-----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, RecZDG1wuZ6ZDrbgb4LdIXmQ8Y4IO26Io/TR8zGBo2yn0zcP0x9kNMoYCXbLA/F2 1BBLRGO9ol2wtC0BJ77r8Q== 0000912057-01-002344.txt : 20010123 0000912057-01-002344.hdr.sgml : 20010123 ACCESSION NUMBER: 0000912057-01-002344 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCC INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000316884 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [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: 1512446 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 a2036023z10-q.txt 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: DECEMBER 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 January 22, 2001 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
DECEMBER 30, APRIL 1, 2000 2000 -------------- ---------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 8,169 $ 14,537 Trade accounts receivable, less allowance for doubtful accounts of $36 at December 30, 2000 and $51 at April 1, 2000 13,496 10,041 Inventories 4,872 4,515 Income taxes receivable --- 2,255 Prepaid and other current assets 708 728 --------- --------- Total current assets 27,245 32,076 PROPERTY, PLANT AND EQUIPMENT, NET 24,872 21,605 OTHER ASSETS: Intangible assets 4,847 5,063 Deferred financing costs 2,155 2,727 Deferred income taxes 4,100 4,100 Restricted cash 6,245 6,197 --------- --------- TOTAL ASSETS $ 69,464 $ 71,768 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt $ 6,213 $ 6,994 Accounts payable 4,135 2,950 Income taxes payable 1,026 --- Accrued liabilities 7,187 8,877 --------- --------- Total current liabilities 18,561 18,821 LONG TERM LIABILITIES: Long-term debt, net of current portion 88,599 97,475 Other long-term liabilities 8,860 9,178 --------- --------- 116,020 125,474 --------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Common stock; $.10 par value; authorized 550,000 shares, issued and outstanding 137,945 shares at December 30, 2000 and 135,495 shares at April 1, 2000 14 14 Additional paid-in capital 326 200 Accumulated deficit (46,896) (53,920) ---------- ---------- TOTAL STOCKHOLDERS' DEFICIT (46,556) (53,706) ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 69,464 $ 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) (UNAUDITED)
Three Months Ended Nine Months Ended ------------------------------- --------------------------------- December 30, January 1, December 30, January 1, 2000 2000 2000 2000 -------------- -------------- -------------- ------------- NET SALES $ 21,158 $ 13,685 $ 59,886 40,183 Cost of goods sold 14,029 10,046 39,348 28,982 ---------- ---------- ---------- ---------- GROSS PROFIT 7,129 3,639 20,538 11,201 Selling, general and administrative expenses 2,211 1,540 6,529 4,659 ---------- ---------- ---------- ---------- EARNINGS FROM OPERATIONS 4,918 2,099 14,009 6,542 OTHER INCOME (EXPENSE): Interest and other income 156 176 508 550 Interest expense (2,594) (2,828) (8,122) (8,485) ---------- ---------- ---------- ---------- Total other expense, net (2,438) (2,652) (7,614) (7,935) EARNINGS (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM 2,480 (553) 6,395 (1,393) Taxes (benefit) on earnings (loss) 992 (220) 2,558 (548) ---------- ----------- ---------- ----------- Earnings (loss) before extraordinary item 1,488 (333) 3,837 (845) Extraordinary gain on retirement of debt, net of taxes of $2,125 --- --- 3,187 --- ---------- ---------- ---------- ---------- NET EARNINGS (LOSS) $ 1,488 $ (333) $ 7,024 (845) ========== =========== ========== ==========
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 Nine Months Ended ---------------------------------------- December 30, January 1, 2000 2000 ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 7,024 $ (845) Reconciliation of net earnings (loss) to net cash provided by (used in) operating activities: Depreciation 1,544 1,373 Amortization 483 503 Extraordinary gain (3,187) --- Non-cash stock compensation 76 --- Deferred income taxes --- (785) Changes in operating assets and liabilities: (Increase) in trade accounts receivable, net (3,455) (756) (Increase) decrease in inventories (357) 224 (Increase) decrease in other assets (28) 120 (Decrease) in accrued and other liabilities (2,008) (2,402) Increase (decrease) in accounts payable and income taxes payable 2,341 (1,792) ----------- ------------ Net cash provided by (used in) operating activities 