-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KXVnnl0eXjlyeO5WCWLsOkQAVa+rDNfJOiwE9+XfmWoZy8AQm5F0K9DzCbIN4717 u7MST7Zq+fwQgJeJ8A2Kjw== 0001007594-98-000020.txt : 19980805 0001007594-98-000020.hdr.sgml : 19980805 ACCESSION NUMBER: 0001007594-98-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980803 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCD INC CENTRAL INDEX KEY: 0001007594 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 042604950 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27744 FILM NUMBER: 98676079 BUSINESS ADDRESS: STREET 1: TWO TECHNOLOGY DR STREET 2: CENTENNIAL PARK CITY: PEABODY STATE: MA ZIP: 01960 BUSINESS PHONE: 5085328800 MAIL ADDRESS: STREET 1: 2 TECHNOLOGY DRIVE CITY: PEABODY STATE: MA ZIP: 01960 10-Q 1 AUDIT LETTER SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 4, 1998 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission file number 0-27744 PCD Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-2604950 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Technology Drive, Centennial Park, Peabody, Massachusetts (Address of principal executive offices) 01960-7977 (Zip Code) Registrant's telephone number, including area code: 978-532-8800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock, $0.01 par value, outstanding at July 22, 1998: 8,363,932 PCD Inc. FORM 10-Q FOR THE QUARTER ENDED JULY 4, 1998 Statements in this report concerning the future revenues, profitability, financial resources, product mix, market demand, product development and other statements in this report concerning the future results of operations, financial condition and business of PCD Inc. are "forward-looking" statements as defined in the Securities Act of 1933 and Securities Exchange Act of 1934. Investors are cautioned that the Company's actual results in the future may differ materially from those projected in the forward- looking statements due to risks and uncertainties that exist in the Company's operations and business environment, including the Company's dependence on the integrated circuit package interconnect and semiconductor industries, the Company's dependence on its principal customers and independent distributors, acquisitions and indebtedness, international sales and operations, fluctuations in demand for the Company's products, patent litigation involving the Company, rapid technological evolution in the electronics industry and the like. In addition, the Company may experience unanticipated costs or other difficulties in connection with the acquisition and integration of a business such as Wells Electronics, Inc. The Company's most recent filings with the Securities and Exchange Commission, including Form 10-K, contain additional information concerning such risk factors, and copies of these filings are available from the Company upon request and without charge. 2 PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS PCD INC. Consolidated Balance Sheets as of July 4, 1998 and December 31, 1997. Consolidated Statements of Income for the quarter and six months ended July 4, 1998 and June 28, 1997. Consolidated Statements of Cash Flows for the six months ended July 4, 1998 and June 28, 1997. Notes to Condensed Consolidated Financial Statements. WELLS ELECTRONICS, INC. Consolidated Statements of Income for the quarter and six months ended July 5, 1997. Consolidated Statements of Cash Flows for the six months ended July 5, 1997. Notes to Condensed Consolidated Financial Statements. 3 PCD Inc. CONSOLIDATED BALANCE SHEETS (Condensed and unaudited) (In thousands)
7/4/98 12/31/97 ------ -------- ASSETS Current assets: Cash and cash equivalents................. $ 1,677 $ 3,990 Accounts receivable, net.................. 6,797 6,804 Inventory................................. 4,840 4,796 Prepaid expenses and other current assets. 713 1,135 -------- -------- Total current assets............... 14,027 16,725 Equipment and improvements Equipment and improvements................ 23,383 20,695 Accumulated depreciation.................. 6,566 4,852 -------- -------- Equipment and improvements, net.............. 16,817 15,843 Deferred tax asset........................... 15,277 15,335 Goodwill..................................... 60,176 61,718 Intangible assets............................ 12,929 13,539 Debt financing fees.......................... 1,672 1,800 Other assets................................. 1,798 1,632 -------- -------- Total assets....................... $122,696 $126,592 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt........................ $ 16,300 $ 17,700 Accounts payable.......................... 2,878 4,213 Accrued liabilities....................... 4,096 7,444 -------- -------- Total current liabilities.......... 23,274 29,357 Long-term debt, net of current portion....... 45,495 65,300 Subordinated debenture - related party....... - 22,903 Minority interest............................ 37 37 Stockholders' equity......................... 53,890 8,995 -------- -------- Total liabilities and stockholders' equity.......... $122,696 $126,592 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 PCD Inc. CONSOLIDATED STATEMENTS OF INCOME (Condensed and unaudited) (In thousands, except per share data)
