goodwill and intellectual property costs, may not be
recoverable. Assets held for sale are stated at the lower of the carrying
value or fair value (net of costs to sell). Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an
asset to the undiscounted future net cash flows, excluding interest
expense, expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured as
the amount by which the carrying amount of the asset exceeds its fair
value. The Company recognized provisions for impairment of long-lived
assets of $1,662, $2,822 and $3,342 for the years ended December 31,
2000, 1999 and 1998, respectively. These provisions primarily related to
the restructuring and relocation activities discussed in Note 9.
39
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
At December 31, 2000, the net carrying value of goodwill of $6,997
relates to the 1997 acquisition of Current Electronics, which now
comprises the Company's Northwest Division. Since this division is not
held for sale, the Company evaluates the goodwill for impairment by
considering historical and budgeted earnings trends for this division.
The Company has adopted a policy that if the unamortized carrying amount
of the goodwill exceeds projected undiscounted cash flows generated by
this division before interest, an adjustment will be recorded to reduce
the carrying amount to the net cash flows discounted at 15%.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Earnings Per Share
Basic Earnings Per Share excludes dilution for potential common shares
and is computed by dividing net income or loss by the weighted average
number of common shares outstanding for the year. Diluted Earnings Per
Share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. For purposes of the weighted average share calculations,
beginning on August 31, 2000 (the date the court approved the class
action lawsuit settlement) the 1,300,000 shares required to be issued in
the lawsuit settlement have been treated as issued and outstanding. As of
December 31, 2000, the Company has not issued 910,000 of these shares,
pending identification of the members of the "class" who will participate
in the settlement. Basic and diluted Earnings Per Share are the same for
all periods presented since all potential common shares were
antidilutive.
As discussed in Note 7, the calculation of Earnings per Share for 2000
reflects a beneficial conversion feature and accrued dividends for
convertible preferred stock that was issued in the third quarter of 2000.
Prior to the merger with the Company, the net income of Personal
Electronics (see Note 2) was not subject to income taxes due to its tax
status under Subchapter S of the Internal Revenue Code. For periods prior
to the merger, Earnings Per Share has been presented on a pro forma basis
to reflect the Company's 1998 net loss as if Personal Electronics had
been a taxable entity subject to federal and state income taxes at the
marginal tax rates applicable in such periods.
Stock-based Compensation
The Company accounts for stock-based compensation issued to employees
using the intrinsic value method. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of
the quoted market price of the Company's common stock at the measurement
date (generally, the date of grant) over the amount an employee must pay
to acquire the stock. Pro forma disclosures of net income (loss) and
earnings per share are presented in Note 6 to reflect the impact on
40
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
earnings if the Company had adopted the alternative method under
Statement of Financial Accounting Standards No. 123, which prescribes the
use of an option pricing model to determine the fair value of stock
options.
For fixed awards of stock options with pro rata vesting, the Company
utilizes the attribution method described in FASB Interpretation No. 28.
Reclassifications
Certain reclassifications have been made to the 1998 and 1999 financial
statements to conform to the presentation in 2000. These
reclassifications had no effect on the previously reported net loss.
2. Business Combinations and Asset Acquisitions
Personal Electronics. On March 31, 1998, the Company acquired through
merger, RM Electronics, Inc., doing business as Personal Electronics
(Personal), in a business combination accounted for as a pooling of
interests. The Company issued 1,800,000 shares of common stock in
exchange for all of the outstanding common stock of Personal.
Accordingly, the Company's consolidated financial statements were
restated for all periods presented to combine the financial position,
results of operations and cash flows of Personal with those of the
Company.
In connection with the acquisition, the Company incurred merger costs of
$1,048, which were charged to operations in March 1998. Notes payable to
shareholders of Personal of $1,398 were converted to shareholders' equity
upon consummation of the merger.
Asset Acquisitions. In September 1998, the Company acquired the circuit
card assembly operations of the Agfa Division of Bayer Corporation. The
Company purchased inventory and equipment for approximately $6,000 and
the parties entered into a long-term supply agreement for the manufacture
of circuit card assemblies.
During the period from August 1997 through February 1998, the Company
completed two transactions with AlliedSignal, Inc. ("AlliedSignal")
pursuant to which the Company acquired inventories and equipment located
in Ft. Lauderdale, Florida and Tucson, Arizona, for an aggregate purchase
price of approximately $19,000. In connection with these transactions,
the Company entered into a long-term supply agreement with AlliedSignal
for the production of circuit card assemblies. As discussed in Note 9, in
2000 the Tucson assets were sold to Honeywell and the Ft. Lauderdale
facility was closed.
In September 1998, the Company purchased manufacturing equipment for
approximately $1,500 from AlliedSignal. In connection with this
transaction, AlliedSignal agreed to amend the long-term supply agreement
to include the production of circuit card assemblies at the Company's new
facility in Ottawa, Kansas.
41
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
3. Inventories
Inventories are summarized as follows:
December 31,
-------------------------
2000 1999
---------- ----------
Purchased parts and completed sub-assemblies, net of
reserve for excess and obsolete items of $9,756 and
$10,175, respectively $ 65,905 $ 43,971
Work-in-process 14,284 13,317
Finished goods 2,031 2,879
---------- ----------
$ 82,220 $ 60,167
========== ==========
For the years ended December 31, 2000, 1999 and 1998, the Company
recognized charges to reflect excess and obsolete inventories of $5,640,
$7,287 and $6,975, respectively.
