-----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, NeD0YM94mOcEoi0J3NyoNd9DKeGSGzOUkberCN1kDoNA74q0BgzaBR3od7emWK6F XJtzDUO7w4we29UeoSAVng== /in/edgar/work/0000912057-00-046259/0000912057-00-046259.txt : 20001030 0000912057-00-046259.hdr.sgml : 20001030 ACCESSION NUMBER: 0000912057-00-046259 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCC INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000316884 STANDARD INDUSTRIAL CLASSIFICATION: [3640 ] IRS NUMBER: 952691666 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-32207 FILM NUMBER: 747706 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770-1592 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770-1592 10-Q 1 a2028814z10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ------------------- (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: SEPTEMBER 30, 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: 333-32207 HCC INDUSTRIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 95-2691666 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4232 TEMPLE CITY BLVD., ROSEMEAD, CALIFORNIA 91770 -------------------------------------------------- (Address of principal executive offices) (626) 443-8933 ---------------------------------------------------- (Registrant's telephone number, including area code) ------------------- 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 ( ) Registrant's Common Stock, outstanding at October 23, 2000 was 137,945 shares. PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS HCC INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, APRIL 1, 2000 2000 ------------- ---------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 9,813 $ 14,537 Trade accounts receivable, less allowance for doubtful accounts of $82 at September 30, 2000 and $51 at April 1, 2000 11,333 10,041 Inventories 4,500 4,515 Income taxes receivable --- 2,255 Prepaid and other current assets 891 728 ------------- ---------- Total current assets 26,537 32,076 PROPERTY, PLANT AND EQUIPMENT, NET 24,364 21,605 OTHER ASSETS: Intangible assets 4,919 5,063 Deferred financing costs 2,240 2,727 Deferred income taxes 4,100 4,100 Restricted cash 6,146 6,197 ------------- ---------- TOTAL ASSETS $ 68,306 $ 71,768 ============= ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt $ 6,952 $ 6,994 Accounts payable 3,762 2,950 Income taxes payable 964 --- Accrued liabilities 8,701 8,877 ------------- ---------- Total current liabilities 20,379 18,821 LONG TERM LIABILITIES: Long-term debt, net of current portion 87,111 97,475 Other long-term liabilities 8,860 9,178 ------------- ---------- 116,350 125,474 ------------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Common stock; $.10 par value; authorized 550,000 shares, issued and outstanding 137,945 shares at September 30, 2000 and 135,495 shares at April 1, 2000 14 14 Additional paid-in capital 326 200 Accumulated deficit (48,384) (53,920) ------------- ---------- TOTAL STOCKHOLDERS' DEFICIT (48,044) (53,706) ------------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 68,306 $ 71,768 ============= ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 HCC INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ---------------------------- SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2, 2000 1999 2000 1999 ------------- ----------- ------------- ---------- NET SALES $ 20,211 $ 14,280 $ 38,728 $ 26,498 Cost of goods sold 12,959 9,790 25,319 18,936 ------------- ----------- ------------- ---------- GROSS PROFIT 7,252 4,490 13,409 7,562 Selling, general and administrative expenses 2,357 1,549 4,318 3,119 ------------- ----------- ------------- ---------- EARNINGS FROM OPERATIONS 4,895 2,941 9,091 4,443 OTHER INCOME (EXPENSE): Interest and other income 162 182 352 374 Interest expense (2,666) (2,830) (5,528) (5,657) ------------- ----------- ------------- ---------- Total other expense, net (2,504) (2,648) (5,176) (5,283) EARNINGS (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM 2,391 293 3,915 (840) Taxes (benefit) on earnings (loss) 956 114 1,566 (328) ------------- ----------- ------------- ---------- Earnings (loss) before extraordinary item 1,435 179 2,349 (512) Extraordinary gain on retirement of debt, net of taxes of $2,125 3,187 --- 3,187 --- ------------- ----------- ------------- ---------- NET EARNINGS (LOSS) $ 4,622 $ 179 $ 5,536 $ (512) ============= =========== ============= ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 HCC INDUSTRIES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED ---------------------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 5,536 $ (512) Reconciliation of net earnings (loss) to net cash provided by operating activities: Depreciation 974 965 Amortization 326 334 Extraordinary gain (3,187) --- Non-cash stock compensation 76 --- Deferred income taxes --- (526) Changes in operating assets and liabilities: (Increase) in trade accounts receivable, net (1,292) (939) Decrease in inventories 15 143 (Increase) in other