Quarter Ended Six Months Ended ----------------- ---------------- 7/4/98 6/28/97 7/4/98 6/28/97 ------ ------- ------ ------- Net sales........................... $18,553 $7,233 $35,279 $13,450 Cost of sales....................... 7,706 3,726 14,947 6,990 ------- ------ ------- ------- Gross profit........................ 10,847 3,507 20,332 6,460 Operating expenses.................. 4,139 1,392 7,901 2,748 Amortization........................ 1,024 - 2,095 - ------- ------ ------- ------- Income from operations.............. 5,684 2,115 10,336 3,712 Interest expense / (other income), net............... 1,627 (275) 6,289 (536) ------- ------ ------- ------- Income before income taxes.......... 4,057 2,390 4,047 4,248 Provision for income taxes.......... 1,740 886 1,757 1,569 ------- ------ ------- ------- Income before extraordinary item.... 2,317 1,504 2,290 2,679 Extraordinary item - charge for early retirement of debt, net of income tax benefit of $567 (Note 3) 888 - 888 - ------- ------ ------- ------- Net income.......................... $ 1,429 $1,504 $ 1,402 $ 2,679 ======= ====== ======= ======= Basic earnings per share: Income before extraordinary item.. $ 0.29 $ 0.25 $ 0.33 $ 0.45 Extraordinary item................ $ (0.11) $ -- $ (0.13) $ -- ------- ------ ------- ------- Net income........................ $ 0.18 $ 0.25 $ 0.20 $ 0.45 ======= ====== ======= ======= Diluted earnings per share Income before extraordinary item $ 0.27 $ 0.23 $ 0.30 $ 0.41 Extraordinary item................ $ (0.10) $ -- $ (0.12) $ -- ------- ------ ------- ------- Net income........................ $ 0.17 $ 0.23 $ 0.18 $ 0.41 ======= ====== ======= ======= Weighted average number of common and common equivalent shares outstanding: Basic.......................... 7,888 5,929 7,021 5,908 ======= ====== ======= ======= Diluted........................ 8,597 6,602 7,739 6,600 ======= ====== ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 5 PCD Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited) (In thousands)
Six Months Ended ------------------ 7/4/98 6/28/97 ------ ------- Cash flows from operating activities: Net income...................................... $ 1,402 $ 2,679 Adjustments to reconcile net income to net cash provided by operating activities Depreciation................................. 1,714 752 Amortization of deferred compensation........ 28 29 Amortization of intangible assets............ 2,314 - Amortization of warrant...................... 2,917 - Tax benefit from stock options exercised..... 19 286 Deferred taxes............................... 58 - Changes in operating assets and liabilities: Accounts receivable........................ 7 (1,383) Inventory.................................. (44) (303) Prepaid expenses and other current assets.. 422 1 Other assets............................... (200) (23) Accounts payable........................... (1,335) (138) Accrued liabilities........................ (3,348) (468) ------- ------- Net cash provided by operating activities 3,954 1,432 Cash flows from investing activities: Capital expenditures............................ (2,688) (949) ------- ------- Net cash used in investing activities.... (2,688) (949) Cash flows from financing activities: Payments of short-term debt..................... (1,500) - Payments of long-term debt...................... (19,705) - Payments of subordinated debt................... (25,000) - Proceeds from issuance of warrant............... 5 - Proceeds from issuance of common stock, net..... 42,567 - Exercise of common stock options................ 54 129 ------- ------- Net cash (used in) provided by financing activities............................. (3,579) 129 ------- ------- Net (decrease) increase in cash................... (2,313) 612 Cash and cash equivalents at beginning of period.. 3,990 20,529 ------- ------- Cash and cash equivalents at end of period........ $ 1,677 $21,141 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 6 PCD Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (July 4, 1998 Unaudited) Note 1. INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997 which are included in the Company's Form 10-K filing. Results for the interim period presented are not necessarily indicative of results to be anticipated for the entire year. All financial statements subsequent to December 26, 1997 include the acquisition of Wells Electronics, Inc. by the Company accounted for on the purchase method of accounting and include all adjustments necessary for a fair presentation in the interim periods presented. All adjustments made are of a normal recurring nature. Note 2. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments for purposes other than trading and does so to reduce its exposure to fluctuations in interest rates. Gains and losses on hedges of existing assets and liabilities are included in the carrying amounts of those assets or liabilities and are ultimately recognized in income. The amounts receivable and payable are recorded as a current liability with realized gains or losses recognized as adjustments to interest expense. Under the interest rate swap contract, the Company agrees to pay an amount equal to a specified floating rate of interest times a notional principal amount, and to receive in return an amount equal to a specified fixed rate of interest times the same notional principal amount. The notional amounts of the contract are not exchanged. No other cash payments are made unless the contract is terminated prior to maturity, in which case the amount paid or received in settlement is established by agreement at the time of termination, and usually represents the net 7 present value, at current rates of interest, of the remaining obligations to exchange payments under the terms of the contract. The interest rate swap contract is entered into with a major financial institution in order to minimize credit risk. At July 4, 1998, the Company was a variable rate payer of 5.6875% and received a fixed rate of 5.72% on notional amount of $35,000,000. The fair value at July 4, 1998, was an unfavorable $980. Note 3. EXTRAORDINARY ITEM The Company incurred additional interest expense and prepayment penalties of $1,455,000 ($888,000 tax affected) in connection with the early retirement of the subordinated debenture - related party. Note 4. NET INCOME PER SHARE The following table reconciles net income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of the three and six month periods ended July 4, 1998 and June 28, 1997:
Per Share Net Income Shares Amount ----------- --------- ------- For the quarter ended July 4, 1998 Income before extraordinary item............ $2,317,000 7,887,993 $ 0.29 Assumed exercise of options (treasury method) - 708,995 - ---------- --------- ------ Diluted income before extraordinary item.... $2,317,000 8,596,988 $ 0.27 ========== ========= ====== Extraordinary item.......................... $ (888,000) 7,887,993 $(0.11) Assumed exercise of options (treasury method) - 708,995 - ---------- --------- ------ Diluted extraordinary item.................. $ (888,000) 8,596,988 $(0.10) ========== ========= ====== Net income.................................. $1,429,000 7,887,993 $ 0.18 Assumed exercise of options (treasury method) - 708,995 - ---------- --------- ------ Diluted net income.......................... $1,429,000 8,596,988 $ 0.17 ========== ========= ====== For the quarter ended June 28, 1997 Basic earnings.............................. $1,504,000 5,929,476 $ 0.25 Assumed exercise of options (treasury method) - 672,205 - ---------- --------- ------ Diluted earnings............................ $1,504,000 6,601,681 $ 0.23 ========== ========= ======
8
Per Share Net Income Shares Amount ----------- --------- ------- For the six month period ended July 4, 1998 Income before extraordinary item............ $2,290,000 7,021,457 $ 0.33 Assumed exercise of options (treasury method) - 717,369 - ---------- --------- ------ Diluted income before extraordinary item.... $2,290,000 7,738,826 $ 0.30 ========== ========= ====== Extraordinary item.......................... $ (888,000) 7,021,457 $(0.13) Assumed exercise of options (treasury method) - 717,369 - ---------- --------- ------ Diluted extraordinary item.................. $ (888,000) 7,738,826 $(0.12) ========== ========= ====== Net income.................................. $1,402,000 7,021,457 $ 0.20 Assumed exercise of options (treasury method) - 717,369 - ---------- --------- ------ Diluted net income.......................... $1,402,000 7,738,826 $ 0.18 ========== ========= ====== For the six month period ended June 28, 1997 Basic earnings.............................. $2,679,000 5,907,508 $ 0.45 Assumed exercise of options (treasury method) - 692,536 - ---------- --------- ------ Diluted earnings............................ $2,679,000 6,600,044 $ 0.41 ========== ========= ======
Note 5. INVENTORY
