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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2003
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 Number)
2 TECHNOLOGY DRIVE
CENTENNIAL PARK
PEABODY, MASSACHUSETTS 01960-7977
(Address of Principal Executive Offices, Including 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 ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ____ No X
Number of shares of common stock, $0.01 par value, outstanding at June 5, 2003:
8,951,945.
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PCD INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements....................................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................. 16
Item 4. Controls and Procedures.................................................................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders........................................................ 17
Item 5. Other Information.......................................................................................... 17
Item 6. Exhibits and Reports on Form 8-K........................................................................... 17
Signatures............................................................................................. 19
- 1 -
PCD INC.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 29, 2003
FORWARD-LOOKING INFORMATION
STATEMENTS IN THIS REPORT CONCERNING THE FINANCIAL CONDITION AND BUSINESS
OF PCD INC. AND OTHER STATEMENTS IN THIS REPORT CONTAIN CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. FOR EACH OF
THESE STATEMENTS, PCD INC. CLAIMS THE PROTECTION OF THE SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS CONTAINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. THESE STATEMENTS INCLUDE STATEMENTS REGARDING ONGOING OPERATIONS.
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL OR CURRENT FACTS REGARDING
FUTURE PLANS, EVENTS AND PROSPECTS ARE FORWARD-LOOKING STATEMENTS. THE
STATEMENTS ARE SUBJECT TO SIGNIFICANT RISKS, CONTINGENCIES AND UNCERTAINTIES
INCLUDING, BUT NOT LIMITED TO: CHANGES IN GENERAL ECONOMIC CONDITIONS, AND THE
LIKE. THE COMPANY'S MOST RECENT FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING FORM 10-K, CONTAIN ADDITIONAL INFORMATION CONCERNING MANY
OF THESE RISK FACTORS, AND COPIES OF THESE FILINGS ARE AVAILABLE FROM THE
COMPANY UPON REQUEST AND WITHOUT CHARGE.
PCD INC. DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS, ANY OBLIGATION TO
RELEASE PUBLICLY THE RESULT OF ANY REVISIONS THAT MAY BE MADE TO ANY
FORWARD-LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR
UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS
- 2 -
PCD INC.
CONSOLIDATED BALANCE SHEETS
(CONDENSED AND UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3/29/03 12/31/02
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,388 $ 919
Accounts receivable, net............................... 4,881 4,639
Inventory.............................................. 4,313 4,295
Prepaid expenses and other current assets.............. 536 486
-------- --------
Total current assets................................. 11,118 10,339
Equipment and improvements:
Equipment and improvements............................. 12,091 11,995
Accumulated depreciation............................... 8,640 8,391
-------- --------
Equipment and improvements, net...................... 3,451 3,604
Debt financing fees...................................... 201 321
Other assets............................................. 336 367
-------- --------
Total assets................................... $ 15,106 $ 14,631
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt....................................... $ 17,585 $ 16,885
Current portion of long-term debt...................... 24,000 24,000
Accounts payable - trade............................... 2,223 1,483
Accrued interest....................................... 1,448 1,076
Accrued liabilities.................................... 1,630 2,100
-------- --------
Total current liabilities............................ 46,886 45,544
Accumulated other comprehensive (loss) income............ (81) 40
Stockholders' equity..................................... (31,699) (30,953)
-------- --------
Total liabilities and stockholders' equity..... $ 15,106 $ 14,631
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
PCD INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONDENSED AND UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
--------------------
3/29/03 3/30/02
-------- --------
Net sales.................................................. $ 6,608 $ 6,143
Cost of sales.............................................. 4,096 4,952
-------- --------
Gross profit............................................. 2,512 1,191
Operating expenses......................................... 2,461 2,321
Amortization of intangibles................................ - 277
Loss on debt extinguishment................................ - 3,867
Interest expense........................................... 838 777