assets (112) (129) (Decrease) in other liabilities (494) (540) Increase (decrease) in accounts payable and Income taxes payable/receivable 1,906 (420) ----------------- ---------------- Net cash provided by (used in) operating activities 3,748 (1,624) ----------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (3,111) (1,569)) ----------------- ---------------- Net cash used in investing activities (3,111) (1,569) ----------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of stock 50 --- Early retirement of debt (4,598) --- Principal payments on long-term debt (813) (581) ----------------- ---------------- Net cash used in financing activities (5,361) (581) ----------------- ---------------- Net decrease in cash and cash equivalents (4,724) (3,774) Cash and cash equivalents at beginning of period 14,537 17,395 ----------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,813 $ 13,621 ================= ================ SUPPLEMENTAL NONCASH FINANCING ACTIVITIES: Capital lease obligations and mortgages $ 622 $ 536 ================= ================
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 HCC INDUSTRIES INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements September 30, 2000 1. INTERIM FINANCIAL STATEMENTS: The accompanying unaudited condensed consolidated financial statements of HCC Industries Inc. and Subsidiaries (the "Company"), include all adjustments (consisting of normal recurring entries) which management believes are necessary for a fair presentation of the financial position and results of operations for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. It is suggested that the accompanying interim financial statements be read in conjunction with the Company's audited financial statements and footnotes as of and for the year ended April 1, 2000. Operating results for the three and six month periods ended September 30, 2000 are not necessarily indicative of the operating results for the full fiscal year. 2. INVENTORIES: Inventories consist of the following (in thousands):
SEPTEMBER 30, APRIL 1, 2000 2000 ------------- --------- Raw materials and component parts $ 2,898 $ 3,036 Work in process 1,602 1,479 ------------- --------- $ 4,500 $ 4,515 ============ =========
3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of the following (in thousands):
SEPTEMBER 30, APRIL 1, 2000 2000 ------------- --------- Land $ 4,017 $ 4,017 Buildings and improvements 9,293 9,160 Furniture, fixtures and equipment 22,642 19,043 ------------- --------- 35,952 32,220 Less accumulated depreciation (11,588) (10,615) ------------- --------- $ 24,364 $ 21,605 ============= =========
5 HCC INDUSTRIES INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements September 30, 2000 4. LONG-TERM DEBT: Long-term debt consists of the following (in thousands):
SEPTEMBER 30, APRIL 1, 2000 2000 ------------- ---------- 10-3/4% Senior Subordinated Notes - interest payable semi-annually; due May 15, 2007 $ 79,785 $ 90,000 Subordinated Notes due Selling Shareholders - 12% interest payable semi-annually; due March 28, 2001 2,500 2,500 Subordinated Bonus Notes - 10% interest payable semi-annually; $3,000,000 due March 28, 2001 and $1,085,000 due April 3, 2002 4,085 4,085 Term loans on land, building and improvements - 8% interest payable monthly; due may 2008 2,762 2,762 Other 4,931 5,122 ------------- ---------- 94,063 104,469 Less current portion 6,952 6,994 ------------- ---------- $ 87,111 $ 97,475 ============= ==========
During the six months ended September 30, 2000, the Company purchased for retirement $10.2 million face value of it's 10.75% Senior Subordinated Notes for $4.6 million in cash. The transaction resulted in an extraordinary gain on the early retirement of debt of $3.2 million, net of taxes of $2.1 million. 5. CAPITAL STOCK: The Company is authorized to issue an aggregate of 550,000 shares of common stock. These shares may be issued in four different classes (A, B, C or D shares), which differ only in voting rights per share. In June 2000, the Company sold 2,450 shares of Class A common stock to the Company's Chairman for $50,000. In conjunction with this transaction, the Company recorded non-cash compensation of $76,000 in the quarter ended July 1, 2000. At September 30, 2000, the 137,945 outstanding shares of common stock were designated as follows:
SHARES VOTING RIGHTS CLASS OUTSTANDING AMOUNT PER SHARE ----- ----------- ---------- ------------- A 105,643 $ 11,000 1 B 27,506 3,000 1 C 4,316 --- None D 480 --- 10 ----------- ---------- 137,945 $ 14,000 =========== ==========