4. Debt Financing
At December 31, 2000 and 1999, long-term debt consists of the following:
2000 1999
---- ----
Note payable to bank group under revolving line of credit, interest at the prime
rate plus 0.5% (10.0% at December 31, 2000), collateralized by
substantially all assets, due March 2003 $ 28,559 $ --
Senior Subordinated Convertible Notes, interest at 8.875%, unsecured,
due June 2006 59,093 --
Subordinated note payable to entity controlled by a director, interest
at 10%, unsecured, due March 2004 3,000 5,000
Note payable to bank group under revolving line of credit, interest at the prime
rate plus 2.25%, collateralized by substantially all assets,
paid in March 2000 -- 33,184
Note payable, net of discount of $90, to entity controlled by a director,
interest at LIBOR plus 2%, unsecured, paid in March 2000
-- 4,810
-------- --------
Total 90,652 42,994
Less current maturities -- (5,018)
-------- --------
Long-term debt, less current maturities $ 90,652 $ 37,976
======== ========
42
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Refinancing of Debt. On March 30, 2000, the Company entered into a new
credit agreement with Bank of America, N.A. to refinance the Company's
revolving line of credit with the Company's previous lender. The new
credit facility provides for a $45,000 revolving line of credit with a
maturity date of March 2003. Initially, the interest rate is the prime
rate plus .5%. Total borrowings are subject to limitation based on a
percentage of eligible accounts receivable and inventories, and
substantially all of the Company's assets are pledged as collateral for
outstanding borrowings. The credit agreement requires compliance with
certain financial and non-financial covenants. The credit agreement also
limits or prohibits the Company from paying dividends, incurring
additional debt, selling significant assets, or merging with other
entities without the consent of the bank group. At December 31, 2000, the
outstanding principal balance was $28,559 and the borrowing base
calculation supported borrowings up to the maximum of $45,000 under the
credit agreement.
On March 30, 2000, the Company also repaid outstanding notes payable in
the aggregate principal amount of $6,810 (net of discount) to entities
controlled by a director of the Company. The Company incurred a fee of
$150, due to the early retirement of this debt. The Company and the
director amended the terms of the remaining outstanding debt to provide
for a new unsecured note in the principal amount of $3,000 that bears
interest at 10% and is due in March 2004.
Recapitalization. On March 30, 2000, the Company completed the first
stage of a recapitalization transaction with Thayer-BLUM Funding, L.L.C.
("Thayer-BLUM Funding"), an entity formed by affiliates of Thayer Capital
Partners ("Thayer") and BLUM Capital Partners ("BLUM"). The first stage
of the recapitalization involved the issuance of a total of $54,000 in
Senior Subordinated Exchangeable Notes (the "March Exchangeable Notes"),
which was closed on March 30, 2000. On July 14, 2000, the Company issued
an additional $14,000 of Senior Subordinated Exchangeable Notes (the
"July Exchangeable Notes") to Thayer-BLUM Funding in the second stage of
the transaction. As described below, on August 23, 2000, the March and
July Exchangeable Notes were exchanged for the Senior Subordinated
Convertible Notes (the "Convertible Notes") and the Series B Convertible
Preferred Stock (the "Series B Stock"), respectively.
The recapitalization also involved a tender offer by Thayer-BLUM Funding
that was completed on August 23, 2000 for 5,625,000 shares of the
Company's outstanding common stock at a price of $4.00 per share. Upon
completion of the final stage of the recapitalization, Thayer-BLUM
Funding obtained the right to designate a majority of the members of the
Company's board of directors and has the right to approve any significant
financings, acquisitions and dispositions.
The March and July Exchangeable Notes initially provided for an interest
rate of 15% and were accompanied by warrants to purchase 3,093,154 shares
of the Company's common stock at an exercise price of $.01 per share.
However, since shareholders approved the issuance of the Convertible
Notes and the Series B Stock and the tender offer was consummated, the
warrants never became exercisable and expired. Accordingly, no value was
assigned to the warrants in the accompanying consolidated financial
statements.
Upon receipt of shareholder approval, the March Exchangeable Notes were
exchanged for the Convertible Notes. The Convertible Notes provide for
interest at 8.875%, payable in kind, and may be converted into the
Company's common stock at $2.58 per share, subject to adjustment. The
July Exchangeable Notes were exchanged for Series B Convertible Preferred
Stock, as discussed in Note 7.
43
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Aggregate Maturities. Aggregate maturities of long-term debt, including accrued
interest on the convertible notes, are as follows at December 31, 2000:
Year Ending December 31:
2003 $ 28,559
2004 3,000
2006 59,093
---------------
Total $ 90,652
===============
5. Income Taxes
Income tax benefit (expense) for the years ended December 31, 2000, 1999
and 1998, is comprised of the following:
2000 1999 1998
---------- ----------- ---------
Current:
Federal $ -- $ 2,370 $ (2,058)
State -- (16) (170)
---------- ----------- ---------
-- 2,354 (2,228)
---------- ----------- ---------
Deferred:
Federal -- (4,039) 4,328
State -- (495) 531
---------- ----------- ---------
-- (4,534) 4,859
---------- ----------- ---------
Income tax benefit (expense) $ -- $(2,180) $ 2,631
========== =========== =========
Actual income tax benefit (expense) differs from the amounts computed
using the federal statutory tax rate of 34%, as follows:
2000 1999 1998
---------- ----------- ---------
Income tax benefit at the statutory rate $ 8,505 $ 24,318 $ 2,315
Increase (decrease) resulting from:
State income taxes -- 2,146 238
Amortization of non-deductible
goodwill (91) (135) (164)
S Corporation loss -- -- 317
Increase in valuation allowance (8,250) (28,462) --
Other, net (164) (47) (75)
---------- ----------- ---------
Income tax benefit (expense) $ -- $ (2,180) $ 2,631
========== =========== =========
44
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
At December 31, 2000, the Company has a net operating loss carryforward
for Federal income tax purposes of approximately $63,000. If not
previously utilized, this carryforward will expire in 2020. A portion of
this net operating loss carryforward is subject to limitation of use as a
result of the changes in ownership that occurred in 2000.
