<PAGE>
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: JANUARY 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: 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 February 11, 2000 was 135,495 shares.
<PAGE>
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
<TABLE>
<CAPTION>
JANUARY 1, APRIL 3,
2000 1999
-------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,038 $ 17,395
Trade accounts receivable, less allowance for
doubtful accounts of $74 at January 1, 2000
and $40 at April 3, 1999 10,590 9,834
Inventories 4,146 4,370
Prepaid and deferred income taxes 1,078 293
Other current assets 312 468
--------- ---------
Total current assets 27,164 32,360
PROPERTY, PLANT AND EQUIPMENT, NET 20,731 19,153
OTHER ASSETS:
Intangible assets 5,135 5,352
Deferred financing costs 2,822 3,108
Deferred income taxes 4,275 4,275
Restricted cash 6,156 6,120
--------- ---------
TOTAL ASSETS $ 66,283 $ 70,368
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,351 $ 1,125
Accounts payable 657 2,449
Accrued liabilities 4,442 6,707
--------- ---------
Total current liabilities 6,450 10,281
LONG TERM LIABILITIES:
Long-term debt, net of current portion 102,771 102,043
Other long-term liabilities 9,279 9,416
--------- ---------
118,500 121,740
--------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; $.10 par value; authorized 550,000
shares, issued and outstanding 135,495 shares 14 14
Additional paid-in capital 200 200
Accumulated deficit (52,431) (51,586)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (52,217) (51,372)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 66,283 $ 70,368
======== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
HCC INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
January 1, December 26, January 1, December 26,
2000 1998 2000 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 13,685 $ 15,297 $ 40,183 $ 50,703
Cost of goods sold 10,046 9,558 28,982 30,987
---------- ---------- ---------- ----------
GROSS PROFIT 3,639 5,739 11,201 19,716
Selling, general and administrative expenses 1,540 1,266 4,659 5,463
---------- ---------- ---------- ----------
EARNINGS FROM OPERATIONS 2,099 4,473 6,542 14,253
OTHER INCOME (EXPENSE):
Interest and other income 176 168 550 520
Interest expense (2,828) (2,747) (8,485) (8,233)
---------- ---------- ---------- ----------
Total other expense, net (2,652) (2,579) (7,935) (7,713)
Earnings (loss) before taxes (553) 1,894 (1,393) 6,540
Taxes (benefit) on earnings (loss) (220) 748 (548) 2,572
----------- ---------- ----------- ----------
NET EARNINGS (LOSS) $ (333) $ 1,146 $ (845) $ 3,968
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
HCC INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Nine Months Ended
January 1, December 26,
2000 1998
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (845) $ 3,968
Reconciliation of net earnings (loss) to net cash provided
by operating activities:
Depreciation 1,373 1,243
Amortization 503 502
Deferred income taxes (785) (2,879)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable, net (756) 688
Decrease in inventories 224 346
Decrease (Increase) in other assets 120 (7)
(Decrease) in accrued liabilities (2,402) (1,833)
(Decrease) in accounts payable and income
taxes payable (1,792) (302)
------------ ------------
Net cash (used in) provided by operating activities (4,360) 1,726
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,113) (1,479)
------------ ------------
Net cash used in investing activities (1,113) (1,479)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (884) (728)
Proceeds from the sale of stock --- 201
----------- -----------
Net cash used in financing activities (884) (527)
------------ ------------
Net (decrease) in cash and cash equivalents (6,357) (280)
Cash and cash equivalents at beginning of period 17,395 13,441
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,038 $ 13,161
=========== ===========
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Capital lease obligations and mortgages $ 1,838 $ 3,978
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
HCC INDUSTRIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 1, 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 3,
1999. Operating results for the three and nine month periods ended January 1,
2000 are not necessarily indicative of the operating results for the full
fiscal year.
2. INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
January 1, April 3,
2000 1999
-------- ---------
<S> <C> <C>
Raw materials and component parts $ 2,196 $ 2,279
Work in process 1,950 2,091
-------- ---------
$ 4,146 $ 4,370
======== =========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
January 1, April 3,
2000 1999
-------- ---------
<S> <C> <C>
Land $ 4,017 $ 4,017
Buildings and improvements 9,128 8,699
Furniture, fixtures and equipment 17,801 15,278
-------- ---------
30,946 27,994
Less accumulated depreciation (10,215) (8,841)
-------- ---------
$ 20,731 $ 19,153
======== =========
</TABLE>
5
<PAGE>
HCC INDUSTRIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 1, 2000
4. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 1, April 3,
2000 1999
--------- --------
<S> <C> <C>
10 3/4% Senior Subordinated Notes - interest payable
semi-annually; due May 15, 2007 $ 90,000 $ 90,000
Subordinated Notes due Selling Shareholders -
12% interest payable semi-annually; due March 28, 2001 2,500 2,500
Subordinated Bonus Notes - 10% interest payable semi-annually;
$3,000,000 due March 28, 2001 and
$1,085,000 due April 3, 2002 4,085 4,085
Term loans on land, building and improvements -
8% interest payable monthly; due may 2008 2,762 2,762
Other 4,775 3,821
---------- ---------
104,122 103,168
Less current portion 1,351 1,125
---------- ---------
$ 102,771 $ 102,043
========== =========
</TABLE>
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. At January 1, 2000, the
135,495 outstanding shares of common stock were designated as follows:
<TABLE>
<CAPTION>
Shares Voting Rights
CLASS OUTSTANDING AMOUNT PER SHARE
<S> <C> <C> <C>
A 103,193 $ 10,000 1
B 27,506 3,000 1
C 4,316 --- None
D 480 --- 10
-------- ----------
135,495 $ 13,000
======== ==========
</TABLE>
The remaining 414,505 shares of authorized but unissued common stock are
undesignated as to class.
6
<PAGE>
HCC INDUSTRIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 1, 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 January
1, 2000, the accrual for estimated environmental costs was $9,279,000.
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.
Pursuant to the Recapitalization Agreement, the Selling Group has agreed to
indemnify the Company with respect to the after-tax costs of contingent
environmental and other liabilities, subject to a cap for all indemnified
liabilities of $30 million. Pursuant to the Recapitalization Agreement, a
$6.0 million interest bearing escrow account was established by the selling
stockholders (the "Deferred Amount") to secure indemnity claims of the
Company and others, including with respect to environmental liabilities. Any
environmental costs, net of tax benefit, are expected to be funded from the
escrow account. Actual
7
<PAGE>
expenditures for environmental remediation were $17,000 for the quarter ended
January 1, 2000 and $203,000 for the fiscal year ended April 3, 1999.
HCC INDUSTRIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
January 1, 2000
6. COMMITMENTS AND CONTINGENCIES, Continued:
Other
On March 3, 1998, Walter Neubauer, formerly the largest shareholder of the
Company and presently a significant shareholder of Special Devices, Inc., the
Company's largest customer, filed a lawsuit in California Superior Court
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.
In March, 1999, defendants filed a motion for summary judgment contending
that they were entitled to prevail as a matter of law. In September, 1999,
the motion was granted as to five of the six claims alleged (including all
claims against the Company). The remaining claim, breach of contract, is
pending against Andrew Goldfarb. Plaintiff is presently seeking reversal of
the granting of summary judgment in the California Court of Appeal. Based
upon the Company's analysis of the current facts, it is management's belief
that the Company should ultimately prevail in this matter, although there can
be no assurance in this regard at this time.
On May 7, 1998, the Company filed an action against Walter Neubauer in
California Superior Court for preliminary and permanent injunctive relief and
damages for (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 the former stockholder in August 1996. A preliminary
injunction was granted in September, 1998. The case was consolidated with Mr.
Neubauer's action, discussed above, and discovery is proceeding.
