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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: April 1, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4817
WHITE ELECTRONIC DESIGNS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-0905052
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3601 EAST UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 602/437-1520
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
At April 1, 2000, 18,234,303 shares of the Registrant's Common Stock were
outstanding.
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WHITE ELECTRONIC DESIGNS CORPORATION
AND
SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION................................................................... 2-12
Item 1. Financial Statements
Consolidated Balance Sheets
April 1, 2000, (Unaudited) and
October 2, 1999....................................................... 2
Consolidated Statements of Operations for the
Second Quarter and Six months ended
April 1, 2000 and April 3, 1999, (Unaudited).......................... 3
Statement of Shareholders' Equity
Second Quarter Ended April 1, 2000 (Unaudited)......................... 4
Consolidated Statements of Cash Flow for the
Second Quarter and Six Months ended April 1, 2000
and April 3, 1999, (Unaudited).......................................... 5
Notes to Consolidated Financial
Statements (Unaudited)................................................ 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................... 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..................................................... 12
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds............................... 13
Item 4 Submission of Matters to a Vote of Security Holders..................... 13
Item 6. Exhibits and Reports on Form 8-K........................................ 13
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April 1, October 2,
2000 1999
---- ----
(unaudited)
ASSETS
Current Assets
Cash $ 1,867 $ 305
Accounts receivable, less allowance for
doubtful accounts of $306 and $304 12,429 10,374
Inventories 16,605 14,583
Prepaid expenses 541 354
Deferred income taxes 1,761 2,098
------- -------
Total Current Assets 33,203 27,714
Property, plant and equipment, net 7,413 7,445
Deferred income taxes 1,978 1,978
Goodwill and intangibles 1,066 1,444
Other assets, net 19 190
------- -------
Total Assets $43,679 $38,771
======= ======-
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 5,836 $ 5,165
Accounts payable 6,202 4,697
Accrued salaries and benefits 2,338 2,240
Accrued expenses 2,006 3,028
------- -------
Total Current Liabilities 16,382 15,130
Long term debt 1,780 2,249
Other long term liabilities 1,245 1,190
------- -------
Total Liabilities 19,407 18,569
------- -------
Shareholders' Equity 24,272 20,202
------- -------
Total Liabilities and Shareholders' Equity $43,679 $38,771
======= =======
The accompanying notes are an integral part of these financial statements
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Three months ended Six months ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
---- ---- ---- ----
Revenues $ 21,299 $ 12,960 $ 39,448 $ 25,262
Cost of revenues 13,292 9,978 25,313 20,103
------------ ------------ ------------ ------------
Gross margin 8,007 2,982 14,135 5,159
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,233 944 2,362 1,863
Selling, general and administrative 4,024 2,756 7,029 4,872
Merger expenses 0 100 0 852
Amortization of intangible assets 188 189 378 354
Interest expense 134 120 276 207
------------ ------------ ------------ ------------
Total expenses 5,579 4,109 10,045 8,148
------------ ------------ ------------ ------------
Income/(loss) before income taxes 2,428 (1,127) 4,090 (2,989)
Income tax expense/(benefit) 939 (451) 1,587 (1,195)
------------ ------------ ------------ ------------
Income/(loss) from operations $ 1,489 $ (676) $ 2,503 $ (1,794)
------------ ------------ ------------ ------------
Loss from discontinued operations
net of income tax benefit of $28 0 (342) 0 (342)
Net income/(loss) 1,489 (1,018) 2,503 (2,136)
------------ ------------ ------------ ------------
Income/(loss) per share, continuing operations 0.08 (0.05) 0.14 (0.14)
