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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MAY 25, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-23818
MERIX CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-1135197
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1521 POPLAR LANE, FOREST GROVE, OREGON 97116
(Address of principal executive offices) (Zip Code)
(503)359-9300
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK
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
the 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or in
any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 21, 1996 was $84.6 million based upon the
composite closing price of the Registrant's Common Stock on the Nasdaq
National Market System on that date.
The number of shares of the Registrant's Common Stock outstanding as of
June 21, 1996 was 6,133,496 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its
1996 annual meeting of shareholders are incorporated by reference into Part
III.
1
MERIX CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business..................................................... 3
Item 2. Properties................................................... 9
Item 3. Legal Proceedings............................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......... 9
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters..... ....................................10
Item 6. Selected Financial Data......................................10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11
Item 8. Financial Statements and Supplementary Data..................17
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure..........................31
PART III
Item 10. Directors and Executive Officers of the Registrant...........32
Item 11. Executive Compensation.......................................32
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................32
Item 13. Certain Relationships and Related Transactions...............32
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..........................................32
Signatures...................................................35
2
PART I
ITEM 1. BUSINESS.
Merix Corporation (Merix or the Company) is a leading manufacturer of
technologically advanced electronic interconnect products, custom
engineered to meet customers' specific needs. These products include
multilayer rigid, flexible, and high performance printed circuit boards
used to connect the microprocessors, integrated circuits and other
components essential to the functioning of electronic equipment. The
Company's customers include a diversified base of manufacturers in the
industrial instrumentation, computer, and communications segments of the
electronics industry.
Merix, an Oregon corporation, was formed in March 1994 to succeed to
the business conducted by the Circuit Board Division (the Division) of
Tektronix, Inc. (Tektronix), which had been in the electronic interconnect
manufacturing business for over 30 years. On June 1, 1994, Merix acquired
the assets and assumed certain liabilities (the Acquisition) of the
Division in connection with the initial public offering of its common
stock, and began to operate as an independent corporation. See Note 1 of
the Notes to Financial Statements in Item 8. The term "Company" is used in
this document to refer to both Merix and its predecessor, the Division. The
Company's corporate offices are located at 1521 Poplar Lane, Forest Grove,
Oregon 97116 and the telephone number is (503)359-9300.
ACQUISITIONS
In fiscal 1996, the Company completed the acquisition and integration
of two printed circuit board fabrication operations. On October 31, 1995,
the Company acquired certain assets of Hewlett-Packard Company's (HP)
Loveland, Colorado printed circuit fabrication operation and on December
31, 1995, the Company acquired from Rogers Corporation certain assets of
the Soladyne printed circuit fabrication operation located in San Diego,
California. The assets acquired in both acquisitions consisted principally
of manufacturing equipment and inventory. See Note 3 of the Notes to
Financial Statements in Item 8.
ELECTRONIC INTERCONNECT INDUSTRY OVERVIEW
Interconnect products, including rigid and flexible printed circuit
boards, are the basic platforms used to connect the microprocessors,
integrated circuits and other components essential to the functioning of
electronic equipment. Such products consist of a pattern of electrical
circuitry etched from copper that is laminated to a board made of
insulating material. The manufacture of these and other complex
interconnect products requires increasingly sophisticated engineering and
manufacturing expertise and substantial capital investment. This has
contributed to increasing reliance by original equipment manufacturers
(OEMs) on independent manufacturers for such products.
According to industry reports, the U.S. domestic market for all
interconnect products was approximately $7 billion in 1995, including both
"captive" and "independent" producers. Captive producers are typically
divisions of larger OEMs that manufacture interconnect products for use in
their own product lines. Independent producers, such as the Company,
manufacture interconnect products for multiple OEMs, and represented
approximately 85% of the U.S. domestic market revenues in 1995. The market
share of independent producers has increased in recent years as OEMs have
found that independent producers can often provide greater flexibility,
higher levels of responsiveness and faster delivery at a lower overall cost
than their own captive operations.
Historically, the industry has been highly fragmented. Increasing
technology demands and resulting demands for capital investment are
expected to contribute to a growing trend toward consolidation of the
independent producers.
3
CUSTOMERS, MARKETING AND SALES
The Company's customers include a diversified base of leading OEMs in
the industrial instrumentation, computer, and communications segments of
the electronics industry. These customers often use leading-edge
technologies and their product requirements generally drive the advancement
of electronic interconnect manufacturing technology.
The Company also manufactures and sells products to electronic
manufacturing service industry (EMSI) customers such as Benchmark
Electronics, Inc., Pro-Log Corporation, Solectron Corporation, and SCI
Systems, Inc. which assemble components on the products for resale to OEMs.
The Company seeks to expand existing relationships and establish
relationships with other EMSI customers to gain access to more OEM
customers.
The Company seeks to develop strategic relationships with its
customers and markets its products and services through a direct sales
force. The Company's sales people advise customers with respect to
applicable technology, manufacturability of designs and cost implications.
The Company believes continuous improvement in product technology is
essential to satisfy customer needs. To gain knowledge of future technology
needs, the Company holds technology planning and review meetings with its
major customers, attends technical conferences and trade shows, and hosts
an annual conference with its customers and suppliers. These activities
also enhance the Company's visibility in the marketplace.
In fiscal year 1996, the following four customers represented
approximately 69.3% of net sales: Tektronix, Motorola, Hewlett-Packard, and
Teradyne represented 20.6%, 19.5%, 18.7% and 10.5% of sales, respectively.
Immediately prior to consummation of the Acquisition, Tektronix, through
participating divisions and subsidiaries, entered into seven separate
three-year supply agreements with the Company under which they agreed to
purchase annually from the Company at least the lesser of 90% of their
aggregate requirements for printed circuit boards, flexible circuits and
related tooling and test fixtures or $28.5 million worth of the Company's
products. In connection with the acquisition of the Loveland operation, the
Company entered into a two-year supply agreement under which HP agreed to
purchase, at market prices, at least $35 million of product in the first
year and at least $25 million in the second year.
MANUFACTURING AND ENGINEERING
Product Profiles
The Company specializes in high density, multilayer printed circuit
boards produced using a variety of materials. The majority of the Company's
multilayer rigid circuit boards are manufactured on a standard base
laminate material having broad functionality. The Company also produces
high performance circuit boards constructed from specialty materials and
flexible circuits. The Company's products and their applications are
described below.
Rigid Epoxy Substrate Circuits. This product group consists of
epoxy/glass laminate circuit boards used in virtually all segments of the
electronics industry and is manufactured at the Forest Grove and Loveland
facilities. The Company also manufactures rigid-flex circuits which are a
hybrid of the rigid and flexible circuits. Such boards combine performance
characteristics of rigid circuits with the spatial advantages of flexible
circuits. For fiscal years 1996 and 1995, rigid circuits represented 73.6%
and 72.1%, respectively, of the Company's net sales.
High Performance Circuits. High performance circuit boards are
used in electronic products requiring high speed and high frequency
interconnect solutions, such as cellular phone base stations and other
communications, computing and instrumentation products and are manufactured
at the Forest Grove and Soladyne facilities. High performance circuits are
manufactured using specialty materials with properties that address the
need for faster speeds, higher operating temperatures and higher
frequencies.
4
The Company has developed the expertise and specialized engineering
processes required to manufacture high performance circuit boards using a
broad range of materials, including Duroid(R), Cyanate Ester and GETEK(R).
The Company believes that it is one of the few merchant suppliers capable
of producing high performance circuits using a combination of high
performance base materials at acceptable quality and yield levels. For
fiscal years 1996 and 1995, high performance circuits represented 23.6% and
25.2%, respectively, of the Company's net sales.
Flexible Circuits. Flexible circuits are thin, lightweight circuits
used to interconnect other circuit boards and electronic devices within
electronic equipment. The Company produces high density, mechanically
complex flexible circuits that offer the advantages of improved signal
speeds and circuit densities, reduced part size, reduced weight, and
flexibility. Flexible circuits are used in high speed computers and other
electronic equipment as replacements to cables, wiring and other
interconnect devices to improve product reliability and performance.
Flexible circuits, which represented 2.8% and 2.7% of the Company's net
sales in 1996 and 1995, respectively, are manufactured at the Forest Grove
facility.
Manufacturing Processes
The manufacture of complex multilayer interconnect products involves
the use of a variety of sophisticated production processes and equipment.
In general, the Company receives circuit designs directly from its
customers in the form of computer aided design files that it reviews to
ensure manufacturability. Using these computer files, the Company generates
images of the circuit patterns that it develops on individual layers using
advanced photographic processes. Through a variety of plating and etching
processes, the Company adds and removes conductive and insulating
materials. Separate layers are combined, or laminated together, using
intense heat and pressure under vacuum. Connections between layers are
achieved by plating through small holes called vias. Vias are made by
highly specialized equipment capable of achieving extremely fine tolerances
with high accuracy.
The Company embraces Total Quality Management to meet the highest
industry standards for product quality. The Company has remained ISO 9001
certified since 1992, when it was the first independent circuit board
operation in the United States to be certified to this level of
international quality standards. In May 1996, the Company's Forest Grove
facility received the Shingo Prize for Manufacturing Excellence. The Shingo
Prize is awarded annually by the National Association of Manufacturers to
recognize North American domestic manufacturing companies that demonstrate
excellence in manufacturing leading to quality enhancement, productivity
improvement, and customer satisfaction. During fiscal year 1995, the
Company was awarded the Oregon Quality "Governor's Trophy" Award for
outstanding quality systems and performance.
The Company specializes in products with extremely fine geometries
and tolerances including trace and space widths below .002 inches and via
diameters below .006 inches. Because of the tolerances involved, the
Company uses clean rooms in certain manufacturing processes where tiny
particles can create defects on the circuit patterns, and uses automated
optical inspection (AOI) to ensure consistent quality.
The Company operates on a twenty-four hour, five or six day
manufacturing work week schedule, with non-scheduled days reserved for
maintenance.