7/4/98 12/31/97 ------ -------- (In Thousands) Inventory: Raw materials and finished subassemblies $3,377 $3,387 Work in process......................... 450 532 Finished goods.......................... 1,013 877 ------ ------ Total................................. $4,840 $4,796 ====== ======
9 Note 6. NEW ACCOUNTING PRINCIPLES In June 1997, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and disclosure of comprehensive income and its components. Effective January 1, 1998, the Company adopted SFAS No. 130. For the three and six month periods ended July 4, 1998, comprehensive income was $1,474,000 and $1,401,000, respectively. For the three and six month periods ended June 28, 1997, comprehensive income was $1,504,000 and $2,679,000, respectively. The Company's other comprehensive income consists solely of cumulative translation adjustments. In 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information (FAS 131), which goes into effect in 1998. FAS 131 requires the reporting in the financial statements of certain new additional information about operating segments of a business. Application of FAS 131 is not required for interim reporting in the initial year of application. PCD is currently evaluating the impact that FAS 131 will have on its future reporting requirements. In 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), which becomes effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. FAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company is currently evaluating the impact that FAS 133 will have on its future reporting requirements. Note 7. CURRENT EVENT On April 22, 1998, the Company completed a public offering of 2,000,000 shares of Common Stock at $20 per share. On May 6, 1998, pursuant to the exercise of the Underwriters' over- allotment option, the Company sold an additional 300,000 shares of Common Stock at $20 per share. The proceeds of the offering were used to pay off the $25 million subordinated debenture and a portion of the Senior Bank financing. 10 Note 8. LITIGATION On August 21, 1995, the Company's wholly-owned subsidiary, CTi Technologies, Inc. ("CTi"), filed an action in the United States District Court for the District of Arizona against Wayne K. Pfaff, an individual residing in Texas ("Pfaff"), and Plastronics Socket Company, Inc., a corporation affiliated with Pfaff, alleging and seeking a declaratory judgment that two United States patents issued to Pfaff and relating to certain burn-in sockets for "leadless" IC packages (the "Pfaff Leadless Patent") and ball grid array ("BGA") IC packages (the "Pfaff BGA Patent") (collectively, the "Pfaff Patents") are invalid and are not infringed by CTi, the products of which include burn-in sockets for certain "leaded" packages (including Quad Flat Paks) (the "CTi Leaded Products") and BGA packages (the "CTi BGA Products") (collectively, the "CTi Products"). Pfaff has filed a counterclaim alleging that CTi infringes the Pfaff Leadless Patent and has requested an award of damages; the counterclaim does not allege infringement of the Pfaff BGA Patent. Pfaff has also sought a permanent injunction against further infringement by CTi of the Pfaff Leadless Patent. That action has been stayed pending resolution of another action, described below, involving the Pfaff Leadless Patent. In litigation between Wells and Pfaff concerning the Pfaff Leadless Patent, the United States Court of Appeals for the Federal Circuit has found all of the individual descriptions of the invention (the "Claims" of the patent) of the Pfaff Leadless Patent which were at issue in that case to be invalid. The basis for the decision of the Court of Appeals was a finding that the invention covered by the Pfaff Leadless Patent had been "on sale" for more than one year before the filing of a patent application. An invention that has been "on sale" for more than one year before the filing of the patent application may not be patented. Certain other Claims of the patent were not at issue in the Pfaff v. Wells case, and their validity was not decided by the Court of Appeals, because Pfaff did not allege that products of Wells infringed such Claims. These other Claims include design elements not incorporated into products of Wells or CTi, including the use of contact pins formed with a pair of parallel blades extending from a common base. The United States Supreme Court has accepted an appeal on the Pfaff v. Wells case, limited to the question of whether the Pfaff Leadless Patent should have been held invalid on the basis of the "on sale" bar if Pfaff's invention was not "fully completed" more than one year before he 11 filed his patent application. The Supreme Court could affirm or reverse the decision of the Court of Appeals. If the Supreme Court affirms the decision of the Court of Appeals, the determination