Loss per share, discontinued operations -- (0.02) -- (0.02)
============ ============ ============ ============
Basic net income/(loss) per share 0.08 (0.07) 0.14 (0.16)
Basic weighted average common shares 17,563,253 15,794,000 16,752,578 14,895,000
============ ============ ============ ============
Diluted net income/(loss) per share $ 0.07 $ (0.07) $ 0.13 $ (0.16)
Diluted weighted average-common shares
and equivalents 20,331,426 15,794,000 19,890,985 14,895,000
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
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Additional Total Share-
Preferred Common Treasury Paid-in Retained holders'
Stock Stock Stock Capital Earnings Equity
----- ----- ----- ------- -------- ------
BALANCE, OCTOBER 2, 1999 $ 120 $ 1,591 $ (4) $ 37,272 $(18,777) $ 20,202
Common stock issuance for exercise
of options: 736,016 shares 73 1,601 1,674
Payment of preferred dividend (89) (89)
Net income 2,503 2,503
Conversion of preferred stock
to common stock: 1,588,693 shares (120) 159 (57) (18)
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 1, 2000 $ -- $ 1,823 $ (4) $ 38,816 $(16,363) $ 24,272
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
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SIX MONTHS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
Net cash provided by operating activities $ 444 $ (500)
-------- --------
INVESTING ACTIVITIES:
Acquisition of property, plant & equipment (707) (1,172)
Cash acquired in acquisition 224
-------- --------
Net cash provided by (used in) investing activities $ (707) $ (948)
-------- --------
FINANCING ACTIVITIES:
Borrowings under line of credit, net 456 1,727
Borrowings of long-term debt 55 22
Retirement of long-term debt (254) (2,384)
Issuance of common stock 1675 3
Payment of preferred stock dividend (89) (180)
Redemption of preferred stock (18) --
-------- --------
Net cash provided by (used in) financing activities $ 1,825 $ (812)
-------- --------
Net change in cash 1,562 (2,260)
Cash at beginning of year 305 2,756
-------- --------
Cash at end of quarter $ 1,867 $ 496
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Details of acquisition
Fair value of assets acquired -- $ 18,074
Fair value of liabilities assumed -- (5,351)
======== ========
Net assets acquired -- $ 12,723
Acquisition costs -- $ (650)
-------- --------
Stock issued in connection with the merger -- $ 12,073
======== ========
The accompanying notes are an integral part of these financial statements
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WHITE ELECTRONIC DESIGNS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 1, 2000, the consolidated statements
of income for the Second Quarter ended April 1, 2000 and April 3, 1999, and the
consolidated statements of cash flows for the Second Quarter ended April 1, 2000
and April 3, 1999, have been prepared by the Registrant without audit. In the
opinion of management all adjustments which are of a normal recurring nature
necessary to present fairly such financial statements have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
be read in conjunction with the financial statements and notes thereto included
in the Registrant's Annual Report on Form 10-K for the fiscal year ended October
2, 1999. The results of operations for the above noted quarter ended April 1,
2000, are not necessarily indicative of the operating results for the full year.
2. EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of the Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective April 3, 1999. SFAS
128 requires the presentation of basic and diluted earnings per share (EPS).
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
is computed giving effect to all potential dilutive common shares that were
outstanding during the period. Potential dilutive common shares consist of the
incremental common shares issuable upon exercise of stock options or conversion
of the preferred shares to common shares. All prior period earnings per share
amounts have been restated to comply with the SFAS 128.
The computation of net earnings (loss) per share is based on the weighted
average number of shares of common stock outstanding during the periods
presented.