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
Jan. 1, Dec. 26, Jan. 1, Dec. 26,
2000 PERCENT 1998 PERCENT 2000 PERCENt 1998 PERCENT
---- ------- ---- ------- ---- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $13.7 100.0% $15.3 100.0% $40.2 100.0% $50.7 100.0%
Gross profit 3.6 26.6% 5.7 37.5% 11.2 27.9% 19.7 38.9%
Selling, general and administrative
expenses 1.5 11.3% 1.3 8.4% 4.7 11.6% 5.5 10.8%
Earnings from operations 2.1 15.3% 4.5 29.1% 6.5 16.3% 14.2 28.1%
Other income/expense (2.6) -19.4% (2.6) -16.8% (7.9) -19.7% (7.7) -15.2%
Net earnings (loss) $(0.3) -2.4% $1.1 7.5% $(0.8) -2.1% $4.0 7.8%
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JANUARY 1, 2000 ("2000 QUARTER") TO THE
THREE MONTHS ENDED DECEMBER 26, 1998 ("1999 QUARTER")
NET SALES
The Company's net sales decreased by approximately 10.5% or $1.6
million to $13.7 million for the 2000 Quarter compared to sales of $15.3
million for the 1999 Quarter. The significant decrease was due to decreasing
demand in all non-automotive product lines. Sales to existing aerospace,
industrial process control, and petrochemical customers decreased by
approximately 18% in the 2000 Quarter compared to the 1999 Quarter. Based on
current order volume, the Company expects the weakness in the aerospace,
industrial process control markets to continue and a moderate rebound in the
petrochemical market in the next quarter.
On the automotive side, unit shipments of airbag initiator products
increased moderately due to customer demand on existing programs. The
Company's airbag initiator shipments to its largest customer, Special
Devices, Inc. ("SDI") increased 23% for the 2000 Quarter compared to the 1999
Quarter. This increased volume was offset by a price reduction effected under
a new supply agreement with SDI and decreased volumes to other automotive
customers. The agreement with SDI was effective March 18, 1999 and expires on
December 31, 2002. Overall, revenue from all automotive shipments increased
approximately 1% in the 2000 Quarter compared to the 1999 Quarter. Based on
current order volume, the Company expects a modest increase in revenue from
automotive products over the next quarter.
GROSS PROFIT
Gross profit decreased by approximately 36.8% or $2.1 million, to
$3.6 million for the 2000 Quarter compared to $5.7 for the 1999 Quarter.
Gross margin decreased to 26.6% for the 2000 Quarter from 37.5% for the 1999
Quarter.
The decrease in gross profit is attributable to the decreased sales
volume. The decrease in gross margin was primarily attributable to the
significant decrease in revenue and the corresponding impact of fixed
overhead costs leveraged against lower revenue. Additionally, gross margin
was impacted by price concessions on automotive products that have exceeded
the Company's ability to reduce its production costs. The ongoing weakness in
demand will continue to negatively impact gross profitability and gross
margin.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("S,G&A") expenses increased
15.4% to $1.5 million for the 2000 Quarter compared to $1.3 million for the
1999 Quarter. S,G&A expenses as a percent to sales increased to 11.3% in the
2000 Quarter from 8.4% for the 1999 Quarter.
Selling expenses decreased approximately 10% in the 2000 Quarter
compared to the 1999 Quarter. This decrease was attributable to lower selling
commissions recorded against approximately $1.6 million fewer sales. G&A
expenses overall were higher due to increased compensation costs in the 2000
Quarter.
EARNINGS FROM OPERATIONS
Operating earnings decreased 53.3% or $2.4 million to $2.1 million
for the 2000 Quarter compared to $4.5 million for the 1999 Quarter. Operating
margins decreased to 15.3% in the 2000 Quarter from 29.1% for the 1999
Quarter.
The decrease in operating earnings and margin was attributable to
the same factors (as discussed above) that contributed to the decrease 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
$2.6 million for both of the Quarters. The Company has $104.1 million of
indebtedness as of January 1, 2000 compared to $102.3 million at December 26,
1998.
