10-Q 1 june2001-10q.htm QUARTERLY REPORT - Q-E - 6-30-01

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 June 30, 2001

 

 

 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 Number)

2 Technology Drive

Centennial Park

Peabody, Massachusetts 01960-7977

(Address of Principal Executive Offices, Including 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 August 7, 2001: 8,916,969.

 

PCD INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

8

Item 3. Quantitative and Qualitative Disclosures About Market Risk

9

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

11

Item 4. Submission of Matters to a Vote of Security Holders

11

Item 6. Exhibits and Reports on Form 8-K

11

 

 

     Signatures

12

 

 

 

 

 

 

 

 

 

 

 

 

 

- 1 -

PCD Inc.

FORM 10-Q

FOR THE QUARTER ENDED

JUNE 30, 2001

FORWARD-LOOKING INFORMATION

Statements in this 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 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 semiconductor industry which is currently experiencing a severe downturn, the Company's ability to meet its debt covenants and to modify its Senior Credit Facility to the extent that it cannot meet such covenants, the Company's ability to fund its working capital, capital expenditure and debt payment requirements, fluctuations in demand for the Company's products, the Company's dependence on its principal customers and independent distributors, international sales and operations, rapid technological evolution in the electronics industry and the like. The Company's most recent filings with the Securities and Exchange Commission, including its Annual Report on 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 -

PCD INC.

 

 

 

CONSOLIDATED BALANCE SHEETS

(Condensed and unaudited)

(In thousands, except share data)

 

 

 

 

6/30/01

12/31/00

ASSETS

 

 

Current assets:

 

 

     Cash and cash equivalents

$       210 

$       837 

     Accounts receivable, net

6,329 

8,318 

     Inventory

6,516 

6,199 

     Prepaid expenses and other current assets

425 

823 

 

________ 

________ 

     Total current assets

13,480 

16,177 

Equipment and improvements, net

15,502 

15,801 

Deferred tax asset

11,180 

11,151 

Goodwill, net

50,881 

52,423 

Intangible assets, net

9,862 

10,381 

Debt financing fees

1,503 

1,574 

Other assets

1,504 

1,606 

 

________ 

________ 

     Total assets

$    103,912 

$    109,113 

 

======= 

======= 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

 

 

     Short-term debt

$      11,700 

$      7,300 

     Current portion of long-term debt

568 

9,118 

     Accounts payable - trade

3,333 

5,134 

     Accrued liabilities

3,466 

5,559 

 

________ 

________ 

     Total current liabilities

19,067 

27,111 

Long-term debt, net of current portion

23,446 

19,455 

Accumulated other comprehensive income (loss)

38 

(18)

Stockholders' equity

61,361 

62,565 

 

________ 

________ 

Total liabilities and stockholders' equity

$    103,912 

$    109,113 

 

======= 

======= 

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 3 -

PCD INC.

CONSOLIDATED STATEMENTS OF INCOME

(Condensed and unaudited)

(In thousands, except per share data)

Three Months Ended

Six Months Ended

6/30/01

7/1/00

6/30/01

7/1/00

Net sales

$9,266 

$14,330 

$23,727 

$28,235 

Cost of sales

6,702 

7,573 

14,836 

15,295 

______ 

______ 

______ 

______ 

     Gross profit

2,564 

6,757 

8,891 

12,940 

Operating expenses

3,345 

3,281 

6,698 

6,661 

Amortization of goodwill and other intangibles

1,047 

1,047 

2,095 

2,095 

______ 

______ 

______ 

______ 

     Income (loss) from operations

(1,828)

2,429 

98 

4,184 

Interest expense / (other income), net

828 

1,202 

1,868 

2,420 

______ 

______ 

______ 

______ 

Income (loss) before income taxes

(2,656)

1,227 

(1,770)

1,764 

Provision (benefit) for income taxes

(845)

492 

(386)

707 

______ 

______ 

______ 

______ 

     Net income (loss)

$ (1,811)

$ 735 

$ (1,384)

$ 1,057 

====== 

====== 

====== 

====== 

Net income (loss) per share:

     Basic

$ (0.20)

$ 0.09 

$ (0.16)

$ 0.12 

====== 

====== 

====== 

====== 

     Diluted

$ (0.20)

$ 0.08 

$ (0.16)

$ 0.12 

====== 

====== 

====== 

====== 

Weighted average number of shares outstanding:

     Basic

8,879 

8,599 

8,851 

8,588 

====== 

====== 

====== 

======

     Diluted

8,879

8,984

8,851

9,000

======

======

======

======

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 4 -

PCD INC.