At December 31, 2000, the Company also has a long-term capital loss
carryforward of $6,467 that can be utilized to offset future capital
gains. This carryforward expires in 2004.
During 2000 and 1999, the Company provided a valuation allowance for all
net deferred tax assets, including the net operating loss and capital
loss carryforwards.
At December 31, 2000 and 1999, the tax effects of temporary differences
that give rise to significant portions of deferred tax assets and
liabilities are presented below:
2000 1999
----------- -------------
Deferred tax assets:
Accrued compensation, benefits and severance $ 2,039 $ 558
Impairment of property, plant and equipment 830 844
State net operating loss carryforwards 5,823 900
Provision for settlement of litigation -- 2,368
Deferred liability on sale of division -- 925
Federal net operating loss carryforwards 21,394 8,695
Intangible assets 3,612 696
Capital loss carryforward 2,830 3,080
Allowance for doubtful accounts 719 1,890
Inventories 7,741 6,943
Other 3,244 3,186
----------- -------------
Total deferred tax assets 48,232 30,085
Less valuation allowance (45,888) (28,462)
----------- -------------
Net deferred tax assets $ 2,344 $ 1,623
=========== =============
Deferred tax liabilities:
Amortization of intangible assets $ (324) $ (622)
Accelerated depreciation and other basis
differences for property, plant and equipment (2,020) (1,001)
---------- ------------
Total deferred tax liabilities $ (2,344) $ (1,623)
========== =============
6. Stock-based Compensation
Warrants. At December 31, 2000, the Company has warrants outstanding for
525,000 shares of common stock at an exercise price of $3.00 per share.
If not previously exercised, these warrants expire in December 2003. At
December 31, 2000, the Company has warrants outstanding for 10,000 shares
of common stock at an exercise price of $4.00 per share. If not
previously exercised, these warrants expire in March 2002.
45
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
All of the above warrants were granted to financial advisors in
connection with the recapitalization discussed in Note 4. As required by
Statement of Financial Accounting Standards No. 123, the Company
estimated the fair value of these warrants using the Black-Scholes model.
The assumptions for valuation of the warrants provided for volatility of
96%, a risk-free interest rate of 5.6%, and an expected life of 2.7
years, which resulted in a valuation of $536, of which $210 was charged
to operations and $326 was recorded as debt issuance costs.
Stock Options. The Company has three stock option plans. The Equity
Incentive Plan was adopted in 1997 and provides for the grant of
non-qualified stock options, incentive stock options, stock appreciation
rights, restricted stock and stock units. Substantially all employees are
eligible under this plan, which provides that options may be granted for
a maximum of 4,495,000 shares of common stock under this plan. These
options generally vest 7 years after the grant date, but vesting may
accelerate based on increases in the market price of the Company's common
stock or upon a change of control of the Company. Effective December 31,
2000, the Company's Board of Directors agreed to accelerate vesting of
all outstanding options under this plan, subject to continued employment
and other terms of this plan. The acceleration of vesting resulted in a
new measurement date but a compensation charge was not required. At
December 31, 2000, approximately 3,027,000 shares were available for
grant under the Equity Incentive Plan.
The Non-employee Directors Plan was adopted in 1993 and provides for
options to acquire shares of common stock to members of the Board of
Directors who are not also employees. Options for a maximum of 300,000
shares may be granted under this plan, and the options generally vest
over a 4-year period. At December 31, 2000, approximately 272,000 shares
are available for grant under the Directors Plan.
In August 2000, the Company's shareholders approved the 2000 Stock Option
Plan, which provides that options for 5,000,000 shares of common stock
may be granted under this plan. This plan provides for the grant of
incentive and non-qualified options to employees, directors and
consultants of the Company. At December 31, 2000, 2,419,000 shares were
available for grant under the 2000 Stock Option Plan.
At December 31, 2000, the Company also has nonqualified options
outstanding for 278,369 shares. Effective December 31, 2000, the
Company's Board of Directors agreed to accelerate vesting of these
options, subject to continued employment and other terms of the options.
The acceleration of vesting resulted in a new measurement date but a
compensation charge was not required.