Other (income)/expense, net................................ (41) (6)
-------- --------
Loss before income taxes,
and cumulative effect of change in accounting principle (746) (6,045)
Benefit for income taxes................................... - (2,700)
-------- --------
Loss before
cumulative effect of change in accounting principle...... (746) (3,345)
Cumulative effect of change in accounting principle........ - 12,500
-------- --------
Net loss................................................. $ (746) $(15,845)
======== ========
Net loss per share, basic and diluted:
Net loss before
cumulative effect of change in accounting principle $ (0.08) $ (0.37)
Cumulative effect of change in accounting principle...... - (1.40)
-------- --------
Net loss per share..................................... $ (0.08) $ (1.77)
======== ========
Weighted average number of shares outstanding:
Basic and diluted..................................... 8,952 8,938
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
PCD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONDENSED AND UNAUDITED)
(IN THOUSANDS)
QUARTER ENDED
--------------------
3/29/03 3/30/02
--------- --------
Cash flows from operating activities:
Net loss.......................................................... $ (746) $(15,845)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.................................................... 250 1,231
Amortization.................................................... 120 453
Impairment of goodwill.......................................... - 12,500
Loss on debt extinguishment..................................... - 3,867
Changes in operating assets and liabilities:
Accounts receivable........................................... (248) (22)
Income tax refund receivable.................................. - (2,700)
Inventory..................................................... (34) 13
Prepaid expenses and other current assets..................... (51) 170
Other assets ................................................. 31 -
Accounts payable.............................................. 817 (197)
Accrued liabilities........................................... (256) (774)
-------- --------
Net cash used in operating activities....................... (117) (1,304)
Cash flows from investing activities:
Capital expenditures.............................................. (110) (272)
-------- --------
Net cash used in investing activities....................... (110) (272)
Cash flows from financing activities:
Borrowings of short-term debt..................................... 700 1,980
Deferred financing and loan amendment fees........................ - (247)
-------- --------
Net cash provided by financing activities................... 700 1,733
Net increase in cash................................................ 473 157
Effect of exchange rate on cash..................................... (4) 1
Cash and cash equivalents at beginning of period.................... 919 543
-------- --------
Cash and cash equivalents at end of period.......................... $ 1,388 $ 701
======== ========
The accompanying notes are an integral part of the consolidated financial
statements
- 5 -
PCD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 29, 2003 UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS:
The condensed consolidated financial statements included herein have
been prepared by us, 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 we believe that the disclosures are adequate to
make the information presented not misleading. In our opinion, 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, 2002.
NOTE 2. BANKRUPTCY FILING:
On March 21, 2003, PCD Inc. entered into definitive agreements to
sell the assets of its two business units. PCD agreed to sell its
Industrial/Avionics Division, headquartered in Peabody, MA, to Amphenol
Corporation ("Amphenol") for $14 million, less assumed liabilities and agreed to
sell the Wells-CTI Division which has headquarters in Phoenix, AZ, to UMD
Technology Inc. ("UMD") for approximately $2 million plus assumed liabilities.
To facilitate the sales, PCD Inc. and its domestic subsidiary, Wells-CTI, Inc.,
filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the District of Massachusetts. The Chapter 11 filings
allow the sale of the assets of the domestic entities to be free and clear from
certain liabilities that the prospective purchasers do not wish to assume.
On May 1, 2003 PCD Inc. completed the sale of substantially all of the
assets and operations of the Industrial/Avionics division to Amphenol and on May
6, 2003, PCD Inc., through its subsidiary, Wells-CTI, Inc., completed the sale
of the Wells-CTI division to UMD.
On May 20, 2003, the Company's plan of reorganization was confirmed by
the Court. As a result, PCD's creditors will receive the proceeds from the sale
of PCD's assets to Amphenol and UMD as well as any additional cash on PCD's
balance sheet after the close of the transactions. The Company will then be
liquidated and there will be no distribution to shareholders.
