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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 July 1, 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 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: 978-532-8800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock, $0.01 par value, outstanding at August 14,
2000: 8,607,601
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PCD Inc.
FORM 10-Q
FOR THE QUARTER ENDED
JULY 1, 2000
FORWARD LOOKING INFORMATION
Statements in this quarterly report concerning the future revenues,
expenses, profitability, financial resources, product mix, market demand,
product development and other statements in this report concerning the future
results of operations, financial condition and business of PCD Inc. are
"forward-looking" statements as defined in the Securities Act of 1933 and
Securities Exchange Act of 1934. Investors are cautioned that the Company's
actual results in the future may differ materially from those projected in the
forward-looking statements due to risks and uncertainties that exist in the
Company's operations and business environment, including the Company's
dependence on the integrated circuit package interconnect and semiconductor
industries, the availability of certain critical basic materials, the Company's
ability to meet its debt covenants, fluctuations in demand for the Company's
products, the Company's dependence on its principal customers and independent
distributors, acquisitions and indebtedness, international sales and operations,
rapid technological evolution in the electronics industry and the like. The
Company's most recent filings with the Securities and Exchange Commission,
including Form 10-K, contain additional information concerning such risk
factors, and copies of these filings are available from the Company upon request
and without charge.
2
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PCD INC.
Consolidated Balance Sheets as of July 1, 2000 and December 31, 1999.
Consolidated Statements of Income for the three and six fiscal months
ended July 1, 2000 and July 3, 1999.
Consolidated Statements of Cash Flows for the six fiscal months ended
July 1, 2000 and July 3, 1999.
Notes to Condensed Consolidated Financial Statements.
3
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PCD Inc.
CONSOLIDATED BALANCE SHEETS
(Condensed and unaudited)
(In thousands)
7/1/00 12/31/99
------- --------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 883 $ 652
Accounts receivable, net........................... 6,916 6,831
Inventory.......................................... 5,420 5,479
Income tax refund receivable....................... - 1,416
Prepaid expenses and other current assets.......... 533 674
-------- --------
Total current assets........................ 13,752 15,052
Equipment and improvements
Equipment and improvements......................... 30,378 29,089
Accumulated depreciation........................... 13,949 11,547
-------- --------
Equipment and improvements, net....................... 16,429 17,542
Deferred tax asset.................................... 11,624 12,258
Goodwill.............................................. 53,965 55,506
Intangible assets..................................... 10,899 11,418
Debt financing fees................................... 1,566 1,276
Other assets.......................................... 1,614 1,734
-------- --------
Total assets................................ $109,849 $114,786
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................... $ 10,300 $ 12,000
Current portion of long-term debt.................. 9,000 8,800
Accounts payable................................... 3,931 3,972
Accrued liabilities................................ 3,275 3,190
-------- --------
Total current liabilities................... 26,506 27,962
Long-term debt, net of current portion................ 23,939 28,800
Accumulated other comprehensive (loss)................ (61) (27)
Stockholders' equity.................................. 59,465 58,051
-------- --------
Total liabilities and stockholders' equity.. $109,849 $114,786
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
4
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PCD Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Condensed and unaudited)
(In thousands, except per share data)
Quarter Ended Six Months Ended
---------------- ----------------
7/1/00 7/3/99 7/1/00 7/3/99
------- ------- ------- -------
Net sales............................... $14,330 $13,210 $28,235 $25,843
Cost of sales........................... 7,573 6,617 15,295 12,996
------- ------- ------- -------
Gross profit............................ 6,757 6,593 12,940 12,847
Operating expenses...................... 3,281 3,613 6,661 7,136
Amortization............................ 1,047 1,047 2,095 2,095
------- ------- ------- -------
Income from operations.................. 2,429 1,933 4,184 3,616
Interest expense /(other income), net... 1,202 1,131 2,420 2,228
------- ------- ------- -------
Income before income taxes.............. 1,227 802 1,764 1,388
Provision for income taxes.............. 492 278 707 499
------- ------- ------- -------
Net income.............................. $ 735 $ 524 $ 1,057 $ 889
======= ======= ======= =======
Net income per share:
Basic.............................. $ 0.09 $ 0.06 $ 0.12 $ 0.10
======= ======= ======= =======
Diluted............................ $ 0.08 $ 0.06 $ 0.12 $ 0.10
======= ======= ======= =======
Weighted average number
of shares outstanding
Basic.............................. 8,599 8,513 8,588 8,482
===== ===== ===== =====
Diluted............................ 8,984 9,043 9,000 9,048
===== ===== ===== =====
The accompanying notes are an integral part
of the consolidated financial statements.