In December 1995, the Company entered into a sub-license agreement
with HP's Printed Circuit Organization under which the Company has the
rights to use the DYCOstrateTM interconnect substrate technology.
DYCOstrateTM is a trademark of Dyconex Patente AG, a Swiss company. The
Company believes that the DYCOstrateTM technology will offer customers a
better price/performance ratio in high-volume applications than traditional
technologies. The Company expects to begin shipping products utilizing this
technology in the latter half of fiscal year 1997. However, there is a risk
that engineering delays could result in deferral of the initial shipment
date and a risk that customer acceptance will not be forthcoming.
5
SUPPLIER RELATIONSHIPS
Historically, the majority of raw materials used in the manufacture
of the Company's products have been readily available. However, as product
changes increase the industry's use of new laminate materials, the
potential for shortages in the supply of these materials increases. To
date, material shortages or price fluctuations have not had a materially
adverse effect on the Company.
In order to reduce lead times and inventory carrying costs, to
enhance the quality and reliability of its supply of raw materials and to
reduce transportation and other logistics costs, the Company has entered
into strategic relationships with certain of its suppliers of laminates,
drill bits and other raw materials, and for certain services. In 1993,
Matsushita Electronics Materials, a key laminate supplier, completed an
82,000 square foot factory adjacent to the Company's Forest Grove facility
to produce laminates previously imported by the Company from Japan. During
1994, Insulectro, a key supplier of raw materials and services, completed
construction of a warehouse distribution center adjacent to the Company's
Forest Grove facility. In addition, Probe Test Fixtures, Inc. provides
on-site electrical test services to the Company.
The Company strives to develop and maintain good working
relationships with its key suppliers to enhance operation of the business.
Supplier management programs drive improvements and working relationships
between the parties. These programs include, but are not limited to,
quarterly review meetings, joint product and process development, and
participation in an annual technology needs assessment meeting with the
Company's key and strategic customers.
ENVIRONMENTAL CONTROLS
Electronic interconnect product manufacturing requires the use of a
variety of materials, including metals and chemicals. As a result, the
Company is subject to environmental laws relating to the storage, use and
disposal of chemicals, solid waste, and other hazardous materials, as well
as air quality regulations. Water used in the manufacturing process must be
treated to remove metal particles and other contaminates before it can be
discharged into the municipal sanitary sewer system. The Company operates
and maintains effluent water treatment systems and utilizes approved
laboratory testing procedures at each of its manufacturing facilities under
effluent discharge permits issued by a number of governmental authorities.
These permits must be renewed periodically and are subject to revocation in
the event of violations of environmental laws. The Company believes that
its waste treatment complies with all current environmental protection
requirements in all material respects. However, there can be no assurance
that violations will not occur in the future. Further, to the extent that
environmental laws change, environmental expenditures could increase.
Certain waste products generated by the Company's manufacturing
facilities require further treatment or controlled disposal. In connection
with the Acquisition, the Company entered into an agreement with Tektronix
to provide tanker and containerized waste handling, storage, and disposal
in accordance with applicable environmental regulations for a three-year
period. At the Loveland and Soladyne operations, the Company utilizes third
parties for waste handling, storage and disposal services in accordance
with the applicable environmental regulations.
The Company is a recognized leader in the professional management of
industrial chemicals, waste treatment and recycling. As part of its
commitment to reduce potential impacts on the environment, the Company has
eliminated the use of all ozone depleting compounds in manufacturing. The
Company has also eliminated the use of certain other hazardous chemicals,
such as chromium, trichloroethylene and perchloroethylene.
6
BACKLOG
The Company's backlog was approximately $19.9 million at the end of
fiscal year 1996 compared with $18.7 million at the end of fiscal year
1995. A substantial portion of the Company's backlog is typically scheduled
for delivery within 60 days. Cancellation and postponement charges
generally vary depending upon the time of cancellation or postponement and
a certain portion of the Company's backlog is subject to cancellation or
postponement without significant penalty. Accordingly, the Company's
backlog is not necessarily indicative of future sales or earnings.
COMPETITION
Competitive factors in the market for electronic interconnect
products include product quality, technological capability, responsiveness
to customers in delivery and service, and price. The Company believes that
competition in the market segments served by the Company is based more on
product quality, technical capability and delivery than on price. The
Company believes its primary competitive strengths are its ability to
provide a wide array of interconnect products at a high quality within a
shorter lead-time, engineering and manufacturing expertise, and customer
service and support.
The electronic interconnect industry in the United States is highly
fragmented. An industry source estimates the number of companies producing
circuit boards in the United States is between 750 and 800 companies. There
are no dominant manufacturers in the industry and, according to an industry
source, the top 10 merchant suppliers accounted for approximately 25% of
total circuit board sales by independent suppliers in 1995. The Company
faces competition from captive interconnect product manufacturers, many of
which have substantial resources and production capabilities. These
manufacturers may seek orders in the open market to fill excess capacity,
thereby increasing competition.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company's success depends in part on proprietary technology and
manufacturing expertise. While the Company attempts to protect its
proprietary technology through patents, copyrights and trade secrets, it
believes that its success will depend more upon further innovation and
technological advances. Companies in the electronics industry from time to
time receive letters from third parties alleging infringement of patent
rights. The Company has received no such letters; however, Tektronix, prior
to the Acquisition, received a notice of infringement from Jerome H.
Lemelson, alleging infringement of several of Mr. Lemelson's "barcode
reader," "machine vision," "video imaging," "beam processing" and certain
other patent claims. Mr. Lemelson contends that any modern manufacturing
facility such as that operated by the Company must necessarily infringe on
at least some of the asserted patent claims at some time during the course
of product design, fabrication, or testing. In connection with the
Acquisition, Tektronix agreed to assume any liabilities, in excess of any
manufacturer's indemnity, relating to the claim made by Mr. Lemelson for
products of the Company shipped to customers prior to the consummation of
the Acquisition. Tektronix and Mr. Lemelson have announced that Tektronix
has entered into an agreement with Mr. Lemelson to license certain of Mr.
Lemelson's patents. Should Mr. Lemelson assert a claim against the Company
and be able to identify processes or products of the Company for which a
license is legally required, although there can be no assurance, the
Company expects Mr. Lemelson to license the patented technology to the
Company under terms that would not have a material financial impact.
7
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
the executive officers of the Company.
NAME AGE POSITION
- - ---- --- --------
Deborah A. Coleman 43 Chairman and Chief Executive Officer
Lawrence C. Neitling 48 President, Chief Operating Officer and Director
Joseph H. Howell 44 Senior Vice President and Chief Financial Officer
Terri L. Timberman 38 Vice President - Human Resources
Samuel R. DeSimone, Jr. 36 Vice President - Corporate Development,
General Counsel and Secretary
Deborah A. Coleman serves as Chairman of the Board of Directors and
Chief Executive Officer of the Company. From November 1992 to the inception
of the Company, Ms. Coleman served as Vice President, Materials Operations
of Tektronix and was responsible for management of the operations of the
Circuit Board Division of Tektronix. Prior to joining Tektronix, Ms.
Coleman held various positions at Apple Computer, Inc. for 11 years.,
including Vice President of Information Systems and Technology, Chief
Financial Officer and Vice President of Worldwide Manufacturing Operations.
Lawrence C. Neitling serves as a member of the Board of Directors and
as President and Chief Operating Officer of the Company. From 1985 until
the inception of the Company, Mr. Neitling served as Operations Manager and
General Manager of the Circuit Board Division of Tektronix.
Joseph H. Howell serves as Senior Vice President and Chief Financial
Officer of the Company. From 1988 until joining the Company in January
1995, Mr. Howell served as Controller of Borland International, Inc., where
he was appointed Vice President in 1991 and acting Chief Financial Officer
in 1994.
Terri L. Timberman serves as Vice President - Human Resources of the
Company. Ms. Timberman joined the Circuit Board Division in February 1994.
From 1992 until joining the Company, Ms. Timberman served in various human
resource management positions for Tektronix. Prior to 1992, Ms. Timberman
served as Director of Human Resources for TriQuint Semiconductor, Inc.
Samuel R. DeSimone, Jr. serves as Vice President - Corporate
Development, General Counsel and Secretary. From 1990 until joining the
Company in September 1995, Mr. DeSimone was a partner at the law firm of
Lane Powell Spears Lubersky in Portland, Oregon. Prior to 1990, Mr.
DeSimone worked for the law firm of Testa, Hurwitz & Thibeault in Boston,
Massachusetts.
EMPLOYEES
As of May 25, 1996 the Company had a total of 1,523 employees, of
which 1,293 were regular employees and 230 were temporary agency employees.
None of the Company's employees are represented by a labor union. The
Company has never experienced an employee-related work stoppage. The
average length of service for the Company's regular employees is
approximately 10 years. The Company believes its relationship with its
employees is good. The Company also believes that the continued hiring and
retention of engineers and management personnel is integral to the success
of the Company.
8
ITEM 2. PROPERTIES.
The Company owns a 73-acre industrial land site located in Forest
Grove, Oregon on which a 174,000-square-foot manufacturing facility and
6,300-square-foot waste treatment facility are located. Pursuant to a trust
deed granted by the Company to Tektronix, such site is subject to a
mortgage securing the Company's obligation to repay $10 million pursuant to
a note delivered by the Company to Tektronix in connection with the
Acquisition. See Note 1 of the Notes to Financial Statements in Item 8.
During the fourth quarter of fiscal year 1995, the Company acquired a
vacant 37,500-square-foot building approximately one mile from this
manufacturing facility. This building was retrofitted to provide interim
office space for administrative personnel previously located in the
manufacturing facility pending completion of the Company's new
62,500-square-foot administration and training facility, which is being
constructed on the Company's Forest Grove industrial land site and is
scheduled for completion in the first quarter of fiscal 1997. The
approximately 20,000 square feet of space in the Forest Grove manufacturing
facility vacated by the administrative personnel was retrofitted to
increase manufacturing capacity. Additionally, the Company currently
intends to retrofit the interim office space to increase manufacturing
capacity, after relocating administrative personnel to the new
administration and training facility.