The remaining 412,055 shares of authorized but unissued common stock are undesignated as to class. 6 HCC INDUSTRIES INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements September 30, 2000 6. COMMITMENTS AND CONTINGENCIES: ENVIRONMENTAL As an ongoing facet of the Company's business, it is required to maintain compliance with various environmental regulations. The cost of this compliance is included in the Company's operating results as incurred. These ongoing costs include permitting fees and expenses and specialized effluent control systems as well as monitoring and site assessment costs required by various governmental agencies. In the opinion of management, the maintenance of this compliance will not have a significant effect on the financial position or results of operations of the Company. In August 1994, the U.S. Environmental Protection Agency ("EPA") identified the Company as a potentially responsible party ("PRP") in the El Monte Operable Unit ("EMOU") of the San Gabriel Valley Superfund Sites. In early 1995, the Company and the EPA executed an Administrative Consent Order, which requires the Company, and other PRP's to perform a Remedial Investigation and Feasibility Study ("RI/FS") for the EMOU. In addition, the Company's facility in Avon, Massachusetts is subject to Massachusetts "Chapter 21E", the State's hazardous site clean-up program. Uncertainty as to (a) the extent to which the Company caused, if at all, the conditions being investigated, (b) the extent of environmental contamination and risks, (c) the applicability of changing and complex environmental laws (d) the number and financial viability of other PRP's, (e) the stage of the investigation and/or remediation, (f) the unpredictability of investigation and/or remediation costs (including as to when they will be incurred), (g) applicable clean-up standards, (h) the remediation (if any) that will ultimately be required, and (i) available technology make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. In addition, liability under CERCLA is joint and several, and any potential inability of other PRPs to pay their pro rata share of the environmental remediation costs may result in the Company being required to bear costs in excess of its pro rata share. In fiscal 1997, the Company with the help of independent consultants, determined a range of estimated costs of $9,000,000 to $11,000,000 associated with the various claims and assertions it faces. The time frame over which the Company expects to incur such costs varies with each site, ranging up to 20 years as of March 28, 1998. These estimates are based partly on progress made in determining the magnitude of such costs, experience gained from sites on which remediation is ongoing or has been completed, and the timing and extent of remedial actions required by the applicable governmental authorities. As a result, the Company accrued $10,000,000 in fiscal 1997 for existing estimated environmental remediation and other related costs, which the Company believes to be the best estimate of the liability. As of September 30, 2000, the accrual for estimated environmental costs was $8,860,000. Actual expenditures for environmental remediation were $122,000 for the quarter ended September 30, 2000 and $238,000 for the fiscal year ended April 1, 2000. Claims for recovery of costs already incurred and future costs have been asserted against various insurance companies. The Company has neither recorded any asset nor reduced any liability in anticipation of recovery with respect to such claims made. The Company believes its reserves are adequate, but as the scope of its obligations becomes more clearly defined, this reserve may be modified and related charges against earnings may be made. 7 HCC INDUSTRIES INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements September 30, 2000 6. COMMITMENTS AND CONTINGENCIES, Continued: OTHER On March 3, 1998, Walter Neubauer, a former stockholder of the Company and a current stockholder of SDI, filed a lawsuit in California Superior Court (Case BC186937; Walter Neubauer vs. Andrew Goldfarb, et. al.) against the Company and certain other stockholders alleging (i) breach of fiduciary duty, (ii) fraud, (iii) negligent misrepresentation, (iv) negligence, (v) violations of corporations code and (vi) breach of contract. The allegations primarily relate to the Company's exercise of an option to acquire Mr. Neubauer's stock in August 1996. In September 1999, five of the six claims were dismissed upon a summary judgment motion made by the Company, including all of the claims against the Company. The remaining claim is against Andrew Goldfarb for alleged violations of oral representations. On May 7, 1998, the Company filed a lawsuit against Mr. Neubauer in California Superior Court alleging (i) breach of contract, (ii) intentional interference with business relations and (iii) interference with prospective business advantage. All allegations relate to violations of the noncompetition agreement executed by Mr. Neubauer in August 1996. A preliminary injunction was granted in September 1998. The Company is seeking damages of $50.0 million. In addition to the above, the Company is involved in other claims and litigation arising in the normal course of business. Based on the advice of counsel and in the opinion of management, the ultimate resolution of these matters will not have a significant effect on the financial position or the results of operations of the Company. 