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as follows:
SECOND QUARTER ENDED
APRIL 1, 2000 APRIL 3, 1999
------------- -------------
Per Per
Income Shares Share Loss Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Earnings (loss), net of tax $ 1,489,000 $(676,000)
Less: Preferred stock dividends - 90,000
----------- ---------- ----- --------- ---------- ------
BASIC EPS
Earnings (loss), net of tax $ 1,489,000 17,563,253 $0.08 $(766,000) 15,794,000 $(0.05)
----------- ---------- ----- --------- ---------- ------
Effect of Dilutive Securities
Conversion of Preferred Stock 525,401
Common stock options 2,242,772
----------- ---------- ----- --------- ---------- ------
DILUTED EPS
Earnings (loss) available to
Common stock holders $ 1,489,000 20,331,426 $0.07 $(766,000) 15,794,000 $(0.05)
----------- ---------- ----- --------- ---------- ------
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SIX MONTHS ENDED
APRIL 1, 2000 APRIL 3, 1999
------------- -------------
Per Per
Income Shares Share Loss Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Earnings (loss), net of tax $ 2,503,000 $(1,794,000)
Less: Preferred stock dividends 89,000 180,000
------------ ---------- ----- ----------- ---------- ------
BASIC EPS
Earnings (loss), net of tax $ 2,414,000 16,752,578 $0.14 $(1,974,000) 14,895,000 $(0.14)
------------ ---------- ----- ----------- ---------- ------
Effect of Dilutive Securities
Conversion of Preferred stock $ 89,000 1,065,565
Common stock options 2,072,842
------------ ---------- ----- ----------- ---------- ------
DILUTED EPS
Earnings (loss) available to
Common stock holders $ 2,503,000 19,890,985 $0.13 $(1,974,000) 14,895,000 $(0.14)
------------ ---------- ----- ----------- ---------- ------
During the quarter ended April 3, 1999, the convertible preferred stock and the
common stock options were not included in the computation of diluted EPS because
their inclusion would have been antidilutive.
3. INVENTORIES
Inventories consist of the following (in thousands of dollars):
APRIL 1, 2000 OCTOBER 2, 1999
------------- ---------------
Raw materials $ 9,356 $ 7,373
Work-in-process 5,586 4,659
Finished goods 1,663 2,551
-------- -------
Total Inventories $ 16,605 $14,583
======== =======
4. COMMITMENTS AND CONTINGENCIES
On April 25, 1996 the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Federal government. The investigation focused on the
interpretation of certain government contract specified testing requirements on
incoming material. The Company is cooperating fully with the investigation. On
March 13, 1998, the Company was notified by the U.S. Attorney's Office for the
State of Arizona that it has closed its criminal investigation of White
Microelectronics. The U.S. Attorney's office is now pursuing civil damages
against the Company based on their findings from the investigation. The Company
is currently discussing these claims with the U.S. Attorney's office and
believes that the outcome will not have a material adverse effect on future
operations. Based on our discussion and other information available, an accrual
adequate to cover the expected cost has been recorded in the financial
statements.
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5. OPERATIONS BY BUSINESS SEGMENT
We have two reportable business segments, each of which requires different
design and manufacturing resources, and serve customers in different markets.
The Microelectronic segment manufactures mainly memory products for use in
telecommunications and military aerospace markets. The Display segment
manufactures liquid crystal displays and electromechanical components for
customers mainly in the aviation industry.
THREE MONTHS ENDED SIX MONTHS ENDED
(In thousands of dollars) April 1, 2000 April 3, 1999 April 1, 2000 April 3, 1999
- ------------------------- ------------- ------------- ------------- -------------
Net Sales
Microelectronics $ 17,891 $ 9,519 $ 32,518 $ 19,294
Display 3,408 3,441 6,930 5,968
-------- ------- -------- --------
Total Net Sales $ 21,299 $12,960 $ 39,448 $ 25,262
-------- ------- -------- --------
Income before tax
Microelectronics $ 1,897 $ (920) $ 3,159 $ (1,777)
Display 531 (107) 931 (360)
Merger costs 0 (100) - (852)
-------- ------- -------- --------
Total income before tax $ 2,428 $(1,127) $ 4,090 $ (2,989)
======== ======= ======== ========
Identifiable Assets As of April 1, 2000 As of October 2, 1999
- ------------------- ------------------- ---------------------
Microelectronics $ 28,924 $ 24,239
Display 8,064 8,517
General corporate 6,691 6,117
-------- --------
Total Assets $ 43,679 $ 38,771
======== ========
6. CHANGES IN CREDIT FACILITY
During the month of January 2000, we completed a new revolving credit agreement
with Bank One. This agreement increased our maximum borrowing limit to $12
million from the previous limit of $6 million. The actual borrowing limit at any
time is subject to available accounts receivable and inventory balances. As of
the end of the second quarter, we were in compliance with all debt covenant
requirements in the loan agreement.