The following summarizes activity related to all stock options for the
three years ended December 31, 2000:
46
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Weighted Average
Shares Exercise Price
---------------- ----------------
Outstanding, December 31, 1997 2,415,220 $ 10.37
Granted 2,578,892 9.82
Exercised (275,016) 5.34
Canceled (2,155,469) 14.46
----------------
Outstanding, December 31, 1998 2,563,627 7.01
Granted 1,222,263 4.13
Exercised (500) 3.38
Canceled (650,331) 7.59
----------------
Outstanding, December 31, 1999 3,135,059 5.77
Granted 2,797,015 2.62
Canceled (1,576,332) 5.76
----------------
Outstanding, December 31, 2000 4,355,742 3.78
================
The following table summarizes information about stock options
outstanding at December 31, 2000:
Stock Options Outstanding Stock Options Exercisable
--------------------------------------------------------------------------- --------------------------------------
Exercise Prices Remaining
---------------------------------------- Contractual Number of Weighted Average Number of
Range Weighted Life (Years) Shares Exercise Price Shares
----- Average ------------ --------- ------------------ ---------
--------
$1.84 to $2.72 $2.62 8.4 2,760,000 $2.56 494,000
$2.88 to $4.31 $3.50 6.5 535,845 $3.50 532,720
$4.50 to $6.63 $5.21 5.9 503,850 $5.21 503,600
$7.50 to $9.88 $8.10 4.9 513,547 $8.10 513,547
$11.50 to $14.31 $13.51 7.4 42,500 $13.48 40,750
------------ ------------
$1.84 to $14.31 $3.78 7.4 4,355,742 $5.02 2,084,617
============ ============
The Company utilizes the intrinsic value method to account for
stock-based compensation. During 2000, the Company granted options with
an intrinsic value of approximately $367 on the measurement date. This
amount is reflected as deferred compensation cost in the accompanying
statement of shareholders' equity and the related compensation expense is
being charged to operations over the vesting period for the associated
stock options. If compensation cost had been determined for all options
granted subsequent to 1994, using the fair value method using an option
pricing model, the Company's pro forma net loss and loss per share would
have been as follows:
47
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
Year ended December 31,
----------------------------------------------------------
2000 1999 1998
--------------- ----------------- ----------------
Net loss:
As reported $ (25,013) $ (73,703) $ (4,178)
Pro forma $ (28,633) $ (75,345) $ (6,645)
Loss per share - basic and diluted:
As reported $ (1.72) $ (4.74) $ (.31)
Pro forma $ (1.95) $ (4.85) $ (.45)
The weighted average fair value of options granted for the years ended
December 31, 2000, 1999 and 1998 was $1.38, $2.45, and $4.42,
respectively. In estimating the fair value of options, the Company used
the Black-Scholes option-pricing model with the following weighted
average assumptions:
Year ended December 31,
---------------------------------------------------------------------
2000 1999 1998
------------------- ------------------- --------------------
Dividend yield -- -- --
Expected volatility 98.5% 78.0% 100.0%
Risk-free interest rate 5.5% 5.4% 5.0%
Expected lives (years) 5.3 3.5 3.0
7. Shareholders' Equity
Shareholder Rights Plan. In January 1999, the Board of Directors approved
a Shareholder Rights Plan and declared a dividend distribution of one
right to purchase one one-thousandth of a share of a new series of junior
participating preferred stock for each share of common stock of EFTC
held. The distribution was made on February 25, 1999, to shareholders of
record on that date.
The Rights trade with the Company's common stock as a unit unless the
Rights become exercisable upon the occurrence of certain triggering
events relating to the acquisition of 15% or more of the Company's common
stock by any person or group (the "Acquirer"). In certain events after
the Rights become exercisable they will entitle each holder, other than
the Acquirer, to purchase for $35 a number of shares of common stock
having a market value of twice the Right's exercise price, or a number of
the acquiring company's common shares having a market value at the time
of twice the Right's exercise price. A shareholder would have one such
right for each share of stock held at the time the rights become
exercisable. The Company may amend the Rights or redeem the Rights at
$0.001 per Right at any time prior to the Rights becoming exercisable.
The Rights will expire in February 2009.
In connection with the recapitalization discussed in Note 4, in March
2000 the Company's Board of Directors agreed to amend the Shareholder
Rights Plan to exclude the recapitalization from being classified as a
triggering event and, accordingly, the Rights did not become exercisable.
Preferred Stock. In connection with the recapitalization discussed in
Note 4, the Board of Directors authorized the issuance of a new series of
preferred stock, designated Series B Convertible Preferred Stock (the
"Series B Preferred Stock"). A total of 15,000 shares of Series B
Preferred Stock are authorized for issuance. The Series B Preferred Stock
48
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
accrues dividends, compounded quarterly, at 8.875% per annum on the
liquidation preference, which is $1,000 per share plus accrued and unpaid
dividends. Each share of Series B Preferred Stock may be converted into
the Company's common stock at a conversion price of $1.80 per share,
subject to adjustment. The Series B Preferred Stock is entitled to vote
on all matters presented to holders of the Company's common stock on an
"as converted" basis. Assuming that the Company's common stock is traded
on the Nasdaq Stock Market and the Company is in compliance with all
covenants under its debt agreements, the shares of Series B Preferred
Stock will automatically convert into shares of common stock if the
average high and low sales prices of the Company's common stock is above
$7.50 per share for 45 consecutive trading days.
Upon shareholder approval of the recapitalization, the July Exchangeable
Notes in the original principal amount of $14,000, plus accrued interest
of $233 were exchanged for 14,233 shares of Series B Preferred Stock. As
of December 31, 2000, accrued and unpaid dividends on the Series B
Preferred Stock amounted to $450.
The market price of the Company's common stock was in excess of the
conversion price for the July Exchangeable Notes on the commitment date.
Accordingly, the Company was required to include a deemed dividend of
$2,022 related to the holders of the Series B Preferred Stock due to the
existence of a "beneficial conversion feature" on the commitment date in
the determination of net loss per share applicable to common
shareholders.
8. Related Party Transactions
An investment-banking firm, of which a former director of the Company is
the Managing Director, received a fee of $500 as a representative of the
Company for the sale of the Services division in September 1999. This
investment-banking firm also received a fee of $642 as a representative
of Personal Electronics in connection with the Company's 1998 acquisition
described in Note 2.
As discussed in Note 4, the Company has entered into several debt
agreements with entities that are affiliated with directors of the
Company.
