ITEM 1. BUSINESS
Unless the context otherwise requires, references to the "Company" mean Berg Electronics Corp. and its subsidiaries, including Berg Electronics Group, Inc., a Delaware corporation ("Berg"), taken as a whole.
THE COMPANY
The Company is a leading global designer, manufacturer and marketer of electronic connectors and cable assembly products for applications primarily in the telecommunications, computer and industrial markets. Electronic connectors are electro-mechanical devices that allow an electronic signal to pass from one device to another. They are used to connect wires, cables, printed circuit boards, flat cable and other electronic components to each other and to related equipment. Connectors are found in virtually every electronic product including computers, printers, disk drives, modems, VCRs, radios, medical instruments, airplanes, appliances, cellular telephones, pagers and automobiles. The Company's connectors and cable assemblies are used to conduct signals (primarily data, video and voice) in a wide range of sophisticated electronic applications including: (i) telecommunications products such as cellular phones, pagers, and transmission and switching equipment; (ii) personal computing equipment and peripherals such as notebook and desk top computers, printers, disk drives and workstations; and (iii) large data processing equipment such as servers, supercomputers, data communications systems, mainframe computers and mini-computers.
While the Company's worldwide operations can be grouped into several geographic regions, the Company operates in only one business segment -- electrical and electronic connection devices. Within this business segment, the Company primarily competes in the computer and telecommunications markets, and to a lesser extent, in the industrial and instrumentation markets. The Company believes it is one of the four largest electronic connector, socket and cable assembly manufacturers in the world (with a market share of approximately 3%), one of the world's top two manufacturers of connectors for the telecommunications market (with a market share of approximately 4%), and one of the world's top three connectors manufacturers for the computer market (with a market share of approximately 5%).
The Company is a holding company that owns all of the outstanding capital stock of Berg. The Company and Berg were incorporated in Delaware in November 1992 by an investor group led by Hicks, Muse, Tate & Furst Incorporated ("Hicks, Muse") and Mills & Partners, Inc. to facilitate the acquisition of the Connector Systems Business of the Electronics Division of E.I. du Pont de Nemours and Company (the "Predecessor") in February 1993 (the "Initial Acquisition"). Subsequent to the Initial Acquisition, the Company has made seven strategic acquisitions. The most significant of these were the acquisitions of the captive Connector System Business of the Microelectronics division of AT&T Corp. (the "Lucent Acquisition") in May 1994 and the captive connector business of Ericsson Telecom AB located in Sweden (the "Ericsson Acquisition") in December 1996. These acquisitions expanded significantly the Company's presence in the telecommunications sector, broadened the Company's product lines and established the Company as a preferred supplier with these two key customers. The other five acquisitions expanded both the Company's customer base and its offerings of cable assemblies (used in both telecommunications equipment and computers), sockets (used in computers) and radio frequency and microwave connectors (used in telecommunications and other equipment). These seven acquisitions were made for consideration aggregating approximately $156.3 million (including fees and expenses).
MARKETS SERVED BY THE COMPANY
The Company's products are designed for use primarily in the telecommunications and computer markets, and to a lesser extent, in the industrial and instrumentation markets. The percentage of the Company's net sales derived from each of these markets in 1997 is presented in the table below.
PRODUCTS
The electronics industry generally classifies electronic package interconnection into six levels, and products are classified in accordance with the level that they serve. The Company manufactures more than 45,000 products which are grouped into 25 product lines. The Company's products extend to each of the six levels of interconnection.
Level 1. Level 1 refers to a direct attachment of a component part to a printed circuit board ("PCB"), which does not involve a connector. The Company assists customers in the design of discrete interconnect devices called application-specific modules ("ASMs") for a wide range of applications that contain active components such as microprocessor integrated circuits and passive components such as capacitors or sockets. Some passive components and all active components are acquired from vendors. In the process of manufacturing ASMs, the Company attaches the active and passive components directly to the specific- purpose PCBs, which are either produced by the Company or acquired from a vendor.
Level 2. Level 2 connectors consist of on-board connecting devices, generally known as sockets, that attach to PCBs and facilitate replacement of expensive microprocessor integrated circuits on the PCB. Sockets, when applied, are always utilized inside an electronic device or "box" and are required for a wide range of applications. The Company believes that it has one of the industry's broadest offerings in pin-grid array sockets which are used to connect microprocessors to the PCB. The Company also has a broad product offering of dual inline memory modules ("DIMM") which are used to connect memory chips to the PCB. Examples of the Company's Level 2 connectors include Ball Grid Array Small Outline DIMM and MEG-Array(TM) connectors.
Level 3. Level 3 connectors are used to connect or "stack" PCBs in either parallel fashion or at 90 degree angles to one another, typically inside a computer or telecommunications processing device. Level 3 PCB connectors are low frequency signal conducting connectors usually associated with data transmission. Historically, the Company's principal product offering has consisted of this type of connector; many of the Company's Level 3 connectors have become industry standards. The Company's broad product offering of Level 3 connectors ranges from its mature product lines, including the widely recognized Fastech(R) (3.17mm spacing between contacts), BergStik(TM) (2.54mm), DUBOX(TM) (2.54mm) and other 2.54mm interconnection product lines, to newer products which include H.P.C.(TM) (2.54mm), Minitek(TM) (2mm), Metral(TM) (2mm), Rib-cage(TM) (1.27mm), Conan(TM) (1mm), BergStak(TM) (0.8mm and 0.5mm), Micropax(TM) (0.64mm) and MEG-Array(TM). The Company's newer generation Level 3 products allow the Company to satisfy its customer
demands for increasingly compact and high density products serving applications such as compact mobile communications and computing devices. The Company believes it is the world's second largest supplier of PCB connectors to the telecommunications industry and the third largest supplier of PCB Connectors to the computer industry. The Company's marketing and research will continue to focus on improvements in density and miniaturization to meet the emerging PCB connector needs of its customers.
Level 4. Level 4 connectors consist of devices that connect PCBs inside a box. The Company's product offerings in this category include connectors used to terminate discrete wire, planar cable and flexible printed circuits, such as "quickie" insulation displacement connectors for terminating planar cable and Reliflex(R), Duflex(TM) and 0.5mm flat printed circuit connectors for terminating flat printed circuit cable.
