<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 March 29, 1997 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 April 23,
1997: 5,912,233
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PCD Inc.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 29, 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 March 29, 1997 and
December 31, 1996, the Consolidated Statements of Income (unaudited) and the
Consolidated Statements of Cash Flows (unaudited) for the three months ended
March 29, 1997 and March 30, 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>
3/29/97 12/31/96
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $20,747 $20,529
Accounts receivable, net.................. 4,109 3,578
Inventory................................. 2,862 2,608
Prepaid expenses and other current assets. 92 89
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Total current assets............... 27,810 26,804
Equipment and improvements
Equipment and improvements................ 10,108 9,716
Accumulated depreciation.................. 4,756 4,379
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Equipment and improvements, net.............. 5,352 5,337
Other assets................................. 324 315
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Total assets....................... $33,486 $32,456
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 535 $ 627
Accrued liabilities....................... 2,830 3,123
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Total current liabilities.......... 3,365 3,750
Stockholders' equity......................... 30,121 28,706
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Total liabilities and
stockholders' equity.......... $33,486 $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
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3/29/97 3/30/96
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<S> <C> <C>
Net sales................................... $6,217 $7,087
Cost of sales............................... 3,264 3,852
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Gross profit................................ 2,953 3,235
Operating expenses.......................... 1,356 1,495
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Income from operations...................... 1,597 1,740
Other income, net........................... 261 54
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Income before income taxes.................. 1,858 1,794
Provision for income taxes.................. 683 664
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Net income.................................. $1,175 $1,130
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Net income per share........................ $ 0.18 $ 0.21
====== ======
Weighted average number of common and common
equivalent shares outstanding........... 6,594 5,320
====== ======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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PCD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
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3/29/97 3/30/96
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<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $1,175 $1,130
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation................................. 377 351
Amortization of deferred compensation........ 15 15
Allowance for uncollectible accounts......... 4 59
Tax benefit from stock options exercised..... 161 -
Changes in operating assets and liabilities:
Increase in accounts receivable............ (535) (159)
(Increase) decrease in inventory............ (254) 29
(Increase) decrease in prepaid
expenses and other current assets........ (3) 257
Increase in other assets................... (9) (9)
Decrease in accounts payable............... (92) (113)
Decrease in accrued liabilities............ (293) (313)
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Net cash provided by operating
activities............................. 546 1,247
Cash flows from investing activities:
Capital expenditures............................ (392) (494)
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Net cash used in investing activities.... (392) (494)
Cash flows from financing activities:
Exercise of common stock options................ 64 14
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Net cash provided by financing activities 64 14
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Net increase in cash.............................. 218 767
Cash and cash equivalents at beginning of period.. 20,529 3,958
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Cash and cash equivalents at end of period........ $20,747 $4,725
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</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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PCD Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(March 29, 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, ("FAS
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>
3/29/97 12/31/96
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(In Thousands)
<S> <C> <C>
Inventory:
Raw materials and finished subassemblies $2,102 $1,908
Work in process......................... 252 226
Finished goods.......................... 508 474
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Total................................. $2,862 $2,608
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</TABLE>
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Note 4. 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 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
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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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 1997
Net sales for the first quarter ended March 29, 1997 were $6.2 million, a
decrease of 12% from $7.1 million in the year-earlier period. This decline
was primarily in the two product lines that service the semiconductor
industry, burn-in and production/PLD products. These two product lines are
down as the impact of the downturn in the semiconductor market had only slowed
shipments moderately in the first quarter of 1996. However volume in both of
these product lines increased over the fourth quarter of 1996, confirming the
positive trend seen in the bookings' pattern. In addition, the industrial
terminal block
8
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product line favorably offset some of the above referenced decline.