In December 1998, the Company entered into a sale-leaseback transaction
with a director of the Company. Manufacturing facilities in Newberg,
Oregon and Tucson, Arizona were sold for $10,500 and leased back to the
Company. Due to the Company's continuing financial interest in the
facilities, the transaction was accounted for as a financing transaction
secured by the facilities with an imputed interest rate of 8.68%. The
lease term is for 5 years with monthly payments of $90. No gain or loss
from the sale was recorded. At the end of the initial lease term the
Company had the option to buy the buildings back for $9,400. In May 1999,
the lease was amended to eliminate the purchase option, which resulted in
the re-characterization of the lease from a capital lease to an operating
lease. Accordingly, the buildings and the related debt have been removed
from the accompanying balance sheets. As discussed in Note 9, the Company
subleased the Tucson facility to Honeywell in February 2000.
The Company has entered into consulting agreements with individuals who
are former officers and directors of the Company. The consulting
agreements provide for aggregate monthly payments of approximately $40
through February 2002. The Company has also entered into an employment
agreement with an officer and director that provides for monthly payments
of $25 until expiration in December 2003. The employment agreement may be
49
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
terminated prior to expiration but the Company would generally be
required to pay severance benefits equal to one-year's salary.
Additionally, the Company has entered into arrangements with an entity
that is owned by a former director whereby an aggregate of $191 and $238
was paid for services rendered in 2000 and 1999, respectively.
During 2000, the Company incurred management fees of $188 for services
provided by a major shareholder.
9. Restructuring and Sale of Assets
Since the fourth quarter of 1998, the Company has taken actions to
increase capacity utilization through the closure of two facilities and
the sale of substantially all of the assets at two other divisions. The
Company has also relocated its corporate headquarters to improve
efficiency and control costs, and has completed a recapitalization
transaction. The aggregate results of operations (excluding interest
expense and income taxes) related to these activities for the years ended
December 31, 2000 and 1999 are summarized as follows:
2000 1999
---- ----
Net sales $ 11,935 $ 102,967
Cost of goods sold 14,040 (109,203)
-------------- -------------
Gross profit (loss) (2,105) (6,236)
Selling, general and administrative (591) (11,372)
Recapitalization transaction costs (5,336) --
Severance, retention, closure and
relocation costs (4,579) (300)
Impairment of long-lived assets (1,662) (2,681)
Goodwill amortization -- (868)
Gain (loss) on sale of assets 4,357 (20,712)
Other, net -- 212
-------------- -------------
$ (9,916) $ (41,657)
============== =============
Management estimates that approximately $10,000 of the 2000 revenue and
$50,000 of the 1999 revenue relates to customers who have agreed to
transition the manufacture of their products to other facilities owned by
the Company. Presented below is a detailed description of each location
that was impacted by a sale or restructuring.
Headquarters Relocation. In July 2000, the Company announced plans to
relocate its corporate headquarters from Denver to Phoenix. Accordingly,
management assessed the estimated useful lives of the assets located in
Denver and determined that it was not practical to use certain assets at
the Phoenix location. The Company also reevaluated the carrying value of
intellectual property related to a customer whose business was expected
to terminate by the end of 2000. The aggregate carrying value of the
Denver assets and the intellectual property as of March 31, 2000 was
$1,900. Accordingly, effective April 1, 2000, the estimated useful lives
of these assets were shortened to coincide with the expected period that
the assets would continue to be used in the business. The impact of this
50
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
change in estimate resulted in an increase in depreciation and
amortization expense of $1,931 ($.12 per share) for the year ended
December 31, 2000.
In connection with the Denver headquarters relocation and other changes
in management, the Company incurred $4,579 for severance, retention,
moving costs, recruiting fees for new management and employees, and
related costs. Management estimates that approximately $300 of additional
costs will be incurred through the first half of 2001.
Sale of Tucson Assets. In December 1999, the Company commenced
negotiations with Honeywell International, Inc. for the sale of inventory
and equipment at the Company's facility located in Tucson, Arizona. On
February 17, 2000, these assets were sold to Honeywell for a purchase
price of $13,240. The Company was required to place $500 in an escrow
account, resulting in net proceeds of $12,740. The $500 placed in escrow
is required to be paid to the Company in February 2001 and is presented
as a receivable from the sale of assets in the accompanying consolidated
balance sheet as of December 31, 2000.
In connection with the agreement, Honeywell agreed to sublease the Tucson
facility for at least 18 months at $32 per month, which is equal to the
Company's lease commitment. Honeywell has the option to extend the term
of the sublease until December 2003 when the Company's primary lease term
expires. The Tucson facility is currently leased from a director of the
Company as discussed in Note 8.
The Company recognized a $1,200 impairment charge in 1999 related to
property and equipment at the Tucson facility.
Southeast Operations. On September 30, 1999, the Company initiated a plan
to consolidate and close its South East Operations in Fort Lauderdale,
Florida. Charges of approximately $11,000 related to the closure were
recognized in the second half of 1999. These charges included $700 for
severance costs related to approximately 200 employees whose employment
period ended by April 2000. The unpaid portion of the severance provision
amounted to $682 at December 31, 1999 and is included in accrued
compensation and benefits in the 1999 balance sheet.
In connection with the closure, the Company recognized charges of $7,131
for excess and obsolete inventories and other items that are included in
cost of goods sold in 1999. The Company also recognized a charge of
$1,000 for impairment of property and equipment that was not redeployed
to other divisions. Additionally, the Company recognized an increase in
the allowance for doubtful accounts of $2,400 that is included in
selling, general and administrative expenses in 1999.
The Company incurred additional charges of $2,384 in 2000, including $393
for retention and relocation costs and $250 for impairment of long-lived
assets. The closure was substantially complete in April 2000 and all
restructuring costs have been paid as of December 31, 2000.