8 PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (IN MILLIONS)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ----------------------------------------- ---------------------------------------- SEPT. 30, OCT. 2, SEPT. 30, OCT. 2, 2000 PERCENT 1999 PERCENT 2000 PERCENT 1999 PERCENT --------- ------- ------- ------- --------- ------ ------- ------- Net sales $20.2 100.0% $14.3 100.0% $38.7 100.0% $26.4 100.0% Gross profit 7.3 35.9% 4.5 31.4% 13.4 34.6% 7.6 28.5% Selling, general and administrative expenses 2.4 11.7% 1.5 10.8% 4.3 11.1% 3.1 11.8% Earnings from operations 4.9 24.2% 2.9 20.6% 9.1 23.5% 4.4 16.8% Other income/expense (2.5) (12.4%) (2.6) (18.5%) (5.2) (13.4%) (5.3) (19.9%) Extraordinary gain, net 3.2 15.8% --- 0.0% 3.2 8.2% --- 0.0% Net earnings (loss) $4.6 22.9% $0.2 1.3% $5.5 14.3% $(0.5) -1.9%
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 ("2001 QUARTER") TO THE THREE MONTHS ENDED OCTOBER 2, 1999 ("2000 QUARTER") NET SALES The Company's net sales increased by approximately $5.9 million or 41% to $20.2 million for the 2001 Quarter compared to sales of $14.3 million for the 2000 Quarter. The significant increase was due to increased demand in all of the Company's product lines. Sales to existing aerospace, industrial process control, and petrochemical customers increased by approximately 31% in the 2001 Quarter compared to the 2000 Quarter. Based on current order volume, the Company expects the strong demand in the aerospace, industrial process control and petrochemical markets to continue in the next several quarters. The Company has continued to develop a significant market presence in the telecom markets through component products designed for fiber-optic applications. Sales of these products increased by $3.6 million in the 2001 Quarter compared to the 2000 Quarter. Based on industry reports, the Company expects continued strong demand in these markets for several years. At the current growth rate of order volume, this market will become the largest market for the Company's products within 12 months. On the automotive side, unit shipments of airbag initiator products increased moderately due to customer demand on several existing programs. The Company's airbag initiator unit shipments to its largest customer, Special Devices, Inc. ("SDI") increased 1% for the 2001 Quarter compared to the 2000 Quarter. Overall, revenue from all automotive products increased approximately 6% in the 2001 Quarter compared to the 2000 Quarter. The Company expects a consistent unit demand for the next quarter, but also expects pricing pressure to increase in the automotive markets. GROSS PROFIT Gross profit increased by approximately 62% or $2.8 million, to $7.3 million for the 2001 Quarter compared to $4.5 million for the 2000 Quarter. Gross margin increased to 36% for the 2001 Quarter from 31% for the 2000 Quarter. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED The increase in gross profit is attributable to the significant increase in sales volume in the 2001 Quarter. The increase in gross margin was primarily attributable to the significant increase in revenue and the corresponding impact of fixed overhead costs leveraged on higher sales revenue. Pricing in the Company's automotive products was consistent between the two quarters. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("S,G&A") expenses increased 60% to $2.4 million for the 2001 Quarter compared to $1.5 million for the 2000 Quarter. S,G&A expenses as a percent to sales increased to 12% in the 2001 Quarter from 11% for the 2000 Quarter. The overall increase in S,G&A expenses was due to higher compensation costs and higher commissions on sales in the 2001 Quarter compared to the 2000 Quarter. The higher commissions reflected the increased sales volume subject to commissions. The higher compensation costs reflect additional costs under management incentive plans. EARNINGS FROM OPERATIONS Operating earnings increased by $2.0 million or 69% to $4.9 million for the 2001 Quarter compared to $2.9 million for the 2000 Quarter. Operating margins increased to 24% in the 2001 Quarter from 21% for the 2000 Quarter. The increase in operating earnings and margin was attributable to the same factors (as discussed above) that contributed to the increase in gross profit and gross margin. OTHER EXPENSE, NET Other expense, net (which is predominantly net interest expense) was down slightly at $2.5 million for the 2001 Quarter compared to $2.6 million for the 2000 Quarter. As discussed below, the Company purchased for retirement $10.2 million of it's 10.75% Senior Subordinated Notes during the quarter. Interest expense in the future will decrease by $1.1 million per year as a result of the purchase. The Company has $94.1 million of indebtedness as of September 30, 2000 compared to $103.1 million at October 2, 1999. EXTRAORDINARY GAIN, NET During the 2001 Quarter, the Company purchased for retirement $10.2 million face value of it's 10.75% Senior Subordinated Notes for $4.6 million in cash. The transaction resulted in an extraordinary gain on the early retirement of debt of $3.2 million, net of taxes of $2.1 million. The purchase of this indebtedness will result in an after-tax yield to maturity of 20.3%. NET EARNINGS Net earnings increased by approximately $4.4 million to $4.6 million for the 2001 Quarter from $0.2 million in the 2000 Quarter. The substantial improvement in net earnings was due to an increase of $1.2 million in after tax operating earnings of the Company coupled with the $3.2 million extraordinary gain on the retirement of debt. