-----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, Sp6ePjhxo/OwA1uaN1kuHg2ClAneJlEeiwjiVydHZMxrbUNPUukbqYusHH1MeYZD MEkJLhn5PCwcqHVjGUCL8g== 0001007594-00-000003.txt : 20000512 0001007594-00-000003.hdr.sgml : 20000512 ACCESSION NUMBER: 0001007594-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000511 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: 625973 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 April 1, 2000 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 May 10, 2000: 8,587,351 PCD Inc. FORM 10-Q FOR THE QUARTER ENDED APRIL 1, 2000 FORWARD LOOKING INFORMATION Statements in this quarterly report concerning the future revenues, expenses, 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 the Company 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, the Company's ability to meet its debt covenants, rapid technological evolution in the electronics industry and the like. In addition, the Company has experienced unanticipated costs or other difficulties in connection with the acquisition of Wells Electronics, Inc. The Company's most recent filings with the Securities and Exchange commission, including its Annual Report on form 10-K, Quarterly Reports on Form 10-Q and Current reports on Form 8-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 April 1, 2000 and December 31, 1999. Consolidated Statements of Income for the quarters ended April 1, 2000 and April 3, 1999. Consolidated Statements of Cash Flows for the quarters ended April 1, 2000 and April 3, 1999. Notes to Condensed Consolidated Financial Statements. 3 PCD Inc. CONSOLIDATED BALANCE SHEETS (Condensed and unaudited) (In thousands) 4/1/00 12/31/99 ------- -------- ASSETS Current assets: Cash and cash equivalents.......................... $ 723 $ 652 Accounts receivable, net........................... 7,631 6,831 Inventory.......................................... 5,402 5,479 Income tax refund receivable....................... 1,416 1,416 Prepaid expenses and other current assets.......... 546 674 -------- -------- Total current assets........................ 15,718 15,052 Equipment and improvements Equipment and improvements......................... 29,645 29,089 Accumulated depreciation........................... 12,741 11,547 -------- -------- Equipment and improvements, net....................... 16,904 17,542 Deferred tax asset.................................... 12,252 12,258 Goodwill.............................................. 54,736 55,506 Intangible assets..................................... 11,159 11,418 Debt financing fees................................... 1,548 1,276 Other assets.......................................... 1,631 1,734 -------- -------- Total assets................................ $113,948 $114,786 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt.................................... $ 12,500 $ 12,000 Current portion of long-term debt.................. 8,900 8,800 Accounts payable................................... 4,685 3,972 Accrued liabilities................................ 3,005 3,190 -------- -------- Total current liabilities................... 29,090 27,962 Long-term debt, net of current portion................ 26,500 28,800 Accumulated other comprehensive (loss)................ (51) (27) Stockholders' equity.................................. 58,409 58,051 -------- -------- Total liabilities and stockholders' equity.. $113,948 $114,786 ======== ======== 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 ----------------- 4/1/00 4/3/99 ------ ------- Net sales............................................. $13,905 $12,633 Cost of sales......................................... 7,722 6,379 ------- ------ Gross profit.......................................... 6,183 6,254 Operating expenses.................................... 3,380 3,523 Amortization.......................................... 1,048 1,048 ------- ------ Income from operations................................ 1,755 1,683 Interest expense /(other income), net................. 1,218 1,097 ------- ------- Income before income taxes............................ 537 586 Provision for income taxes............................ 215 221 ------- ------- Net income............................................. $ 322 $ 365 ======= ====== Net income per share: Basic............................................ $ 0.04 $ 0.04 ======= ====== Diluted.......................................... $ 0.04 $ 0.04 ======= ====== Weighted average number of shares outstanding Basic............................................ 8,578 8,451 ===== ===== Diluted.......................................... 9,001 9,053 ===== ===== 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) Quarter Ended ----------------- 4/1/00 4/3/99 ------ ------ Cash flows from operating activities: Net income........................................... $ 322 $ 365 Adjustments to reconcile net income to net cash provided by operating activities Depreciation...................................... 