- 6 -
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No.148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. As
provided for in SFAS No. 123, the Company has elected to apply Accounting
Principles Board ("APB") No. 25 "Accounting for Stock Issued to Employees" and
related interpretations in accounting for our stock based compensation plans. We
intend to continue to apply the provisions of APB No. 25.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The Company realized no material impact upon adoption.
NOTE 4. STOCK BASED COMPENSATION:
The Company accounts for stock based employee compensation
arrangements in accordance with the provisions of APB No. 25, Accounting for
Stock Issued to Employees, and comply with the disclosure provisions of SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 requires that
companies either recognize compensation expense for grants of stock, stock
options, and other equity instruments based on fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to the financial
statements. The Company adopted the disclosure provisions of SFAS No. 123 in
1996 and has applied APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates as
calculated in accordance with SFAS No. 123, the Company's net loss and loss per
share for the three months ended March 29, 2003 and March 30, 2002 would have
been increased to the pro forma amounts indicated below:
- 7 -
(In thousands) 3/29/03 3/29/02
-------- --------
Net loss, as reported $ (746) $(15,845)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (2) (45)
-------- --------
Pro forma net loss $ (748) $(15,890)
-------- --------
Loss per share:
Basic and diluted - as reported $ (0.08) $ (1.77)
-------- --------
Basic and diluted - pro forma $ (0.08) $ (1.78)
-------- --------
The fair value of each stock option is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
3/29/03 3/30/02
------- -------
Dividend yield........... None None
Expected volatility...... 100.0% 72.44%
Risk free interest rate.. 3.1% 3.7%
Expected life (years).... 5.0 5.0
NOTE 5. NET LOSS PER SHARE:
The following tables reconcile net loss and weighted average shares
outstanding to the amounts used to calculate basic and diluted earnings per
share for the periods ended March 29, 2003 and March 30, 2002:
[ ](In thousands, except per share amounts)
PER
SHARE
NET LOSS SHARES AMOUNT
-------- ------ ------
FOR THE PERIOD ENDED MARCH 29, 2003
Basic and diluted loss......................... $ (746) 8,952 $ (0.08)
============ ===== =======
FOR THE PERIOD ENDED MARCH 30, 2002
Basic and diluted loss......................... $ (15,845) 8,938 $ (1.77)
============ ===== =======
Potential common stock shares of 1,727,835 and 615,888 for the quarters ended
March 29, 2003 and March 30, 2002, respectively, have been excluded from the
calculation of EPS, as their inclusion would be anti-dilutive.
- 8 -
NOTE 6. INVENTORY:
Inventory consisted of the following:
(IN THOUSANDS) 3/29/03 12/31/02
------- --------
Raw materials and finished subassemblies.... $ 3,151 $ 2,940
Work in process............................. 58 26
Finished goods.............................. 1,104 1,329
------- ---------
Total....................................... $ 4,313 $ 4,295
======= ========
NOTE 7. COMPREHENSIVE LOSS:
Our only other comprehensive loss is foreign currency translation
adjustments. For the three months ended March 29, 2003 and March 30, 2002, our
total comprehensive loss was as follows:
THREE MONTHS ENDED
-------------------
(IN THOUSANDS) 3/29/03 3/30/02
-------- --------
Net loss............................ $ (746) $(15,845)
Other comprehensive loss, net....... (121) (12)
-------- --------
Total comprehensive loss............ $ (867) $(15,857)
======== ========
NOTE 8. COMMITMENTS AND CONTINGENCIES:
Bankruptcy:
On March 21, 2003, PCD Inc. entered into definitive agreements to sell
the assets of its two business units. PCD agreed to sell its Industrial/Avionics
Division, headquartered in Peabody, MA, to Amphenol Corporation ("Amphenol") for
$14 million, less assumed liabilities and agreed to sell the Wells-CTI Division
which has headquarters in Phoenix, AZ, to UMD Technology Inc. ("UMD") for
approximately $2 million plus assumed liabilities. To facilitate the sales, PCD
Inc. and its domestic subsidiary, Wells-CTI, Inc., filed voluntary petitions
under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for
the District of Massachusetts. The Chapter 11 filings allow the sale of the
assets of the domestic entities to be free and clear from certain liabilities
that the prospective purchasers do not wish to assume.