2,433 (4,360) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (1,930) (1,113) ------------ ------------ Net cash used in investing activities (1,930) (1,113) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of stock 50 --- Early retirement of debt (4,598) --- Principal payments on long-term debt (2,323) (884) ------------ ------------ Net cash used in financing activities (6,871) (884) ------------ ------------ Net (decrease) in cash and cash equivalents (6,368) (6,357) Cash and cash equivalents at beginning of period 14,537 17,395 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,169 $ 11,038 =========== =========== SUPPLEMENTAL NONCASH FINANCING ACTIVITIES: Capital lease obligations and mortgages $ 2,881 $ 1,838 =========== ===========
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 December 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 nine month periods ended December 30, 2000 are not necessarily indicative of the operating results for the full fiscal year. 2. INVENTORIES: Inventories consist of the following (in thousands):
December 30, April 1, 2000 2000 ---------------- -------- Raw materials and component parts $ 3,482 $ 3,036 Work in process 1,390 1,479 -------- --------- $ 4,872 $ 4,515 ======== =========
3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of the following (in thousands):
December 30, April 1, 2000 2000 ---------------- ------------ Land $ 4,017 $ 4,017 Buildings and improvements 9,522 9,160 Furniture, fixtures and equipment 23,491 19,043 -------- --------- 37,030 32,220 Less accumulated depreciation (12,158) (10,615) -------- --------- $24,872 $ 21,605 ======== ==========
5 HCC INDUSTRIES INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements December 30, 2000 4. LONG-TERM DEBT: Long-term debt consists of the following (in thousands):
December 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; $1,929,000 due March 28, 2001 and $1,085,000 due April 3, 2002 3,014 4,085 Term loans on land, building and improvements - 8% interest payable monthly; due may 2008 2,762 2,762 Other 6,751 5,122 ---------- --------- 94,812 104,469 Less current portion 6,213 6,994 ---------- --------- $ 88,599 $ 97,475 ========== =========
During the nine months ended December 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 December 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 December 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 December 30, 2000, the accrual for estimated environmental costs was $8,860,000. Actual expenditures for environmental remediation were $318,000 for the nine months ended December 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 December 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 Nine Months Ended ------------------------------------------- ---------------------------------------- Dec. 30, Jan. 1, Dec. 30, Jan. 1, 2000 Percent 2000 Percent 2000 Percent 2000 Percent ---- ------- ---- ------- ---- ------ ---- ------- Net sales $21.2 100.0% $13.7 100.0% $59.9 100.0% $40.2 100.0% Gross profit 7.1 33.7% 3.6 26.6% 20.5 34.3% 11.2 27.9% Selling, general and administrative expenses 2.2 10.5% 1.5 11.3% 6.5 10.9% 4.7 11.6% Earnings from operations 4.9 23.2% 2.1 15.3% 14.0 23.4% 6.5 16.3% Other income/expense (2.4) -11.5% (2.7) -19.4% (7.6) -12.7% (7.9) -19.7% Extraordinary gain, net --- 0.0% --- 0.0% 3.2 5.3% --- 0.0% Net earnings (loss) $1.5 7.0% $(0.3) -2.4% $7.0 11.7% $(0.8) -2.1%
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 30, 2000 ("2001 QUARTER") TO THE THREE MONTHS ENDED JANUARY 1, 2000 ("2000 QUARTER") NET SALES The Company's net sales increased by approximately 55% or $7.5 million to $21.2 million for the 2001 Quarter compared to sales of $13.7 million for the 2000 Quarter. The significant increase was due to increasing demand in all markets, other than automotive products. Sales to existing aerospace, industrial process control, and petrochemical customers increased by approximately 24% 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 optical networking infrastructure. Sales of these products increased by $5.9 million in the 2001 Quarter compared to the 2000 Quarter. Based on industry reports, the Company expects continued strong demand in these markets. At the current growth rate of order volume, this market will become the largest market for the Company's products during this fiscal year. On the automotive side, unit