Exhibit 99.1
| | |
| | News Release |
For Immediate Release
Contact:
Sandra A. Frankhouse
Chief Financial Officer and Treasurer
Tel: 419-468-7600
PECO II REPORTS FOURTH-QUARTER AND FULL-YEAR 2003 RESULTS
| | • | Company remains cautious as telecom spending remains low |
| | • | Focus remains on improving operations, costs, and margins |
GALION, Ohio, February 11, 2004 - 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 fourth quarter and year ended December 31, 2003.
PECO II reported net sales of $9.1 million in the quarter, compared with $10.7 million in the fourth quarter of 2002. The Company also reported a net loss of $2.5 million, or $0.12 per diluted share, for the quarter, compared with a net loss of $9.9 million, or $0.47 per diluted share, for the fourth quarter of 2002. The year-ago fourth-quarter net loss includes noncash charges of $2.4 million for such items as a write-off of software and other fixed assets.
Net sales for the year ended December 31, 2003 totaled $38.6 million, compared with $62.1 million in 2002, a 37.8 percent decrease. Net loss for the year was $36.4 million, or $1.72 per diluted share, compared with a net loss of $41.7 million, or $1.94 per diluted share, for 2002. The 2003 net loss includes impairment charges of $1.2 million related to real estate, $8.6 million related to inventory, and $9.0 million related to long-lived assets and goodwill. The 2002 net loss includes impairment charges of $2.0 million related to real estate, $8.0 million related to inventory, and $1.8 million related to an accounting change for goodwill impairment.
“The global economic picture is improving for the wireless industry but not for the wireline industry,” said James L. Green, president and chief executive officer. “One positive barometer is the global market for cell phones that is generally exceeding forecasts bolstered by 13 to 15 percent containing camera phone sales and other 3G features.”
Green added, “We have continued to reduce our costs, as evidenced by the reduction of R&D expenses to $708,000 for the fourth quarter of 2003, which represents a 53.9 percent decrease from $1.5 million a year earlier. Additionally, SG&A expenses declined to $2.3 million, which represents a 64.5 percent decrease from $6.3 million in the fourth quarter of 2002.”
PECO II, Inc. Fourth-quarter and Full-year Fiscal 2003 Results/2
Sales backlog for the 2003 fourth quarter declined $2.7 million to $2.2 million from the reported backlog of $4.9 million in the third quarter of 2003. The book-to-bill ratio was 0.7 for the quarter, compared with 1.0 in the third quarter. The backlog mix changed, with the equipment backlog showing an 80.0 percent decrease in the fourth quarter to $596,000, while the service sector decreased 17.4 percent to $1.6 million.
Cash used in operating activities was $671,000 in the fourth quarter of 2003, compared with $1.2 million a year earlier.
Business Outlook
Green noted that the Telecommunications Industry Association declared the U.S. telecom slump over, with a market report projecting 6.8 percent growth in 2004 and double-digit growth in 2006 and 2007. “Moreover,” he said, “the financial world is heralding that balance sheet deleveraging is out and growth and leveraging is in. Our own wireless customers confirm this trend with plans for deploying new cell sites.”
Green added, “Nevertheless, decreasing CAPEX in wireline services offsets the increasing CAPEX in wireless infrastructure. And while we are more optimistic than previously, we remain cautious. We continue to restructure our organization to improve operations, costs and controls. We are also accelerating product development, incorporating new and more cost-effective technologies and repositioning our products for the changed marketplace.
“With the wireless market beginning to move, with our revitalized product line in view and our restructuring in place, we are gearing up for a greater sales thrust while not significantly increasing sales and marketing expenses.”
PECO II expects to meet its liquidity needs for the foreseeable future through working capital and cash from assets held for sale, Green said. The Company’s re-engineering program is creating operational improvements, reducing overhead and gradually improving margins. This, coupled with the product cost-reduction program, will enable PECO II to reach its financial performance objectives, he added.
Conference Call on the Web
PECO II will hold a conference call with investors and analysts on Wednesday, February 11, 2004, at 10 a.m. Eastern time. The call will be available over the Internet atwww.peco2.com. To listen to the call, go to the 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 and 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.
PECO II, Inc. Fourth-quarter and Full-year Fiscal 2003 Results/3
Forward-Looking Statements
Statements in this release that are not historical facts 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; an uncertain level of 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.