5
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PCD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited)
(In thousands)
Six Months Ended
----------------
7/1/00 7/3/99
------ ------
Cash flows from operating activities:
Net income........................................... $ 1,057 $ 889
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation...................................... 2,389 2,141
Amortization of intangible assets................. 2,095 2,060
Amortization of debt financing costs.............. 244 77
Tax benefit from stock options exercised.......... - 50
Tax Refund........................................ 1,320 -
Deferred taxes.................................... 625 495
Changes in operating assets and liabilities:
Accounts receivable............................. (232) (287)
Inventory....................................... 30 (578)
Prepaid expenses and other current assets....... 223 101
Other assets.................................... (354) 29
Accounts payable................................ 40 98
Accrued liabilities............................. 130 (159)
------- -------
Net cash provided by operating activities..... 7,567 4,916
Cash flows from investing activities:
Capital expenditures................................. (1,290) (1,954)
------- -------
Net cash used in investing activities......... (1,290) (1,954)
Cash flows from financing activities:
Borrowings (repayments) of short-term debt, net...... (1,700) 900
Payments of long-term debt........................... (4,400) (4,200)
Proceeds from employee stock purchase plan........... 21 -
Exercise of common stock options..................... 47 137
------- -------
Net cash provided by
(used in) financing activities............... (6,032) (3,163)
------- -------
Net (decrease) increase in cash........................ 245 (201)
Effect of exchange rate on cash........................ (14) (50)
Cash and cash equivalents at beginning of period....... 652 852
------- -------
Cash and cash equivalents at end of period............. $ 883 $ 601
======= =======
The accompanying notes are an integral part
of the consolidated financial statements.
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PCD Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(July 1, 2000 Unaudited)
Note 1. INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation. This financial data
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1999.
Note 2. NET INCOME PER SHARE
In accordance with FAS No. 128, the following tables reconcile net income
and weighted average shares outstanding to the amounts used to calculate basic
and diluted earnings per share for each of the periods ended July 1, 2000 and
July 3, 1999:
Net Income Per Share
(Loss) Shares Amount
---------- --------- ---------
For the quarter ended July 1, 2000
Basic earnings.............................. $ 735,000 8,598,559 $ 0.09
Assumed exercise of options (treasury method) - 385,932 -
---------- --------- ------
Diluted earnings............................ $ 735,000 8,984,491 $ 0.08
========== ========= ======
For the quarter ended July 3, 1999
Basic earnings.............................. $ 524,000 8,512,867 $ 0.06
Assumed exercise of options (treasury method) - 530,039 -
---------- --------- ------
Diluted earnings............................ $ 524,000 9,042,906 $ 0.06
========== ========= ======
For the six month period ended July 1, 2000
Basic earnings.............................. $1,057,000 8,588,364 $ 0.12
Assumed exercise of options (treasury method) - 411,777 -
---------- --------- ------
Diluted earnings............................ $1,057,000 9,000,141 $ 0.12
========== ========= ======
For the six month period ended July 3, 1999
Basic earnings.............................. $ 889,000 8,481,577 $ 0.10
Assumed exercise of options (treasury method) - 566,787 -
---------- --------- ------
Diluted earnings............................ $ 889,000 9,048,364 $ 0.10
========== ========= ======
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For the quarters ended July 1, 2000 and July 3, 1999, anti-dilutive shares
of 182,248 and 130,324 and for the six month periods anti-dilutive shares of
213,093 and 121,281, respectively, have been excluded from the calculation of
EPS.
Note 3. INVENTORY
7/1/00 12/31/99
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(In Thousands)
Inventory:
Raw materials and finished subassemblies.......... $4,289 $3,803
Work in process................................... 111 308
Finished goods.................................... 1,020 1,368
------ ------
Total........................................... $5,420 $5,479
====== ======
Note 4. COMPREHENSIVE INCOME
The Company's only other comprehensive income is foreign currency
translation adjustments. For the three and six month periods ended July 1, 2000
and July 3, 1999 the Company's total comprehensive income (in thousands) was as
follows:
Three Months Ended Six Months Ended
------------------ ----------------
7/1/00 7/3/99 7/1/00 7/3/99
------ ------ ------ ------
Net earnings....................... $ 735 $ 524 $1,057 $ 889
Other comprehensive loss, net...... (6) (14) (20) (46)
------ ------ ------ ------
Total comprehensive earnings.... $ 729 $ 510 $1,037 $ 843
====== ====== ====== ======
Note 5. NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"), which initially would have been effective
for all fiscal quarters beginning after June 15, 1999. In June 1999, the
Financial Accounting Standards Board released Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging Activities
- Deferral of Effective Date of FAS 133 ("FAS 137"). FAS 137 deferred the
effective date of FAS 133 until June 15, 2000. FAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. The Company believes FAS 133 will not have any material impact
on its financial position, results of operations and cash flows.