On May 1, 2003 PCD Inc. completed the sale of substantially all
of the assets and operations of the Industrial/Avionics division to Amphenol and
on May 6, 2003, PCD Inc., through its subsidiary, Wells-CTI, Inc., completed the
sale of the Wells-CTI division to UMD.
On May 20, 2003, the Company's plan of reorganization was
confirmed by the Court. As a result, PCD's creditors will receive the proceeds
from the sale of PCD's assets to Amphenol and UMD as well as any additional cash
on PCD's balance sheet after the close of the transactions. The Company will
then be liquidated and there will be no distribution to shareholders.
- 9 -
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 on the advice received from legal counsel, it is our
opinion 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.
Guarantees:
The Company, to the extent legally permissible under
Massachusetts law, indemnifies its officers and directors for certain events or
occurrences while the officer or director is, or was serving, at the Company's
request in such capacity. The term of the indemnification period is for the
officer's or director's lifetime. The potential amount of future payments the
Company could be required to make under these indemnification agreements is
unlimited. No person shall have any right to indemnification for liabilities or
expenses imposed or incurred in connection with any matter as to which such
person shall be finally adjudged in such action, suit or proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the Company or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan. No claim for
indemnification has been made by any person covered by said agreements, and/or
the relevant provisions of the Company's Articles or By-laws, the Company
believes that its estimated exposure for these indemnification obligations is
currently minimal.
NOTE 9. TAX REFUND:
A provision of the Job Creation and Worker Assistance Act of 2002 passed by
Congress in March 2002, allowed companies to carry back their 2001 and 2002 tax
operating losses for a period of five years instead of two. The legislation
allowed us to carry back tax losses from 2001 to offset taxable income in 1996
and 1997, resulting in a refund of approximately $2.7 million. We recorded a tax
benefit and receivable for this amount in the first quarter of 2002 and received
the refund in July 2002.
NOTE 10. GOODWILL AND INTANGIBLE ASSETS:
During 2002 we adopted SFAS No. 142 and recorded a transitional
impairment charge of $12.5 million during the first quarter as a cumulative
effect of a change in accounting principle. This charge was based on discounted
cash flow analysis for the Wells-CTI semiconductor burn in division. This
goodwill originated from our acquisition of Wells-Electronics in 1997. We
completed our required annual impairment test of goodwill as of December 31,
2002 and recorded an additional impairment of $36.8 million. This impairment was
based on the fair value of the Wells-CTI reporting unit as determined by the
then proposed sale of our Wells-CTI division to UMD.
- 10 -
At December 31, 2002 we recorded an additional impairment charge of
$9.3 million related to the intangible assets of our Wells-CTI segment thereby
reducing the value of these assets to zero. This impairment was based on the
fair value of the Wells-CTI business as determined by the then proposed sale of
our Wells-CTI division to UMD. Accordingly, there was no aggregate amortization
expense for the three month period ended March 29, 2003 and the aggregate
amortization expense for the three month period ended March 30, 2002 was
$259,000.
NOTE 11. SEGMENT INFORMATION:
The Company designs, manufactures and markets electronic connectors for use
in Semiconductor burn-in applications, industrial equipment and avionics. The
Company has two principal businesses: Semiconductor burn-in segment and
industrial and avionics segment. Each of these is a business segment with its
respective financial performance detailed in this report. Net income of the two
principal businesses excludes the effects of special charges and gains. The
results for Semiconductor burn-in include the effects of royalty revenues from
IC package-related cross-license agreements. Business assets are the owned or
allocated assets used by each business. Included in corporate activities are
general corporate expenses, net of elimination of inter-segment transactions,
which are generally intended to approximate market prices. Assets of corporate
activities include cash, corporate equipment and improvements, net.