In connection with the acquisition of the Loveland operation, the
Company entered into a five year lease with HP for 120,000 square feet of
manufacturing space housing the acquired operations. Prior to the end of
the lease term, the Company intends to construct a facility in Colorado to
replace the manufacturing capacity of the leased space. In connection with
the acquisition of the operations at the Soladyne operation, the Company
assumed a lease held by Rogers Corporation for the 37,000-square-foot
manufacturing facility housing the acquired operations. The lease has five
years remaining.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during
the fourth quarter of the fiscal year covered by this report.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Merix's Common Stock is traded on the Nasdaq National Market. The
Company's initial public offering price was $9.00. Prior to the offering on
May 25, 1994, there had been no public market for Merix's Common Stock. The
range of the high and low bid prices for the Company's Common Stock as
reported by The Wall Street Journal for the most recent fiscal quarters was
as follows:
HIGH LOW
FISCAL YEAR 1996:
Quarter 1 $34 3/4 $23 1/2
Quarter 2 38 3/4 29
Quarter 3 38 27
Quarter 4 39 1/8 30 1/4
FISCAL YEAR 1995:
Quarter 1 $13 3/4 $ 8 1/2
Quarter 2 17 3/4 12 1/8
Quarter 3 25 5/8 16
Quarter 4 29 20 5/8
There were approximately 4,700 shareholders of record as of July 17,
1996.
The Company has never declared any dividends. Merix currently intends
to retain all future earnings, if any, for use in the Company's business
and, accordingly, does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
Financial information for fiscal years 1994, 1993 and 1992 relates to
the Circuit Board Division of Tektronix, and is not necessarily indicative
of the results that would have occurred had the Division operated as a
separate entity for the fiscal years presented.
1996 1995 1994(2) 1993(2) 1992(2)
---- ---- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net sales......................... $155,634 $101,448 $78,442 $70,340 $68,526
Net income........................ 12,793 10,564 6,791 5,146 5,720
Primary earnings per share (1).... $1.98 $1.67 $1.12 $ .85 $ .94
BALANCE SHEET DATA:
Working capital................... 34,047 34,201 28,215 4,213 5,846
Total assets...................... 111,170 69,597 52,254 24,487 26,285
Long-term debt.................... 26,670 6,427 8,073 240 -
Equity............................ 66,353 52,319 38,093 16,271 19,523
----------------
(1) Primary earnings per share for fiscal years 1994, 1993 and 1992
are pro forma based on the initial 6,055 shares outstanding
following the Acquisition.
(2) See Note 1 to the Financial Statements included in Item 8.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ACQUISITIONS (IN THOUSANDS)
On October 31, 1995, the Company acquired certain assets of
Hewlett-Packard Company's (HP) Loveland, Colorado printed circuit board
manufacturing facility for a total purchase price of approximately $26,868.
Of this amount $23,600 was paid to HP for the purchase of fixed assets and
inventory, $427 was assumed as a liability for the purchase of
manufacturing equipment, $1,813 was paid to others for costs related to the
transaction and $1,028 was accrued for the estimated cost of the Company's
contractual obligation to renovate leased manufacturing facilities in
Loveland at the conclusion of the lease term. Assets acquired include
inventory and supplies of $1,955, fixed assets, principally manufacturing
equipment, of $22,427 and goodwill of $2,486.
Of the purchase price paid in cash, $20 million was borrowed on the
Company's unsecured bank line of credit. This instrument matures on July
29, 1996, at which time it may be extended or converted to a variety of
other borrowing instruments at the then current market rates of interest,
with an ultimate due date of the credit facility of no later than September
1, 2000.
The Company's primary purpose in acquiring this operation was to add
manufacturing capacity and create a second manufacturing operation for
products produced for its current customers. In connection with this
transaction, the Company and HP entered into a two year supply agreement
under which HP agreed to purchase, at market prices, at least $35 million
of product in the first year and at least $25 million in the second year.
On December 31, 1995, the Company acquired certain assets, consisting
principally of inventory and manufacturing equipment, of the Soladyne
printed circuit fabrication operation from Rogers Corporation. Soladyne is
located in San Diego, California, and Rogers is one of the Company's
suppliers of high performance material. The purchase price was not material
to the financial position of the Company.
11
RESULTS OF OPERATIONS (IN THOUSANDS)
Financial information for fiscal year 1994 relates to the Circuit
Board Division of Tektronix, and is not necessarily indicative of the
results which would have occurred had the Division operated as a separate
entity for that fiscal year. In 1994, the Company sold products to
Tektronix at the Company's approximate cost. In order to provide
comparability, the Company's sales to Tektronix for 1994 are presented
based on pricing terms that the Company and Tektronix believe were
equivalent to those that would have prevailed between independent parties,
based upon (i) independent bids acquired by Tektronix from time to time for
products of the type manufactured by the Company and (ii) their knowledge
of prevailing industry prices.
PERCENTAGE OF NET SALES
-----------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
Net sales.................. $155,634 $101,448 $78,442 100.0% 100.0% 100.0%
Cost of sales.............. 118,234 72,380 58,364 76.0% 71.3% 74.4%
------- -------- ------- ------- ------ -----
Gross profit............... 37,400 29,068 20,078 24.0% 28.7% 25.6%
Operating expenses:
Engineering.............. 5,019 3,523 2,729 3.2% 3.5% 3.5%
Selling, general and
administrative......... 11,399 8,726 6,427 7.3% 8.6% 8.2%
------- -------- ------- ------- ------ -----
Total operating expenses. 16,418 12,249 9,156 10.5% 12.1% 11.7%
Operating income........... 20,982 16,819 10,922 13.4% 16.6% 13.9%
Interest expense........... 1,333 721 19 .8% .7% -
Other income, net.......... 690 940 50 .4% .9% .1%
------- -------- ------- ------- ------ -----
Income before taxes........ 20,339 17,038 10,953 13.0% 16.8% 14.0%
Income taxes............... 7,546 6,474 4,162 .8% 6.4% 5.3%
------- -------- ------- ------- ------ -----
Net income $12,793 $ 10,564 $ 6,791 8.2% 10.4% 8.7%
======= ======== ======= ======= ====== =====
Sales by product lines, market segments and largest customers as a
percent of net sales are as follows:
PERCENTAGE OF NET SALES
-----------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
PRODUCT LINES
Rigid $114,530 $73,144 $61,029 73.6% 72.1% 77.8%
High Performance 36,750 25,571 12,943 23.6% 25.2% 16.5%
Flexible 4,354 2,733 4,470 2.8% 2.7% 5.7%
-------- -------- ------- ------ ------ ------
Total $155,634 $101,448 $78,442 100.0% 100.0% 100.0%
======== ======== ======= ====== ====== ======
MARKET SEGMENTS
Computers $33,206 $19,261 $ 25,528 21.3% 19.0% 32.5%
Communications 43,798 40,058 24,845 28.2% 39.5% 31.6%
Test and Instruments 55,828 35,103 24,138 35.9% 34.6% 30.9%
Contract Mfg. 20,606 6,793 3,931 13.2% 6.7% 5.0%
Other 2,196 233 - 1.4% 0.2% -
-------- -------- ------- ------ ------ ------
Total $155,634 $101,448 $78,442 100.0% 100.0% 100.0%
======== ======== ======= ====== ====== ======
LARGEST CUSTOMERS
Tektronix $32,010 $31,577 $29,024 20.6% 31.1% 37.0%
Motorola 30,427 23,170 12,786 19.5% 22.8% 16.3%
Hewlett-Packard 29,100 - - 18.7% - -
Teradyne 16,389 11,497 7,295 10.5% 11.4% 9.3%
Storage Technology 9,491 9,899 9,570 6.1% 9.8% 12.2%
Other 38,217 25,305 19,767 24.6% 24.9% 25.2%
-------- -------- ------- ------ ------ ------
Total $155,634 $101,448 $78,442 100.0% 100.0% 100.0%
======== ======== ======= ====== ====== ======
12
The Company's five largest customers comprised 75.4%, 75.1%, and
74.8% of net sales for fiscal years 1996, 1995 and 1994, respectively. The
Company expects that a small number of customers will continue to account
for a substantial majority of its sales and that the relative dollar amount
and mix of product sold to any of these customers can change significantly
from year to year. There can be no assurance that the Company's principal
customers will continue to purchase products and services from the Company
at current levels, or that the mix of products purchased will be in the
same ratio. The loss of one or more principal customers or a change in the
mix of product sales could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPARISON OF FISCAL YEARS 1996 AND 1995 (IN THOUSANDS)
Fiscal year. The Company's fiscal year is the 52 or 53 week period
ending the last Saturday in May. Fiscal years 1996 and 1995 were 52 week
years; fiscal year 1997 will be a 53 week year with the extra week
occurring in the third quarter.
Net Sales. The Company is engaged in the single business segment of
producing custom, complex, technologically advanced printed circuit boards
to customer specifications. Accordingly, the Company does not disclose
separately the sales or results of operations of the Forest Grove, Loveland
or Soladyne operations. The Company classifies its products, principally
based on the type of production materials used, as rigid, high performance,
and flexible printed circuit boards.
Net sales for fiscal year 1996 were $155,634 representing a 53.4%
increase over prior year net sales of $101,448. The overall increase in net
sales resulted principally from the acquisition of the Loveland and
Soladyne operations, from increased sales of high performance products
which increased by $11,179, or 44% as compared to sales of high performance
products in 1995, and from capacity and productivity increases to meet
customer demand at the Forest Grove facility.