8
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In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application
of the guidance in SAB 101 will be required in the Company's first quarter of
the fiscal year 2001. The effects of applying this guidance will be reported as
a cumulative effect adjustment resulting from a change in accounting principle.
The Company does not expect the application to have a material effect on their
financial statements. However, the final evaluation of SAB 101 is not yet
complete.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
Note 6. WARRANTS
On March 6, 2000, the Company issued warrants to its lenders for 203,949
shares of Common Stock at an exercise price of $4.90 per share. The $288,000
value of the warrants was recorded as a discount on long-term debt and an
increase in stockholders' equity. The discount is being amortized as interest
expense through December 2003 (the remaining term of the debt).
Note 7. LITIGATION
The Company and its subsidiaries are subject to legal proceedings arising
in the ordinary course of business. On the basis of information presently
available and advice received from legal counsel, it is the opinion of
management that the disposition or ultimate determination of such legal
proceedings will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
9
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Note 8. SEGMENT INFORMATION:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
7/1/00 7/3/99 7/1/00 7/3/99
-------- -------- -------- --------
(In thousands)
SALES:
Industrial/Avionics........ $ 4,673 $ 4,551 $ 9,516 $ 9,492
IC Package interconnect.... 9,657 8,659 18,719 16,351
-------- -------- -------- --------
Total sales.............. $ 14,330 $ 13,210 $ 28,235 $ 25,843
======== ======== ======== ========
NET INCOME (loss):
Industrial/Avionics........ $ 471 $ 590 $ 1,044 $ 1,347
IC Package interconnect.... 268 (73) 23 (500)
Corporate activities....... (4) 7 (10) 42
-------- -------- -------- --------
Total net income......... $ 735 $ 524 $ 1,057 $ 889
======== ======== ======== ========
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7/1/00 12/31/99
-------- --------
(In thousands)
ASSETS:
Industrial/Avionics............................. $ 8,469 $ 9,269
IC Package interconnect......................... 87,784 90,004
Corporate activities............................ 13,596 15,513
-------- --------
Total assets.................................. $109,849 $114,786
======== ========
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED JULY 1, 2000 COMPARED TO THE QUARTER ENDED JULY 3, 1999
NET SALES. Net sales of $14.3 million for the quarter ended July 1, 2000
increased by $1.1 million or 8.4% from net sales of $13.2 million during the
prior year quarter. For the six months ended July 1, 2000 net sales of $28.2
million were up 9.3% from net sales of $25.8 million last year. The increases
in net sales for both reporting periods were due primarily to higher sales in
the I/C package interconnect business resulting in part from the recovery in
thesemiconductor industry that began in 1999.
GROSS PROFIT. Gross profit was $6.8 million for the quarter ended July 1, 2000
as compared with $6.6 million during the prior year quarter. As a percentage of
revenue, gross profit was 47.2% during the quarter as compared with 49.9%
during the prior year quarter. The decline in gross profit percentage from the
comparable quarter last year was due primarily to a product mix shift within the
Industrial/Avionics business. For the six months ended July 1, 2000 gross profit
was $12.9 million or 45.8% of net sales in 2000 as compared with $12.8 million
or 49.7% of net sales during 1999. The decline in gross profit percentage during
the six month period in 2000 was due to first quarter 2000 price pressure and
product mix shift within certain segments of the I/C package interconnect
business together with the Industrial/Avionics product mix shift noted above
The price pressure in the I/C package interconnect business abated somewhat
during the second quarter of this year.
OPERATING EXPENSES. Operating expenses include selling, general and
administrative expenses and costs of product development. Operating expenses
decreased to $3.3 million during the quarter ended July 1, 2000 from $3.6
million during the prior year quarter and decreased to $6.7 million from $7.1
million during the prior year six month period. The decreases were due primarily
to specific cost reductions at the Wells-CTI division implemented during 1999.
INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense and other income, net
during the quarter ended July 1, 2000 was $1.2 million as compared with $1.1
million during the prior year quarter and was $2.4 million for the six months
ended July 1, 2000 as compared with $2.2 million during 1999. Interest expense
in 2000 approximated prior year amounts during each reporting period as lower
debt balances served to offset higher borrowing costs in 2000. Other income
during the prior year quarter and the six month period was $93,000 and $104,000,
respectively as compared with net expense of $24,000 and $63,000 for the
comparable 2000 periods.