Level 5. Level 5 connectors (also referred to as rectangular or input/output connectors) consist of devices that connect cable to cable or wire to wire, and are either located inside a box or provide an output connector from the box to other equipment. Historically, the Company's sales in this category have been generated primarily to meet the special requests of major customers. Examples of such connectors include a flex cable assembly sold to Volkswagen for use in its automatic gear box, and a wide range of radio frequency and coaxial connectors used in the transmission of voice, video and data. The Company's history of innovation in Level 5 includes its invention of the modular jack used to connect telephone, computer and facsimile equipment. The Company's research and development efforts relative to this product line have focused on the next generation of input/output connectors that require smaller and more dense connectors for a wide range of applications, such as universal serial bus ("USB"), very high density connector interface ("VHDCI"), and others such as the Company's MetaGig product offering.
Level 6. Level 6 connectors or cable assemblies consist of an integrated cable terminated with a connector at each end. Level 6 connectors such as the SCSI cables manufactured by the Company connect two pieces of equipment. For instance, the SCSI cable can be used to connect a printer to a personal computer.
The Company's sales in 1997 in each category ranked in descending order by dollar amount were: Level 3 (PCB to PCB or "board to board"), Level 4 (wire to board), Level 6 (cable assemblies), Level 5 (wire to wire), Level 1 (ASMs) and Level 2 (sockets).
NEW PRODUCT DEVELOPMENT
Approximately 35% of the Company's 1997 net sales were generated from products developed by the Company within the past five years. Developing new products requires substantial investments in research and development. The Company targets research and development expenditures specifically to broaden its product line and to expand its technical capabilities in order to meet its customers' anticipated needs. In 1995, 1996 and 1997, the Company's research and development expenditures were $39.1 million, $42.3 million and $46.8 million, respectively. Of the $128.2 million invested in research and development during the last three fiscal years, $79.3 million ($24.8 million, $26.1 million and $28.4 million in 1995, 1996 and 1997, respectively) qualifies for creation and application of new and improved products and processes as defined in SFAS No. 2, "Accounting for Research and Development Costs."
The Company had approximately 400 full-time employees in fiscal 1997 engaged in research, development and engineering functions, primarily at its United States, European and Asian research and development centers. In addition, the Company has application engineers located at Lucent's Bell Laboratories ("Bell Labs"). Through its access to Bell Labs, the Company is not only able to take advantage of the research capabilities of the Bell Labs facility, but is also able to provide support to and work closely with Lucent's engineers in the advancement of Lucent's telecommunications equipment.
To fill the needs of its customers, the Company's product engineers work with certain customers' in-house technical staffs in the early stages of product development to design, produce and manufacture special products to meet the specifications of particular applications. The manufacture of special products permits the Company, through its research and development activities, to make technological advances to provide the customer with a design solution to fit such customer's needs, to gain a marketing inroad with the customer
with respect to the Company's complete product line and, in some cases, to develop products that can be sold to additional customers in the future. The Company presently has significant ongoing projects with a variety of key customers in the computer and telecommunications industries.
An example of the Company's product and market development efforts includes the Company's Metral(TM) connector, originally developed in conjunction with Lucent and Ericsson Telecom AB of Sweden, which has become the industry standard for a variety of telecommunications and computer applications. Other products developed by the Company which have become industry standards include SPCI, PCMCIA, BergStik(TM) and the modular jack.
SALES AND MARKETING
The Company places a high priority on identifying and responding to its customers' requirements on a timely basis. In order to ensure that the Company is best positioned to respond to these requirements, it has developed a sales and marketing strategy that utilizes global account managers, a highly trained Company-employed direct sales force, independent electronic component distributors and independent manufacturers' representatives.
Through its global account managers and direct sales force, the Company is able to develop strong ties to leading OEMs, or Original Equipment Manufacturers, who must use connectors to complete the design and manufacture of their products. These ties enable the Company to act as a partner in the design and development of new products and applications for these customers. By becoming a partner in the design and development of new products for its leading customers, the Company believes it can enhance its relationship with these customers, achieve preferred supplier status and be better positioned to anticipate its customers' future needs. In addition, the Company has assigned industry market managers to high growth subsegments within the telecommunications and computer market segments. These managers will identify and work with leading technology and emerging technology companies in order to remain at the forefront of technological development and position itself to supply the connector requirements of these companies.
In addition to its Company-employed sales staff, independent electronic component distributors and independent manufacturers' representatives, the Company utilizes a number of electronic and digital distribution techniques to ensure easy access to, and ordering of, its products by the Company's customers. Examples of such distribution techniques include automated access to Company product information via facsimile, electronic publication of Company product catalogues and access to Company product catalogues via the World Wide Web. By accessing the Internet, the Company's customers' engineers are able to electronically modify the Company's connector designs and send them via electronic mail to the Company's engineers for further development.
CUSTOMERS
In 1997, the Company sold its connectors to over 25,000 customers throughout the world, including substantially all computer and telecommunications OEMs. As a result of the Lucent Acquisition, Lucent became the largest customer of the Company. In connection with the Lucent Acquisition, the Company entered into a five-year supply agreement with Lucent pursuant to which the Company will supply on an exclusive basis all of the requirements for connectors and related products for the business units and facilities of Lucent that were previously supplied by the AT&T Connector Business, representing substantially all of Lucent's North American switching and transmission business. In 1997, sales to Lucent accounted for approximately 11% of the Company's total sales. Consequently, developments adverse to Lucent, or its products, or decreased levels of purchases by Lucent, could have a material adverse effect on the Company's results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 hereof. Additional major customers of the Company include, among others, Alcatel, Compaq, Ericsson, Hewlett-Packard, IBM, Motorola, NEC, Northern Telecom, Philips, Quantum/MKE, SCI, Samsung, Seagate, Siemens GPT, Solectron, Sun Microsystems, Viasystems and Western Digital.