The Company, along with many of its competitors, is experiencing
lower demand that the Company believes will result in lower sales and net
income in the first half of fiscal year 1997. Two of the Company's largest
customers have recently issued press releases indicating that they are also
experiencing a softness in demand. This could result in a reduction in
sales orders from these customers which could have a material adverse
effect on the Company's sales and earnings. The interconnect industry has
added production capacity within the last year which, together with the
current reduced demand, could intensify price competition that could also
negatively impact sales and earnings. Additionally, the Company closed all
of its facilities the week of July 4, 1996 for the purpose of completing
capital equipment installations and major facilities maintenance projects.
Although there can be no assurances that they will be effective, the
Company is taking actions to mitigate the effect of these conditions,
including the qualification of new customers to broaden the Company's
customer base. Based on comments from several customers, the Company
believes that industry conditions should improve and customers' inventory
adjustments should be worked through by the end of calendar 1996. However,
there can be no assurance that this will occur.
New Product Development. The Company continues to invest in new
product research and development as technology leadership will become
increasingly important to the interconnect industry. In December 1995, the
Company entered into a sub-license agreement with HP's Printed Circuit
Organization under which the Company has the rights to use the DYCOstrateTM
interconnect substrate technology. The Company believes that the
DYCOstrateTM technology will offer customers a better price/performance
ratio in high-volume applications than traditional technologies. The
Company expects to begin shipping products utilizing the technology in the
latter half of fiscal year 1997. However, there is a risk that engineering
delays could result in deferral of the initial shipment date and a risk
that customer acceptance of the technology will not be forthcoming.
Gross Margins. The Company's gross margin was 24.0% in fiscal year
1996, compared with 28.7% in the prior year. The Company's gross margin can
be affected by various factors, including sales volumes, product mix,
production yields, price changes and changes in the Company's cost
structure.
13
High performance products are generally more complex and carry higher
margins than the Company's rigid products. The Company's product mix in
fiscal year 1996 included a higher percentage of rigid product due to the
acquisition of the Loveland operation which produces exclusively rigid
product. The Company performs component subassembly on certain of its high
performance products as a customer accommodation. Such subassembly services
carry substantially lower gross margins than circuit board production.
Gross margins decreased in fiscal year 1996 principally as a result
of product mix, including the effect of the Loveland operation, and an
increase in sales of products that include component subassembly. Prior to
its acquisition by the Company, the Loveland operation generated relatively
low margins due to its captive status. The Company is investing in
productivity and capacity improvements in order to improve these margins.
However, there are no assurances that these margins will be higher in the
future.
While the exact impact is not known at this time, the Company expects
that lower sales in the first half of fiscal year 1997 will result in a
lower gross margin for this period. In addition, the Company's depreciation
and other fixed manufacturing costs will increase in fiscal year 1997 as a
result of recent capital investments. In an attempt to mitigate the effect
of expected lower sales, the Company is taking steps to reduce costs,
including reductions in discretionary spending and decreases in the
temporary work force.
Engineering. Engineering expenses were $5,019 and $3,523 in fiscal
years 1996 and 1995, respectively, and were 3.2% and 3.5% of net sales,
respectively, each year. Engineering expenses have increased due to
additional engineering staff as a result of the acquisitions of the
Loveland and Soladyne operations. Engineering expenses are expected to
increase as a percent of sales in the first half of fiscal year 1997 due to
their relatively fixed nature and the anticipated lower sales level for
this period. The Company believes that it is necessary to continue to
invest in engineering efforts to remain competitive, but there can be no
assurance that such investments will result in increased sales or profits.
Selling, General and Administrative. Selling, general and
administrative expenses were $11,399 and $8,726 in fiscal years 1996 and
1995, respectively, and were 7.3% and 8.6% of net sales, respectively.
Selling, general and administrative expenses as a percent of sales
decreased due to the relatively fixed nature of certain general and
administrative expenses. These expenses increased primarily to support
growth and a multi-site environment. Selling, general and administrative
expenses are expected to increase as a percent of sales in the first half
of fiscal year 1997 due to their relatively fixed nature and the
anticipated lower sales level for this period.
Interest Expense. Interest expense increased in fiscal year 1996 from
the prior year due to the interest resulting from the $20 million bank
borrowing used to fund the acquisition of the Loveland operation.
Other Income, net. Other income, net consists principally of interest
income from invested cash. The decrease in interest and other income from
the prior year is due principally to lower balances of such cash.
Income Taxes. The Company's effective tax rate of 37% in fiscal year
1996 is lower than the effective tax rate of 38% in 1995, principally due
to the State of Oregon reducing the current year corporate income tax rate
as a method of refunding excess income taxes collected in prior years. The
effect of the reduction was to increase net income for the fiscal year by
$204. The Company expects its effective tax rate in fiscal year 1997 to be
approximately 38%.
14
COMPARISON OF FISCAL YEARS 1995 AND 1994 (IN THOUSANDS)
Net Sales. Net sales for fiscal year 1995 were $101,448 representing
a 29.3% increase over prior year net sales of $78,442. The overall increase
in net sales resulted principally from increased sales of the Company's
high performance products, which increased by 96.8%, compared with the
prior year. During fiscal year 1995, approximately 95.5% of the Company's
net sales of high performance products and substantially all of its high
performance growth related to Motorola, one of the Company's largest
customers.
Gross Margins. The Company's gross margin was 28.7% in fiscal year
1995, compared with 25.6% in the prior year. Gross margins increased in
fiscal year 1995 principally as a result of the increased sales of high
performance products and the allocation of fixed costs over higher
production volumes.
Engineering. Engineering expenses were $3,523 and $2,729 in fiscal
years 1995 and 1994, respectively, and were 3.5% of net sales each year.
Engineering expenses increased principally as a result of hiring additional
engineers and salary increases.
Selling, General and Administrative. Selling, general and
administrative expenses were $8,726 and $6,427 in fiscal years 1995 and
1994, respectively, and were 8.6% and 8.2% of net sales, respectively.
Prior to fiscal year 1995, the Company was a division of Tektronix.
The increase in selling, general and administrative expenses, both in
amount and as a percentage of net sales in fiscal year 1995, resulted
principally from increased costs related to being an independent company.
Such increased costs include, among others, a substantial increase in sales
department personnel, the addition of executive officers and related staff
and new expenses related to public reporting and investor relations
activities.
Interest Expense. Interest expense increased in fiscal year 1995 from
the prior year due to the interest incurred on the $10,000 note entered
into with Tektronix in conjunction with the Acquisition.
Interest and Other Income. The increase in interest and other income
from the prior year is due principally to the investment of cash received
as a result of the completion of the Acquisition and cash generated from
operations.
Income Taxes. The Company's effective tax rate of 38% in fiscal year
1995 is consistent with the effective tax rate in fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS)
Cash and short-term investments at May 25, 1996 were $19,358,
compared with $26,891 at May 27, 1995. Working capital was $34,047 at May
25, 1996 and $34,201 at May 27, 1995. The Company generated cash from
operations of $16,883 in fiscal year 1996, and used $39,323 in investing
activities, of which $28,720 was associated with the acquisition of the
Loveland and Soladyne operations. Prior to fiscal year 1995, substantially
all of the cash generated by the Company's operations was remitted to
Tektronix pursuant to Tektronix's centralized cash management program.
During fiscal year 1996, $19,417 of the Company's investments matured
and $14,000 of short-term investments, principally U.S. state and local
government securities, were purchased. The Company's policy is to hold such
short-term investments to maturity. During fiscal year 1996, the Company
had capital expenditures of $16,111, principally for expansion of
manufacturing capacity and the construction of the Company's new
administration and training building in Forest Grove.
The Company's facilities expenditures consisted of $5,230 for the
construction of the new administration and training building, $451 for
renovation of the current interim administration building, and $874 for
renovation of the factory space vacated by administrative and sales
personnel. In addition to these facility investments, the Company acquired
$9,556 of capital equipment during fiscal year 1996,
15
excluding the capital equipment purchased in connection with the
acquisition of the Loveland and Soladyne operations.
The Company has a $30 million unsecured bank line of credit against
which it has borrowed $20 million. This borrowing bears interest at Bankers
Acceptance plus one percent (6.38% at May 31, 1996) and matures on July 29,
1996, at which time it may be extended or converted to a variety of
borrowing instruments at the then current market rates of interest, with an
ultimate due date of the credit facility of no later than September 1,
2000. Borrowings under the line of credit in excess of $20 million bear
interest at LIBOR plus .875 percent. Borrowings available under the line of
credit were $10,000 at May 31, 1996. The outstanding balance under the
Company's line of credit is included in long-term debt based on the
Company's ability and intent to repay the balance on a long-term basis.
The Company is currently seeking $40 million of long-term debt to
repay amounts under the existing bank line of credit and for working
capital and general corporate purposes. If successful, such borrowing will
increase interest income and interest expense in fiscal year 1997 compared
to fiscal year 1996.
The Company's future needs for financial resources include amounts to
support investments in additional facilities and equipment. The Company's
ability to obtain additional debt, or the terms under which such debt might
be available, may be impacted by its increased bank borrowings in fiscal
year 1996 compared to fiscal year 1995. The Company believes that its
existing capital resources, cash generated from operations and proceeds
from potential future financing activities will be sufficient to meet its
working capital and capital expenditure requirements through fiscal 1997.
The Company intends to pursue possible business acquisitions, but currently
has no specific acquisition commitments.