PROVISION FOR INCOME TAXES. The provision for income taxes for the six months
ended July 1, 2000 was 40% as compared with a provision of 36% during the prior
year. The increase in 2000 is due to a projected profitable Japanese subsidiary
in 2000, which bears a higher tax rate than the Company's U.S subsidiaries.
11
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during the six months ended July 1,
2000 was $7.6 million compared to $4.9 million during the six months ended July
3, 1999. During the six months ended July 1, 2000, the Company reduced net debt
by $6.1 million to $43.5 million from $49.6 million at December 31, 1999. The
balance at July 1, 2000 consists of $10.3 million outstanding under the
revolving line of credit and a term loan balance of $33.2 million (before giving
effect to the valuation of warrants issued to the Company's lenders during 2000
- see note 6.) Capital expenditures during the six months ended July 1, 2000
were $1.3 million and are projected to be approximately $4.0 million for the
year. Capital expenditures consist primarily of purchased tooling and equipment
to support the Company's business. The amount of capital expenditures will
frequently change based on future changes in business plans, conditions of the
Company and changes in economic conditions.
The Company has experienced difficulty meeting all of the covenants under
its Senior Credit Facility. On March 6, 2000, the Company obtained from its
lenders a waiver of compliance with certain covenants for the fourth quarter
of 1999. At the same time, certain covenants were amended by agreement between
the Company and its lenders through June 30, 2000. In conjunction with the
March 6, 2000 agreement, the Company issued warrants to its lenders covering a
total of 203,949 shares of Common Stock at an exercise price of $4.90 per share.
The warrants were to be exercisable on June 30, 2000 only if the Company did not
raise $10 million of subordinated debt or other capital infusions ("Junior
Capital") junior to loans under the Senior Credit Facility by June 30, 2000, or
by June 30, 2000 had not entered into definitive agreements permitting repayment
of amounts outstanding under the Senior Credit Facility by December 31, 2000.
In addition, if the Company did not obtain the Junior Capital by April 30, 2000,
the Company on May 1, 2000 would pay the lenders a fee of 0.25% of the sum of
the total outstanding principal balance under the Term Loan plus the Revolving
Credit Loan Commitment. The fee would be payable each quarter thereafter until
the Junior Capital was obtained.
During the second quarter of 2000, the Company's management and board of
directors, in conjunction with its outside financial advisors, concluded that
the cost of Junior Capital would be prohibitively expensive under current market
conditions. Accordingly, the Company ceased efforts to raise Junior Capital. The
warrants for 203,949 shares of Common Stock became exercisable on June 30, 2000
and the lenders' 0.25% quarterly fee began on May 1, 2000.
At July 1, 2000, the Company was in compliance with its debt covenants.
There can be no assurance, however, that the Company will be able to maintain
compliance with its debt covenants in the future, and failure to meet such
covenants would result in an event of default under the Senior Credit Facility.
To avoid an event of default, the Company would attempt to obtain waivers from
its lenders, restructure the Senior Credit Facility or secure alternative
financing. Under these scenarios, there can be no assurance that the terms and
conditions would be satisfactory to the Company or not disadvantageous to the
Company's stockholders.
Subject to the foregoing, the Company believes its existing working capital
and borrowing capacity, coupled with the funds generated from the Company's
operations, will be sufficient to fund its anticipated working capital, capital
expenditure and debt payment requirements through 2000. Because the Company's
capital requirements cannot be predicted with certainty, there can be no
assurance that any additional financing will be available on terms satisfactory
to the Company or not disadvantageous to the Company's stockholders.
12
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PART II
OTHER INFORMATION
Item 1. Legal Proceeding
See Note 7 to the Company's Condensed Consolidated
Financial Statements (above).
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of stockholders of the Company held on April
28, 2000, the following vote was taken:
One director was elected to hold office for a three year term
expiring in the year 2003.
Shares Voted Shares
-------------------- not
Director For Withheld Voted
---------------------- --------- -------- -------
Harold F. Faught 7,700,334 102,185 779,816
The following directors will continue in office until the years
specified:
Term Expires
------------
John E. Stuart 2001
John L. Dwight, Jr. 2002
Theodore C. York 2002
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
NONE
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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 14, 2000 /s/ John L. Dwight, Jr.
--------------- ------------------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and
President (Principal Executive
Officer)
Dated: August 14, 2000 /s/ John J. Sheehan III
--------------- ------------------------------
John J. Sheehan III
Vice President, Finance and
Administration, Chief
Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
14