PECO II, Inc. Fourth-quarter and Full-year Fiscal 2003 Results/4
PECO II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
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| | | For the Three Months
Ended December 31,
| | | For the Twelve Months
Ended December 31,
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| | | 2003
| | | 2002
| | | 2003
| | | 2002
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Net sales: | | | | | | | | | | | | | | | | |
Product | | $ | 6,235 | | | $ | 6,785 | | | $ | 20,470 | | | $ | 29,923 | |
Services | | | 2,891 | | | | 3,954 | | | | 18,137 | | | | 32,137 | |
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| | | | 9,126 | | | | 10,739 | | | | 38,607 | | | | 62,060 | |
Cost of goods sold: | | | | | | | | | | | | | | | | |
Product | | | 4,968 | | | | 9,201 | | | | 20,682 | | | | 36,307 | |
Inventory impairment | | | — | | | | — | | | | 8,633 | | | | 8,000 | |
Service | | | 3,572 | | | | 5,490 | | | | 21,357 | | | | 31,847 | |
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| | | | 8,540 | | | | 14,691 | | | | 50,672 | | | | 76,154 | |
Gross margin: | | | | | | | | | | | | | | | | |
Product | | | 1,267 | | | | (2,416 | ) | | | (8,845 | ) | | | (14,384 | ) |
Services | | | (681 | ) | | | (1,536 | ) | | | (3,220 | ) | | | 290 | |
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| | | | 586 | | | | (3,952 | ) | | | (12,065 | ) | | | (14,094 | ) |
Operating expenses: | | | | | | | | | | | | | | | | |
Research, development and engineering | | | 708 | | | | 1,537 | | | | 3,786 | | | | 9,729 | |
Selling, general and administrative | | | 2,253 | | | | 6,345 | | | | 10,350 | | | | 21,269 | |
Impairment of product segment machinery and equipment | | | — | | | | — | | | | 3,300 | | | | — | |
Impairment of service segment goodwill and other intangibles | | | — | | | | — | | | | 5,700 | | | | — | |
Real estate impairment | | | 107 | | | | — | | | | 1,203 | | | | 2,000 | |
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| | | | 3,068 | | | | 7,882 | | | | 24,339 | | | | 32,998 | |
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Loss from operations | | | (2,482 | ) | | | (11,834 | ) | | | (36,404 | ) | | | (47,092 | ) |
Interest income (expense), net | | | 30 | | | | 4 | | | | 91 | | | | 308 | |
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Loss before income taxes and before cumulative effect of accounting change | | | (2,452 | ) | | | (11,830 | ) | | | (36,313 | ) | | | (46,784 | ) |
Provision (benefit) for income taxes | | | — | | | | (1,926 | ) | | | 54 | | | | (6,916 | ) |
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Loss before cumulative effect of accounting change | | | (2,452 | ) | | | (9,904 | ) | | | (36,367 | ) | | | (39,868 | ) |
Impairment of manufacturing segment goodwill | | | — | | | | — | | | | — | | | | (1,835 | ) |
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Net loss | | $ | (2,452 | ) | | $ | (9,904 | ) | | $ | (36,367 | ) | | $ | (41,703 | ) |
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Net loss per common share before cumulative effect of accounting change: | | | | | | | | | | | | | | | | |
Basic | | $ | (0.12 | ) | | $ | (0.47 | ) | | $ | (1.72 | ) | | $ | (1.85 | ) |
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Diluted | | $ | (0.12 | ) | | $ | (0.47 | ) | | $ | (1.72 | ) | | $ | (1.85 | ) |
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Net loss per common share: | | | | | | | | | | | | | | | | |
Basic | | $ | (0.12 | ) | | $ | (0.47 | ) | | $ | (1.72 | ) | | $ | (1.94 | ) |
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Diluted | | $ | (0.12 | ) | | $ | (0.47 | ) | | $ | (1.72 | ) | | $ | (1.94 | ) |
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Weighted average common shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 21,295 | | | | 21,071 | | | | 21,220 | | | | 21,506 | |
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Diluted | | | 21,295 | | | | 21,071 | | | | 21,220 | | | | 21,506 | |
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PECO II, Inc. Fourth-quarter and Full-year Fiscal 2003 Results/5
PECO II, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| | | | | | | | |
| | | December 31, 2003
| | | December 31, 2002
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| ASSETS | | | | | | | | |
Current Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 17,366 | | | $ | 25,674 | |
Accounts receivable | | | 5,967 | | | | 7,802 | |
Inventories | | | 8,573 | | | | 18,738 | |
Prepaid Expenses and other current assets | | | 410 | | | | 1,170 | |
Refundable and deferred income taxes | | | — | | | | 12,500 | |
Assets held for sale | | | 4,136 | | | | 8,405 | |
Restricted cash | | | 7,148 | | | | 137 | |
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Total Current Assets | | | 43,600 | | | | 74,426 | |
Property and equipment, at cost: | | | | | | | | |
Land and land improvements | | | 254 | | | | 254 | |
Buildings and building improvements | | | 9,945 | | | | 11,462 | |
Machinery and equipment | | | 9,671 | | | | 9,833 | |
Furniture and fixtures | | | 7,614 | | | | 8,485 | |
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| | | | 27,484 | | | | 30,034 | |
Less-accumulated depreciation | | | (13,422 | ) | | | (9,181 | ) |
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Property and equipment, net | | | 14,062 | | | | 20,853 | |
Other Assets: | | | | | | | | |
Goodwill and other intangibles, net | | | 7,842 | | | | 13,542 | |
Long term notes receivable | | | 20 | | | | 35 | |
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Total Assets | | $ | 65,524 | | | $ | 108,856 | |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
Current Liabilities: | | | | | | | | |
Borrowings under line of credit | | $ | — | | | $ | — | |
Current portion of industrial revenue bonds | | | 6,080 | | | | 9,425 | |
Capital leases payable | | | 158 | | | | 316 | |
Accounts payable | | | 1,113 | | | | 2,799 | |
Accrued compensation expense | | | 1,492 | | | | 1,587 | |
Other accrued expenses | | | 6,030 | | | | 7,638 | |
Accrued income taxes | | | 579 | | | | 613 | |
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Total current liabilities | | | 15,452 | | | | 22,378 | |
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Long-term Liabilities: | | | | | | | | |
Capital leases payable, net of current portion | | | 535 | | | | 691 | |
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Total long-term liabilities | | | 535 | | | | 691 | |
Shareholders’ Equity: | | | | | | | | |
Common shares | | | 2,816 | | | | 2,816 | |
Additional paid-in capital | | | 110,726 | | | | 111,335 | |
Retained deficit | | | (62,327 | ) | | | (25,960 | ) |
Treasury shares | | | (1,678 | ) | | | (2,404 | ) |
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Total shareholders’ equity | | | 49,537 | | | | 85,787 | |
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Total Liabilities and Shareholders’ Equity | | $ | 65,524 | | | $ | 108,856 | |
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