1,191 1,062 Amortization of intangible assets................. 1,048 1,048 Amortization of debt financing costs.............. 95 59 Deferred taxes.................................... - 239 Changes in operating assets and liabilities: Accounts receivable............................. (932) (1,138) Inventory....................................... 56 (261) Prepaid expenses and other current assets....... 114 (16) Other assets.................................... (289) 18 Accounts payable................................ 763 (207) Accrued liabilities............................. (58) (447) ------- ------- Net cash provided by operating activities..... 2,310 722 Cash flows from investing activities: Capital expenditures................................. (554) (980) ------- ------- Net cash used in investing activities......... (554) (980) Cash flows from financing activities: Borrowings of short-term debt........................ 500 2,500 Payments of long-term debt........................... (2,200) (2,100) Exercise of common stock options..................... 36 73 ------- ------- Net cash provided by (used in) financing activities............... (1,664) 473 ------- ------- Net increase in cash................................... 92 215 Effect of exchange rate on cash........................ (21) (34) Cash and cash equivalents at beginning of period....... 652 852 ------- ------- Cash and cash equivalents at end of period............. $ 723 $ 1,033 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. 6 PCD Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (April 1, 2000 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. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. This financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1999. Note 2. NET INCOME PER SHARE In accordance with FAS No. 128, the following tables reconcile net income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of the periods ended April 1, 2000 and April 3, 1999: Net Income Per Share (Loss) Shares Amount ----------- --------- ------- For the period ended April 1, 2000 Basic earnings.............................. $ 322,000 8,578,278 $ 0.04 Assumed exercise of options (treasury method) - 423,026 - ---------- --------- ------ Diluted earnings............................ $ 322,000 9,001,314 $ 0.04 ========== ========= ====== For the period ended April 3, 1999 Basic earnings.............................. $ 365,000 8,450,961 $ 0.04 Assumed exercise of options (treasury method) - 601,998 - ---------- --------- ------ Diluted earnings............................ $ 365,000 9,052,959 $ 0.04 ========== ========= ====== Anti-dilutive shares of 243,603 and 119,556 for the quarters ended April 1, 2000 and April 3, 1999, respectively, have been excluded from the calculation of EPS. 7 Note 3. INVENTORY 4/1/00 12/31/99 ------ -------- (In Thousands) Inventory: Raw materials and finished subassemblies.......... $4,120 $3,803 Work in process................................... 242 308 Finished goods.................................... 1,040 1,368 ------ ------ Total........................................... $5,402 $5,479 ====== ====== Note 4. COMPREHENSIVE INCOME The Company's only other comprehensive income is foreign currency translation adjustments. For the three months ended April 1, 2000 and April 3, 1999 the Company's total comprehensive income was as follows: Three Months Ended ------------------ 4/1/00 4/3/99 ------ ------- (In thousands) Net earnings..................................... $ 322 $ 365 Other comprehensive loss, net.................... (14) (32) ------- ------- Total comprehensive earnings................ $ 308 $ 333 ======= ======= Note 5. NEW ACCOUNTING STANDARDS 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 initially would have been effective for all fiscal quarters beginning after June 15, 1999. In June 1999, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FAS 133 ("FAS 137"). FAS 137 defers the effective date of FAS 133 until June 15, 2000. 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 believes FAS 133 will not have any material impact on its financial position, results of operations and cash flows. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan 8 qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the staff's view in applying generally accepted accounting principles to selected revenue recognition issues. The application of the guidance in SAB 101 will be required in the Company's first quarter of the fiscal year 2001. The effects of applying this guidance will be reported as a cumulative effect adjustment resulting from a change in accounting principle. The Company does not expect the application to have a material effect on their financial statements. However, the final evaluation of SAB 101 is not yet complete. Note 6. LITIGATION The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. On the basis of information presently available and advice received from legal counsel, it is the opinion of management that the disposition or ultimate determination of such legal proceedings will not have a material adverse effect on the Company's consolidated financial position, its consolidated results of operations or its consolidated cash flows. Note 7. SEGMENT INFORMATION: THREE MONTHS ENDED ------------------ 4/1/00 4/3/99 (In thousands) SALES: Industrial/Avionics............................. $ 4,843 $ 4,941 IC Package interconnect......................... 