THREE MONTHS ENDED
--------------------
(IN THOUSANDS) 3/29/03 3/30/02
-------- --------
SALES:
Industrial/Avionics......... $ 3,737 $ 3,475
Semiconductor Burn-in....... 2,871 2,668
-------- --------
Totals.................... $ 6,608 $ 6,143
======== ========
NET INCOME (LOSS):
Industrial/Avionics......... $ 205 $ 290
Semiconductor Burn-in....... 262 (14,829)
Corporate activities........ (1,213) (1,306)
-------- --------
Totals.................... $ (746) $(15,845)
======== ========
3/29/03 12/31/02
------- --------
ASSETS:
Industrial/Avionics......... $ 8,248 $ 8,001
Semiconductor Burn-in....... 4,495 4,379
Corporate activities........ 2,363 2,251
------- -------
Totals...................... $15,106 $14,631
======= =======
NOTE 12. DEBT
On December 26, 1997, the Company entered into a secured Revolving
Credit Agreement ("Revolver") and secured term loan agreements (collectively
referred to as the
- 11 -
"Senior Credit Facility") with several banks. On February 27, 2002, the Senior
Credit Facility was replaced by an Amended and Restated Loan Agreement comprised
of a $20.0 million Revolving Credit Loan and secured term loans aggregating
$24.0 million (collectively referred to as the "Amended Senior Credit
Facility"). The Amended Senior Credit Facility is collateralized by all of the
assets of PCD and its subsidiaries. In conjunction with the Amended Senior
Credit Facility, PCD and Wells-CTI (formerly Wells Electronics, Inc. and CTI
Technologies, Inc.) each entered into a stock pledge agreement pledging all or
substantially all of the stock of the subsidiaries of PCD and Wells-CTI. Each of
PCD, Wells-CTI and certain of their subsidiaries also entered into a security
agreement and certain other collateral or conditional assignments of assets.
In connection with Amended Senior Credit Facility, the lenders
received warrants, exercisable immediately and for a period of ten years, to
purchase 1,450,000 shares of common stock of the Company at $0.01 per share. In
addition, warrants previously issued in 2000 to the lenders to purchase 203,949
shares of the Company's common stock at $4.90 per share were re-priced to $0.01
per share. The new and re-priced warrants were valued at $2.0 million utilizing
the Black Scholes pricing method. The assumptions utilized under the Black
Scholes method were 96% volatility, 1.82% risk free rate of return, no dividends
and a term of ten years.
The replacement of the Senior Credit Facility with the Amended Senior
Credit Facility was accounted for as an extinguishment of the existing debt and
an issuance of new debt under the provisions of SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,
and Emerging Issues Task Force ("EITF") 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments. The transaction resulted in a loss
of $3.9 million in 2002. The loss was subsequently reclassified in accordance
with SFAS No. 145, Rescission of FAS Nos. 4, 44 and 64, Amendment of SFAS No. 13
and Technical Corrections as of April 2002. Included in this loss are the cost
of the re-priced warrants, the new warrants issued to the lenders ($2.1 million)
and unamortized bank fees on the old debt ($1.8 million).
At March 29, 2003 and December 31, 2002 the amounts outstanding under
the Amended Senior Credit Facility were $41.6 million and $40.9 million,
respectively. At March 29, 2003, the Company had no borrowing availability and
its borrowing availability at December 31, 2002 was capped based upon projected
borrowing needs as submitted by the Company and as approved by the lenders on a
monthly basis. The Company was only permitted to borrow during the first quarter
of 2003 to fund professional fees in connection with the bankruptcy ($400,000)
and to settle the South Bend lease ($300,000) in March 2003.
On May 1, 2003 PCD Inc. completed the sale of substantially all of the
assets and operations of the Industrial/Avionics division to Amphenol and on May
6, 2003, PCD Inc., through its subsidiary, Wells-CTI, Inc., completed the sale
of the Wells-CTI division to UMD.