shipments of airbag initiator products decreased moderately due to customer demand on several existing programs. The Company's airbag initiator shipments to its largest customer, Special Devices, Inc. ("SDI") decreased approximately 13% for the 2001 Quarter compared to the 2000 Quarter. Overall, revenue from all automotive shipments decreased approximately 11% 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. On January 16, 2001, the Company entered into a new 12-month supply agreement with SDI. The agreement implements an immediate 12% price decrease and contains provisions for future price decreases subject to implementation of cost reduction initiatives and/or increased unit volumes. GROSS PROFIT Gross profit increased by approximately 97% or $3.5 million, to $7.1 million for the 2001 Quarter compared to $3.6 million for the 2000 Quarter. Gross margin increased to 33.7% for the 2001 Quarter from 26.6% 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 increased sales volume. 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 revenues. 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 by approximately 47% to $2.2 million for the 2001 Quarter compared to $1.5 million for the 2000 Quarter. S,G&A expenses as a percent to sales decreased to 10.5% in the 2001 Quarter from 11.3% 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 approximately 133% or $2.8 million to $4.9 million for the 2001 Quarter compared to $2.1 million for the 2000 Quarter. Operating margins increased to 23.2% in the 2001 Quarter from 15.3% 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, gross margin and S,G&A expenses as a percent to sales. OTHER EXPENSE, NET Other expense, net (which is predominantly net interest expense) was $2.4 million for the 2001 Quarter compared to $2.7 million for the 2000 Quarter. The Company has $94.8 million of indebtedness as of December 30, 2000 compared to $104.1 million at January 1, 2000. NET EARNINGS (LOSS) Net earnings increased by approximately $1.8 million to $1.5 million for the 2001 Quarter from a net loss of $0.3 million in the 2000 Quarter. The increase in net earnings was primarily attributable to the increase in earnings from operations in the 2001 Quarter. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED COMPARISON OF THE NINE MONTHS ENDED DECEMBER 30, 2000 ("2001 PERIOD") TO THE NINE MONTHS ENDED JANUARY 1, 2000 ("2000 PERIOD") NET SALES The Company's net sales increased by approximately 49% or $19.7 million to $59.9 million for the 2001 Period compared to sales of $40.2 million for the 2000 Period. The significant increase was due to increasing demand in all markets. Sales to existing aerospace, industrial process control, and petrochemical customers increased significantly in the 2001 Period. Net non-automotive shipments increased by approximately 31% 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 optical networking infrastructure. Sales of these products increased by $11.6 million in the 2001 Period compared to the 2000 Period. Based on industry reports, the Company expects continued strong demand in these markets. At the current growth rate of order volume, this market will become the largest market for the Company's products during this fiscal year. On the automotive side, unit shipments of airbag initiator products increased slightly due to customer demand on several existing programs. The Company's airbag initiator shipments to its largest customer, Special Devices, Inc. ("SDI") increased by approximately 3% for the 2001 Period compared to the 2000 Period. Overall, revenue from all automotive shipments increased by approximately 4% in the 2001 Period compared to the 2000 Period. Based on current order volume, the Company expects a consistent unit demand for the next quarter, but also expects pricing pressure to increase in the automotive markets. On January 16, 2001, the Company entered into a new 12-month supply agreement with SDI. The agreement implements an immediate 12% price decrease and contains provisions for future price decreases subject to implementation of cost reduction initiatives and/or increased unit volumes. GROSS PROFIT Gross profit increased by approximately 83% or $9.3 million, to $20.5 million for the 2001 Period compared to $11.2 million for the 2000 Period. Gross margin increased to 34.3% for the 2001 Period from 27.9% for the 2000 Period. The increase