7. REDEMPTION OF CONVERTIBLE PREFERRED STOCK
On January 5, 2000, the Company announced that it would redeem all outstanding
shares of its Senior Voting Convertible Preferred Stock effective 5:00 p.m.
(EST) February 7, 2000. During that period, holders of 117,523 shares of Senior
Voting Convertible Preferred Stock exercised their right to convert such shares
into 1,566,566 shares of the Company's Common Stock. The issuance was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 3(a)(9) of the Act. The shares of the Preferred Stock were converted to
common stock with no additional payment to the holders. An additional 723 shares
of Preferred Stock were redeemed at the redemption price of $25.00 per share. A
total of $18,075 was paid to redeem these shares. During the first quarter of
fiscal 2000, 1,660 shares of preferred stock were converted into 22,127 shares
of common stock with no additional payment to the holders.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
NET SALES
Net Sales increased 56% to $39.4 million for the six months ended April 1, 2000
from $25.3 million in the same period of 1999. This increase was primarily due
to a 69% increase in sales of microelectronic components to $32.5 million from
$19.3 million. Sales of commercial memory products increased 93% from the
previous year because of substantially higher shipment volume combined with
increased average selling prices based on new product sales. Sales of high
reliability products increased 39% from the previous year based on higher
shipment volumes of monolithic products and level average selling prices when
compared to the previous year. Display sales were $962,000 higher than last year
on slightly higher shipment volumes, a 16% increase.
For the quarter ended April 1, 2000 net sales increased to $21.3 million from
$13.0 million in the previous year, a 64% increase. Again, this increase was
primarily caused by a 96% increase in sales of commercial memory products based
on higher shipment volumes and increased average selling prices on new product
sales. Sales of high reliability memory products were 76% higher than last year
because of substantially higher shipment volumes. Display sales for the second
quarter were approximately the same as last year at $3.4 million, as shipment
volumes and selling prices were comparable to the same period of the previous
year.
Sales of semiconductor products, such as the components used to make our memory
products, have historically been cyclical, and subject to wide fluctuations in
supply and demand. Currently, the industry is experiencing high demand for
certain memory components. While this demand has strengthened average selling
prices, it may also cause a shortage of certain components. We have already seen
lead-times for certain components increase substantially, and are currently
working to assure a steady flow of supplies from our vendors. The ability to
increase our sales in the future will be dependent on our ability to obtain
adequate supplies of semiconductor products from the manufacturers. Our
continued increase in revenues and profits will also depend on the continued
growth of various electronics industries that use our products such as
manufacturers of telecommunications equipment, networking equipment, and
military equipment.
GROSS MARGIN
Gross margin as a percentage of net sales improved to 35.8% in the first six
months of fiscal 2000, from 20.4% in the previous year. The microelectronic
segment saw margins improve to 34.3% from 18.0%. The main causes of this
improvement were higher shipment volumes in both the commercial and high
reliability memory products, which spread fixed manufacturing costs over more
units, and a favorable product mix which included new commercial products and
memory modules which have a higher average selling price. Gross margin for the
Display segment improved to 43.0% from 28.2% in the previous year because of a
higher ratio of liquid crystal display sales as compared to electromechanical
products, and cost reductions at the Fort Wayne facility.
Gross margins for the second quarter as a percentage of net sales improved to
37.6% from 23.0% in the previous year. Gross margin percents for the
microelectronic segment improved to 36.0% from 19.7% mainly because of higher
shipment volumes in both the commercial and high reliability memory products,
and a favorable mix toward products with higher average selling prices. Gross
margin for the Display segment improved to 46.0% from 32.1% mainly because of
shipping a higher proportion of ruggedized liquid crystal displays which had
higher selling prices than the product mix last year.
While gross margins have improved substantially since last year, we could
experience competitive pressures in our markets from existing companies which
could: 1) limit our ability to hold current average selling prices, 2) restrict
our access to electronic and display components, or 3) make it harder for us to
hire and retain key people in the manufacturing, technical, and engineering
areas.