- 12 -
On May 20, 2003, the Company's plan of reorganization was confirmed by
the Court. As a result, PCD's creditors will receive the proceeds from the sale
of PCD's assets to Amphenol and UMD as well as any additional cash on PCD's
balance sheet after the close of the transactions.
- 13 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 29, 2003 COMPARED TO THE QUARTER ENDED MARCH 30, 2002
Net Sales. Net sales of $6.6 million for the quarter ended March 29, 2003
increased by $0.5 million or 8% from net sales of $6.1 million during the prior
year quarter. Net sales of $2.9 million in the semiconductor burn-in socket
product lines were up $0.2 million or 8% from the prior year quarter due to
higher shipments from the Company's Japan subsidiary. Industrial/Avionics
division net sales were $3.7 million, up $0.3 million or 8% from the prior year.
This increase was due primarily to increased demand from customers.
Gross Profit. Gross profit was $2.5 million for the quarter ended March 29, 2003
as compared with $1.2 million during the prior year quarter. As a percentage of
net sales, gross profit was 38% during the quarter as compared with 19% during
the prior year. The increase from last year was due primarily to a $1.2 million
reduction in manufacturing expense primarily as a result of lower depreciation.
The lower depreciation resulted from the Wells-CTI division having written its
property plant and equipment down to fair value at December 31, 2002 based on
the then proposed sale to UMD.
Operating Expenses. Operating expenses were $2.5 million during the quarter
ended March 29, 2003 as compared to $2.3 million during the prior year quarter.
Operating expenses include selling, general and administrative expenses and
costs of product development. The increase from the prior year was due primarily
to higher professional fees expense in connection with the Company's sales of
assets and bankruptcy filing.
Loss on Debt Extinguishment. In connection with our debt restructuring, we
recognized a non-cash charge of $3.9 million during the quarter ended March 30,
2002. The charge consisted of $2.1 million of valuation on new and re-priced
warrants as well as $1.8 million of unamortized bank fees and previous warrant
valuation.
Interest Expense and Other Income, Net. Interest expense during the quarter
ended March 29, 2003 was $838,000 and was $777,000 during the quarter ended
March 30, 2002. The increase in 2003 was due to a higher outstanding balance and
the higher weighted average interest rates on the Amended Senior Credit Facility
in 2003.
Amortization of Goodwill and Other Intangibles and Cumulative Effect of Change
in Accounting Principle. We adopted SFAS No. 142, on January 1, 2002. In
accordance with SFAS No. 142, goodwill amortization was discontinued as of
January 1, 2002. The Company completed the transitional impairment test and
recorded a goodwill impairment charge of $12.5 million, related to our
semiconductor burn-in segment as a cumulative effect of change in accounting
principle in the first quarter of 2002. Amortization of $277,000 during the
quarter ended March 30, 2002
- 14 -
consisted of amortization of other intangible assets, principally patents and
trademarks. Amortization was zero during the three months ended March 29, 2003
as a result of the Wells-CTI division having written its patents and trademarks
down to fair value at December 31, 2002 as determined by the then proposed sale
of our Wells-CTI division to UMD.
Benefit For Income Taxes. During the quarter ended March 30, 2002 we recognized
a tax benefit of $2.7 million resulting from recent legislation that extended
the tax loss carry back period for 2001 and 2002 tax years from two to five
years. The $2.7 million benefit consisted entirely of an anticipated tax refund,
which was received during the second quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $117,000 during the quarter
ended March 29, 2003 as compared with $1.3 million during the previous year. The
reduction in cash used in operating activities was due primarily to higher
revenue in 2003 together with reduced payments to vendors as a result of the
bankruptcy filing.