There has been a trend on the part of OEM customers to reduce the number of qualified suppliers to those companies that have a global presence, can meet ever-increasing demand for quality and delivery
standards, offer a broad product portfolio, provide design capability, and have competitive prices. The Company has focused its global resources on adapting to this environment. The Company has concentrated its efforts on service and productivity improvements including advanced computer aided design and manufacturing systems, and just-in-time inventory programs to increase product quality and shorten product delivery schedules. The Company's strategy is to provide the broadest selection of connectors in the product areas in which it competes. The Company has achieved a preferred supplier designation from several of its most important OEM customers in its chosen markets.
INTERNATIONAL OPERATIONS
Approximately 51% of the Company's 1997 sales originated outside of North America, split approximately evenly between the Asia Pacific region and Europe. In Asia, the Company has manufacturing, engineering and sales facilities in Japan, Korea, Taiwan, the People's Republic of China and Singapore, a sales office in Hong Kong, and a 40%-owned manufacturing and sales joint venture in India. In Europe, the Company has manufacturing and engineering facilities in France, The Netherlands, Ireland and Sweden, with sales offices in most major European countries. The Company believes that its global presence is important as it allows the Company to provide consistent, quality products on a timely basis to its multinational customers' locations worldwide. See Note 14 of the Company's Consolidated Financial Statements for geographic region information.
The Company is subject to risks generally associated with international operations, including price and exchange controls, limitations on foreign ownership and other restrictive actions. In addition, fluctuations in currency exchange rates may affect the Company's results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 hereof.
RAW MATERIALS
The Company purchases a wide variety of raw materials for the manufacture of its products, including precious metals such as gold and palladium used in plating, copper alloys and brass used for contacts, and plastic resins used in molding connector bodies and inserts. All raw materials are readily available throughout the world and are purchased locally from a variety of suppliers. The Company is not dependent upon any one source for raw materials.
Generally, the prices at which the Company purchases precious metals are based upon market prices of such metals at the time of purchase. Precious metals have historically been subject to price fluctuations. From time to time, the Company engages in short-term hedging activities to reduce its exposure to precious metals price fluctuations. Historically, such hedging operations have not been material, and gains and losses from such operations have not been significant. There can be no assurance that such hedging operations will eliminate or substantially reduce such risk. In most cases, the Company is able to pass on to its customers significant price fluctuations in the market prices of precious metals. For the years ended December 31, 1995, 1996 and 1997 the cost of gold and other precious metals accounted for approximately 10%, 10% and 13%, respectively, of the Company's cost of goods sold.
MANUFACTURING
The Company employs advanced manufacturing processes in order to manufacture quality products for customers throughout the world. The Company's historical emphasis on product development has been carried over to process technology and has resulted in the development of production facilities equipped with state-of-the-art manufacturing equipment including: high speed, selective reel-to-reel precious metal plating equipment, with advanced on-line process controls; proprietary high speed, flexible product assembly equipment; metal stamping equipment; and plastic molding machines. In addition, the Company's manufacturing operations are vertically integrated from the initial connector design stage through manufacturing. Management believes that the vertical integration allows the Company to reduce time to market and be more responsive to customer needs.
The Company is committed to the highest quality standards for its products, a standard maintained in part by continuous improvements to its production processes and upgrades to its manufacturing equipment.
The Company was the first connector company to have its manufacturing and engineering sites certified by the International Standards Organization ("ISO") according to its 9000 series of quality standards. ISO 9000 series certification constitutes an independent certification that the Company has systems in place to ensure that products delivered by the Company will consistently meet customer quality requirements. All of the Company's manufacturing and engineering sites are ISO 9000 certified or are in the process of becoming ISO 9000 certified.
PATENTS AND TRADEMARKS
The Company has approximately 2,000 patents and pending patent applications and approximately 310 trademarks and pending trademark applications worldwide. While the Company considers its patents to be valuable assets, the Company does not believe that its competitive position is dependent on patent protection or that its operations are dependent on any individual patent or group of related patents. However, in some instances, patents and patent protection may serve as a barrier to entry in certain product lines. The Company's policy is to obtain patents on its significant new products and enforce its patent rights.
COMPETITION
The electronic connector industry is highly fragmented, with more than 2,000 connector manufacturers competing worldwide. As a result, the Company generally competes with different suppliers in each of the various categories of the overall market in which the Company operates. The Company is generally among the market share leaders within its targeted markets, where it competes primarily on the basis of quality, reliability, reputation, design capability, customer service, delivery time and price.
BACKLOG
The Company estimates that its backlog of unfilled orders on December 31, 1996, and December 31, 1997, was approximately $105.1 million and $90.8 million, respectively. The decrease in backlog in 1997 from 1996 is primarily a result of currency declines causing backlog in U.S. dollars to be lower in 1997 than 1996 and customers moving to demand/pull and consignment order patterns reducing open orders at any one point in time. Unfilled orders may be cancelled prior to published lead times; however, such cancellations historically have not been material. Substantially all the backlog as of December 31, 1997 is expected to be filled by June 30, 1998. The backlog outstanding at any point in time is not necessarily indicative of the level of business to be expected in the ensuing period.
EMPLOYEES
As of December 31, 1997, the Company had approximately 7,000 employees worldwide, including approximately 2,200 temporary employees. Of these employees, approximately 5,800 were engaged in manufacturing, approximately 400 were engaged in research and development and 800 were engaged in sales, marketing and administrative functions. Most of the Company's employees located in the United States are not represented by labor unions, while most of the Company's employees engaged in manufacturing in Europe and Asia belong to work councils or unions. The Company believes that it has a good relationship with its employees, and has never experienced a work stoppage.
RECENT DEVELOPMENTS
Rights Plan
On December 22, 1997, the Company adopted a rights plan (the "Rights Plan") designed to protect Company stockholders in the event of takeover action. Pursuant to the Rights Plan, on January 8, 1998, the Company distributed one right for each share of the Company's common stock, par value $0.01 (the "Common Stock"), and Class A common stock, par value $0.01 (the "Class A Common Stock"), to holders of record on that date. See Note 8 to the Consolidated Financial Statements in Item 8 hereof for additional information on the Rights Plan.
Secondary Offering
On October 29, 1997, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, and as amended on November 13, 1997, to register 8,911,304 shares of its Common Stock on behalf of certain selling stockholders (the "Secondary Offering"). Sales of shares under the Secondary Offering are expected to be completed during 1998.