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Unfavorable events in any of these areas could impact our ability to manufacture
product and maintain current sales or gross margins levels. Accordingly, there
can be no assurance we will be able to sustain our recent gross margins. We have
taken various actions to maintain our gross margins, such as purchasing new
capital equipment to improve our efficiencies in the manufacturing areas to
increase our throughput. We are working with semiconductor and display glass
manufacturers to improve the availability of raw materials. We have also
implemented programs to hire new employees and train our current employees to
meet our production requirements. However, given the current demands of the
labor market, there can be no assurance that we will be able to meet all of our
personnel requirements.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the six months ended April 1, 2000
increased $499,000 from the same period in the previous year totaling 6.0% of
net sales. The main source of the increase came from the microelectronic segment
which increased spending $603,000 from the previous year. Major ongoing product
development efforts include SDRAM, microprocessor modules, ball grid array
products, development of new packaging designs for memory products, and
qualification of new semiconductor products. The display segment expenses were
$104,000 lower than last year mainly because of reductions in spending for
interface and mechanical products. Spending on liquid crystal display
development was approximately the same as last year and totaled 10.5% of net
sales.
For the three months ended April 1, 2000, research and development expenses
increased by $289,000 from the previous year, totaling 5.8% of net sales. The
microelectronic segment increased spending by $353,000 for the three months
ended April 1, 2000, which, equaled 5.2% of net sales. Display research and
development expenses decreased $64,000 from last year and totaled 8.6% of sales
with the majority of spending for liquid crystal display development.
We believe that continued strategic investment in process technology and product
development is essential for us to remain competitive in the markets we serve.
We are committed to the appropriate levels of expenditures for research and
development.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the six months ended April 1, 2000, increased $1.3 million
from the same period of the previous year. Increases in spending for
microelectronic sales represented $1.2 million of this increase. The largest
component of the increase in microelectronic expenses was a $932,000 increase in
sales commission expenses based on a 69% sales increase for the segment from the
previous year. The remaining increase was mainly due to expenses for new sales
personnel, advertising and marketing to support sales into the
telecommunications markets. Selling expenses for the display segment were
approximately the same as last year and were mainly used to target the aviation
markets.
For the three months ended April 1, 2000, selling expenses were $543,000 higher
than the same period in the previous year. Microelectronic segment expenses were
$622,000 higher than last year mainly because of a $443,000 increase in sales
commission expense based on an 88% sales increase for the segment. Selling
expenses for the Display segment were $88,000 lower that the same period last
year mainly because of lower headcount and lower expenses in the European sales
office.
General and administrative expenses increased $862,000 for the six months ended
April 1, 2000, and increased $732,000 for the three months ended April 1, 2000,
when compared to the same period in the previous year. This increase is mainly
due to higher salary and benefit expenses relating to employee incentive pay,
legal expenses and cost associated with shareholder services.
The merger expense of $852,000 which was incurred during the first six months of
fiscal 1999, were costs relating to the merger of Bowmar Instrument Corporation
and Electronic Designs, Inc., which occurred on October 26, 1998 and formed
White Electronic Designs Corporation.
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INTEREST EXPENSE
Interest expense increased $69,000 for the six months ended April 1, 2000, and
increased $14,000 for the three months ended April 1, 2000 when compared to the
same periods in the previous year. The increase for the first six months was
caused by borrowings against our line of credit to support higher inventory
levels in anticipation of higher second quarter sales.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization expense increased $24,000 for the six months ended April 1, 2000
and did not change for the three months ended April 1, 2000 when compared to the
same periods in the previous year. Six months of amortization has been taken in
Fiscal 2000, while only five months of amortization were included in the same
period of Fiscal 1999.
YEAR 2000
We have continued to monitor all of our Year 2000 compliance issues through
April 2000. There were no additional costs incurred for Year 2000 compliance in
the second quarter. We have not experienced any significant problems with
suppliers, customers, or shipments because of Year 2000 compliance issues
through the month of April 2000. We do not expect any business interruptions
because of Year 2000 compliance issues in the future.