9,062 7,692 -------- -------- Total sales................................... $ 13,905 $ 12,633 ======== ======== NET INCOME (loss): Industrial/Avionics............................. $ 573 $ 757 IC Package interconnect......................... (246) (427) Corporate activities............................ (5) 35 -------- -------- Total net income.............................. $ 322 $ 365 ======== ======== 4/1/00 12/31/99 -------- -------- (In thousands) ASSETS: Industrial/Avionics............................. $ 9,199 $ 9,269 IC Package interconnect......................... 89,414 90,004 Corporate activities............................ 15,335 15,513 -------- -------- Total assets.................................. $113,948 $114,786 ======== ======== 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED APRIL 1, 2000 COMPARED TO THE QUARTER ENDED APRIL 3, 1999 NET SALES. Net sales of $13.9 million for the quarter ended April 1, 2000 increased by $1.3 million or 10.1% from net sales of $12.6 million during the prior year quarter. The increase in sales was due to higher sales in the I/C package interconnect business resulting in part from the recovery in the semiconductor industry that began in 1999. GROSS PROFIT. Gross profit was $6.2 million for the quarter ended April 1, 2000 as compared with $6.3 million during the prior year quarter. As a percentage of revenue, gross profit was 44.5% during the quarter as compared with 49.5% during the prior year quarter. The decline in dollar and percentage terms during 2000 was due to a combination of selling price pressure and a shift in product mix within certain segments of the I/C package interconnect business. OPERATING EXPENSES. Operating expenses include selling, general and administrative expenses and costs of product development. Operating expenses decreased to $3.4 million during the quarter ended April 1, 2000 from $3.5 million during the prior year quarter. The decrease was due primarily to specific cost reductions at the Wells-CTI division implemented during 1999. INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense and other income, net during the quarter ended April 1, 2000 was $1.2 million as compared with $1.1 million during the prior year quarter. The increase in 2000 was due to higher borrowing costs, which were partially offset by lower debt balances. PROVISION FOR INCOME TAXES. The provision for income taxes during the quarter ended April 1, 2000 was 40% as compared with a provision of 38% during the prior year quarter. The increase in 2000 is due to a projected profitable Japanese subsidiary in 2000, which bears a higher tax rate than the Company's U.S subsidiaries. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities during the quarter ended April 1, 2000 was $2.3 million compared to $0.7 million during the prior year quarter. During the quarter, the Company reduced net debt by $1.7 million to $47.9 million from $49.6 million at December 31, 1999. The balance at April 1, 2000 consists of $12.5 million outstanding under the revolving line of credit and a term loan balance of $35.4 million. Capital expenditures during the quarter were $554,000 and are projected to be approximately $4.4 million for the year. Capital expenditures consist primarily of purchased tooling and equipment to support the Company's business. The amount of capital expenditures will frequently change based on future changes in business plans, conditions of the Company and changes in economic conditions. The Company has experienced difficulty meeting all of the covenants under its Senior Credit Facility. In March 2000, the Company obtained from its lenders a waiver of compliance with certain covenants for the fourth quarter 10 of 1999. At the same time, certain covenants were amended by agreement between the Company and its lenders through June 30, 2000. In conjunction with the March 2000 agreement, the Company issued warrants to its lenders covering a total of 203,949 shares of Common Stock at an exercise price of $4.90 per share. The warrants are only exercisable if the Company does not obtain at least $10 million of subordinated debt or other capital infusions ("Junior Capital") junior to loans under the Senior Credit Facility by June 30, 2000, or by June 30, 2000 has not entered into definitive agreements permitting repayment of amounts outstanding under the Senior Credit Facility by December 31, 2000. In addition, if the Company does not obtain the Junior Capital by April 30, 2000, the Company on May 1, 2000 would pay the lenders a fee of 0.25% of the sum of the total outstanding principal balance under the Term Loan plus