Stock Split
On October 20, 1997, the Company paid a 2-for-1 split on its Common Stock and Class A Common Stock, effected as a 100% stock dividend to holders of record on September 29, 1997 (the "1997 Stock Split"). See Note 2 in the Notes to the Consolidated Financial Statements in Item 8 hereof.
New Credit Facility
On August 7, 1997, the Company entered into a new credit facility agreement (the "Credit Facility") consisting of a $250.0 million term loan and a $300.0 million revolving credit loan. The refinancing resulted in an extraordinary charge of $6.0 million of deferred financing costs, net of applicable income taxes, during the year ended December 31, 1997. This write off, net of income tax, is classified with other extraordinary items on the Consolidated Statement of Operations appearing in Item 8 hereof. For further discussion of the Credit Facility, see Note 7 to the Notes to the Consolidated Financial Statements appearing in Item 8 hereof.
ITEM 2.
ITEM 2. PROPERTIES
In addition to its principal executive offices in St. Louis, Missouri, the Company operates 23 principal manufacturing and research facilities and other principal properties located in 13 different countries. The Company considers its plants and equipment to be modern and well-maintained. Production facilities for certain of the Company's products are operating at or near capacity.
In addition to the facilities listed above, the Company maintains 26 sales and marketing facilities, all of which are leased, including five located in the United States, three in India, two each in Japan and the People's Republic of China and one each in Canada, Germany, Italy, Sweden, Finland, France, the Netherlands, Spain, Switzerland, the United Kingdom, Singapore, Hong Kong, Taiwan and Korea. The Company also maintains an engineering office in the United States.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The operations of the Company have from time to time been involved in claims and litigation. The nature of the Company's business is such that it is anticipated that the Company will continue to be involved from time to time in claims and litigation considered to be in the ordinary course of its business. Based on experience with similar claims and litigation, the Company does not anticipate that these matters will have a material adverse effect on the Company.
The Company from time to time receives notifications alleging infringements of patents generally held by other connector manufacturers. Disputes over patent infringement are common in the connector industry and typically begin with such notices. Although the ultimate resolution of such legal action and infringement notices cannot be predicted, the Company believes that such resolution, including any ultimate liability, will not have a material adverse effect on the Company.
Certain operations of the Company are subject to federal, state, local and foreign environmental laws and regulations, which govern, among other things, the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that the costs of compliance with such laws and regulations will not have a material adverse effect on the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under the trading symbol "BEI." The table below sets forth the high and low sales prices per share for the Company's Common Stock on the NYSE during the periods indicated. There is no established public trading market for the Class A Common Stock. On December 31, 1997, there were approximately 286 holders of record of Common Stock and 9 holders of record of Class A Common Stock.
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* Prior to March 1, 1996, there was no established public trading market for the Common Stock.
The Company has not paid any cash dividends on any class of its common stock since its incorporation in November 1992 and has no current intention to do so. In addition, the Credit Facility imposes restrictions on the ability of the Company's operating subsidiary to make cash distributions on its capital stock, which the Company expects would be the principal source of funds for any cash dividends on the Common Stock. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the Company for the periods indicated. The historical financial data for the five years ended December 31, 1997, have been derived from the Consolidated Financial Statements of the Company audited by Arthur Andersen LLP. The following information should be read in conjunction with the audited Consolidated Financial Statements of the Company, including the related notes thereto, included in Item 8 hereof, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in Item 8
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Berg Electronics Corp.:
We have audited the accompanying consolidated balance sheets of Berg Electronics Corp. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Berg Electronics Corp. and subsidiaries as of December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to the financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri, January 27, 1998
BERG ELECTRONICS CORP.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
See accompanying notes to the consolidated financial statements.
BERG ELECTRONICS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
See accompanying notes to the consolidated financial statements.
BERG ELECTRONICS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
See accompanying notes to the consolidated financial statements.
BERG ELECTRONICS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See accompanying notes to the consolidated financial statements.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. THE COMPANY
Berg Electronics Corp., including its wholly-owned subsidiary Berg Electronics Group, Inc. ("Berg"), (together, the "Company"), is a leading global designer, manufacturer and marketer of electronic connectors and cable assembly products for applications primarily in the computer, telecommunications and industrial markets. Berg Electronics Corp., a Delaware corporation, was formed on November 4, 1992, to participate in the Initial Acquisition (defined below). The Company had no operations prior to the Initial Acquisition. The Company's year end is December 31.
On February 26, 1993, the Company acquired certain assets and assumed certain liabilities of the Connector Systems Business of the Electronics Division of E.I. duPont de Nemours and Company (the "Predecessor") for a total consideration of $385,057 (the "Initial Acquisition"), which included an agreement not to compete, plus fees and expenses relating to the Initial Acquisition and related financing. The results of operations of the Business have been included in the consolidated financial statements since the date of the Initial Acquisition.
Since the Initial Acquisition, the Company has made seven strategic acquisitions. The largest of these occurred on May 23, 1994, when the Company acquired certain assets and related liabilities of the Connector System Business of the AT&T Microelectronics Division of AT&T Corp. (now Lucent Technologies, Inc.) ("Lucent") for a total consideration of $84,500 (the "Lucent Acquisition") which included fees and expenses relating to the Lucent Acquisition and related financing.
During 1996, the Company implemented a recapitalization plan (the "Recapitalization Plan"), among other things, to reduce interest expense and preferred stock dividend requirements and to improve the Company's operating and financial flexibility. The Recapitalization Plan included the redemption and purchase of Series B Preferred Stock (as defined below) and Series E Preferred Stock (as defined below), the redemption and purchase of the Debentures (as defined below), the refinancing of the Amended and Restated Credit Agreement dated as of May 23, 1994, with Chemical Bank, N.A., as Agent, and certain other banks as parties thereto (the "Amended Credit Agreement"), the 1-for 4.11 reverse stock split effective February 2, 1996 and the initial public offering of 14,950,000 shares of the Company's common stock, par value $0.01 per share (together, the "Recapitalization").