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Condensed and unaudited)

(In thousands)

 

 

 

Six Months Ended

 

6/30/01

7/1/00

 

 

 

Cash flows from operating activities:

 

 

   Net income (loss)

$  (1,384)

$  1,057 

   Adjustments to reconcile net income (loss) to net cash

 

 

   provided by operating activities:

 

 

   Depreciation

2,390 

2,389 

   Amortization of intangible assets

2,095 

2,095 

   Amortization of bank warrant

41 

- 

   Deferred taxes

(50)

625 

   Tax refund

- 

1,320 

   Amortization of debt financing fees

310 

244 

   Changes in operating assets and liabilities:

 

 

      Accounts receivable

1,895 

(232)

      Inventory

(414)

30 

      Prepaid expenses and other current assets

374 

223 

      Other assets

60 

(354)

      Accounts payable

(1,607)

40 

      Accrued liabilities

(1,902)

130 

 

_______

_______

         Net cash provided by operating activities

1,808 

7,567 

 

 

 

Cash flows from investing activities:

 

 

   Capital expenditures

(2,093)

(1,290)

 

_______

_______

         Net cash used in investing activities

(2,093)

(1,290)

 

 

 

Cash flows from financing activities:

 

 

   Borrowings (repayments) of short-term debt

4,400 

(1,700)

   Payments of long-term debt

(4,600)

(4,400)

   Deferred financing and loan amendment fees

(238)

- 

   Proceeds from employee stock purchase plans

29 

21 

   Exercise of common stock options

151 

47 

_______

_______

         Net cash used in financing activities

(258)

(6,032)

Net (decrease) increase in cash

(543)

245 

Effect of exchange rate on cash

(84)

(14)

Cash and cash equivalents at beginning of period

837 

652 

_______

_______

Cash and cash equivalents at end of period

$     210 

$    883 

===== 

===== 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

- 5 -

PCD Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(June 30, 2001 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, 2000.

 

Note 2. NET INCOME (LOSS) PER SHARE

The following tables reconcile net income (loss) 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 June 30, 2001 and July 1, 2000:

 


Net Income
(Loss)



Shares


Per Share
Amount

For the three month period ended June 30, 2001
Basic and diluted loss


$(1,811,000)


8,878,666


$ (0.20)

 

========

======

==== 

For the three month period ended July 1, 2000
Basic earnings


$ 735,000 


8,598,559


$ 0.09 

Assumed exercise of options (treasury method)

- 

385,932

- 

 

________ 

________

____ 

Diluted earnings

$ 735,000 

8,984,491

$ 0.08 

 

======= 

=======

==== 

For the six month period ended June 30, 2001
Basic and diluted loss


$ (1,384,000)


8,851,307


$ (0.16)

 

========

======

==== 

For the six month period ended July 1, 2000
Basic earnings


$ 1,057,000 


8,588,364


$ 0.12 

Assumed exercise of options (treasury method)

- 

411,777

- 

 

________ 

________

____ 

Diluted earnings

$ 1,057,000 

9,000,141

$ 0.12 

 

======= 

=======

==== 

For the quarters ended June 30, 2001 and July 1, 2000, potential common stock shares of 583,737 and 182,248, respectively, and for the six month periods 380,202 and 213,093, respectively have been excluded from the calculation of EPS, as their inclusion would be anti-dilutive.

- 6 -

Note 3. INVENTORY

Inventory consisted of the following:

 

6/30/01

12/31/00

 

(In thousands)

Raw materials and finished subassemblies

$5,156

$4,213

Work in process

49

34

Finished goods

1,311

1,952

 

_____

_____

Total

$ 6,516

$ 6,199

 

====

=====


Note 4. COMPREHENSIVE INCOME (LOSS)

The Company's only other comprehensive income (loss) is foreign currency translation adjustments. For the three and six month periods ended June 30, 2001 and July 1, 2000 the Company's total comprehensive income (loss) was as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

6/30/01

 

7/1/00

 

6/30/01

 

7/1/00

 

(In thousands)

Net earnings (loss)

$(1,811)

 

$735 

 

$(1,384)

 

$1,057 

Other comprehensive income/(loss), net

1

 

(6)

 

44 

 

(20)

 

______

 

______

 

______

 

______

Total comprehensive earnings (loss)

$ (1,810)

 

$ 729 

 

$ (1,340)

 

$ 1,037 

=====

=====

=====

=====


Note 5. 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 on the 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 6. SEGMENT INFORMATION