Sale of Services Division. On September 1, 1999, the Company sold
substantially all of the assets of its Services Division for
approximately $28,000. The Company recognized a loss of $20,565 primarily
due to the write-off of $36,452 of unamortized goodwill that was directly
associated with the acquisition of this business. The Company also
recognized $400 for impairment of property, plant and equipment, and
additional provisions totaling $1,600 related to inventory and
receivables not transferred to the purchaser.
51
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
In connection with this sale, the purchaser and the Company agreed to an
Earn-out Contingency (the "EC"). Under the EC, if the earnings for the
year ended August 31, 2000 related to the division sold are in excess of
$4,455 ("Target Earnings"), the Company is entitled to an additional
payment equal to three times the difference between the actual earnings
and Target Earnings. If actual earnings were less than Target Earnings,
the Company would have been required to refund an amount equal to three
times the difference. The maximum amount that either party could be
required to pay under the EC is $2,500; accordingly, the Company recorded
a liability for $2,500 of the consideration received in 1999 that was
subject to the EC.
In October 2000, the purchaser notified the Company that actual earnings
exceeded Target Earnings by $619, resulting in a payment due the Company
of $1,857. Accordingly, the Company recognized an additional gain of
$4,357 in 2000 under the EC.
Rocky Mountain Operations. In the fourth quarter of 1998, management
initiated a plan to consolidate and close its Rocky Mountain Operations
in Greeley, Colorado. Costs of $9,250 related to the closing were charged
to operations for the year ended December 31, 1998. Additional costs
related to the closure of $2,391 were incurred through October 1999 when
the facility was sold for $3,802. The restructuring involved the
termination of approximately 140 employees of which 123 were
manufacturing related and 17 administrative or indirect support
personnel. Total severance and salaries of employees performing exit
activities amounted to $463 of which $263 was included in cost goods sold
and $200 in selling, general and administrative expenses in 1998. During
1998, the Company paid $100 of these costs and the remainder was paid in
1999.
Inventory allowances of $5,445, which were included in cost of goods sold
in 1998, were recorded to provide for future losses to be incurred
related to disengaged customers that did not continue as customers of the
Company. In addition, a provision of $3,342 was charged to operations in
1998 related to asset impairment for land, building and equipment. At
December 31, 1999, all of the restructuring costs had been paid and no
accrual was remaining related to these restructuring activities.
10. Business and Credit Concentrations
The Company operates in the electronic manufacturing services segment of
the electronics industry. Substantially all of the Company's customers
are located in the United States. For the years ended December 31, 2000,
1999 and 1998, approximately 74%, 65% and 45%, respectively, of the
Company's sales were derived from companies engaged in the aerospace
industry. The Company has a policy to regularly monitor the credit
worthiness of its customers and provide for uncollectible amounts if
credit problems arise. Customers may experience financial difficulties,
including those that may result from industry developments, which may
increase bad debt exposure to the Company. In addition, the electronics
manufacturing services industry has been experiencing component supply
shortages which has impacted the Company's profitability in the past
year. If this situation continues to deteriorate, the Company may
experience reduced net sales and profitability in the future.
Sales to significant customers as a percentage of total net sales for the
years ended December 31, 2000, 1999 and 1998, were as follows:
52
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
2000 1999 1998
---- ---- ----
AlliedSignal, Inc. -- 46.1% 42.1%
Honeywell, Inc. 72.7% 10.3% 3.3%
----------------- ----------------- ---------------
Pro Forma Combined 72.7% 56.4% 45.4%
================= ================= ===============
In December 1999, AlliedSignal and Honeywell completed their merger and
the combined company was named Honeywell International, Inc. The pro
forma disclosure above presents the customer concentration as if the
merger had occurred on January 1, 1998.
At December 31, 2000 and 1999, approximately 69% and 57%, respectively,
of the Company's net trade receivables were due from Honeywell
International, Inc. The Company does not require collateral to support
trade receivables.
11. Commitments and Contingencies
Operating Leases. The Company has noncancelable operating leases for
facilities and equipment that expire in various years through 2007. Lease
expense under all operating leases amounted to $10,169, $9,471 and $7,072
for the years ended December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000, future minimum lease payments (excluding sublease
rentals due from Honeywell International, Inc. discussed in Note 9) for
operating leases are as follows:
Year Ending December 31:
2001 $ 7,680
2002 6,398
2003 5,668
2004 3,450
2005 2,297
After 2005 3,570
-----------------
$ 29,063
=================
Employee Benefit Plan. The Company has a 401(k) Savings Plan covering
substantially all employees, whereby the Company matches 50% of an
employee's contributions to a maximum of 2% of the employee's
compensation. Additional profit sharing contributions to the plan are at
the discretion of the Board of Directors. During the years ended December
31, 2000, 1999 and 1998, contributions by the Company to the Plan were
approximately $637, $588 and $391, respectively.
Legal Proceedings. In September and October 1998, the Company and certain
of its present and former directors and officers were named as defendants
in lawsuits brought by certain shareholders claiming to represent classes
of shareholders that purchased shares of the Company's common stock
between April and August 1998. These class action complaints purported to
present claims under federal and state securities laws, seeking
unspecified damages based on alleged misleading disclosures during the
class period.
In April 2000, the Company agreed to settle this litigation for
approximately $6,400 and the settlement was recorded as of December 31,
1999. Under the settlement agreement, the Company transferred $3,100 to
53
EFTC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
the class settlement fund in April 2000 and agreed to issue a total of
1,300,000 shares of its common stock to members of the class and their
counsel once the procedures set forth in the settlement are completed.