During 1997, the Company entered into a new credit facility agreement (the "Credit Facility") that was used to extinguish and replace the credit agreement dated February 29, 1996, as amended December 18, 1996 (the "IPO Credit Facility"). The Credit Facility reduces the Company's borrowing costs and improves the Company's operating and financial flexibility. See Notes 6 and 7 herein for further discussion.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, except for the Company's interest in a joint venture in India which is accounted for under the equity method and is insignificant to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. In addition, certain prior year amounts have been reclassified to conform to current year presentation.
Revenue Recognition
Sales and related cost of goods sold are recognized when goods are shipped to the customer or, in the case of consignment inventories at customer sites, when the customer uses product from the consigned quantities.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Certain U.S. inventories are valued at the lower of cost or market (LCM), with cost being determined using the last-in, first-out (LIFO) method. Other U.S. and non-U.S. inventories are valued at the LCM, with cost being determined using the average cost method. Elements of cost in inventory include raw materials, direct labor and manufacturing overhead. A portion of inventory is financed at its fair market value and is included in inventories at its fair market value. The related financing obligation is included in accounts payable.
Property, Plant and Equipment
Property, plant and equipment is stated at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method. The average estimated useful lives utilized in calculating depreciation are as follows: buildings -- 25 years; machinery and equipment -- 5 to 12 years; autos and trucks -- 3 years; office furniture and fixtures -- 2 to 3 years.
Foreign Currency Translation
Local currencies have been designated as the functional currencies for all subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items of these subsidiaries are translated at average monthly rates of exchange. The resultant translation gains or losses are included in the component of stockholders' equity designated cumulative translation adjustments on the Consolidated Balance Sheets.
Related Party Transactions
The Company has entered into an Amended and Restated Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse, Tate & Furst Incorporated ("Hicks, Muse") (an affiliate of the Company). The Agreement provides that the Company shall pay Hicks, Muse an annual fee, for ten years, of the greater of $700 or one-tenth of one percent (0.1%) of the previous year's net sales. In addition, the Agreement entitles Hicks, Muse to an acquisition advisory fee equal to 1.5% of the purchase price of any acquisition effected by the Company.
The Company sells certain connectors and other products needed to manufacture printed circuit boards and back panel assemblies to Viasystems, Inc., ("Viasystems"). Viasystems is controlled by Hicks, Muse, through its affiliates, and managed by Mills & Partners, Inc. In addition, certain of the Company's directors and executive officers have financial interests in Viasystems. In 1997, the Company's sales to Viasystems were approximately $41,000. The Company sells products to Viasystems on terms and conditions which the Company believes to be comparable to terms that would be reached in an arm's length transaction.
Net Income (Loss) per Common Share
On October 20, 1997, the Company completed a 2-for-1 split of its common stock, par value $0.01 (the "Common Stock"), and Class A common stock, par value $0.01 (the "Class A Common Stock"), effected as a 100% stock dividend to holders of record on September 29, 1997. All share and per share data in the accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements for all periods presented have been retroactively restated to give effect to this split.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." All per share amounts have been calculated in accordance with SFAS No. 128 using the weighted average number of shares outstanding during each period, adjusted for the impact of common stock equivalents using the treasury stock method when the effect is dilutive. All per share data has been retroactively restated in accordance with SFAS No. 128.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company considers investments purchased with an original maturity of three months or less to be cash equivalents. Interest and income taxes paid for the year ended December 31, 1995, are approximately $36,300 and $3,200, respectively, for the year ended December 31, 1996, are approximately $27,100 and $3,300, respectively, and for the year ended December 31, 1997, are approximately $28,200 and $4,000, respectively.
Fair Value of Financial Instruments
The fair market values of the financial instruments included in the consolidated financial statements approximate the carrying values of the financial instruments.
Estimates and Assumptions
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 net sales and expenses during the reporting period. Actual results could differ from those estimates.
3. INVENTORIES
The composition of inventories is as follows:
The carrying value of inventories valued at LIFO, at December 31, 1996 and 1997, is approximately $43,200 and $46,900, respectively, and its current cost is approximately $34,200 and $31,500, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31 is as follows:
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over various estimated useful lives. The composition of intangible assets at December 31 is as follows:
Goodwill represents purchase price in excess of net tangible and identified intangible assets acquired in acquisitions. The Company generally assesses the recoverability of its intangible assets primarily based on its current and anticipated future undiscounted cash flows. At December 31, 1997, the Company does not believe there has been any impairment of its intangible assets.
6. DEFERRED FINANCING COSTS
At December 31, 1997, deferred financing costs consists of aggregate fees and expenses of $5,235 incurred in connection with the Credit Facility dated August 7, 1997, and other financing arrangements. These fees are being amortized over the terms of the related borrowing and/or financial instrument on a straight line basis.
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31 is as follows:
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The schedule of principal payments on long-term obligations at December 31, 1997, is as follows:
EXISTING FINANCING
On August 7, 1997, the Company entered into a new credit facility agreement that was used to replace the IPO Credit Facility. The refinancing resulted in the write-off of $9,698 of deferred financing costs. This write-off, net of income tax, is classified as an extraordinary item on the Consolidated Statements of Operations for the year ended December 31, 1997.
The Credit Facility consists of a $250,000 term loan (the "Term Loan") and a $300,000 revolving credit loan (the "Revolver"). Borrowings under the Credit Facility are secured by first priority mortgages and liens on substantially all of the material assets of the Company and its domestic subsidiaries and by pledges of a portion of the capital stock of the foreign subsidiaries. As of December 31, 1996 and 1997, the Company had approximately $10,000 and $11,200, of standby letters of credit outstanding under the IPO Credit Facility and the Revolver, respectively. The Credit Facility contains several financial covenants that, among other things, require the Company to maintain certain financial ratios and restrict the Company's ability to incur indebtedness, make capital expenditures and pay dividends. The commitment fee on the unused portion of the Revolver is 0.25% per annum on the average daily unused balance.
Mandatory principal payments under the Term Loan are due in semi-annual installments beginning on December 31, 1997, and continuing until the final payment is due on December 31, 2003. Amounts outstanding under the Revolver are due December 31, 2003.