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED COMPARISON OF THE SIX MONTHS ENDED SEPTEMBER 30, 2000 ("2001 PERIOD") TO THE SIX MONTHS ENDED OCTOBER 2, 1999 ("2000 PERIOD") NET SALES The Company's net sales increased by approximately $12.2 million or 47% to $38.7 million for the 2001 Period compared to sales of $26.4 million for the 2000 Period. The significant increase was due to increasing demand in all product lines. Sales to existing aerospace, industrial process control, and petrochemical customers increased by 36% in the 2001 Period compared to the 2000 Period. Based on current order volume, the Company expects continued strong demand in the aerospace, industrial process control and petrochemical markets to continue in the next several quarters. The Company has continued to develop a significant market presence in the telecom markets through component products designed for fiber optic applications. Sales of these products increased by $5.1 million in the 2001 Period compared to the 2000 Period. Based on industry reports, the Company expects continued strong demand in these markets for several years. At the current growth rate of order volume, this market will become the largest market for the Company's products within 12 months. On the automotive side, unit shipments of airbag initiator products increased due to customer demand on existing programs. The Company's airbag initiator unit shipments to its largest customer, Special Devices, Inc. ("SDI") increased 8% for the 2001 Period compared to the 2000 Period. This increase combined with increased volume on other automotive products. Overall, revenue from all automotive shipments increased 17% in the 2001 Period compared to the 2000 Period. The Company expects a consistent unit demand for the next quarter, but also expects pricing pressure to increase in the automotive markets. Pricing was consistent in the 2001 Period compared to the 2000 Period. GROSS PROFIT Gross profit increased by $5.8 million or 76% to $13.4 million for the 2001 Period compared to $7.6 million for the 2000 Period. Gross margin increased to 34.6% for the 2001 Period from 28.5% for the 2000 Period. The increase in gross profit is attributable to the significant increase in sales volume in the 2001 Period. The increase in gross margin was primarily attributable to the significant increase in revenue and the corresponding impact of fixed overhead costs leveraged on higher sales revenue SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("S,G&A") expenses increased by $1.2 million or 39% to $4.3 million for the 2001 Period compared to $3.1 million for the 2000 Period. S,G&A expenses as a percent to sales decreased slightly to 11% in the 2001 Period from 12% for the 2000 Period. The overall increase in S,G&A expenses was due to higher compensation costs and higher commissions on sales in the 2001 Period compared to the 2000 Period. The higher commissions reflected the increased sales volume subject to commissions. The higher compensation costs reflect additional costs under management incentive plans. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED EARNINGS FROM OPERATIONS Operating earnings increased by $4.7 million or 107% to $9.1 million for the 2001 Period compared to $4.4 million for the 2000 Period. Operating margins increased to 23.5% in the 2001 Period from 16.8% for the 2000 Period. The significant increase in operating earnings and margin was attributable to the same factors (as discussed above) that contributed to the increase in gross profit and gross margin and improvement in S,G&A expenses as a percent to sales. OTHER EXPENSE, NET Other expense, net (which is predominantly net interest expense) decreased slightly to $5.2 million in the 2001 Period compared to $5.3 million in the 2000 Period. As discussed below, the Company purchased for retirement $10.2 million of it's 10.75% Senior Subordinated Notes during the 2001 Period. Interest expense in the future will decrease by $1.1 million per year as a result of the purchase. The Company has $94.1 million of indebtedness as of September 30, 2000 compared to $103.1 million at October 2, 1999. EXTRAORDINARY GAIN, NET During the 2001 Period, the Company purchased for retirement $10.2 million face value of it's 10.75% Senior Subordinated Notes for $4.6 million in cash. The transaction resulted in an extraordinary gain on the early retirement of debt of $3.2 million, net of taxes of $2.1 million. The purchase of this indebtedness will result in an after-tax yield to maturity of 20.3%. NET EARNINGS Net earnings increased by approximately $6.0 million to $5.5 million for the 2001 Period from a net loss of $0.5 million in the 2000 Period. The substantial improvement in net earnings was due to an increase of $2.8 million in after tax operating earnings of the Company coupled with the $3.2 million extraordinary gain on the retirement of debt. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $3.8 MILLION for the 2001 Period compared to $1.6 million used in operating activities for the 2000 Period. The increase of $5.4 MILLION of cash generated was primarily attributable to the increase in net earnings and an increase in accounts payable and INCOME TAXES payable OFFSET BY THE EXTRAORDINARY GAIN ON THE RETIREMENT OF DEBT. Net cash used in investing activities was $3.1 million for the 2001 Period compared to $1.6 million for the 2000 Period. Net cash used in financing activities was $5.4 MILLION for the 2001 Period, DUE PRIMARILY TO THE PURCHASE OF THE 10.75% SENIOR SUBORDINATED NOTES, compared to $0.6 million for the 2000 Period. As of September 30, 2000, the Company's outstanding long-term debt is $94.1 million. The Company has a Revolving Credit Facility up to $20.0 million, which is collateralized by accounts receivable and inventories. At September 30, 2000 there was $18.6 million available under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility may be used for general and other corporate purposes. To date, the Company has not used any amounts under the Revolving Credit Facility. The Company believes that cash flow from operations and the availability of borrowings under the Revolving Credit Facility will provide adequate funds for ongoing operations, planned capital expenditures and debt service during the term of such facility. Capital expenditures for fiscal 2001 are expected to focus on vertical integration with investments in equipment to expand manufacturing capacity in machining, glass production, sealing and plating, as well as automation equipment to lower production costs on the high volume production lines. Expected capital expenditures for fiscal 2001 are approximately $4.5 million and will be financed through working capital, the Revolving Credit Facility and/or purchase money indebtedness. This filing contains statements that are "forward looking statements", and includes, among other things, discussions of the Company's business strategy and expectations concerning market position, future operations, margins, profitability, liquidity and capital resources. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All phases of the operations of the Company are subject to a number of uncertainties, risks and other influences, including general economic conditions, regulatory changes and competition, many of which are outside the control of the Company, any one of which, or a combination of which, could materially affect the results of the Company's operations and whether the forward looking statements made by the Company ultimately prove to be accurate. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on the Company's Revolving Credit Facility. At September 30, 2000, the Company had no outstanding borrowings under the line of credit and, therefore, changes in interest rates would have no impact on the Company's results of operations. 13 PART II - OTHER INFORMATION Items 1 through 5 are omitted, as they are not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.2.3 - 4th Amendment to Credit Agreement 12.1 - Computation of ratio of earnings to fixed charges (b) Reports on Form 8-K - Not applicable SIGNATURES HCC INDUSTRIES INC. DATED: October 27, 2000 s/s Richard L. Ferraid ---------------- ----------------------------------------------- President and Chief Executive Officer DATED: October 27, 2000 s/s Christopher H. Bateman ---------------- ----------------------------------------------- Vice President and Chief Financial Officer 14 EX-10.2(3) 2 a2028814zex-10_23.txt EXHIBIT 10.2.3 Exhibit 10.2.3 AMENDMENT NO. 4 TO CREDIT AGREEMENT AGREEMENT, dated as of August 18, 2000, among HCC INDUSTRIES INC., a Delaware corporation (the "Borrower"), the lending institutions listed on the signature pages hereof (collectively, the "Lenders") and FLEET CAPITAL CORPORATION, as Agent (the "Agent"). WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Credit Agreement, dated as of February 14, 1997, as amended, pursuant to which the Lenders have agreed, subject to certain terms and conditions, to make revolving advances to the Borrower and to issue or to cause the issuance of letters of credit for the account of the Borrower (such agreement being referred to herein as the "Credit Agreement"); WHEREAS, in connection with the contemplated repurchase by the Borrower of certain senior subordinated notes, the Borrower has requested that certain changes be made to the provisions contained in the Credit Agreement, and the Lenders and the Agent are agreeable to making such changes, subject to the terms and conditions herein contained. NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: 1. SECTION CAPITALIZED TERMS. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Credit Agreement. 2. SECTION AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement shall be, and upon the fulfillment of the conditions set forth in Section 3 hereof is, amended as follows: 2.1 Section 8.07(b) of the Credit Agreement is amended by replacing the phrase ", and except that the Borrower may repurchase up to $20,000,000 in face value of the Senior Subordinated Debt within 60 days of the Second Amendment Date; PROVIDED that the aggregate amount paid by the Borrower shall not exceed 65% of the face value of the Senior Subordinated Debt repurchased by the Borrower" at the end of such Section 8.07(b) with the phrase ", and except that the Borrower may repurchase up to $20,000,000 in face value of the Senior Subordinated Debt on or before September 30, 2000; PROVIDED that the aggregate amount paid by the Borrower shall not exceed 50% of the face value of the Senior Subordinated Debt repurchased by the Borrower". 3. SECTION EFFECTIVENESS. This Agreement and the amendments contemplated hereby shall become effective when: (a) counterparts hereof have been duly executed and delivered to the Agent on behalf of the Borrower, the Subsidiary Guarantors, the Lenders and the Agent; and (b) the Agent shall be satisfied that, immediately after giving effect to the amendments contemplated hereby, there shall exist no Default or Event of Default and all representations and warranties contained herein, in the Credit Agreement and in the other Loan Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of such time except to the extent that such representations and warranties relate to an earlier specified date. 4. SECTION COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, and all of which, taken together, shall constitute a single instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 5. SECTION REFERENCES TO CREDIT AGREEMENT. From and after the effectiveness of this Agreement and the amendments contemplated hereby, all references in the Credit Agreement to "this Agreement", "hereof', "herein", and similar terms shall mean and refer to the Credit Agreement, as amended and modified by this Agreement, and all references in other documents to the Credit Agreement shall mean such agreement as amended and modified by this Agreement. 6. SECTION RATIFICATION AND CONFIRMATION. The Credit Agreement is hereby ratified and confirmed and, except as herein agreed, remains in full force and effect. The Borrower represents and warrants that both on the date hereof and immediately after giving effect to the amendments herein contemplated (i) all representations and warranties contained in any Loan Document are and shall be true and correct in all material respects with the same effect as though such representations and warranties had been made both on and as of the date hereof and immediately after giving effect to the amendments herein contemplated (except to the extent that such representations or warranties expressly related to an earlier specified date) and (ii) there exists and shall exist no Default or Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. HCC INDUSTRIES INC. By: ------------------------------------------- Name: Title: FLEET CAPITAL CORPORATION, individually and as Agent By: ------------------------------------------- Name: Title: EX-12.1 3 a2028814zex-12_1.txt EXHIBIT 12-1 EXHIBIT 12.1 HCC INDUSTRIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED ------------------------------------- SEPTEMBER 30, OCTOBER 2, 2000 1999 -------------- ---------------- Earnings: Earnings (loss) before taxes and extraordinary item $ 2,349 $ (840) Add: Fixed Charges* 5,528 5,657 -------------- ---------------- $ 7,877 $ 4,817 ============== ================ * Fixed Charges: Interest expense $ 5,528 $ 5,657 -------------- ---------------- $ 5,528 $ 5,657 ============== ================ Ratio of Earnings to Fixed Charges 1.43 ----(1) ============== ================
(1) There was a deficiency of earnings to fixed charges for the six months ended October 2, 1999 of $840. *The ratios of earnings to fixed charges were computed by dividing earnings by fixed charges. For this purpose, "earnings" consist of earnings before taxes and extraordinary item plus fixed charges and "fixed charges" consist of interest expense and amortization of debt issuance costs. EX-27 4 a2028814zex-27.txt EXHIBIT 27 (FDS)
5 1,000 6-MOS MAR-31-2001 APR-02-2000 SEP-30-2000 9,813 0 11,415 (82) 4,500 26,537 35,952 (11,588) 68,306 20,379 87,111 0 0 14 (48,058) 68,306 20,211 20,211 12,959 12,959 2,357 31 2,666 2,391 956 1,435 0 3,187 0 4,622 33.506 33.506
-----END PRIVACY-ENHANCED MESSAGE-----