The estimated fair value of the 1,300,000 shares of common stock was
$3,290. In addition to the $6.4 million of consideration from the
Company, the Company's insurer contributed an additional $2.9 million to
the settlement fund.
A motion to approve the settlement was approved by the state court on
August 31, 2000. To date the Company has issued 390,000 shares of common
stock to plaintiff's counsel and will issue the remaining 910,000 shares
with a fair value of $2,303 when the court completes its determination of
the members of the class who are entitled to participate in the
settlement. On September 29, 2000, the parties filed a motion in federal
court to dismiss all claims with prejudice.
54
Independent Auditors' Report
The Board of Directors
EFTC Corporation:
Under date of January 31, 2001, we reported on the consolidated balance sheets
of EFTC Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2000
which are included in the Company's annual report on Form 10-K for the year
ended December 31, 2000. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule included in the Form 10-K. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Denver, Colorado
January 31, 2001
55
EFTC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accounts Receivable- Allowance for Doubtful Accounts
(Dollars in Thousands)
Additions (1)
------------------------
Balance at Charged Charged Balance at
Beginning To Costs & To Other End Of
Year Ended December 31, Of Period Expenses Accounts Deductions (2) Period
----------------------- --------- -------- -------- -------------- ------
1998 $ 474 $ 1,020 $ 24 $ 196 $ 1,322
1999 1,322 5,091 -- 2,724 3,689
2000 3,689 1,033 -- 3,051 1,671
Inventories- Reserve for Excess and Obsolete Inventories
(Dollars in Thousands)
Additions (1)
------------------------
Balance at Charged Charged Balance at
Beginning To Costs & To Other End Of
Year Ended December 31, Of Period Expenses Accounts Deductions(2)(3) Period
---------------------- ---------- ---------- ---------- ---------------- ------------
1998 $ 2,023 $ 6,975 $ 1,487 $ 2,097 $ 8,388
1999 8,388 7,287 -- 5,500 10,175
2000 10,175 5,640 -- 6,059 9,756
------------------
(1) Amounts charged to other accounts were recorded in conjunction with
acquisitions.
(2) Deductions relate to write-offs unless otherwise indicated.
(3) Deductions of $2,087 in 1998 relate to adjustments to the purchase price
allocations of acquisitions.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information concerning the directors and executive officers of the
Company is incorporated herein by reference to the section entitled ELECTION OF
DIRECTORS in the Company's definitive Proxy Statement with respect to the
Company's Annual Meeting of Shareholders (the "Proxy Statement").
56
Item 11. Executive Compensation.
The section labeled "Compensation of Directors and Executive Officers"
appearing in the Company's Proxy Statement is incorporated herein by reference,
except for such information as need not be incorporated by reference under rules
promulgated by the Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Section labeled "Security Ownership of Directors and Executive
Officers and Certain Beneficial Owners" appearing in the Company's Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The second labeled "Certain Relationships and Related Transactions"
appearing in the Company's Proxy Statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements-The financial statements listed in Item
8 on page 31, are filed as part of this annual report.
2. Financial Statement Schedules-Schedule II- Valuation and
Qualifying Accounts and the accompanying opinion of KPMG LLP which
appear on pages 56 and 55, respectively, are filed as part of this
annual report.
3. Exhibits-The following exhibits are filed as part of this annual
report.
Exhibit
Number Document Description
3.1 Amended and Restated Articles of Incorporation of the Company (11)
3.2 Articles of Amendment to the Articles of Incorporation of the Company (11)
3.3 Articles of Amendment to the Articles of Incorporation of the Company (Series A Junior
Participating Preferred Stock) (10)
*3.4 Articles of Amendment to the Articles of Incorporation of the Company (Series B Convertible Preferred
Stock)
3.5 Articles of Amendment to the Articles of Incorporation of the Company (increasing the authorized number of shares of
common stock to 75 million) (12)
3.6 Articles of Amendment to the Articles of Incorporation of the Company (eliminating Article VIII)(12)
3.7 Amended and Restated Bylaws of the Company (1) 4.1 Reference is made to Exhibits 3.1 - 3.6, respectively 4.2 Specimen
Common Stock Certificate of the Company (1)
4.3 Form of Convertible Note issued by the Company to Thayer-BLUM Funding, LLC (11)
4.4.1 Rights Agreement dated as of February 25, 1999 between the Company and American Securities Transfer & Trust, Inc., as
Rights Agent (10)
57
4.4.2 Amendment to Rights Agreement dated as of March 30, 2000 between the Company and Rights Agent (11) 4.4.3 Amendment to
Rights Agreement dated as of July 14, 2000 between the Company and Rights Agent (14)
10.1 Form of Registration Rights Agreement dated January 1994 between the Company and the parties thereto (1)
10.2 Registration Rights Agreement dated as of February 24, 1997, among the Company, Charles E. Hewitson,
Matthew J. Hewitson and Gregory Hewitson and certain other parties (2)
10.3 Registration Rights Agreement dated as of March 31, 1998, among the Company, Raymond Marshall and Robert Monaco
(8)
10.4 Registration Rights Agreement dated as of September 30, 1997 among the Company and CTI Shareholders (4)
10.5.1 Registration Rights Agreement dated as of March 30, 2000 between the Company and Thayer-BLUM Funding, L.L.C.
("Thayer-BLUM") (13)
10.5.2 Amendment to Registration Rights Agreement between the Company and Thayer-BLUM effective as of July 14, 2000 (13)
10.6 Asset Purchase Agreement dated February 17, 2000 between Honeywell International Inc. and the Company (11)
10.7.1 Note Agreement between the Company and Richard L. Monfort dated as of November 11, 1999
*10.7.2 Amendment to Note Agreement between the Company and Richard L. Monfort dated as of March 30, 2000, including the
form of Note attached as Exhibit A thereto.