Borrowings under the Credit Facility bear interest, at the option of the Company, at a rate per annum equal to (i) the Agent's Alternate Base Rate (as defined in the Credit Facility) or (ii) 0.75% plus the Eurodollar rate per annum. Interest payment dates vary depending on the interest rate option selected by the Company, but generally, interest is payable quarterly.
The Credit Facility requires the Company to enter into interest rate hedging arrangements to hedge against interest rate fluctuations. The Company has entered into an agreement which provides a ceiling of 8.5% on the LIBOR rate on $137,000 of indebtedness until June 30, 1998. The costs of the hedge agreements are amortized over their terms.
Other long-term obligations primarily relate to mortgages on two recently acquired production facilities.
PRIOR FINANCING
On February 29, 1996, the Company entered into the IPO Credit Facility that among other things, refinanced the Amended Credit Agreement and resulted in the write off of $12,755 of deferred financing costs. This write off, net of income tax, is classified with other extraordinary items in the Consolidated Statement of Operations for the year ended December 31, 1996.
11 3/8% Guaranteed Senior Subordinated Debentures due 2003 (the "Debentures") were issued under an indenture, dated April 28, 1993 (the "Indenture"). The Debentures represented unsecured general obligations of the Company and were subordinate to all Senior Debt (as defined in the Indenture) of the Company. On
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 8, 1996, the Company redeemed $30,000 aggregate principal amount of Debentures (the "Debenture Redemption") for approximately $34,487 including accrued and unpaid interest and a redemption premium thereon, in accordance with the terms of the Indenture dated as of October 29, 1993, as amended. On April 9, 1996, the Company purchased all of the outstanding Debentures not redeemed by the Company pursuant to the Debenture Redemption for approximately $82,590. The redemption and purchase of the Debentures resulted in the write off of $4,900 of deferred financing costs. This write off, net of income tax, is classified with other extraordinary items in the Consolidated Statement of Operations for the year ended December 31, 1996. Additionally, the redemption and purchase premium and the related fees and expenses of the Debenture Redemption and purchase, totaling $13,452, are classified with other extraordinary items, net of income tax, in the Consolidated Statement of Operations for the year ended December 31, 1996.
8. STOCKHOLDERS' EQUITY
At December 31, 1996 and 1997, the authorized capital stock of the Company consisted of 60 million shares of Common Stock, 7 million shares of Class A Common Stock and 28.5 million shares of preferred stock, of which 670,000 shares were designated, in 1997, as Series A Junior Preferred Stock ("Series A Preferred Stock").
The Class A Common Stock may be converted into shares of Common Stock at the option of the holder at any time. In addition, shares of the Class A Common Stock may be converted into Common Stock at the option of the Company upon the occurrence of a Triggering Event (as defined) or on February 26, 2003. Such conversion is based on a formula set forth in the Company's Certificate of Incorporation.
Dividends are payable to holders of the Common Stock and Class A Common Stock in amounts as and when declared by the Company's Board of Directors, subject to legally available funds and certain agreements. The Common Stock and the Class A Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders.
On December 22, 1997, the Company adopted a rights plan (the "Rights Plan") and, pursuant to the Rights Plan, declared a dividend of one preferred stock purchase right (the "Rights") on each outstanding share of Common Stock and each outstanding share of Class A Common Stock. The dividend is payable to holders of record as of January 8, 1998. Under certain conditions, each Right may be exercised to purchase one one-hundredth ( 1/100) share of Series A Preferred Stock at an exercise price of $115, subject to certain adjustments. The Rights may only be exercised on the tenth day after a public announcement that a party has acquired beneficial ownership of 15% or more of the Company's outstanding voting stock or made an offer to acquire such beneficial ownership, subject to certain exceptions. Prior to that time, the Rights are not transferable apart from the Company's Common Stock or Class A Common Stock. The Rights, which do not have voting rights, expire on December 21, 2007, and may be redeemed by the Company at a price of $0.01 per Right at any time prior to their expiration or prior to the tenth day after the acquisition of 15% of the Company's outstanding voting stock (or at such later date as may be authorized by the Company's Board of Directors).
In the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of record of a Right shall have the right to receive, upon exercise thereof at the then current exercise price, that number of shares of common stock of the acquiring company having a market value at the time of the transaction equal to two times the exercise price of the Right. In addition, in the event that a party becomes the beneficial owner of 15% or more of the Company's outstanding voting stock, provision shall be made that each holder of record of a Right, other than the acquiring person, will have the right to receive, upon payment of the exercise price, that number of shares of the Company's preferred stock having a market value at the time of the transaction equal to two times the exercise price (such market value to be determined with reference to the market value of the Company's Common Stock and Class A Common Stock as provided in the Rights Plan). After a party acquires 15% beneficial ownership
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
but before there has been a 50% acquisition, the Board of Directors has the option to exchange one share of Common Stock for each then valid Right, excluding Rights held by the acquiring party.
On October 29, 1997, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, and as amended November 13, 1997, to register 8,911,304 shares of its Common Stock on behalf of certain selling stockholders. Sale of shares under this offering is expected to be completed during 1998.
On March 6, 1996, the Company consummated the sale of 14,950,000 shares of its Common Stock in its initial public offering. The Company received net proceeds of approximately $147,033 from the offering.
In 1993, the Company adopted a qualified and non-qualified stock option plan (the "Option Plan") which provided for the granting of up to 906,436 shares of Common Stock to key officers and employees of the Company. In December 1997, the Board of Directors approved an amendment to the Option Plan which provides for granting an additional 1,500,000 shares of Common Stock. Under the Option Plan, as amended, a total of 2,406,436 shares are provided for granting. The amendment to the Option Plan is subject to shareholder approval at the Annual Meeting in May 1998. Under the Option Plan, options granted approximate market value of the Common Stock at the date of grant. Such options vest ratably over a five-year period commencing on the first anniversary date after the date of grant, and vested options are exercisable at the discretion of the committee appointed to administer the Option Plan. Generally, an option may be exercised only if the holder is an officer or employee of the Company at the time of exercise. Options granted under the Option Plan are not transferable, except by will and the laws of descent and distribution.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for the Option Plan. Accordingly, no compensation cost has been recognized for the Option Plan. Had compensation cost for the Option Plan been determined based upon the fair value at the grant date for awards under those plans consistent with the methodology prescribed under SFAS No. 123, the Company's net income, net income (loss) applicable to common shares and diluted earnings (loss) per common share would approximate the pro forma amounts below:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions in 1995, 1996 and 1997, respectively: (i) dividend yield of 0% in all years; (ii) expected volatility of 30.0%, 30.0% and 37.5%; (iii) risk free interest rate ranging from 5.9% to 7.5%, in 1995, 5.5% to 6.4% in 1996 and 5.7% to 6.5% in 1997; and (iv) expected life of 10 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards prior to 1995. Additional awards in future years are anticipated.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the status of the Option Plan are summarized below:
The weighted average grant-date fair value of options granted during 1995, 1996 and 1997 was $5.54, $6.65 and $19.52 per share, respectively. The weighted average exercise price of options vested at December 31, 1996 and 1997, is $2.85 and $3.82 per share, respectively. The table below summarizes options outstanding at December 31, 1997.