NET EARNINGS (LOSS)
Net earnings decreased by approximately $1.4 million to a net loss
of $0.3 million for the 2000 Quarter from a net earnings of $1.1 million in
the 1999 Quarter.
The decrease in net earnings was primarily attributable to the
decrease in earnings from operations in the 2000 Quarter.
COMPARISON OF THE NINE MONTHS ENDED JANUARY 1, 2000 ("2000 PERIOD") TO THE NINE
MONTHS ENDED DECEMBER 26, 1998 ("1999 PERIOD")
NET SALES
The Company's net sales decreased by approximately 20.7% or $10.5
million to $40.2 million for the 2000 Period compared to sales of $50.7
million for the 1999 Period. The significant decrease was due to decreasing
demand in all product lines. Sales to existing aerospace, industrial process
control, and petrochemical customers decreased significantly in the 2000
Period. Net non-automotive shipments decreased by approximately 26% in the
2000 Period compared to the 1999 Period. Based on current order volume, the
Company expects the weakness in the aerospace, industrial process control
markets to continue and a moderate rebound in the petrochemical market in the
next quarter.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
On the automotive side, unit shipments of airbag initiator products
decreased significantly due to customer demand on existing programs. The
Company's airbag initiator shipments to its largest customer, Special
Devices, Inc. ("SDI") increased 1% for the 2000 Period compared to the 1999
Period. The small increase in volume was offset by a price reduction effected
under a new supply agreement with SDI and decreases in automotive shipments
to other customers. The agreement with SDI was effective March 18, 1999 and
expires on December 31, 2002. Overall, revenue from all automotive shipments
decreased approximately 12% in the 2000 Period compared to the 1999 Period.
Based on current order volume, the Company expects a modest increase in
revenue from automotive products over the next quarter.
GROSS PROFIT
Gross profit decreased by approximately 43.1% or $8.5 million, to
$11.2 million for the 2000 Period compared to $19.7 for the 1999 Period.
Gross margin decreased to 27.9% for the 2000 Period from 38.9% for the 1999
Period.
The decrease in gross profit is attributable to the decreased sales
volume. The decrease in gross margin was primarily attributable to the
significant decrease in revenue and the corresponding impact of fixed
overhead costs leveraged against lower revenue. Additionally, gross margin
was impacted by price concessions on automotive products that have exceeded
the Company's ability to reduce its production costs. The ongoing decreases
in sales will continue to impact gross profitability and gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("S,G&A") expenses decreased by
approximately 14.5% to $4.7 million for the 2000 Period compared to $5.5
million for the 1999 Period. S,G&A expenses as a percent to sales increased
to 11.6% in the 2000 Period from 10.8% for the 1999 Period.
The decrease in selling, general and administrative expenses were a
result of lower contingent compensation accruals, and lower commission costs.
The increased percentage of S,G&A expenses to sales reflects the decreased
leverage on the fixed portion of those expenses.
EARNINGS FROM OPERATIONS
Operating earnings decreased 54.2% or $7.7 million to $6.5 million
for the 2000 Period compared to $14.2 million for the 1999 Period. Operating
margins decreased to 16.3% in the 2000 Period from 28.1% for the 1999 Period.
The significant decrease in operating earnings and margin was
attributable to the same factors (as discussed above) that contributed to the
decrease 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)
increased 2.6% or $0.2 million to $7.9 million in the 2000 Period compared to
$7.7 million in the 1999 Period. The $0.2 million increase was attributable
to additional interest expense incurred with the additional indebtedness and
net of increased interest income recognized in the 2000 Period compared to
the 1999 Period. The Company has $104.1 million of indebtedness as of January
1, 2000 compared to $102.3 million at December 26, 1998.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
NET EARNINGS
Net earnings decreased by approximately $4.8 million to a net loss of
$0.8 million for the 2000 Period from $4.0 million in the 1999 Period.