On March 21, 2003, PCD Inc. entered into definitive agreements to sell the
assets of its two business units. PCD agreed to sell its Industrial/Avionics
Division, headquartered in Peabody, MA, to Amphenol Corporation ("Amphenol") for
$14 million, less assumed liabilities and agreed to sell the Wells-CTI Division
which has headquarters in Phoenix, AZ, to UMD Technology Inc. ("UMD") for
approximately $2 million plus assumed liabilities. To facilitate the sales, PCD
Inc. and its domestic subsidiary, Wells-CTI, Inc., filed voluntary petitions
under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for
the District of Massachusetts. The Chapter 11 filings allow the sale of the
assets of the domestic entities to be free and clear from certain liabilities
that the prospective purchasers do not wish to assume.
On May 1, 2003 PCD Inc. completed the sale of substantially all of the
assets and operations of the Industrial/Avionics division to Amphenol and on May
6, 2003, PCD Inc., through its subsidiary, Wells-CTI, Inc., completed the sale
of the Wells-CTI division to UMD.
On May 20, 2003, the Company's plan of reorganization was confirmed by
the Court. As a result, PCD's creditors will receive the proceeds from the sale
of PCD's assets to Amphenol and UMD as well as any additional cash on PCD's
balance sheet after the close of the transactions. The Company will then be
liquidated and there will be no distribution to shareholders.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
The Company was exposed to certain market risks including primarily the
effects of changes in foreign currency exchange rates and interest rates.
Investments in foreign subsidiaries, and their resultant operations, denominated
in foreign currencies, create exposures to changes in exchange rates. Prior to
March 21, 2003, the Company was exposed to fluctuations in interest rates in
connection with its variable rate term loan.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Form 10-Q, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Chairman of the Board, Chief Executive
Officer and President along with the Company's Vice President, Finance and
Administration, Chief Financial Officer and Treasurer, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's
Chairman of the Board, Chief Executive Officer and President along with the
Company's Vice President, Finance and Administration, Chief Financial Officer
and Treasurer, concluded that the Company's disclosure controls and procedures
are effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings. There have been no significant changes in the
Company's internal controls or other factors which could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 8 to the Company's Condensed Consolidated Financial Statements
(above).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION
On June 5, 2003, with the approval of the Bankruptcy Court,
the Company filed Articles of Amendment with the Secretary of State of
the Commonwealth of Massachusetts changing its name from PCD Inc. to MJS
Liquidation Corp.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment to Articles of Organization, dated June 5, 2003
99.1 Chief Executive Officer Certification
99.2 Chief Financial Officer Certification
(b) Reports on Form 8-K
Amendment and Temporary Waiver No. 4, dated December 31, 2002
Announcement of Receipt of Nasdaq Delisting Notice, dated January 28, 2003
Announcement of filing of voluntary petition under Chapter 11 of U.S.
Bankruptcy Code, and approval of "first day motions", dated March 31, 2003
Monthly Operating Statements for PCD Inc. and Wells-CTI, Inc. for the
period from February 23, 2003 through March 29, 2003
Amended Form 8-K reconciling the U.S. Bankruptcy Trustee filings to
GAAP dated May 5, 2003.
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Announcement of sales of assets and operations of the
Industrial/Avionics and Wells-CTI businesses dated May 7, 2003.
Monthly Operating Statements for PCD Inc. and Wells-CTI, Inc. for the
period from March 30, 2003 through April 30, 2003 dated June 4, 2003.
Announcement of Plans of Reorganization confirmed by the bankruptcy
court dated June 5, 2003.
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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: June 19, 2003 /s/ John L. Dwight, Jr.
-----------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Dated: June 19, 2003 /s/ John J. Sheehan III
-----------------------
John J. Sheehan III
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
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CERTIFICATIONS
I, John L. Dwight, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of PCD Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including it
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 19, 2003
/s/ John L. Dwight, Jr.
---------------------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
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CERTIFICATIONS
I, John J. Sheehan III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PCD Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including it
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 19, 2003
/s/ John J. Sheehan III
---------------------------------
John J. Sheehan III
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer
(Chief Financial and Accounting Officer)
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