10.8+ EFTC Corporation Equity Incentive Plan, amended and restated as of July 9, 1997 (6) 10.9+ EFTC Corporation Stock
Option Plan for Non-Employee Directors, amended and restated as of July 9, 1997 (6)
10.10 EFTC Corporation 2000 Stock Option Plan (15)
*10.11 Agreement dated as of September 20, 2000 between the Company and Jack Calderon 10.12+ Employment Agreement with Jim
Bass dated as of June 23, 2000 (14) 10.13+ Form of Consulting Agreement entered into by the Company in connection with
the acquisition of Current Electronics, Inc.(5)
10.14 Asset Purchase Agreement dated as of August 31, 1999 between Jabil Circuit, Inc., the Company,
CTLCC Acquisition Corp., Circuit Test, Inc., Airhub Services Group, L.C., and Circuit Test
International, L.C. (9)
10.15 Master Agreement regarding Asset Purchase and Related Transactions dated as of March 19, 1999 between
Honeywell Inc. and the Company (11)
*10.16 Memorandum of Understanding dated as of December 6, 2000 between Honeywell International, Inc. and the Company
10.17 Securities Purchase Agreement between the Company and Thayer-BLUM Funding, LLC dated as of March 30, 2000 (11)
10.18 First Amendment to Securities Purchase Agreement between the Company and Thayer-BLUM Funding, LLC dated as of July 14,
2000 (15)
10.19 Loan and Security Agreement dated March 30, 2000 with Bank of America, N.A., as agent for several
banks (the "Bank") and the Company (11)
10.20 Security Agreement - Stock Pledge dated March 30, 2000 with the Bank and the Company (11)
*10.21 Amendment No. 1 to the Loan and Security Agreement dated August 7, 2000 between the Bank and the Company
*10.22 Intellectual Property Security Agreement dated as of March 30, 2000 between the Bank and the Company *10.23 Mortgage
between the Company and the Bank (relating to the Company's property in Ottawa, Kansas)
58
*10.24 Management and Cross-Services Agreement dated as of March 1, 2001 between the Company and K*Tec Electronics
Corporation
*21.1 List of Subsidiaries
*23.1 Consent of KPMG LLP
-------------
* Filed herewith
+ Management Compensation Plan
(1) Incorporated by reference from the Company's Registration Statement on Form SB-2 (File No. 33-73392-D)
filed on December 23, 1993
(2) Incorporated by reference from the Company's Current Report on Form 8-K (File No. 0-23332) filed on
March 5, 1997
(3) Incorporated by reference from the Company's Current Report on Form 8-K (File No. 0-23332) filed on
August 26, 1997
(4) Incorporated by reference from the Company's Current Report on Form 8-K (File No. 0-23332) filed on
October 15, 1997
(5) Incorporated by reference from the Company's Annual Report on Form 10-K (File No. 0-23332) filed on
March 27, 1997
(6) Incorporated by reference from the Company's Registration Statement on Form S-2 (File No. 333-38444)
filed on October 21, 1997
(7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q (File No. 0-23332) filed on
November 16, 1998
(8) Incorporated by reference from the Company's Current Report on Form 8-K (File No. 0-23332) filed on
April 15, 1998
(9) Incorporated by reference from the Company's Current Report on Form 8-K (File No. 0-23332) filed on
September 16, 1999
(10) Incorporated by reference from the Company's Registration Statement on Form 8-A (File No. 0-23332) filed
on February 25, 1999
(11) Incorporated by reference from the Company's Annual Report on Form 10-K (File No. 0-23332) filed on
April 14, 2000
(12) Incorporated by reference from the Company's Quarterly Report on Form 10-Q (File No. 0-23332) filed on
November 14, 2000
(13) Incorporated by reference from the Company's Schedule 14d-9 (File No. 005-49123) filed on July 20, 2000
(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q (File No. 0-23332) filed on
August 14, 2000
(15) Incorporated by reference from the Company's Schedule 14A (File No. 0-23332) filed on July 20, 2000
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 2000.
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on this 30th day of March 2001.
EFTC CORPORATION, a Colorado corporation
By: /s/ James K. Bass
James K. Bass
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this Report to be signed by the following persons in
the capacities and on the dates indicated.
Position Held
Signature With the Registrant Date
--------- ------------------- ----
/s/ James K. Bass Chief Executive Officer and Director March 30, 2001
--------------------------- (Principal Executive Officer)
James K. Bass
/s/ Peter W. Harper Chief Financial Officer March 30, 2001
--------------------------- (Principal Financial Officer)
Peter W. Harper
/s/ James A. Doran Vice President March 30, 2001
--------------------------- (Principal Accounting Officer)
James A. Doran
/s/ Allan S. Braswell, Jr. Director March 30, 2001
----------------------------
Allan S. Braswell, Jr.
/s/ Jack Calderon Director March 30, 2001
------------------
Jack Calderon
/s/ Jeffrey W. Goettman Director March 30, 2001
-------------------------
Jeffrey W. Goettman
/s/ Douglas P. McCormick Director March 30, 2001
--------------------------
Douglas P. McCormick
/s/ Jose Medeiros Director March 30, 2001
---------------------------
Jose Medeiros
/s/Richard L. Monfort Director March 30, 2001
---------------------------
Richard L. Monfort
/s/ James Van Horne Director March 30, 2001
---------------------------
James Van Horne
/s/ John C. Walker Director March 30, 2001
---------------------------
John C. Walker
60