 

 

Three Months Ended

 

Six Months Ended

 

6/30/01

 

7/1/00

 

6/30/01

 

7/1/00

 

 

 

(In thousands)

 

 

Net Sales:

 

 

 

 

 

 

 

Industrial/Avionics

$5,632

 

$4,673

 

$10,667

 

$9,516

Semiconductor Burn-in

3,634

 

9,657

 

13,060

 

18,719

 

_____

 

_____

 

_____

 

_____

     Totals

$9,266

 

$14,330

 

$23,727

 

$28,235

 

=====

 

====

 

=====

 

=====

Net income (loss):

 

 

 

 

 

 

 

Industrial/Avionics

$541

 

$471

 

$1,063

 

$1,044

Semiconductor Burn-in

(2,374)

 

268

 

(2,482)

 

23

Corporate activities

22

 

(4)

 

35

 

(10)

 

_____

 

_____

 

_____

 

_____

     Totals

$(1,811)

 

$735

 

$(1,384)

 

$1,057

 

=====

 

====

 

====

 

=====

6/30/01

12/31/00

(In thousands)

Assets:
Industrial/Avionics

 

 

 

 


$9,631

 


$9,255

Semiconductor Burn-in

 

 

 

 

81,750

 

86,976

Corporate activities

 

 

 

 

12,531

 

12,882

 

 

 

 

 

_____

 

______

     Totals

 

 

 

 

$103,912

 

$109,113

 

 

 

 

 

=====

 

======

- 7 -

Note 7. SUBSEQUENT EVENT

In August 2001 the Company announced plans to close its Wells-CTI plant in South Bend, Indiana and to consolidate that plant's operations with those of its Phoenix, Arizona facility. The closure is expected to be completed by the fourth quarter of 2001 and will result in the elimination of 41 positions in South Bend. The Company expects to record a third quarter restructuring charge in the range of $1.4 million to $1.7 million for severance and related benefits, lease vacation and asset write-offs. Annualized savings are estimated to be approximately $1.3 million.

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED
JUNE 30, 2001 COMPARED TO THE QUARTER ENDED JULY 1, 2000

Net Sales. Net sales of $9.3 million for the quarter ended June 30, 2001 decreased by $5.1 million or 35% from net sales of $14.3 million during the prior year quarter. The decrease was due to lower shipment volume at our Well-CTI semiconductor burn-in division, in which sales decreased $6.0 million or 62% from the second quarter of 2000. This decrease was due to the severe downturn in the semiconductor industry. Net sales at our Industrial/Avionics division increased by $0.9 million over the prior year quarter due to strong shipping volume from avionics products. Net sales of $23.7 million for the six months ended June 30, 2001 were down $4.5 million or 16% from the prior year period. Wells-CTI net sales were down $5.7 million or 30% while Industrial/Avionics division sales of $10.6 million were up $1.2 million or 12% from the previous year. The reduced order and shipment rate in the semiconductor burn-in division has continued into the third quarter of 2001.

 

Gross Profit. Gross profit decreased to $2.6 million for the quarter and $8.9 million for the six months ended June 30, 2001. This compares to gross profit of $7.6 million and $15.3 million for the quarter and six months ended June 30, 2000. As a percentage of revenues, gross profit in 2001 decreased to 27.7% and 37.5% for the second quarter and year to date periods respectively, down from 47.2% and 45.8% during the same periods last year. The reduction in gross profit percentage in 2001 was due primarily to lower sales volume experienced in 2001 and to a lesser extent resulted from a product mix shift from semiconductor burn-in sockets to industrial/avionics products which have traditionally carried lower margins. Gross profit percentage was positively impacted in 2001 by lower manufacturing overhead expense.

 

Operating Expenses. Operating expenses include selling, general and administrative expenses and costs of product development. Operating expenses were $3.3 million and $6.7 million respectively, for the quarter and six months ended June 30, 2001 and in each case were comparable to the prior year period. During April 2001 and June 2001, management

 

- 8 -

 

implemented cost reductions at the Wells-CTI U.S. operations to save over $2.0 million annually. These reductions are the result of layoffs, attrition, salary and hiring freezes and reduced discretionary spending. The $2.0 million in cost reductions are expected to impact operating expense and manufacturing overhead expense by approximately equal amounts.

 

Interest Expense And Other Income, Net. Interest expense was $0.8 million and $1.7 million for the quarter and six months ended June 30, 2001, down from $1.2 million and $2.3 million during the same periods last year. The decreases from prior year were due to lower debt balances and lower interest rates in 2001.