in gross profit is attributable to the increased sales volume. The increase in gross margin was primarily attributable to the significant increase in revenue and the corresponding impact of fixed overhead costs leveraged against higher revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("S,G&A") expenses increased by approximately 38% to $6.5 million for the 2001 Period compared to $4.7 million for the 1999 Period. S,G&A expenses as a percent to sales decreased to 10.9% in the 2001 Period from 11.6% 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED 11 EARNINGS FROM OPERATIONS Operating earnings increased by approximately 115% or $7.5 million to $14.0 million for the 2001 Period compared to $6.5 million for the 2000 Period. Operating margins increased to 23.4% in the 2001 Period from 16.3% 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, gross margin and S,G&A expenses as a percent to sales. 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% and reduce interest costs by $1.1 million annually. OTHER EXPENSE, NET Other expense, net (which is predominantly net interest expense) decreased by approximately 4% or $0.3 million to $7.6 million in the 2001 Period compared to $7.9 million in the 2000 Period. The $0.3 million decrease was attributable to lower interest expense realized from the early retirement of debt in the 2001 Period compared to the 2000 Period. The Company has $94.8 million of indebtedness as of December 30, 2000 compared to $104.1 million at January 1, 2000. NET EARNINGS Net earnings increased by approximately $7.8 million to $7.0 million for the 2001 Period from a net loss of $0.8 million in the 2000 Period. The increase in net earnings was primarily attributable to the increase in earnings from operations in the 2001 Period. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $2.4 million for the 2001 Period compared to $4.4 million used in operating activities for the 2000 Period. The increase of $6.8 million of cash generated was primarily attributable to the increase in net earnings, partially offset by increased working capital. Net cash used in investing activities was $1.9 million for the 2001 Period compared to $1.1 million for the 2000 Period. Net cash used in financing activities was $6.9 million for the 2001 Period compared to $0.9 million for the 2000 Period. The increase in the 2001 Period was due to the early retirement of the 10.75% Senior Subordinated Notes and higher principal payments on existing debt. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED 12 As of December 30, 2000, the Company's outstanding long-term debt is $94.8 million. The Company has a Revolving Credit Facility up to $20.0 million, which is collateralized by accounts receivable and inventories. At December 30, 2000 there was $20.0 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 significant 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 $5.5 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 December 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: 12.1 - Computation of ratio of earnings to fixed charges (b) Reports on Form 8-K - On January 12, 2001, the Company filed Form 8-K regarding the appointment of Richard L. Ferraid as the new Chairman of the Board of the Company. SIGNATURES HCC INDUSTRIES INC. DATED: January 22, 2001 /s/ Richard L. Ferraid ----------------- ------------------------------------- President and Chief Executive Officer DATED: January 22, 2001 /s/ Christopher H. Bateman ----------------- ------------------------------------- Vice President and Chief Financial Officer 14 EX-12.1 2 a2036023zex-12_1.txt EX-12.1 HCC INDUSTRIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS) (UNAUDITED)
For the Nine Months Ended ------------------------------------- December 30, January 1, 2000 2000 -------------- ---------------- Earnings: Earnings (loss) before taxes and extraordinary item $ 6,395 $ (1,393) Add: Fixed Charges* 8,122 8,485 ----------- ---------- $ 14,517 $ 7,092 =========== ========== * Fixed Charges: Interest expense $ 8,122 $ 8,485 ----------- --------- $ 8,122 $ 8,485 =========== ========= Ratio of Earnings to Fixed Charges 1.79 ----(1) =========== =========
(1) There was a deficiency of earnings to fixed charges for the nine months ended January 1, 2000 of $1,393. *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. -----END PRIVACY-ENHANCED MESSAGE-----