FORWARD-LOOKING INFORMATION
Information contained in this Form 10-K regarding fiscal year 1997
and in the 1996 Annual Report to Shareholders regarding goals of the
Company, including: anticipated customer demand, sales and net income;
industry conditions and customer inventory adjustments; gross margins;
engineering and selling, general and administrative costs as a percent of
net sales; cost reduction efforts; estimated effective tax rate for fiscal
1997; interest income and expense; initial expectations in regard to the
commencement of shipments of products utilizing DYCOstrateTM technology and
related customer acceptance; and Company goals with respect to market
share, revenue growth, customer diversification, return on equity,
shareholder value, technology leadership, human resources and supply chain
integration constitute forward-looking statements. Information contained in
forward looking statements is based on current expectations, is subject to
change and may differ materially from actual results. From time to time,
information provided by the Company or statements made by its employees may
contain other forward-looking information that involves a number of risks
and uncertainties. Factors that could cause actual results to differ
materially from the forward-looking information include, but are not
limited to, the matters discussed in this Form 10-K as well as the
following: business conditions and growth in the general economy and the
interconnect industry; production delays; product mix; the highly
competitive interconnect environment; cancellation or reduction of orders;
effective utilization of existing and new manufacturing resources; customer
acceptance of new technologies; environmental issues; pricing pressures by
key customers; costs and yield issues associated with production; capacity
constraints; availability of parts and supplies from third parties on a
timely basis and at reasonable prices; ability to execute financing
strategies; and other risks listed from time to time in the Company's
Securities and Exchange Commission reports or otherwise disclosed by the
Company. Any forward-looking statements should be considered in light of
these factors.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MERIX CORPORATION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Merix Corporation:
We have audited the accompanying balance sheets of Merix Corporation
as of May 25, 1996 and May 27, 1995 and the related statements of income,
shareholders' equity, and cash flows for the years ended May 25, 1996, May
27, 1995, and May 28, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. These
financial statements give retroactive effect to the reorganization of
entities under common control which has been accounted for using a
methodology similar to a pooling of interests as described in Note 1 to the
financial statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Merix Corporation as of May
25, 1996 and May 27, 1995, and the results of its operations and its cash
flows for the years ended May 25, 1996, May 27, 1995, and May 28, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
June 18, 1996
17
MERIX CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
MAY 31
1996 1995
-------- -------
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 12,191 $14,307
Short-term investments................................................ 7,167 12,584
Accounts receivable - net of allowance of $78 and $53, respectively... 21,401 9,493
Accounts receivable - affiliates...................................... 3,138 3,281
Inventories (Note 5).................................................. 6,435 4,449
Other current assets.................................................. 589 938
--------- -------
Total current assets.................................................. 50,921 45,052
Property, plant and equipment (Note 6).................................... 101,731 62,161
Accumulated depreciation.................................................. (46,155) (42,296)
--------- -------
Property, plant and equipment - net................................... 55,576 19,865
Deferred income taxes (Note 9)............................................ 2,283 4,680
Goodwill, net (Note 3)................................................... 2,390 -
--------- -------
Total assets.............................................................. $ 111,170 $69,597
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 7,456 $ 4,273
Accrued compensation.................................................. 4,502 3,171
Current portion of long-term debt (Note 7)............................ 1,931 1,913
Income taxes payable (Note 9)......................................... 67 159
Other accrued liabilities............................................. 2,918 1,335
--------- -------
Total current liabilities............................................. 16,874 10,851
Long-term debt (Note 7).................................................. 26,670 6,427
Other liabilities ........................................................ 1,273 -
--------- -------
Total liabilities..................................................... 44,817 17,278
--------- -------
Commitments and contingencies (Note 14)................................... - -
Shareholders' equity:
Preferred stock, no par value; authorized 10,000
shares; none issued................................................. - -
Common stock, no par value; authorized 50,000 shares; issued
and outstanding 1996: 6,133 shares, 1995: 6,075 shares................ 43,733 42,262
Unearned compensation................................................. (737) (507)
Retained earnings..................................................... 23,357 10,564
--------- -------
Total shareholders' equity............................................ 66,353 52,319
========= =======
Total liabilities and shareholders' equity................................ $ 111,170 $69,597
========= =======
See the accompanying Notes to Financial Statements.
18
MERIX CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED MAY 31
1996 1995 1994
(NOTE 1)
--------- --------- ---------
Net sales........................................ $ 155,634 $ 101,448 $ 78,442
Cost of sales.................................... 118,234 72,380 58,364
--------- --------- ---------
Gross profit..................................... 37,400 29,068 20,078
--------- --------- ---------
Operating expenses:
Engineering.................................... 5,019 3,523 2,729
Selling, general and administrative............ 11,399 8,726 6,427
--------- --------- ---------
Total operating expenses....................... 16,418 12,249 9,156
--------- --------- ---------
Operating income................................. 20,982 16,819 10,922
Interest expense................................. 1,333 721 19
Other income, net................................ 690 940 50
--------- --------- ---------
Income before taxes.............................. 20,339 17,038 10,953
Income taxes..................................... 7,546 6,474 4,162
--------- --------- ---------
Net income....................................... $ 12,793 $ 10,564 $ 6,791
========= ========= =========
Earnings per share............................... $ 1.98 $ 1.67 $ 1.12
========= ========= =========
Weighted average shares of common stock and
common stock equivalents outstanding............. 6,449 6,340 6,055
========= ========= =========
See the accompanying Notes to Financial Statements.
19
MERIX CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK UNEARNED RETAINED DIVISION
SHARES AMOUNT COMPENSATION EARNINGS EQUITY TOTAL
-------- -------- ------------ --------- --------- --------
Balance at May 31, 1993.......................... $16,271 $16,271
Net income....................................... 6,791 6,791
Net asset transfers to Tektronix................. (308) (308)
Net cash received from Tektronix................. 887 887
-------- -------- ------------ --------- --------- --------
Balance at May 31, 1994 prior to
reorganization of entities under
common control (Note 1)........................ 23,641 23,641
Additional net assets contributed by Tektronix
as part of the acquisition (Note 1)........... 14,452 14,452
Reorganization of entities under common control
(Note 1)...................................... 6,000 $ 38,093 (38,093) -
Restricted stock awards (Note 8)................. 55 495 $ (495) -
-------- -------- ------------ --------- --------- --------
Balance at June 1, 1994 after the
reorganization of entities under
common control (Note 1)........................ 6,055 38,588 (495) 38,093
Net income....................................... $ 10,564 10,564
Purchase price adjustment (Note 9)............... 3,279 3,279
Exercise of stock options........................ 10 90 90
Tax benefit related to stock-based compensation.. 72 72
Restricted stock awards.......................... 10 233 (233) -
Amortization of unearned compensation............ 221 221
-------- -------- ------------ --------- --------- --------
Balance at May 31, 1995.......................... 6,075 42,262 (507) 10,564 52,319
Net income....................................... 12,793 12,793
Exercise of stock options........................ 40 429 429
Tax benefit related to stock-based
compensation.................................. 445 445
Restricted stock awards.......................... 18 597 (597) -
Amortization of unearned
compensation.................................. 367 367
-------- -------- ------------ --------- --------- --------
Balance at May 31, 1996.......................... 6,133 $ 43,733 $ (737) $ 23,357 $ - $ 66,353
======== ======== ============ ========= ========= ========
See the accompanying Notes to Financial Statements.
20
MERIX CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED MAY 31
1996 1995 1994
---- ---- ----
(NOTE 1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 12,793 $ 10,564 $ 6,791
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................... 5,643 2,930 2,827
Deferred income taxes................................................... 2,397 570 (26)
Amortization of unearned compensation................................... 367 221 -
Other................................................................... 3 - (27)
Changes in assets and liabilities (exclusive of effects of purchase
of Loveland and Soladyne assets):
Accounts receivable................................................... (11,765) (1,028) (3,404)
Inventories........................................................... 303 582 326
Other current assets.................................................. 692 (913) (7)
Accounts payable...................................................... 3,183 1,207 (245)
Accrued compensation.................................................. 1,331 3,171 (2,340)
Income taxes payable.................................................. 353 231 -
Other accrued liabilities............................................ 1,583 480 586
-------- -------- --------
Net cash provided by operating activities................................... 16,883 18,015 4,481
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Loveland and Soladyne assets.................................... (28,720) - -
Capital expenditures........................................................ (16,111) (6,875) (5,306)
Short-term investments:
Purchases............................................................. (14,000) (21,900) -
Maturities............................................................ 19,417 9,316 -
Proceeds from sale of assets................................................ 91 60 96
-------- -------- --------
Net cash used in investing activities....................................... (39,323) (19,399) (5,210)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowing.........................................................
Proceeds............................................................. 20,000 - -
Principal payments................................................... (105) (1,900) (158)
Exercise of stock options................................................... 429 90 -
Net cash received from Tektronix............................................ - - 887
-------- -------- --------
Net cash provided by (used in) financing activities......................... 20,324 (1,810) 729
-------- -------- --------
Decrease in cash and cash equivalents........................................... (2,116) (3,194) -
Cash and cash equivalents at beginning of year.............................. 14,307 17,501 -
Cash received in the Acquisition............................................ - - 17,501
-------- -------- --------
Cash and cash equivalents at end of year.................................. $ 12,191 $ 14,307 $ 17,501
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest................................................................ $ 697 $ 721 $ 19
Taxes................................................................... 4,799 5,670 -
Noncash transactions:
Assets acquired by recognition of lease renovation liability............ 1,273 - -
Software license acquired through financing agreement................... 367 - -
Tax benefit related to stock-based compensation......................... 445 72 -
Purchase price adjustment (Note 9)...................................... - 3,279 -
Net asset transfers to Tektronix........................................ - - (308)
Reorganization of entities under common control:........................
Note payable to Tektronix............................................ - - 10,000
Other net noncash assets acquired ................................... - - 30,592
See the accompanying Notes to Financial Statements.
21
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. ACQUISITION AND BASIS OF PRESENTATION
Merix Corporation (Merix) was initially incorporated as a
wholly-owned subsidiary of Tektronix, Inc. (Tektronix) on March 22, 1994 in
the State of Oregon to acquire the business conducted by the Circuit Board
Division (the Division) of Tektronix. The term "Company" is used in this
document to refer to both Merix Corporation and its predecessor, the
Circuit Board Division of Tektronix. This acquisition was completed on June
1, 1994 in conjunction with Merix's initial public offering (the
Acquisition). Under terms of the related Asset Transfer Agreement,
Tektronix transferred to the Company all of the assets used exclusively in
the Division's business and approximately $17,500 in cash in exchange for
6,000,000 shares of common stock and a note in the principal amount of
$10,000 (the Note). The Note bears interest at the rate of 7.5% per annum
and is payable over five years. The Company granted Tektronix a security
interest in the Company's real property (including improvements) to secure
repayment of the Note pursuant to a Trust Deed.