Customer bookings for the quarter ended March 29, 1997 were $6.2
million, down 20% compared to orders of $7.8 million in the year-earlier
period and up slightly from orders of $6.1 million in the fourth quarter of
1996. On a year-to-year comparative basis, the decrease in customer orders
was due primarily to the erratic bookings pattern experienced in 1996 by two
of our largest customers effecting the production/PLD and avionic product
lines. While orders for these two customers were below those of the
year-earlier period, their bookings outlook remains favorable. The Company
ended the quarter with an order backlog of $7.3 million which remained
unchanged from that of the end of the fourth quarter of 1996.
Gross profits for the quarter ended March 29, 1997 amounted to $3.0
million or 47.5% of net sales, compared to $3.2 million or 45.6% of net sales
in the year-earlier period. This increase in gross profit as a percentage of
net sales in the quarter from the prior period relates primarily to the
absence of a one-time expense for product development in the burn-in socket
product category in the first quarter of 1996. In addition, gross profit was
favorably impacted by efficiency gains in our primary processes.
Operating expenses for the first quarter of 1997 were $1.4 million, or
21.8% of net sales, a decrease of $0.1 million or approximately 10% compared
to expenses of $1.5 million or 21.1% of net sales in the year-earlier period.
This decrease was in line with the Company's plan and it reflects our ongoing
efforts in cost containment.
Other income increased to $261 thousand for the first quarter of 1997
compared to $54 thousand for the year-earlier period. Other income consists
primarily of interest income.
The effective rate for income taxes for the quarter ended March 29, 1997
declined to 36.8% from 37% for the year-earlier period. The effective rate for
income taxes was down due to the effect of establishing a foreign sales
corporation (FSC)during the first quarter of 1997 to take advantage of
favorable federal tax laws for revenue and the related profits associated with
sales to foreign corporations.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of March 29, 1997, the Company had cash and cash equivalents of
approximately $20.7 million and working capital of approximately $24.4
million. Cash provided by operating
9
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activities totaled $0.5 million for the quarter ended March 29, 1997 compared
to $1.2 million in the year-earlier period.
Capital expenditures were $0.4 million for the first quarter of 1997 and
are expected to reach $2.3 million this year, up from $1.9 million for the
year 1996.
The Company believes that funds generated from operations together with
the net proceeds of the offering and existing cash balances will be sufficient
to meet the Company's cash requirements at least through 1997.
10
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re computation of earnings per share.
21.1 Subsidiaries of the registrant
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
period ended March 29, 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: May 1, 1997 /s/ John L. Dwight, Jr.
----------- ------------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and
President (Principal Executive
Officer)
Dated: May 1, 1997 /s/ Mary L. Mandarino
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Mary L. Mandarino
Vice President, Finance and
Administration, Chief
Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
12
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Exhibit Index
- -------------
Exhibit
Number Description
- ------- -----------
11.1 Statement re computation of earnings per share.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
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<TABLE>
Exhibit 11.1
PCD Inc.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE (1)
<S> <C>
For the quarter ended March 29, 1997
Common stock outstanding,
beginning of the period...................... 5,854,733
Weighted average common stock issued
during the period............................ 30,057
Dilutive effect of common stock equivalents.... 709,134
---------
Weighted average number of common and common
equivalent shares outstanding................ 6,593,924
=========
Net income per share........................... 0.18
=========
For the quarter ended March 30, 1996
Common stock outstanding,
beginning of the period...................... 4,597,032
Weighted average common stock issued
during the period............................ 7,333
Dilutive effect of common stock equivalents.... 715,976
---------
Weighted average number of common and common
equivalent shares outstanding................ 5,320,341
=========
Net income per share........................... 0.21
=========
</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.
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Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
PCD Inc.
CTi Technologies, Inc.
PCD Securities Corp.
PCD USVI, Inc.
<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>
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<S> <C>
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<PERIOD-END> MAR-29-1997
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<CURRENT-ASSETS> 27810
<PP&E> 10108
<DEPRECIATION> 4756
<TOTAL-ASSETS> 33486
<CURRENT-LIABILITIES> 3365
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0
0
<COMMON> 59
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</TABLE>