As discussed in Note 2 herein, the Company adopted SFAS No. 128 in 1997. In accordance with SFAS No. 128, the following tables reconcile net income (loss) and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings (loss) per share for each of the years ended December 31, 1995, 1996 and 1997.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Basic earnings (loss) per common share was computed by dividing net income (loss) by the weighted average shares of common stock outstanding during the year. Diluted loss per share for 1995 did not include the effect of the assumed exercise of options issued and outstanding as the effect was antidilutive. Diluted earnings (loss) per common share for 1996 and 1997 were determined assuming the options issued and outstanding were exercised as of the later of January 1 of the respective year or the grant date. Options to purchase 56,000 shares of Common Stock at $25.56 per share and 538,435 shares at $20.75 per share were outstanding during the third and fourth quarters and the fourth quarter, respectively, but were not included in the computation of diluted earnings per share because the exercise price of such options was greater than the average market price of the Common Stock. These options, which expire in September 2007 and December 2007, respectively, were outstanding at December 31, 1997. For 1996 and 1997, diluted loss per common share for extraordinary items was $(0.48) and $(0.14), respectively. As a result of adoption of SFAS No. 128, the Company restated reported earnings (loss) per share for 1995 and 1996. This accounting change had no impact on previously reported earnings per share data.
Dividends on the Company's Series B Preferred Stock, par value $0.01 per share, ("Series B Preferred Stock") were payable at an annual rate of $2 per annum per share. Dividends were payable quarterly on February 28, May 31, August 31, and November 30. The Company, at its option, could pay quarterly dividends on the Series B Preferred Stock for any or all dividend payments until February 28, 1998, and if the Amended Credit Agreement prohibited the payment of cash dividends, until February 28, 2000, by issuing additional shares of Series B Preferred Stock, having a $25 per share liquidation value. Dividends for the November 1993 and the February, May, August and November 1994 dividend dates were paid by issuing 173,258 additional shares of Series B Preferred Stock in 1994. Dividends for the February, May, August and November 1995 dividend dates were paid by issuing 151,502 additional shares of Series B Preferred Stock in 1995.
Dividends on the Series E Preferred Stock, par value $0.01 per share, ("Series E Preferred Stock") were payable at an annual rate of $3.34375 per annum per share prior to May 1, 2005 and $3.6250 per share from and including May 1, 2005 increasing quarterly by $.125 per share provided that in no event shall the dividend rate exceed $5.00 per share. Dividends were payable quarterly on February 1, May 1, August 1, and November 1 (each a "Dividend Payment Date"). The Company, at its option, could pay quarterly dividends on the Series E Preferred Stock for any or all dividend payments prior to May 1, 1998, and if the Amended
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Agreement prohibited the payment of cash dividends, prior to May 1, 2000, by issuing additional shares of Series E Preferred Stock, which will be valued at $25 per share. Dividends for the November 1993 and February, May, August and November 1994 Dividend Payment Dates were paid by issuing 410,510 additional shares of Series E Preferred Stock in 1994. Dividends for the February, May, August and November 1995 Dividend Payment Dates were paid by issuing 378,135 additional shares of Series E Preferred Stock in 1995.
On March 18, 1996, the Company redeemed 50% of the outstanding shares of the Series E Preferred Stock including accrued and unpaid dividends and a redemption premium thereon for approximately $44,253 (the "Series E Preferred Redemption"). On March 19, 1996, the Company purchased all of the outstanding shares of Series E Preferred Stock not purchased by the Company pursuant to the Series E Preferred Redemption for approximately $47,819. Also, on March 19, 1996, the Company redeemed all of the outstanding shares of the Company's Series B Preferred Stock including accrued and unpaid dividends thereon for approximately $50,933.
9. INCOME TAXES
The provision for income taxes, excluding the effects of extraordinary items, for the years ended December 31 consists of the following:
Reconciliation between the statutory income tax rate and effective tax rate is summarized below:
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows:
The Company's net operating losses carried forward expire over varying periods ranging from 5 to 15 years.
Domestic and foreign income before income tax provision for the years ended December 31 are as follows:
The Company has not recognized a deferred tax liability for the undistributed earnings of its foreign subsidiaries because the Company does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future.
10. RETIREMENT BENEFITS
Pension coverage for employees of the Company's non-U.S. subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves. The Company has a voluntary 401(k) savings plan designed to enhance the existing retirement program covering eligible domestic employees. The costs of these plans recorded in the Consolidated Financial Statements are approximately $3,500, $4,500 and $3,600 and for 1995, 1996 and 1997, respectively.