Merix also assumed certain obligations and liabilities arising out of
or relating to the circuit board business or the transferred assets, as if
the Company had operated the business from its commencement and the
business had never been owned by Tektronix. The Company indemnified
Tektronix and its affiliates for all such assumed liabilities, and
Tektronix indemnified the Company for the liabilities specifically retained
by Tektronix. The transfer of assets under the Asset Transfer Agreement
included the transfer of certain technology. The Company granted Tektronix
a perpetual, non-exclusive, royalty-free license under patents, copyrights
and trade secrets that were transferred to the Company.
For financial reporting purposes, the Acquisition has been accounted
for using a methodology similar to a pooling of interests in order to
reflect the reorganization of entities under common control (Merix and the
Division). Accordingly, the financial statements for fiscal year 1994 have
been prepared to give retroactive effect to the reorganization. However,
these financial statements are still not necessarily indicative of the
financial position and results of operations which would have occurred had
the Company been an independent company.
For income tax purposes, the Acquisition has been accounted for as a
purchase with the purchase price being allocated to the assets acquired and
liabilities assumed based on their fair market value as determined by an
independent appraisal.
NOTE 2. ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52 or 53 week period ending the last
Saturday in May. Fiscal years 1996, 1995 and 1994 were 52-week years ending
May 25, May 27, and May 28, respectively. For convenience, these periods
have been presented in these financial statements as ending May 31.
Use of Estimates
The preparation of 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
financial statements and the reported amounts of sales and expenses during
the reporting period. Actual results could differ from those estimates.
22
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
Balance Sheet Financial Instruments: Fair Values
The carrying amount reported in the balance sheet for investments,
accounts receivable and accounts payable approximates fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount for long-term debt approximates its fair value because the
related interest rates are comparable to rates currently available to the
Company for debt with similar terms and maturities.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash in banks and highly
liquid investments with maturities of three months or less when purchased.
Prior to fiscal year 1995, Tektronix provided a centralized cash management
function; accordingly, the Company did not maintain separate cash accounts
and its cash disbursements and collections were settled through division
equity.
Investments
The Company classifies securities at acquisition into one of three
categories: held to maturity, available for sale, or trading. At May 31,
1996 and 1995, all of the Company's investments, principally short-term
municipal securities, with original maturities of more than 90 days are
classified as held to maturity and are valued at amortized cost.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) basis.
Property and Depreciation
Land, buildings and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated based on the estimated useful
lives of depreciable assets as follows: 40 years for buildings, 10 to 20
years for grounds, and 3 to 7 years for operating equipment, and is
provided using the straight line method.
Goodwill
The cost of goodwill is amortized on a straight line basis over the
estimated period benefited of 15 years. Goodwill amortization for fiscal
year 1996 was $96.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment.
Service revenue is recognized as services are provided. For fiscal year
1994, sales to Tektronix and its subsidiaries are reported at prices as if
Tektronix and its subsidiaries were external customers to the Division.
23
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
Engineering Expense
Expenditures for engineering of products and manufacturing processes
are expensed as incurred.
Warranty
The Company generally warrants its products for a period of up to
four months from shipment. Accordingly, a provision for the estimated cost
of the warranty is recorded upon shipment.
Earnings per Share
Earnings per share for fiscal years 1996 and 1995 were computed using
the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalent shares
are computed using common stock options and the treasury stock method.
Earnings per share data and weighted average shares outstanding for fiscal
year 1994 are pro forma based on the shares outstanding following the
Acquisition and initial public offering.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS 123 will be
effective for fiscal years beginning after December 15, 1995, and will
require that the Company either recognize in its financial statements costs
related to its employee stock-based compensation plans, such as stock
option and stock purchase plans, or make pro forma disclosures of such
costs in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value based
method of Accounting Principles Board Opinion No. 25, as allowed under SFAS
No. 123, to account for all of its employee stock-based compensation plans
and to adopt only the disclosure requirements of SFAS 123, beginning with
fiscal year 1997. Accordingly, SFAS No. 123 is not expected to have a
material effect on the Company's results of operations or financial
position.
Reclassifications
Reclassifications from prior periods have been made to conform with
the current method of presentation.
NOTE 3. ACQUISITIONS
On October 31, 1995, the Company acquired certain assets of
Hewlett-Packard (HP) Company's Loveland, Colorado printed circuit
fabrication operation for a total purchase price of approximately $26,868.
Of this amount $23,600 was paid to HP for the purchase of fixed assets and
inventory, $427 was assumed as a liability for the purchase of
manufacturing equipment, $1,813 was paid to others for costs related to the
transaction, and $1,028 was accrued as a long-term liability for the
estimated cost of the Company's contractual obligation to renovate leased
manufacturing facilities in Loveland at the conclusion of the lease term.
The fair value of assets acquired consisted of $1,955 for inventory and
supplies, $22,427 for fixed assets, principally manufacturing equipment,
and $2,486 for goodwill. Of the purchase price paid in cash, $20 million
was borrowed on the Company's unsecured bank line of credit. See Note 7.
In connection with the acquisition, the Company entered into a
five-year lease agreement with HP to lease the HP owned printed circuit
fabrication facility in Loveland. Monthly payments under the lease are
$171. See Note 14. Also in connection with this transaction, the Company
and HP entered into a two
24
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
year supply agreement under which HP agreed to purchase, at market prices,
at least $35 million of product in the first year and at least $25 million
in the second year.
On December 31, 1995, the Company acquired certain assets of the
Soladyne printed circuit fabrication operation, consisting principally of
inventory and manufacturing equipment, from Rogers Corporation, one of the
Company's suppliers of high performance material. Soladyne is located in
San Diego, California. The purchase price is not material to the financial
position of the Company. In connection with the acquisition, the Company
assumed the existing lease for the Soladyne facility with five years
remaining. Monthly payments under the lease are $24, with an annual
increase rate of 3-5% each year over the life of the lease. See Note 14.
NOTE 4. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable and investments. The risk in trade accounts receivable is
limited due to the creditworthiness of companies comprising the Company's
customer base and their dispersion across many different sectors of the
electronics industry and geographies. The risk in investments is limited
due to the creditworthiness of investees comprising the portfolio, the
diversity of the portfolio and relative low risk of municipal securities.
At May 31, 1996, the Company does not believe it had any significant credit
risks.
NOTE 5. INVENTORIES
MAY 31
1996 1995
------- -------
Raw materials................................ $ 2,254 $ 1,781
Work in process.............................. 3,104 1,975
Finished goods............................... 1,077 693
------- -------
Total.................................... $ 6,435 $ 4,449
======= =======
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
MAY 31
1996 1995
--------- --------
Land......................................... $ 2,190 $ 2,068
Buildings and grounds........................ 16,345 10,446
Machinery and equipment...................... 71,030 43,707
Construction in progress..................... 12,166 5,940
--------- --------
Total.................................... $ 101,731 $ 62,161
========= ========
25
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
NOTE 7. LONG-TERM DEBT
MAY 31
1996 1995
--------- --------
Note payable to Tektronix, payable in five annual installments
including interest at 7.5%, secured by a Trust Deed............... $ 8,267 $ 8,267
Bank line of credit, interest only is payable monthly unless the
borrowing is converted to term debt, at which time the $20,000 is
due in 36 equal monthly payments, including interest, of $621..... 20,000 -
Other............................................................... 334 73
---------- ---------
Total............................................................... 28,601 8,340
Less current portion................................................ (1,931) (1,913)
---------- ---------
Long-term debt...................................................... $ 26,670 $ 6,427
======== ========
The Company has an unsecured $30 million bank line of credit against
which it has borrowed $20 million. This borrowing bears interest at Bankers
Acceptance plus one percent (6.38% at May 31, 1996). The instrument matures
on July 29, 1996, at which time it may be extended or converted to a
variety of borrowing instruments at the then current market rates of
interest, with an ultimate due date of the credit facility of no later than
September 1, 2000. Borrowings under the line of credit in excess of $20
million bear interest at LIBOR plus .875 percent. The outstanding balance
under the Company's line of credit is included in long-term debt above
based on the Company's ability and intent to repay the balance on a
long-term basis. The line of credit includes certain financial covenants,
including minimum liquidity and liabilities to net worth ratios. As of May
31, 1996, the Company was in compliance with all covenants.
Future principal payments for long-term debt are as follows: 1997,
$1,931; 1998, $6,184; 1999, $8,755; 2000, $9,286; and 2001, $2,446.
NOTE 8. STOCK INCENTIVE PLAN
In March 1994, the Company adopted the 1994 Stock Incentive Plan (the
1994 Plan) for employees, consultants and directors of the Company. The
1994 Plan covers 1,000,000 shares of common stock and permits the grant of
incentive stock options, non-qualified stock options, stock appreciation
rights, stock and cash bonus rights, and restricted stock grants and
performance based awards to employees, independent contractors and
consultants. A committee of the Board of Directors has the authority to
determine non-qualified stock option prices. To date, all options granted
have been at the fair market value of the stock at the date of grant. The
options vest ratably over a four-year period beginning on the first
anniversary of their issuance with a maximum term of 10 years. The 1994
Plan provides for automatic option grants to directors not affiliated with
Merix or Tektronix of 20,000 shares at the time first elected to the board
and 5,000 shares annually thereafter. The options generally become
exercisable ratably over a four year period beginning one year after the
date of grant and expire ten years after the date of grant.
The 1994 Plan was amended in October 1995 to cover an additional
500,000 shares of common stock that may be issued pursuant to stock options
granted at prices not less than fair market value at the date of grant.
