<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- -------------
Commission file number 0-27744
PCD Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2604950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Technology Drive,
Centennial Park,
Peabody, Massachusetts
(Address of principal executive offices)
01960-7977
(Zip Code)
Registrant's telephone number, including area code: 508-532-8800
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 6, 1997: 5,956,682
<PAGE>
PCD Inc.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 28, 1997
Statements in this report concerning the future financial
condition, results of operations and business of the Company are
"forward-looking" statements as defined in the Securities Act of
1933 and Securities Exchange Act of 1934. Investors are cautioned
that these forward-looking statements are inherently uncertain,
and that actual performance and results are subject to many risk
factors, including the Company's dependence on the integrated
circuit package industry, the Company's dependence on its
principal customers and independent distributors, fluctuations in
demand for the Company's products, patent litigation involving
the Company, rapid technological evolution in the electronics
industry, and the like. The Company's filings with the Securities
and Exchange Commission, including its 1996 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.
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Consolidated Balance Sheets (unaudited) at June 28, 1997
and December 31, 1996, the Consolidated Statements of Income
(unaudited) for the six and three months ended June 28, 1997 and
June 29, 1996 and the Consolidated Statements of Cash Flows
(unaudited) for the six months ended June 28, 1997 and June 29,
1996 are presented below. See the notes to these condensed
consolidated financial statements at the end thereof.
2
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PCD Inc.
CONSOLIDATED BALANCE SHEETS
(Condensed and unaudited)
(In thousands)
<TABLE>
<CAPTION>
6/28/97 12/31/96
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $21,141 $20,529
Accounts receivable, net.................. 4,961 3,578
Inventory................................. 2,911 2,608
Prepaid expenses and other current assets. 88 89
------- -------
Total current assets............... 29,101 26,804
Equipment and improvements
Equipment and improvements................ 10,665 9,716
Accumulated depreciation.................. 5,131 4,379
------- -------
Equipment and improvements, net.............. 5,534 5,337
Other assets................................. 338 315
------- -------
Total assets....................... $34,973 $32,456
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 489 $ 627
Accrued liabilities....................... 2,655 3,123
------- -------
Total current liabilities.......... 3,144 3,750
Stockholders' equity......................... 31,829 28,706
------- -------
Total liabilities and
stockholders' equity.......... $34,973 $32,456
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
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PCD Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Condensed and unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
6/28/97 6/29/96 6/28/97 6/29/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales...................... $7,233 $7,223 $13,450 $14,310
Cost of sales.................. 3,726 4,001 6,990 7,853
------ ------ ------- -------
Gross profit................... 3,507 3,222 6,460 6,457
Operating expenses............. 1,392 1,282 2,748 2,776
------ ------ ------- -------
Income from operations......... 2,115 1,940 3,712 3,681
Other income, net.............. 275 209 536 262
------ ------ ------- -------
Income before income taxes..... 2,390 2,149 4,248 3,943
Provision for income taxes..... 886 802 1,569 1,465
------ ------ ------- -------
Net income..................... $1,504 $1,347 $ 2,679 $ 2,478
====== ====== ======= =======
Net income per share.......... $ 0.23 $ 0.21 $ 0.41 $ 0.42
====== ====== ======= =======
Weighted average number of
common and common equivalent
shares outstanding........... 6,598 6,552 6,596 5,940
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
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PCD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------
6/28/97 6/29/96
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 2,679 $ 2,478
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation................................. 752 703
Amortization of deferred compensation........ 29 29
Allowance for uncollectible accounts......... 2 69
Tax benefit from stock options exercised..... 286 -
Changes in operating assets and liabilities:
Increase in accounts receivable............ (1,385) (1,036)
(Increase) decrease in inventory............ (303) 148
Decrease in prepaid expenses
and other current assets................. 1 333
Increase in other assets................... (23) (23)
Decrease in accounts payable............... (138) (168)
Decrease in accrued liabilities............ (468) 189
------- -------
Net cash provided by operating activities 1,432 2,722
Cash flows from investing activities:
Capital expenditures............................ (949) (1,098)
------- -------
Net cash used in investing activities.... (949) (1,098)
Cash flows from financing activities:
Proceeds from public offering................... - 10,501
Exercise of common stock options................ 129 31
------- -------
Net cash provided by financing activities 129 10,532
------- -------
Net increase in cash.............................. 612 12,156
Cash and cash equivalents at beginning of period.. 20,529 3,958
------- -------
Cash and cash equivalents at end of period........ $21,141 $16,114
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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PCD Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(June 28, 1997 Unaudited)
Note 1. INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. This financial data should
be read in conjunction with the audited financial statements and
notes thereto for the year ended December 31, 1996 which are
included in the Company=s Form 10-K filing. Results for the
interim period presented are not necessarily indicative of
results to be anticipated for the entire year.