The decrease in net earnings was primarily attributable to the
decrease in earnings from operations in the 2000 Period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.4 million for the 2000
Period compared to $1.7 million provided by operating activities for the 1999
Period. The decrease of $6.1 million of cash consumed was primarily
attributable to a reduction in earnings from operations.
Net cash used in investing activities was $1.1 million for the 2000
Period compared to $1.5 million for the 1999 Period.
Net cash used in financing activities was $0.9 million for the 2000
Period compared to $0.5 million for the 1999 Period.
As of January 1, 2000, the Company's outstanding long-term debt is
$104.1 million. The Company has a Revolving Credit Facility up to $20.0
million and is collateralized by accounts receivable and inventories. At
January 1, 2000 there was $18.3 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 2000 are expected to focus on
vertical integration with investments in equipment to expand manufacturing
capacity in machining, glass production, sealing and plating, as well as
automation equipment to lower production costs on the high volume production
lines. Expected capital expenditures for fiscal 2000 are approximately $4.5
million and will be financed through working capital and the Revolving Credit
Facility.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
YEAR 2000 ISSUE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. As a result,
software that records only the last two digits of the calendar year may note
be able to distinguish whether "00" means 1900 or 2000. This may result in
software failures or the creation of erroneous results. To date we have not
experienced any significant Year 2000 issues in our internal technology
systems or with the vendors of systems we believe to be critical to our
business. In addition, we believe that it is unlikely we will experience any
significant Year 2000 issues in the future. However, there can be no
assurance that the Year 2000 issue will not materially adversely affect our
results of operations, cash flows, or financial position in a particular
period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations that impact the fair value of these obligations. At
January 1, 2000 the carrying value of our fixed-rate long-term debt approximated
its fair value.
13
<PAGE>
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 - Computation of ratio of earnings to fixed
charges
(b) Reports on Form 8-K - On January 28, 2000 we filed Form
8-K regarding the appointment of Robert H. Rau as the new
Chairman of the Board and Chief Executive Officer of the
Company.
SIGNATURES
HCC INDUSTRIES INC.
DATED: FEBRUARY 11, 2000 s/s ROBERT H. RAU
---------------------------- -------------------------
Chief Executive Officer
DATED: FEBRUARY 11, 2000 s/s CHRISTOPHER H. BATEMAN
---------------------------- -------------------------
Vice President and Chief
Financial Officer
14
<PAGE>
Exhibit 12
HCC INDUSTRIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------------
January 1, December 26,
2000 1998
----------- ------------
<S> <C> <C>
Earnings:
Earnings (loss) before taxes $ (1,393) $ 6,540
Add: Fixed Charges* 8,485 8,233
----------- ----------
$ 7,092 $ 14,773
=========== ==========
* Fixed Charges:
Interest expense $ 8,485 $ 8,233
----------- ---------
$ 8,485 $ 8,233
=========== =========
Ratio of Earnings to Fixed Charges ----(1) 1.8
=========== =========
</TABLE>
(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.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000316884
<NAME> HCC INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-START> APR-04-1999
<PERIOD-END> JAN-01-2000
<CASH> 11,038
<SECURITIES> 0
<RECEIVABLES> 10,664
<ALLOWANCES> (74)
<INVENTORY> 4,146
<CURRENT-ASSETS> 27,164
<PP&E> 30,946
<DEPRECIATION> (10,215)
<TOTAL-ASSETS> 66,283
<CURRENT-LIABILITIES> 6,450
<BONDS> 102,771
0
0
<COMMON> 14
<OTHER-SE> (52,231)
<TOTAL-LIABILITY-AND-EQUITY> 66,283
<SALES> 40,183
<TOTAL-REVENUES> 40,183
<CGS> 28,982
<TOTAL-COSTS> 28,982
<OTHER-EXPENSES> 4,659
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 8,485
<INCOME-PRETAX> (1,393)
<INCOME-TAX> (548)
<INCOME-CONTINUING> (845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (845)
<EPS-BASIC> (6.236)
<EPS-DILUTED> (6.236)
</TABLE>