Provision For Income Taxes. The tax benefit rate for 2001 is 22% as compared to a rate of 40% in 2000. The 2001 rate is the result of projected losses in certain tax jurisdictions and projected profits in others, including Japan.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash provided by operating activities was $1.8 million during the six months ended June 30, 2001, down from $7.6 million during the prior year. The decrease was due to lower income, larger reductions in accounts payable balances, and the absence of a tax refund in 2001. During the quarter ended June 30, 2001 $0.8 million of cash was used in operating activities and net borrowings increased by $1.0 million. Capital expenditures during the quarter were $0.9 million. Capital expenditures consist primarily of purchased tooling and equipment to support the Company's business. The level of capital expenditures will frequently change based on future changes in business plans, conditions of the Company and changes in economic conditions.

 

In the past the Company has experienced difficulty meeting all of the covenants under its Senior Credit Facility (the "Facility") and, as more fully discussed in its public filings, has amended the Facility on several occasions.

 

At June 30, 2001, the Company was in violation of the fixed charge coverage covenant for which it received a waiver from its lenders on August 13, 2001. At the same time certain covenants were amended by agreement between the Company and its lenders through June 2002. In conjunction with the August 2001 agreement, required principal payments for the twelve months ending June 30, 2002 were reduced from $9.4 million to $650,000. In addition, borrowing availability under the Revolving Credit Facility ("the Revolver") was reduced from $20 million to $15 million and the maximum interest rate on the Facility was increased from 250 basis points to 350 basis points over LIBOR. As a condition of these modifications, the Company is required to provide to the lenders a revised business plan (the "Plan") for the 2001 and 2002 fiscal years by September 10, 2001.The Plan must be reviewed by an independent consultant who will determine that the Company's assumptions are reasonable. Upon review and acceptance of the Plan by the lenders, the Company and the lenders may enter into discussions to further modify the Facility.

 

 

- 9 -

There can be no assurance 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 Facility. To avoid an event of default, the Company would attempt to obtain waivers from its lenders, restructure the 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.

 

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 2001. However, given the current severe downturn in the semiconductor industry there can be no assurance that funds generated from the Company's operations, existing working capital and borrowing capacity will be sufficient to fund these requirements. 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.

 

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001, and will thus be adopted by the Company, as required, in fiscal year 2002. The impact of SFAS No. 141 and SFAS No. 142 on the Company's financial statements has not yet been determined.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK.

The Company is exposed to certain market risks including primarily the effects of changes in foreign currency exchange rates and interest rates. Investments in foreign subsidiaries, and their resultant operations, denominated in foreign currencies, create exposures to changes in exchange rates. The Company is exposed to fluctuations in interest rates in connection with its variable rate term loan. In order to minimize the effect of changes in interest rates on earnings, the Company entered into an interest rate swap that fixed the interest rate on a notional amount of its variable rate term loan. Under the swap agreement, the Company paid a variable rate under LIBOR and received a fixed rate of 5.72% on a notional amount of $35,000,000. The swap agreement expired on March 31, 2001. The Company intends to enter into a new swap agreement in the near future. The timing of a new agreement will depend upon existing and projected market conditions.

- 10 -

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

          See Note 5 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 held on April 27, 2001, the following vote was taken:

Two directors were elected to hold office for a three year term expiring in the year 2003.

 

 

 

 

 

 

 

 

 

Shares Voted

 

Shares

Director

 

For

 

Withheld

 

not Voted

Jerome D. Brady

 

8,125,823

 

61,335

 

641,164

John E. Stuart

 

8,125,823

 

61,335

 

641,164

 

The following directors will continue in office until the years specified:

 

 

 

 

 

 

Term Expires

John L. Dwight, Jr.

 

 

 

 

 

2002

Theodore C. York

 

 

 

 

 

2002

James D. Switzer

 

 

 

 

 

2003

 

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

   10.51 Amendment No. 6 and Waiver dated August 13, 2001

(b) Reports on Form 8-K

   NONE

 

- 11 -

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 13, 2001

 

/s/ John L. Dwight, Jr.

 

 

John L. Dwight, Jr.

 

 

Chairman of the Board, Chief

 

 

Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

Dated: August 13, 2001

 

/s/ John J. Sheehan III

 

 

John J. Sheehan III

 

 

Vice President, Finance and

 

 

Administration, Chief Financial

 

 

Officer and Treasurer

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 12 -