FINANCIAL CONDITION AND LIQUIDITY
Cash on hand as of April 1, 2000 totaled $1,867,000. During the first six months
of fiscal 2000, cash provided from operations was approximately $444,000. The
sum of net income, depreciation, and amortization totaled approximately $3.6
million for the six month period. However, increases in accounts receivable,
inventories, accounts payable and other assets, based on higher levels of sales
activity, used approximately $3.2 million for working capital requirements. Cash
balances increased approximately $1.6 million during the period. Most of this
increase was funded by borrowings under our line of credit which increased
$456,000 from year end.
Other uses of cash during the first six months of fiscal 2000 included capital
expenditures of $700,000, reduction of long-term debt of $254,000, payment of
accrued expenses $583,000, first quarter preferred dividend payment of $89,000,
and redemption of preferred stock of $18,075.
During the second quarter, we completed the redemption of our Convertible
Preferred Stock. Over 99% of the shareholders elected to convert their preferred
shares into shares of common stock. The remaining shareholders were paid a total
of $18,075 based on redemption price of $25.00 per share. The redemption ended
our requirement to pay quarterly dividends on the preferred shares of $89,000,
and no dividend was paid in the second quarter.
Accounts receivable has increased $2.1 million from the year ended October 2,
1999. This increase is consistent with our higher quarterly sales when compared
to the fourth quarter of last year ($21.3 million versus $17.6 million in the
fourth quarter of 1999). The current accounts receivable balance of $12.4
million represents 58% of the current quarterly sales rate and is consistent
with the 59% ratio at October 2, 1999.
Inventory levels have increased $2.0 million from the year ended October 2,
1999. This increase is consistent with our higher quarterly sales when compared
to the fourth quarter of last year ($21.3 million versus $17.6 million in the
fourth quarter of 1999). The current inventory balances also take into account
projected third quarter production requirements. Also, because of potential
semiconductor component shortages in the future, we are sometimes required to
purchase inventory in advance of our needs to ensure a steady flow of material
through the factory. Inventory amounts, when compared to the current quarterly
sales rate, decreased from 83% of sales at year-end to 80% of sales for the last
quarter. We believe we are holding inventory levels, which are appropriate,
based on lead times for our raw materials and projected production requirements.
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Accounts payable were $1.5 million higher than the end of fiscal 1999. This is
consistent with increased levels of production and requirements for raw
materials as stated above.
Capital expenditures for the six months ended April 1, 2000 totaled
approximately $700,000. Approximately $400,000 has been spent to increase
production capacity for our commercial memory products. An additional $70,000
was spent to install a new enterprise resource computer system that will be used
to improve manufacturing and administrative efficiencies throughout the Company.
Other expenditures included test, manufacturing, and computer equipment for the
high reliability and display divisions. We expect capital expenditures for the
remaining portion of fiscal 2000 remain consistent with levels achieved during
the first six months. Future capital expenditures will be funded by cash from
operations, line of credit borrowings, or operating lease financing.
During the month of January 2000, we completed a new revolving credit agreement
with Bank One. This agreement increased our maximum borrowing limit to $12
million from the previous limit of $6 million. The actual borrowing limit at any
time is subject to available accounts receivable and inventory balances. As of
the end of the second quarter, we were in compliance with all debt covenant
requirements in the loan agreement. We believe that cash generated by
operations, in addition to our borrowing capability, should be sufficient to
fund our cash needs for the next twelve months.
Certain matters discussed in this document contain forward-looking statements.
The words "believe," "expect," "anticipate" and other similar statements of
expectations identify forward-looking statements that speak only as of the date
the statement is made. These forward-looking statements are based largely on
Management's expectations and are subject to a number of risks and
uncertainties, some of which cannot be predicted or quantified and are beyond
the Company's control. Certain risks are described above and in our Annual
Report on Form 10-K under the heading "Risk Factors". In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements
contained in this document will prove to be accurate. Actual results may differ
materially from those in the forward-looking statements.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As of the end of the quarter ended April 1, 2000 we had an outstanding balance
of $5.2 million borrowed against our revolving line of credit with Bank One.