Note 2. NET INCOME PER SHARE
Net income per common share is computed using the weighted
average number of shares of common stock outstanding and dilutive
common stock equivalents from the exercise of stock options
(using the treasury stock method). Fully diluted and primary net
income per common share were the same for each period presented.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, (AFAS 128") which specifies the computation,
presentation and disclosure requirements of earnings per share
and is effective for financial statements issued for periods
ending after December 15, 1997. The Company has not yet
determined the impact of FAS 128 on net income per share.
Note 3. INVENTORY
<TABLE>
<CAPTION>
6/28/97 12/31/96
------- --------
(In Thousands)
<S> <C> <C>
Inventory:
Raw materials and finished subassemblies $2,151 $1,908
Work in process......................... 228 226
Finished goods.......................... 532 474
------ ------
Total................................. $2,911 $2,608
====== ======
</TABLE>
6
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Note 4. DEBT
The Company has revolving lines of credit with a bank, which
were renewed on June 17, 1997, whereby it may borrow up to an
aggregate of $5,250,000 with interest payable monthly at the
bank's base lending rate. These lines of credit will be
renewable on June 30, 1998.
Note 5. LITIGATION
On August 21, 1995, the Company's wholly-owned subsidiary,
CTi Technologies, Inc. ("CTi"), filed an action in the United
States District Court for the District of Arizona seeking a
declaratory judgment against Wayne K. Pfaff, an individual
residing in Texas ("Pfaff"), and Plastronics Socket Company,
Inc., a corporation affiliated with Pfaff, alleging and seeking a
declaratory judgment that two United States patents issued to
Pfaff and relating to certain burn-in sockets for "leadless" IC
packages (the "Pfaff Leadless Patent") and ball grid array
("BGA") IC packages (the "Pfaff BGA Patent") (collectively, the
"Pfaff Patents") are invalid and are not infringed by CTi, the
products of which include burn-in sockets for certain "leaded"
packages (including Quad Flat Paks)(the "CTi Leaded Products")
and BGA packages (the "CTi BGA Products")(collectively, the "CTi
Products"). Pfaff has filed a counterclaim alleging that CTi
infringes the Pfaff Leadless Patent and has requested an award of
damages; the counterclaim does not allege infringement of the
Pfaff BGA Patent. Pfaff has also sought a permanent injunction
against further infringement by CTi of the Pfaff Leadless Patent.
The Company understands that Pfaff has been issued patents
for the inventions covered by the Pfaff Leadless Patents in
Germany, France, Great Britain, Japan and Malaysia (together with
the United States, the "Territory"). Revenue from sales of CTi
Leaded Products in the Territory in 1996 and 1995 was
approximately $1.9 million and $5.8 million, respectively, which
represented approximately 7% and 23% of the Company's net sales
in 1996 and 1995, respectively. The CTi BGA Products will not
make a significant contribution to revenues of the Company until
years subsequent to 1996. The Pfaff Leadless Patent has been the
subject of earlier litigation initiated by Pfaff against a
burn-in connector manufacturer unrelated to the Company, Wells
Electronics, Inc. ("Wells"), in which Pfaff alleged that the
manufacture and sale of a wide range of Wells products infringed
the Pfaff Leadless Patent. Included among the Wells products
covered by the Pfaff litigation was a group of burn-in sockets
produced by Wells for certain leaded packages (the "Wells Leaded
Products"). The Wells Leaded Products compete directly with CTi
Leaded Products and accept similar IC packages. The Company
believes that Pfaff may assert in CTi's litigation with Pfaff
7
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that Wells Leaded Products are similar in design to CTi Leaded
Products. In October 1995, the United States District Court for
the Northern District of Texas (the "Texas Court") found certain
claims in the Pfaff Leadless Patent to be invalid, but found
other claims in the patent not to be invalid and to be infringed
by certain Wells products, including the Wells Leaded Products.