of invalidity of the Claims at issue in the Pfaff v. Wells case will become final. This determination will be binding with respect to such Claims in the CTi v. Pfaff action in the District of Arizona. The reasoning of the Pfaff v. Wells decision, moreover, could support CTi's position that the remaining Claims of that patent are invalid. This conclusion is based on the Company's belief that the invention covered by such remaining Claims was also "on sale" for more than one year before the date of the application for the Pfaff Leadless Patent. If the Supreme Court reverses the decision of the Court of Appeals, the lower courts will then determine the validity of the Claims of the Pfaff Leadless Patent at issue on other grounds and will determine whether the products of Wells infringe on these Claims of the Pfaff Leadless Patent. The Company believes, based on the advice of counsel, that CTi and Wells have meritorious defenses against any allegations of infringement under the Pfaff Patents, and, if necessary, CTi and Wells will vigorously litigate their positions. There can be no assurance, however, that the Company, CTi or Wells will prevail in any pending or future litigation, and a final court determination that CTi or Wells has infringed the Pfaff Leadless Patent could have a material adverse effect on the Company. Such adverse effect could include, without limitation, the requirement that CTi or Wells pay substantial damages for past infringement and an injunction against the manufacture or sale in the United States of such products as are found to be infringing. 12 Wells Electronics, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed and unaudited) (In thousands, except share data)
Quarter Ended Six Months Ended ------------- ---------------- 7/5/97 7/5/97 ------- ------- Net sales.............................. $12,079 $21,816 Cost of sales.......................... 4,811 8,387 ------- ------- Gross profit........................... 7,268 13,429 Operating expenses..................... 2,577 4,618 Amortization........................... 145 291 ------- ------- Income from operations................. 4,546 8,520 Interest expense /(other income), net.. 4 8 ------- ------- Income (loss) before income taxes...... 4,542 8,512 Provision for income taxes............. 1,230 2,202 ------- ------- Net income (loss)...................... $ 3,312 $ 6,310 ======= ======= Earnings per share..................... $423.26 $806.39 ======= ======= Average number of shares............... 7,825 7,825 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. 13 Wells Electronics, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited) (In thousands)
Six Months Ended ---------------- 7/5/97 ------- Cash flows from operating activities: Net income (loss)............................... $ 6,310 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization................ 1,119 Foreign currency adjustments................. 277 Deferred taxes............................... 433 Changes in operating assets and liabilities: Accounts receivable........................ (3,588) Inventory.................................. 215 Prepaid expenses and other current assets.. (221) Other assets............................... 829 Accounts payable........................... 236 Accrued liabilities........................ 2,921 ------- Net cash provided by operating activities................ 8,531 Cash flows from investing activities: Capital expenditures............................ (2,090) ------- Net cash used in investing activities.... (2,090) Cash flows from financing activities: Principal payments on debt...................... (1,352) Net intercompany transfers...................... (5,630) ------- Net cash used in financing activities.... (6,982) ------- Net decrease in cash.............................. (541) Cash and cash equivalents at beginning of period.. 784 ------- Cash and cash equivalents at end of period........ $ 243 =======
The accompanying notes are an integral part of the consolidated financial statements. 14 Wells Electronics, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (July 4, 1998 Unaudited) Note 1. INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements have been prepared on the basis of Wells Electronics, Inc. historical records and do not reflect any adjustments related to the purchase of Wells by PCD, which occurred on December 26, 1997. This financial data should be read in conjunction with the audited financial statements and notes thereto for the period ended December 26, 1997 which are included in the Company's Form 10-K filing. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As used herein, the terms "Company" and "PCD," unless otherwise indicated or the context otherwise requires, refer to PCD Inc. and its subsidiaries, including Wells Electronics, Inc. and its subsidiaries ("Wells"). However, all financial information for periods ended before December 26, 1997, unless otherwise indicated or the context otherwise requires, is for PCD Inc. and its subsidiaries, excluding Wells. RESULTS OF OPERATIONS QUARTER AND SIX MONTHS ENDED JULY 4, 1998 COMPARED TO THE QUARTER AND SIX MONTHS ENDED JUNE 28, 1997 NET SALES. Net sales increased 157% to $18.6 million for the quarter ended July 4, 1998, from $7.2 million for the quarter ended June 28, 1997. This change in net sales of $11.4 million reflects the results of the incorporation of the Wells and an 8% growth in revenue of the Company's (excluding Wells) pre- acquisition business. Sales attributable to the acquisition in the second quarter of 1998 were $10.7 million. 15 Net sales for the six months ended July 4, 1998 were $35.3 million, an increase of 162% from the comparable six month period in 1997. This increase in net sales of $21.8 million reflects the results of the incorporation of the Wells acquisition and a 16% growth in sales of the Company's (excluding Wells) previous existing business. Sales attributable to the acquisition in the first six months of 1998 were $19.7 million. The technologies recorded as in-process research and development ("IPR&D") are proceeding according to the Company's estimates and expectations. GROSS PROFIT. Gross profit increased to $10.8 million for the quarter ended July 4, 1998, from $3.5 million for the quarter ended June 28, 1997. As a percentage of net sales, gross margin increased to 58.5% for the quarter ended July 4, 1998 from 48.5% for the quarter ended June 28, 1997. The improvement in the gross profit reflects the integration of the higher margin burn-in socket product line from the Wells acquisition. For the six months ended July 4, 1998, gross profit increased to 57.6% of net sales, or $20.3 million, from 48.0% of net sales, or $6.5 million for the same period last year. The improvement in the gross profit reflects the integration of the higher margin burn-in socket product line from the Wells acquisition. OPERATING EXPENSES. Operating expenses were $5.2 million, or 27.8% of net sales, for the quarter ended July 4, 1998, compared to $1.4 million, or 19.2% of net sales, for the quarter ended June 28, 1997. This dollar increase in operating expenses reflects the additional costs due to the inclusion of the Wells acquisition as well as the amortization of intangible assets associated with the Wells acquisition of $1.0 million. Operating expenses for the six months ended July 4, 1998 were $10.0 million, or 28.3% of net sales, compared to $2.7 million or 20.4% of net sales for the six months ended June 28, 1997. INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense and other income, net, increased to an expense of $1.6 million in the quarter ended July 4, 1998 from income of $0.3 million in the quarter ended June 28, 1997. This increase in interest expense is associated with the debt incurred in connection with the Wells acquisition. Interest expense and other income, net was an expense of $6.3 million for the six months ended July 4, 1998 compared to $0.5 million income for the same period, last year. 16 PROVISION FOR INCOME TAXES. The provision for income taxes for the quarter ended July 4, 1998 was $1.7 million on pre-tax income of $4.1 million, or an effective rate of 43%. This compares to 37% in the quarter ended June 28, 1997. The change in the effective rate income taxes is due to the application of the effective tax rates for each of the state and foreign tax jurisdictions in which the Company operates. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities in the quarter ended July 4, 1998 was $2.4 million, compared to $0.9 million in the quarter ended June 28, 1997. These funds were sufficient to fund the capital expenditure requirements for the second quarter of approximately $1.9 million. The Company currently anticipates that its capital expenditures for 1998 will be approximately $7 million, which consists primarily of purchased tooling and equipment required to support the Company's business. The amount of these anticipated capital expenditures will frequently change based on future changes in business plans and conditions of the Company and changes in economic conditions. In December 1997, the Company obtained a Senior Credit Facility for $90 million from Fleet National Bank and other lenders (the "Senior Credit Facility") to finance in part the Wells acquisition. In addition, the Company obtained $25 million in subordinated debt financing from Emerson Electric Co. ("Emerson") pursuant to a Subordinated Debenture (the "Subordinated