During the second quarter, the average outstanding balance on a daily basis was
approximately $2.8 million. The interest charged against these borrowings is the
Bank One "prime rate," which is similar to the prime rate charged by major
banking institutions in the United States. During the second quarter of fiscal
2000 this rate averaged 8.74%, and currently stands at 9.00% as of April 1,
2000.
Based on average borrowings of $2.8 million per quarter, a hypothetical rate
change of 0.5% would increase our interest expense approximately $3,500 per
quarter from current expense levels. Using an average outstanding balance of
$5.2 million, a 0.5% rate increase would increase our interest expense
approximately $6,500 per quarter from current expense levels. We believe that
moderate interest rate increases will not have a material adverse impact on our
results of operations, or financial position, in the foreseeable future.
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PART II
ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 5, 2000, the Company announced that it would redeem all outstanding
shares of its Senior Voting Convertible Preferred Stock effective 5:00 p.m.
(EST) February 7, 2000. During that period, holders of 117,523 shares of Senior
Voting Convertible Preferred Stock exercised their right to convert such shares
into 1,566,566 shares of the Company's Common Stock. The issuance was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 3(a)(9) of the Act. The shares of the Preferred Stock were converted to
common stock with no additional payment to the holders. An additional 723 shares
of Preferred Stock were redeemed at the redemption price of $25.00 per share. A
total of $18,075 was paid to redeem these shares.
ITEM 4
SUBMISSION OF MATTERS OT A VOTE BY SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on February 11, 2000.
(b) At that meeting all of the then current directors were re-elected. The
vote was as follows:
Name For Withhold Authority
---- --- ------------------
Norman T. Hall 13,011,458 70,632
Donald F. McGuinness 13,011,458 70,632
Thomas M. Reahard 13,011,458 70,632
Hamid R. Shokrgozar 13,011,448 70,642
Thomas J. Toy 13,011,258 70,832
Edward A. White 13,011,238 70,852
(c) At that meeting the shareholders ratified the selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for
fiscal 2000. The vote was as follows:
For 13,012,431
Against 39,746
Abstain 29,913
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
3.1 Amended and Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to Annual Report on Form 10-K filed December 24, 1998).
3.2 Amended and Restated Code of By-laws (incorporated herein by reference
to Exhibit 3.2 to Annual Report on Form 10-K filed December 24, 1998).
4.1 Rights Agreement, dated as of December 6, 1996 between the Registrant
and American Stock Transfer and Trust Corporation (incorporated herein by
reference to Exhibit 5C to the Current Report on Form 8-K filed December 19,
1996).
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4.1A Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration Statement
on Form S-4, Registration No. 333-56565).
4.3* White Electronic Designs Corporation Stock Certificate.
11* Earnings per share computation
27* Financial Data Schedule * Filed herewith.
b. REPORTS ON FORM 8-K.
Form 8-K filed January 5, 2000 filed with the Securities Exchange Commission
regarding the Redemption of outstanding Senior Voting Convertible Stock.
SIGNATURES
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 thereto duly authorized.
WHITE ELECTRONIC DESIGNS CORPORATION
/S/ Hamid R. Shokrgozar
Chief Executive Officer
/S/ William J. Rodes
William J. Rodes
Corporate Controller
Dated: May 12, 2000
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Articles of Incorporation (incorporated
herein by reference to Exhibit 3.1 to Annual Report on Form
10-K filed December 24, 1998).
3.2 Amended and Restated Code of By-laws (incorporated herein by
reference to Exhibit 3.2 to Annual Report on Form 10-K filed
December 24, 1998).
4.1 Rights Agreement, dated as of December 6, 1996 between the
Registrant and American Stock Transfer and Trust Corporation
(incorporated herein by reference to Exhibit 5C to the Current
Report on Form 8-K filed December 19, 1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3,
1998 (incorporated herein by reference to Exhibit 4.3 to the
Registration Statement on Form S-4, Registration No.
333-56565).
4.3* White Electronic Designs Corporation Stock Certificate.
11* Earnings per share computation
27* Financial Data Schedule * Filed herewith.