26
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
A summary of non-qualified stock option activity is as follows:
OPTION PRICE
SHARES PER SHARE
------ ---------
Outstanding at May 31, 1994......... 200,000 $9.00
Granted.......................... 488,300 9.00-25.00
Canceled......................... (34,450) 9.00-25.00
Exercised........................ (10,000) 9.00
---------
Outstanding at May 31, 1995......... 643,850 9.00-25.00
Granted.......................... 310,700 23.62-37.75
Canceled......................... (7,336) 9.00-32.25
Exercised........................ (39,808) 9.00-25.00
---------
Outstanding at May 31, 1996......... 907,406 $9.00-$37.75
=========
Options exercisable at May 31, 1996 170,843 $9.00-$25.00
=========
Restricted stock awards are subject to vesting and other terms as
specified at the time of issuance by a committee of the Board of Directors.
Generally, restricted stock awards vest ratably over a three-year period
beginning on the first anniversary of their issuance. Unearned compensation
expense is recognized ratably over the vesting period. A summary of
restricted stock award activity is as follows:
VALUE
SHARES PER SHARE
------ ---------
Unvested balance at May 31, 1994.... - -
Awarded.......................... 65,000 $9.00-$23.25
Vested........................... (5,000) 9.00
--------
Unvested balance at May 31, 1995.... 60,000 9.00-23.25
Awarded.......................... 17,700 23.62-37.75
Vested........................... (19,998) 9.00-23.25
--------
Unvested balance at May 31, 1996.... 57,702 $9.00-$37.75
========
NOTE 9. INCOME TAXES
Income tax expense consists of federal and state income taxes.
Deferred income taxes are determined based on differences between the
financial reporting and tax bases of assets and liabilities using currently
enacted tax rates. In fiscal year 1994, the Company was included in the
consolidated income tax return of Tektronix. The financial statements
reflect Tektronix's allocation of income tax expense to the Company
calculated on the basis of its filing separate income tax returns and, for
purposes of these statements, all current income tax liabilities due
Tektronix were settled through division equity.
27
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
The provision for income taxes consisted of the following:
MAY 31
1996 1995 1994
---- ---- ----
Current:
Federal............................................... $ 4,443 $ 4,859 $ 3,467
State................................................. 706 1,045 721
------- ------- -------
Total current...................................... 5,149 5,904 4,188
------- ------- -------
Deferred:
Federal............................................... 1,939 518 (22)
State................................................. 458 52 (4)
------- ------- -------
Total deferred..................................... 2,397 570 (26)
------- ------- -------
Income taxes............................................ $ 7,546 $ 6,474 $ 4,162
======= ======= =======
The principal differences between taxes on income computed at the
federal statutory rate of 35% in fiscal years 1996 and 1995 and 34% in
fiscal year 1994 and recorded income tax expense were as follows:
MAY 31
1996 1995 1994
---- ---- ----
Tax computed at statutory rate.......................... $ 7,118 $ 5,963 $ 3,724
State income taxes, net of federal benefit.............. 757 731 476
Tax exempt interest..................................... (280) (273) -
Other, net.............................................. (49) 53 (38)
------- ------- -------
Income taxes............................................ $ 7,546 $ 6,474 $ 4,162
======= ======= =======
Significant components of the Company's deferred tax asset were as
follows:
MAY 31
1996 1995
---- ----
Deferred tax assets:
Fixed asset basis difference.......................... $ 1,020 $ 3,901
Intangible assets basis difference.................... 469 549
Inventories........................................... 499 122
Vacation accrual...................................... 275 80
Warranty reserve...................................... 75 86
Other................................................. (55) (58)
-------- -------
Total................................................. $ 2,283 $ 4,680
======== =======
The Company finalized its tax basis purchase price allocation for the
Acquisition at the end of fiscal year 1995, resulting in an increase in
deferred tax assets and common stock of $3,279.
NOTE 10. BENEFIT PLANS
Effective June 1, 1994, the Company adopted a defined contribution
plan, which meets the requirements of Section 401(k) of the Internal
Revenue Code, for all regular employees. Under this plan, the Company
contributes 50 cents for each dollar contributed by an employee up to 6% of
the employee's base pay. During fiscal years 1996 and 1995, the Company's
contribution expense was $884 and $578, respectively.
28
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
In fiscal year 1994, the Company participated in the Tektronix
defined benefit and defined contribution retirement plans which covered
substantially all of the employees of the Division. The Company's
contribution expense was $324 in fiscal year 1994.
Additionally, Tektronix charged the Company for a pro rata share of
post retirement benefits. Expenses included in the financial statements are
$449 for fiscal year 1994. The Company no longer provides post retirement
benefits.
NOTE 11. SIGNIFICANT CUSTOMERS
Customers who individually represent 10% or more of net sales for the
respective year are as follows:
YEAR ENDED MAY 31
1996 1995 1994
---- ---- ----
Tektronix........................................ 20.6% 31.1% 37.0%
Motorola......................................... 19.5 22.8 16.3
Hewlett-Packard.................................. 18.7 * *
Teradyne ...................................... 10.5 11.4 *
Storage Technology............................... * * 12.2
* Revenues were less than 10%.
NOTE 12. CORPORATE ALLOCATIONS
In fiscal year 1994, Tektronix provided substantial services to the
Company, including general management, treasury, tax, financial audit,
financial reporting, benefits administration, insurance, information
management, legal, accounts payable and receivable and credit functions.
Tektronix historically charged the Company for these services through
corporate allocations which were generally based on a percent of net sales.
The amount of corporate allocations was dependent upon the total amount of
anticipated allocable costs incurred by Tektronix less amounts charged as a
specific cost or expense rather than by allocation. The Company also
participated in the Tektronix profit sharing and incentive compensation
plans.
Corporate allocations were as follows:
YEAR ENDED MAY 31
1994
----
Corporate allocations ................................. $1,970
Profit sharing and incentive compensation plans........ 524
------
Total................................................ $2,494
======
In addition to the above allocations, there were direct charges from
Tektronix as follows:
YEAR ENDED MAY 31
1994
----
Cost of sales.......................................... $1,359
Selling, general and administrative.................... 608
------
Total................................................ $1,967
======
29
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS)
The Company believes that the combined corporate allocations and
direct charges from Tektronix were reasonable during fiscal year 1994.
However, these costs are not necessarily indicative of the costs which
would have been incurred had the Company operated as a separate entity for
fiscal year 1994. The above Corporate allocations are included in selling,
general and administrative expense.
NOTE 13. RELATED PARTY TRANSACTIONS
Immediately prior to consummation of the Acquisition, Tektronix,
through certain participating divisions and subsidiaries, entered into
seven separate Supply Agreements with the Company. During the three-year
term of the Supply Agreements, the participating divisions and subsidiaries
agreed to purchase from the Company annually at least the lesser of 90% of
their aggregate requirements for printed circuit boards, flexible circuits
and related tooling and test fixtures or $28,500. Prices are calculated in
accordance with an agreed-upon formula, subject to certain adjustments and
may not exceed prices charged to other customers by the Company for
comparable products and quantities.
Included in net sales for fiscal years 1996, 1995, and 1994 are
product sales to Tektronix of $32,010, $31,577 and $29,024, respectively.
In addition, the Company and Tektronix entered into Waste Management
and Master Services Agreements covering certain environmental matters for a
three-year term. The fiscal year 1996 and 1995 expense pursuant to these
agreements was $426 and $336, respectively.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, the Company is party to various
legal claims, actions and complaints, including actions involving patent
infringement and other intellectual property claims. The Company believes
that the disposition of these matters will not have a material adverse
effect on the Company's financial position and results of operations.
Operating Leases
The Company leases facilities for its printed circuit fabrication
operations under operating leases at its Loveland and Soladyne operations.
See Note 3. Minimum rental payments under operating leases that have
non-cancelable lease terms in excess of 12 months are as follows:
MINIMUM RENTAL PAYMENTS
FISCAL YEAR UNDER OPERATING LEASES
1997 $2,376
1998 2,386
1999 2,380
2000 1,185
2001 257
------
Total minimum lease payments $8,584
======
Rental expense under operating leases was $1,333, $12 and $4 in
fiscal years 1996, 1995 and 1994, respectively.
30
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Cont.)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly financial data is as follows:
1996
----
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Net sales.............................. $ 27,713 $ 33,564 $ 46,896 $ 47,461
Gross profit........................... 7,392 8,277 10,810 10,921
Operating income....................... 4,180 4,738 5,856 6,208
Net income............................. 2,708 2,911 3,518 3,655
Earnings per share..................... .42 .45 .55 .57
1995
----
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Net sales.............................. $ 22,736 $ 24,839 $ 26,222 $ 27,651
Gross profit........................... 5,887 7,538 7,602 8,041
Operating income....................... 3,181 4,521 4,433 4,684
Net income............................. 1,982 2,647 2,973 2,962
Earnings per share..................... .33 .42 .47 .46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
No information is required to be reported under this item.
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item regarding directors is included
under "Election of Directors" in Merix's Proxy Statement for the 1996
annual meeting of shareholders. The information required by this item
regarding executive officers is contained under "Executive Officers" in
Item 1 of Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under "Executive
Compensation" and "Report of the Compensation Committee on Executive
Compensation" in Merix's Proxy Statement for the 1996 annual meeting of
shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under "Voting
Securities and Principal Shareholders" and "Election of Directors" in
Merix's Proxy Statement for the 1996 annual meeting of shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under "Certain
Relationships and Related Transactions" in Merix's Proxy Statement for the
1996 annual meeting of shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Index to financial statements.
MERIX CORPORATION PAGE REFERENCE
----------------- --------------
Independent Auditors' Report 17
Balance Sheet as of May 25, 1996 and May 27, 1995 18
Statements of Income for fiscal years ended May 25, 1996,
May 27, 1995, and May 28, 1994 19
Statements of Shareholders' Equity for fiscal years ended
May 25, 1996, May 27, 1995, May 28, 1994 20
Statements of Cash Flows for fiscal years ended May 25, 1996,
May 27, 1995 and May 28, 1994 21
Notes to Financial Statements 22
32
(a)2. Financial Statement Schedules
All schedules have been omitted since they are either not required or
the information is included in the financial statements included herewith.