Debenture") issued to Emerson. On April 22, 1998, the Company completed a public offering of 2,000,000 shares of Common Stock at $20 per share and with the net proceeds, repaid 100% of the Subordinated Debenture and a portion of the outstanding balance on its Senior Credit Facility. On May 6, 1998, pursuant to the exercise of the Underwriters' over-allotment option, the Company sold an additional 300,000 shares of Common Stock at $20 per share. The net proceeds from the sale these shares were used to pay down an additional portion of the Senior Credit Facility. As the Subordinated Debenture and all outstanding interest was repaid prior to December 31, 1998, 375,000 shares of the 525,000 share Common Stock Purchase Warrant issued in connection with the Subordinated Debenture will not become exercisable. In addition to the above financing transactions, the Company used $1.5 million of its available cash to pay down a portion of 17 the Revolving Line of Credit. The balance of this credit facility at the end of the second quarter was $11.5. The Company believes its existing working capital and borrowing capacity, coupled with the funds generated from the Company's operations, will be sufficient to fund its anticipated working capital, capital expenditure and debt payment requirements through 1999. Because the Company's capital requirements cannot be predicted with certainty, there can be no assurance that any additional financing will be available on terms satisfactory to the Company or not disadvantageous to the Company's stockholders. 18 PCD Inc. PART II OTHER INFORMATION Item 1. Legal Proceeding See Note 8 to the Company's Condensed Consolidated Financial Statements (above). Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of stockholders of the Company on June 5, 1998, the following votes were taken: Two directors were elected to hold office for a three year term expiring in the year 2001.
Shares Voted Shares ------------------- not Director For Withheld voted ----------------- --------- -------- ------- C. Wayne Griffith 5,669,389 18,600 362,693 John E. Stuart 5,669,389 18,600 362,693
The following directors will continue in office until the years specified: Term expires ------------ John L. Dwight, Jr. 1999 Theodore C. York 1999 Hal F. Faught 2000 The 1998 Employee Stock Purchase Plan was approved (a copy has been previously filed and is incorporated in this report by reference): Shares Voted Abstentions ------------------------------ and broker For Against Withheld non-votes --------- ------- -------- ----------- 5,652,239 4,600 31,150 362,693 1 Item 5. OTHER INFORMATION On June 5, 1998, the Company's wholly-owned subsidiary, PCD Control Systems, Inc. change its name to PCD Control Systems Interconnect, Inc. On July 31, 1998, the Company's wholly-owned Subsidiary, CTi Technologies, Inc. was merged into Wells Electronics, Inc. and concurrently Wells Electronics, Inc. changed its name to WELLS-CTI, Inc. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 21.1 Subsidiaries of the Registrant. 27.1 Financial Data Schedule. (b) Reports on Form 8-K A report on Form 8-K was filed by the Company on January 9, 1998 and amended and filed on March 11 and 24, and April 20, 1998. This report included: a) a description of the Company's acquisition on December 26, 1997 of Wells Electronics, Inc., b) the Financial Statements of Wells Electronics, Inc., c) Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31, 1997, and d) information pertaining to the financing obtained to finance the acquisition. 20 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PCD INC. (Registrant) Dated: August 3, 1998 /s/ John L. Dwight, Jr. -------------- --------------------------- John L. Dwight, Jr. Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Dated: August 3, 1998 /s/ Mary L. Mandarino -------------- ----------------------------- Mary L. Mandarino Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 21 EXHIBIT 21.1 SUBSIDIARIES OF PCD INC. PCD Control Systems Interconnect, Inc., a Massachusetts corporation PCD USVI, Inc., a United States Virgin Islands corporation WELLS-CTI, Inc., an Indiana corporation SUBSIDIARIES OF WELLS-CTI, INC. Wells-CTI Kabushiki Kaisha, a Japanese corporation Wells International Corporation, Inc., an Indiana corporation SUBSIDIARIES OF WELLS INTERNATIONAL CORPORATION, INC. Wells Electronics Asia Pte. Ltd., a Singapore limited liability company EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL INFORMATION 1,000 6-MOS DEC-31-1998 JUL-04-1998 1,677 0 7,113 316 4,840 14,027 23,383 6,566 122,696 23,274 45,495 0 0 84 53,806 122,696 35,279 35,279 14,947 14,947 9,996 0 6,621 4,047 1,757 2,290 0 (888) 0 1,402 0.20 0.18
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