the Revolving Credit Loan Commitment. The fee would be payable each quarter thereafter until the Junior Capital is obtained. At April 1, 2000, the Company was in compliance with its debt covenants. There can be no assurance, however, that the Company will be able to maintain compliance with its debt covenants in the future, and failure to meet such covenants would result in an event of default under the Senior Credit Facility. To avoid an event of default, the Company would attempt to obtain waivers from its lenders, restructure the Senior Credit Facility or secure alternative financing. Under these scenarios, there can be no assurance that the terms and conditions would be satisfactory to the Company or not disadvantageous to the Company's stockholders. Subject to the foregoing, 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 2000. 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. IMPACT OF THE YEAR 2000 The "Year 2000 Issue" is the result of computer programs that were written using two digits rather than four to define the applicable year. If the Company's computer programs with date-sensitive functions are not Year 2000 compliant, they may interpret a date using "00" in the year field as the Year 1900 rather than the Year 2000. This misinterpretation could result in a system failure or miscalculations causing disruptions of operations, including, among other things, an interruption of design or manufacturing functions or an inability to process transactions, send invoices or engage in similar normal business activities until the problem is corrected. The Company identified its Year 2000 risk in three categories: internal information technology ("IT") systems; internal non-IT systems, including embedded technology such as microcontrollers; and external noncompliance by customers and suppliers. INTERNAL IT SYSTEMS. The Company utilizes a significant number of information technology systems across its entire organization, including applications used in manufacturing, product development, financial business 11 systems and various administrative functions. Since 1997, the Company has reviewed the Year 2000 issue that encompassed operating and administrative areas of the Company. Independent of the Year 2000 Issue and in order to improve access to business information through common, integrated computing systems across the Company, PCD began a worldwide information technology systems replacement project with systems that use programs from Oracle Corporation ("ORACLE"). As of August 3, 1999, the Company had successfully completed the implementation of this system in its United States operations and our Japanese implementation had been temporarily suspended. The current Japanese systems have been found to be Year 2000 compliant. Prior to the implementation of ORACLE, we found that our South Bend, Indiana location required an update to their internal IT systems and this was achieved at a cost of approximately $90,000. The systems that required these updates were replaced by ORACLE. During 1999, the Company applied the supplemental software Microsoft developed for its Microsoft Windows NT and Microsoft Office applications at no additional cost to the Company. INTERNAL NON-IT SYSTEMS, INCLUDING EMBEDDED TECHNOLOGY. During 1999, the Company completed its evaluation of all non-IT systems which included embedded technology such as microcontrollers, and had been in contact with all manufacturers of this equipment. As a result of this evaluation, the Company upgraded its payroll time clocks at the Peabody, Phoenix and South Bend facilities at a cost of approximately $20,000 and also upgraded the Peabody facility's telephone voice mail system at a cost of approximately $6,000. EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. During 1999, the Company contacted its material suppliers, service providers and contractors to determine the extent of the Company's vulnerability to those third parties' failure to remedy their own Year 2000 issues. These suppliers, service providers and contractors have incurred no problems with their own Year 2000 issues that impacted the Company. 12 PART II OTHER INFORMATION Item 1. Legal Proceeding See Note 6 to the Company's Condensed Consolidated Financial Statements (above). Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule. (b) Reports on Form 8-K NONE 13 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: May 11, 2000 /s/ John L. Dwight, Jr. ------------ ------------------------------ John L. Dwight, Jr. Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Dated: May 11, 2000 /s/ John J. Sheehan III ------------ ------------------------------ John J. Sheehan III Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 14 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 1000 3-MOS DEC-31-2000 APR-01-2000 723 0 7,991 360 5,402 15,718 29,645 12,741 113,948 29,090 26,500 0 0 86 58,272 113,948 13,905 13,905 7,722 7,722 4,428 0 1,218 537 215 322 0 0 0 322 0.04 0.04
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