EXHIBIT 99.1
| News Release |
For Immediate Release
For more information, contact:
Matthew P. Smith, Chairman
1376 State Route 598
Galion, Ohio 44833
Tel: 419-468-7600
PECO II REPORTS FIRST-QUARTER 2003 RESULTS
· Company receives expected $12.5 million tax refund in April
· Cost-reduction efforts continue
GALION, Ohio, May 7, 2003 – PECO II, Inc. (Nasdaq:PIII), a full-service provider of engineering and installation on-site services and manufacturer of communications power systems and equipment to the communications industry, today reported results for the first quarter ended March 31, 2003.
PECO II reported sales of $11.1 million in the quarter, compared with $17.0 million in the first quarter of 2002. The Company reported a net loss of $7.0 million, or $0.33 per diluted share, for the quarter, compared with a net loss of $6.6 million, or $0.30 per diluted share, for the first quarter of 2002. The 2002 first-quarter net loss before cumulative effect of accounting change was $4.7 million, or $0.22 per diluted share. The first quarter 2003 loss includes a $1.1 million impairment charge related to excess real estate that the company listed for sale in the quarter, reflecting the properties at their estimated current fair value based upon market conditions.
Cash used for operating activities was $6.8 million in the first quarter, primarily due to operating losses. As expected, the Company received a $12.5 million tax refund in April 2003. The Company pledged $10.2 million with its bank relating to the Industrial Revenue Bonds. These funds are classified on the balance sheet as restricted cash.
The book-to-bill ratio improved to 1.25 in the first quarter of 2003, compared with .92 in the fourth quarter of 2002. R&D expenses were $1.2 million in the first quarter of 2003, a 56 percent decrease from $2.7 million in the comparable quarter in 2002. SG&A expenses for the first quarter of 2003 were $3.1 million, a decrease of 33 percent compared with the first quarter of 2002. The reductions in these areas continue to reflect the Company’s efforts to better align expenses with current and future revenues.
Business Outlook
“Our first-quarter results reflect the continuing softness in capital spending by our telecom customers, and our revenue of $11.1 million was about as anticipated,” said James L. Green,
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PECO II, Inc. First-quarter Fiscal 2003 Results/2
president and chief executive officer. “Although we do not yet see any material change in our telecom customers’ buying intentions, there are opportunities in the services segment of our business, as reflected in orders from two new areas. Recent organizational changes help sharpen our focus on these opportunities, which are consistent with our long-term strategy to target the services market through both acquisitions and organic growth.”
Restructuring actions are continuing. The Company’s total work force was further reduced from 498 in December 2002 to 476 at the end of March and to 428 at April 30, while services personnel increased by 13 during that period. Green said overall work force reductions will continue while service segment employment grows.
Green said the Company expects second-quarter net sales to be essentially flat with first-quarter performance, with some upside potential in the services segment.
Conference Call on the Web
PECO II will hold a conference call with investors and analysts on Wednesday, May 7, 2003, at 10 a.m. Eastern time. The call will be available over the Internet atwww.peco2.com andwww.vcall.com. To listen to the call, go to either Web site to register, download and install any necessary audio software. For those unable to listen to the live broadcast, a replay of the webcast will be archived and available shortly after the call.
About PECO II, Inc.
PECO II, headquartered in Galion, Ohio, provides engineering and on-site installation services and designs, manufactures and markets communications power systems and power distribution equipment. As the largest independent full-service provider of telecommunications power systems, the Company provides total power quality/reliability solutions and supports the power infrastructure needs of communications service providers in the local exchange, long-distance, wireless, broadband and Internet markets. Additional information about PECO II can be found atwww.peco2.com.
Forward-Looking Statements
Statements in this release that are not historical fact are forward-looking statements, which involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. Factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, a general economic recession; a downturn in our principal customers’ businesses; the growth in the communications industry; the ability to develop and market new products and product enhancements; the ability to attract and retain customers; competition and technological change; and successful implementation of the Company’s business strategy. In addition, this release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. PECO II does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in PECO II’s periodic filings with the Securities and Exchange Commission.