The Company provides postretirement health care and other benefits to qualifying domestic retirees. Most international employees are covered by government sponsored programs and the cost to the Company is not significant. The Company does not fund retiree health care benefits in advance and has the right to modify these plans in the future.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost (NPPBC) for the years ended December 31 includes the following components:
The plan's status at December 31 is as follows:
The postretirement benefit obligation was determined by application of the terms of the plan, together with relevant actuarial assumptions for active employees. (The Predecessor retained the obligations for retirees at the Initial Acquisition). Health care cost trends are projected at annual rates grading from 8.0% in 1997 down to 6.0% in 2010 and later for the 1996 calculation. Healthcare cost trends are projected at annual rates grading from 8.5% in 1998 down to 5.75% in 2010 and later for the 1997 calculation. The effect of a 1% annual increase in these assumed cost trend rates would increase the APBO at December 31, 1996 and 1997, by a total of $2,864 and $3,087, respectively, and the service and interest cost components of the NPPBC for the year ended December 31, 1996 and 1997, by a total of $545 and $584, respectively. The assumed discount rate used in determining the APBO was 8.0% and 7.75% in 1996 and 1997, respectively. The assumed rate of increase in compensation levels used was 4.75% in 1996 and 1997. As no assets have been segregated and restricted for payment of postretirement benefits, the expected return on plan assets is $0. The postretirement benefit accrual is included in other long-term liabilities on the Consolidated Balance Sheets.
The Company does not provide any other significant postemployment benefits.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company leases certain buildings and transportation and other equipment. Total rental expense under operating leases is $6,500, $5,800 and $6,900 in 1995, 1996 and 1997, respectively. Future minimum lease payments under capital and operating leases for years ending December 31 are:
From time to time, the Company engages in short-term hedging activities to reduce its exposure to precious metals price fluctuations and foreign currency fluctuations. Such hedging activities are not material, and gains and losses from such operations are not significant. There can be no assurance that these hedging operations will eliminate or substantially reduce the risk.
12. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to such matters as patents, product liabilities, government regulations, and other actions arising in the normal course of business. In the opinion of management, the ultimate liabilities resulting from such lawsuits and claims will not have a material adverse effect on the Company's financial condition and results of operations.
13. RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and application of new products and processes were approximately $24,800, $26,100 and $28,400 in 1995, 1996 and 1997, respectively.
14. BUSINESS SEGMENT INFORMATION
The Company operates in one business segment -- electrical and electronic connection devices -- which are sold throughout many diverse markets.
The Company's operations are worldwide and can be grouped into several geographic regions. Operations outside the United States are conducted through wholly owned subsidiaries of the Company that function within assigned, principally national, markets. The subsidiaries manufacture regionally where required by market conditions and/or customer demands, however substantial interregion and intraregion sales occur.
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pertinent financial data by major geographic regions is as follows:
As a result of the Lucent Acquisition, Lucent became a significant customer of the Company. In 1995, 1996 and 1997, sales to Lucent were approximately $110,500, $124,700 and $87,700, respectively. The Company entered into a five-year supply agreement with Lucent in connection with the Lucent Acquisition and believes that Lucent will remain an important customer in the foreseeable future.
15. UNAUDITED QUARTERLY DATA
BERG ELECTRONICS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
See notes to the consolidated financial statements of Berg Electronics Corp.
BERG ELECTRONICS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
See notes to the consolidated financial statements of Berg Electronics Corp.
BERG ELECTRONICS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
See notes to the consolidated financial statements of Berg Electronics Corp.
BERG ELECTRONICS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See notes to the consolidated financial statements of Berg Electronics Corp.
BERG ELECTRONICS CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31 (IN THOUSANDS)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information contained under the captions "PROPOSAL FOR THE ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS" in the 1998 Proxy Statement for the Annual Meeting of Stockholders (the "1998 Proxy Statement") is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "EXECUTIVE AND DIRECTOR COMPENSATION" in the 1998 Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "VOTING SECURITIES OUTSTANDING AND SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS" in the 1998 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "RELATED PARTY TRANSACTIONS" in the 1998 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) and (2) Financial Statements and Financial Statement Schedules
See Index to Financial Statements and Schedules at Item 8 of this report.
(3) Exhibits
- ---------------
(1) Filed previously as an exhibit to the Registration Statement of Berg Electronics Corp. on Form S-1, Registration No. 33-98240, and incorporated by reference herein.
(2) Filed previously as an exhibit to the Registration Statement of Berg Electronics Holdings Corp. on Form S-1, Registration No. 33-62552, and incorporated by reference herein.
(3) Filed previously as an exhibit to the Berg Electronics Holdings Corp. and Berg Electronics, Inc. Form 8-K dated May 23, 1994 and incorporated by reference herein.
(4) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-K for the fiscal year ended December 31, 1995, and incorporated by reference herein.
(5) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.
(6) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-Q and 10-Q/A for the quarter ended March 31, 1997, and incorporated by reference herein.
(7) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-Q for the quarter ended June 30, 1997, and incorporated by reference herein.
(8) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-Q for the quarter ended September 30, 1997, and incorporated by reference herein.
(9) Filed previously as an exhibit to the Berg Electronics Corp. Form 8-K filing, dated December 22, 1997.
* Filed herewith.
+ Indicates a management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
Berg Electronics Corp. Form 8-K, dated December 22, 1997 -- Item 5 Other Events.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BERG ELECTRONICS CORP.
By /s/ JOSEPH S. CATANZARO ----------------------------------- Joseph S. Catanzaro Chief Accounting Officer
Date: February 2, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
- ---------------
(1) Filed previously as an exhibit to the Registration Statement of Berg Electronics Corp. on Form S-1, Registration No. 33-98240, and incorporated by reference herein.
(2) Filed previously as an exhibit to the Registration Statement of Berg Electronics Holdings Corp. on Form S-1, Registration No. 33-62552, and incorporated by reference herein.
(3) Filed previously as an exhibit to the Berg Electronics Holdings Corp. and Berg Electronics, Inc. Form 8-K dated May 23, 1994 and incorporated by reference herein.
(4) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-K for the fiscal year ended December 31, 1995, and incorporated by reference herein.
(5) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-K for the fiscal year ended December 31, 1996, and incorporated by reference herein.
(6) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-Q and 10-Q/A for the quarter ended March 31, 1997, and incorporated by reference herein.
(7) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-Q for the quarter ended June 30, 1997, and incorporated by reference herein.
(8) Filed previously as an exhibit to the Berg Electronics Corp. Form 10-Q for the quarter ended September 30, 1997, and incorporated by reference herein.
(9) Filed previously as an exhibit to the Berg Electronics Corp. Form 8-K filing, dated December 22, 1997.
* Filed herewith.
+ Indicates a management contract or compensatory plan or arrangement.