On December 19, 1995, the Texas Court issued a permanent
injunction against the manufacture and sale by Wells of the
products found to be infringing. In January 1996, the United
States Court of Appeals (Federal Circuit) stayed the injunction,
pending appeal, based on its finding that Wells had demonstrated
that it is likely to succeed in its contention that the Pfaff
Leadless Patent is invalid. In that appeal, the Federal Circuit
Court of Appeals heard oral argument in October 1996, but has not
issued a decision. The Pfaff BGA Patent was not involved in the
Pfaff/Wells litigation.
The CTi-Pfaff action in the District of Arizona has been
stayed pending the outcome of the appeal from the Pfaff-Wells
case. Should the Pfaff Leadless Patent be found invalid in that
appeal then Pfaff will be unable to assert that patent against
CTi. Should the Federal Circuit Court of Appeals find the patent
not to be invalid, then the litigation in the District of Arizona
will go forward to determine whether or not the CTi Leaded
Products infringe the Pfaff patent. The Company believes, based
on the advice of counsel, that CTi has meritorious defenses
against any claim that CTi Products infringe the Pfaff Patents,
and CTi intends to prosecute and defend vigorously its position
in its declaratory judgment action and any related or subsequent
litigation. Although Wells invoked similar defenses on the Pfaff
Leadless Patent in its lawsuit with Pfaff, the Company believes
that CTi will be better positioned to present these defenses.
There can be no assurance, however, that the Company or CTi will
prevail in pending or any future litigation with Pfaff, and an
adverse outcome could have a material adverse effect on the
financial condition, results of operations and business of the
Company. Such adverse effect could include, without limitation,
the requirement that CTi pay substantial damages for past
infringement and an injunction against the manufacture or sale in
the United States of such products as are found to be infringing.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter and six months ended June 28, 1997 compared to the
quarter and six months ended June 29, 1996
Net sales for the quarter ended June 28, 1997 were $7.2
million, on par with the year-earlier period. While net sales
remained constant with the year-earlier period, the two product
lines that service the semiconductor industry, burn-in and
production/PLD, continued their higher volume levels as compared
to the second half of 1996.
Net sales for the six months ended June 28, 1997 were $13.4
million, a decrease of 6% from the comparable six month period
in 1996. As was noted last quarter, this decline occurred in the
first quarter of 1997 as the impact of the downturn in the
semiconductor market had only slowed shipments moderately in the
first quarter of 1996.
Net income for the quarter rose 12% to $1.5 million from
$1.3 million in the second quarter of 1996. Net earnings were
$0.23 per share, compared with $0.21 per share for the same
period a year ago. Net income for the six months ended June 28,
1997 were $2.7 million, an increase of 8% from the comparable six
month period in 1996. Net earnings were $0.41 per share,
compared with $0.42 per share for the same period a year ago.
Incoming orders for the quarter ended June 28, 1997 totaled
$8.2 million, up 13% compared to orders of $7.3 million in the
year-earlier period. The Company ended the quarter with an order
backlog of $8.3 million, compared to $7.3 million at the end of
the first quarter 1997.
Gross profit increased to $3.5 million, or 48.5% of net
sales, from $3.2 million, or 44.6% of net sales in the year-earlier
period. The effect of new product introductions and cost variance
efficiencies combined to generate this increase in gross profit as
well as the absence of tooling sales for an application specific
product, of $100 thousand, in the second quarter of 1996. These
tooling sales generate significantly lower than the average gross
profit.
For the six months ended June 28, 1997, gross profit
increased to 48.0% of net sales, or $6.5 million, from 45.1% of
net sales, or $6.5 million in the same period last year. This
increase in the percentage of net sales is attributable to three
factors: the effect of new product introductions and cost
9
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variance efficiencies in 1997; the absence of a one-time expense
for product development in the burn-in socket product category in
the first quarter of 1996; and the absence of approximately $0.1
million of tooling sales for application-specific product (these
tooling sales generate significantly lower than the average gross
profit) in the second quarter of 1996.
Operating expenses for the quarter ended June 28, 1997 were
$1.4 million, or 19.2% of net sales, an increase of $0.1 million,
compared to expenses of $1.3 million or 17.7% of net sales in the
year-earlier period. This increase represents higher sales
advertising and trade show, testing and investor relation costs.