(b)Reports on Form 8-K
The Company filed a report on Form 8-K dated October 31, 1995
reporting the acquisition of certain assets of Hewlett-Packard Company's
Loveland, Colorado printed circuit fabrication operation.
EXHIBITS
3.1(1) Articles of Incorporation of the Registrant (Exhibit 3.1)
3.2(1) Bylaws of the Registrant (Exhibit 3.2)
4.1(1) Article II of the Registrant's Articles of Incorporation
(Exhibit 3.1)
10.1(2) Asset Transfer Agreement between Tektronix and Merix
(including Note and Trust Deed and Assignment of Rents
and Leases) (Exhibit 10.1)
10.2(2) Registration Rights Agreement between Merix and Tektronix
(Exhibit 10.2)
10.3(2) Waste Management Agreement between Merix and Tektronix
(Exhibit 10.3)
10.4(2) Services Agreement between Merix and Tektronix (Exhibit 10.4)
+10.5(4) Stock Incentive Plan of the Registrant, as amended
+10.6(2) Indemnity Agreement between Merix and Deborah A. Coleman
as of April 4, 1994 (Exhibit 10.6)
+10.7(2) Indemnity Agreement between Merix and Lawrence C. Neitling
as of April 4, 1994 (Exhibit 10.7)
+10.8(2) Indemnity Agreement between Merix and John P. Karalis
as of April 4, 1994 (Exhibit 10.9)
+10.9(2) Indemnity Agreement between Merix and Carl W. Neun
as of April 4, 1994 (Exhibit 10.10)
+10.10(2) Indemnity Agreement between Merix and Carlene M. Ellis
as of May 24, 1994 (Exhibit 10.11)
+10.11(2) Indemnity Agreement between Merix and Charles M. Boesenberg
as of May 24, 1994 (Exhibit 10.12)
+10.12(2) Indemnity Agreement between Merix and Dr. Koichi Nishimura
as of May 24, 1994 (Exhibit 10.13)
+10.13(3) Indemnity Agreement between Merix and Terri L. Timberman
as of May 25, 1994 (Exhibit 10.14)
+10.14(3) Indemnity Agreement between Merix and Joseph H. Howell
as of January 30, 1995 (Exhibit 10.15)
+10.15 Indemnity Agreement between Merix and Samuel R. DeSimone, Jr.
as of September 11, 1995
10.16(1) Form of Supply Agreement (Exhibit 10.7)
+10.17(2) Executive Severance Agreement between Merix and
Deborah A. Coleman (Exhibit 10.15)
+10.18(2) Executive Severance Agreement between Merix and
Lawrence C. Neitling (Exhibit 10.16)
+10.19(3) Executive Severance Agreement between Merix and
Terri L. Timberman (Exhibit 10.19)
+10.20(3) Executive Severance Agreement between Merix and
Joseph H. Howell (Exhibit 10.20)
+10.21 Executive Severance Agreement between Merix and
Samuel R. DeSimone, Jr.
10.22(5) Business Loan Agreement with Bank of America dated
September 1, 1995 (Exhibit 10.18)
!10.23(6) Master Asset Purchase Agreement between Merix and
Hewlett-Packard Company dated October 10, 1995 (Exhibit 2)
33
10.24(7) Amendment No. 1 to Business Loan Agreement with Bank
of America dated January 10, 1996 (Exhibit 10.1)
11.1 Computation of Earnings Per Share
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
(1) Incorporated by reference to the Registrant's
Registration Statement on Form S-1, Registration No.
33-77348.
(2) Incorporated by reference to the Company's Form
10-K for the fiscal year ended May 28, 1994 (File
No. 0-23818).
(3) Incorporated by reference to the Company's Form
10-K for the fiscal year ended May 27, 1995 (File
No. 0-23818).
(4) Incorporated by reference to Appendix A of the
Company's Proxy Statement for the 1995 Annual
Meeting of Shareholders (File No. 0-23818).
(5) Incorporated by reference to the Company's Form
10-Q for the quarterly period ended August 27,
1995 (File No. 0-23818).
(6) Incorporated by reference to the Company's Current
Report on Form 8-K dated October 31, 1995 (File
No. 0-23818).
(7) Incorporated by reference to the Company's Form
10-Q for the quarterly period ended February 24,
1996 (File No. 0-23818).
+ This Exhibit constitutes a management contract or
compensatory plan or arrangement.
! Confidential treatment requested for portions of
this Exhibit.
34
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized this 24th day of July, 1996
MERIX CORPORATION
By: JOSEPH H. HOWELL
-------------------------------
Joseph H. Howell,
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on July 24, 1996 by the following persons
on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
DEBORAH A. COLEMAN Chairman and Chief Executive Officer
- - ----------------------------- (Principal Executive Officer)
Deborah A. Coleman
LAWRENCE C. NEITLING President, Chief Operating Officer
- - ----------------------------- and Director
Lawrence C. Neitling
JOSEPH H. HOWELL Senior Vice President and Chief
- - ----------------------------- Financial Officer (Principal Accounting
Joseph H. Howell and Financial Officer)
JOHN P. KARALIS Director
- - -----------------------------
John P. Karalis
CARL W. NEUN Director
- - -----------------------------
Carl W. Neun
CARLENE M. ELLIS Director
- - -----------------------------
Carlene M. Ellis
CHARLES M. BOESENBERG Director
- - -----------------------------
Charles M. Boesenberg
DR. KOICHI NISHIMURA Director
- - -----------------------------
Dr. Koichi Nishimura
35
EXHIBIT INDEX
-------------
Exhibit Sequential
No. Exhibit Description Page No.
--- ------------------- --------
3.1(1) Articles of Incorporation of the Registrant (Exhibit 3.1)
3.2(1) Bylaws of the Registrant (Exhibit 3.2)
4.1(1) Article II of the Registrant's Articles of Incorporation
(Exhibit 3.1)
10.1(2) Asset Transfer Agreement between Tektronix and Merix
(including Note and Trust Deed and Assignment of Rents
and Leases) (Exhibit 10.1)
10.2(2) Registration Rights Agreement between Merix and Tektronix
(Exhibit 10.2)
10.3(2) Waste Management Agreement between Merix and Tektronix
(Exhibit 10.3)
10.4(2) Services Agreement between Merix and Tektronix (Exhibit 10.4)
+10.5(4) Stock Incentive Plan of the Registrant, as amended
+10.6(2) Indemnity Agreement between Merix and Deborah A. Coleman
as of April 4, 1994 (Exhibit 10.6)
+10.7(2) Indemnity Agreement between Merix and Lawrence C. Neitling
as of April 4, 1994 (Exhibit 10.7)
+10.8(2) Indemnity Agreement between Merix and John P. Karalis
as of April 4, 1994 (Exhibit 10.9)
+10.9(2) Indemnity Agreement between Merix and Carl W. Neun
as of April 4, 1994 (Exhibit 10.10)
+10.10(2) Indemnity Agreement between Merix and Carlene M. Ellis
as of May 24, 1994 (Exhibit 10.11)
+10.11(2) Indemnity Agreement between Merix and Charles M. Boesenberg
as of May 24, 1994 (Exhibit 10.12)
+10.12(2) Indemnity Agreement between Merix and Dr. Koichi Nishimura
as of May 24, 1994 (Exhibit 10.13)
+10.13(3) Indemnity Agreement between Merix and Terri L. Timberman
as of May 25, 1994 (Exhibit 10.14)
+10.14(3) Indemnity Agreement between Merix and Joseph H. Howell
as of January 30, 1995 (Exhibit 10.15)
+10.15 Indemnity Agreement between Merix and Samuel R. DeSimone, Jr.
as of September 11, 1995
10.16(1) Form of Supply Agreement (Exhibit 10.7)
+10.17(2) Executive Severance Agreement between Merix and
Deborah A. Coleman (Exhibit 10.15)
+10.18(2) Executive Severance Agreement between Merix and
Lawrence C. Neitling (Exhibit 10.16)
+10.19(3) Executive Severance Agreement between Merix and
Terri L. Timberman (Exhibit 10.19)
+10.20(3) Executive Severance Agreement between Merix and
Joseph H. Howell (Exhibit 10.20)
+10.21 Executive Severance Agreement between Merix and
Samuel R. DeSimone, Jr.
10.22(5) Business Loan Agreement with Bank of America dated
September 1, 1995 (Exhibit 10.18)
!10.23(6) Master Asset Purchase Agreement between Merix and
Hewlett-Packard Company dated October 10, 1995 (Exhibit 2)
36
Exhibit Sequential
No. Exhibit Description Page No.
--- ------------------- --------
10.24(7) Amendment No. 1 to Business Loan Agreement with Bank
of America dated January 10, 1996 (Exhibit 10.1)
11.1 Computation of Earnings Per Share
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
(1) Incorporated by reference to the Registrant's
Registration Statement on Form S-1, Registration No.
33-77348.
(2) Incorporated by reference to the Company's Form
10-K for the fiscal year ended May 28, 1994 (File
No. 0-23818).
(3) Incorporated by reference to the Company's Form
10-K for the fiscal year ended May 27, 1995 (File
No. 0-23818).
(4) Incorporated by reference to Appendix A of the
Company's Proxy Statement for the 1995 Annual
Meeting of Shareholders (File No. 0-23818).
(5) Incorporated by reference to the Company's Form
10-Q for the quarterly period ended August 27,
1995 (File No. 0-23818).
(6) Incorporated by reference to the Company's Current
Report on Form 8-K dated October 31, 1995 (File
No. 0-23818).
(7) Incorporated by reference to the Company's Form
10-Q for the quarterly period ended February 24,
1996 (File No. 0-23818).
+ This Exhibit constitutes a management contract or
compensatory plan or arrangement.
! Confidential treatment requested for portions of
this Exhibit.
37