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PECO II, Inc. First-quarter 2003 Results/3
PECO II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2003 | 2002 | |||||||
Net sales: | ||||||||
Product | $ | 6,148 |
| $ | 6,547 |
| ||
Services |
| 4,962 |
|
| 10,427 |
| ||
| 11,110 |
|
| 16,974 |
| |||
Cost of goods sold: | ||||||||
Product |
| 6,709 |
|
| 8,110 |
| ||
Services |
| 5,997 |
|
| 9,078 |
| ||
| 12,706 |
|
| 17,188 |
| |||
Gross margin | ||||||||
Product |
| (561 | ) |
| (1,563 | ) | ||
Services |
| (1,035 | ) |
| 1,349 |
| ||
| (1,596 | ) |
| (214 | ) | |||
Operating expenses: | ||||||||
Research, development and engineering |
| 1,195 |
|
| 2,683 |
| ||
Selling, general and administrative |
| 3,147 |
|
| 4,699 |
| ||
Real estate impairment |
| 1,096 |
|
| — |
| ||
| 5,438 |
|
| 7,382 |
| |||
Loss from operations |
| (7,034 | ) |
| (7,596 | ) | ||
Interest income (expense), net |
| 17 |
|
| 97 |
| ||
Loss before income taxes and before cumulative effect of |
| (7,017 | ) |
| (7,499 | ) | ||
Provision (benefit) for income taxes |
| 27 |
|
| (2,757 | ) | ||
Loss before cumulative effect of accounting change |
| (7,044 | ) |
| (4,742 | ) | ||
Impairment of goodwill |
| — |
|
| (1,835 | ) | ||
Net loss | $ | (7,044 | ) | $ | (6,577 | ) | ||
Net loss per common share before cumulative effect of | ||||||||
Basic | $ | (0.33 | ) | $ | (0.22 | ) | ||
Diluted | $ | (0.33 | ) | $ | (0.22 | ) | ||
Net loss per common share: | ||||||||
Basic | $ | (0.33 | ) | $ | (0.30 | ) | ||
Diluted | $ | (0.33 | ) | $ | (0.30 | ) | ||
Weighted average common shares outstanding: | ||||||||
Basic |
| 21,142 |
|
| 21,868 |
| ||
Diluted |
| 21,142 |
|
| 21,868 |
| ||
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PECO II, Inc. First-quarter 2003 Results/4
PECO II, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS | March 31, | December 31, | ||||||
2003 | 2002 | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 9,183 |
| $ | 25,674 |
| ||
Accounts receivable |
| 9,174 |
|
| 7,802 |
| ||
Inventories |
| 18,463 |
|
| 18,738 |
| ||
Prepaid expenses and other current assets |
| 1,147 |
|
| 1,170 |
| ||
Refundable and deferred income taxes |
| 12,500 |
|
| 12,500 |
| ||
Assets held for sale |
| 8,405 |
|
| 8,405 |
| ||
Restricted industrial revenue bond funds |
| 10,466 |
|
| 137 |
| ||
Total current assets |
| 69,338 |
|
| 74,426 |
| ||
Property and equipment, at cost: | ||||||||
Land and land improvements |
| 254 |
|
| 254 |
| ||
Buildings and building improvements |
| 10,365 |
|
| 11,462 |
| ||
Machinery and equipment |
| 9,841 |
|
| 9,833 |
| ||
Furniture and fixtures |
| 8,451 |
|
| 8,485 |
| ||
| 28,911 |
|
| 30,034 |
| |||
Less-accumulated depreciation |
| (9,836 | ) |
| (9,181 | ) | ||
| 19,075 |
|
| 20,853 |
| |||
Other Assets: | ||||||||
Goodwill and other intangibles, net |
| 13,542 |
|
| 13,542 |
| ||
Long term notes receivable |
| 24 |
|
| 35 |
| ||
Total Assets | $ | 101,979 |
| $ | 108,856 |
| ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt | $ | 9,425 |
| $ | 9,425 |
| ||
Capital leases payable |
| 321 |
|
| 316 |
| ||
Accounts payable |
| 2,978 |
|
| 2,799 |
| ||
Accrued compensation expense |
| 1,640 |
|
| 1,587 |
| ||
Other accrued expenses |
| 6,981 |
|
| 7,638 |
| ||
Accrued income taxes |
| 578 |
|
| 613 |
| ||
Borrowings under line of credit |
| 702 |
|
| — |
| ||
Total current liabilities |
| 22,625 |
|
| 22,378 |
| ||
Long-term Liabilities: | ||||||||
Capital leases payable, net of current portion |
| 611 |
|
| 691 |
| ||
Total long-term liabilities |
| 611 |
|
| 691 |
| ||
Shareholders’ Equity: | ||||||||
Common shares |
| 2,816 |
|
| 2,816 |
| ||
Additional paid-in capital |
| 111,335 |
|
| 111,335 |
| ||
Retained deficit |
| (33,004 | ) |
| (25,960 | ) | ||
Treasury shares |
| (2,404 | ) |
| (2,404 | ) | ||
Total shareholders’ equity |
| 78,743 |
|
| 85,787 |
| ||
Total Liabilities and Shareholders’ Equity | $ | 101,979 |
| $ | 108,856 |
| ||
###
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