For the six months ended June 28, 1997, operating expenses
were $2.7 million, or 20.4% of net sales compared to $2.8
million, or 19.4% of net sales.
Other income for the second quarter and six months increased
to $0.3 million and $0.5 million in 1997 from $0.2 million and
$0.3 in 1996, respectively. Other income consists primarily of interest income.
The effective rate for income taxes for the quarter ended
June 28, 1997 declined to 37.1% from 37.3% for the year-earlier
period.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of June 28, 1997, the Company had cash and cash
equivalents of approximately $21.1 million and working capital of
approximately $26.0 million. Cash provided by operating
activities totaled $0.9 million for the second quarter and $1.4
million for the six months ended June 28, 1997 compared to $1.5
million and $2.7 million for the comparable year-earlier periods.
Capital expenditures were $0.5 million for the second
quarter 1997 and are expected to reach $2.9 million by year end,
up from $1.9 million last year.
10
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PCD Inc.
PART II
OTHER INFORMATION
Item 1. Legal Proceeding
Incorporated by reference to the Company=s Form 10-K
filed with the Securities and Exchange Commission on
March 28, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
At an annual meeting of stockholders of the Company on
May 9, 1997, the following vote was taken:
A director (Harold F. Faught) was elected to hold
office for a three year term expiring in the year 2000.
Shares Voted
------------
Abstentions
and broker
For Against Withheld non-votes
--------- ------- -------- -----------
4,343,803 -0- 22,630 1,523,300
The following directors will continue in office until
the years specified:
Term expires
------------
Bruce E. Elmblad 1998
C. Wayne Griffith 1998
John L. Dwight, Jr. 1999
Theodore C. York 1999
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re computation of earnings per share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
period ended June 28, 1997.
11
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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 7, 1997 /s/ John L. Dwight, Jr.
-------------- ------------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and
President (Principal Executive
Officer)
Dated: August 7, 1997 /s/ Mary L. Mandarino
-------------- ------------------------
Mary L. Mandarino
Vice President, Finance and
Administration, Chief
Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
12
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<TABLE>
Exhibit 11.1
PCD Inc.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE (1)
<S> <C>
For the quarter ended June 28, 1997
Common stock outstanding,
beginning of the period...................... 5,909,733
Weighted average common stock issued
during the period............................ 19,743
Dilutive effect of common stock equivalents.... 668,966
---------
Weighted average number of common and common
equivalent shares outstanding................ 6,598,442
=========
Net income per share........................... 0.23
=========
For the quarter ended June 29, 1996
Common stock outstanding,
beginning of the period...................... 4,609,032
Weighted average common stock issued
during the period............................ 1,099,705
Dilutive effect of common stock equivalents.... 843,403
---------
Weighted average number of common and common
equivalent shares outstanding................ 6,552,140
=========
Net income per share........................... 0.21
=========
For the six months ended June 28, 1997
Common stock outstanding,
beginning of the period...................... 5,854,733
Weighted average common stock issued
during the period............................ 52,775
Dilutive effect of common stock equivalents.... 688,532
---------
Weighted average number of common and common
equivalent shares outstanding................ 6,596,040
=========
Net income per share........................... 0.41
=========
For the six months ended June 29, 1996
Common stock outstanding,
beginning of the period...................... 4,597,032
Weighted average common stock issued
during the period............................ 556,404
Dilutive effect of common stock equivalents.... 786,207
---------
Weighted average number of common and common
equivalent shares outstanding................ 5,939,643
=========
Net income per share........................... 0.42
=========
</TABLE>
(1) All common and common equivalent shares have been restated to
reflect a 12-for-1 stock split of the Company=s common stock
effected in February, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<CASH> 21141
<SECURITIES> 0
<RECEIVABLES> 5195
<ALLOWANCES> 234
<INVENTORY> 2911
<CURRENT-ASSETS> 29101
<PP&E> 10665
<DEPRECIATION> 5131
<TOTAL-ASSETS> 34973
<CURRENT-LIABILITIES> 3144
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 31770
<TOTAL-LIABILITY-AND-EQUITY> 34973
<SALES> 13450
<TOTAL-REVENUES> 13450
<CGS> 6990
<TOTAL-COSTS> 6990
<OTHER-EXPENSES> 2748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4248
<INCOME-TAX> 1569
<INCOME-CONTINUING> 2679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2679
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
