UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ending June 30, 2002
Commission File Number 0-21626
ELECTROGLAS, INC.
| DELAWARE (State of Incorporation) |
77-0336101 (I.R.S. Employer Identification Number) |
6024 Silver Creek Valley Road
San Jose, CA 95138
Telephone: (408) 528-3000
(Address of Principal Executive
Offices and Telephone Number)
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 requirement for the past 90 days.
Yes [X] No [ ]
As of July 27, 2002, 21,172,000 shares of the Registrant’s common stock, $0.01 par value, were issued and outstanding.
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our accompanying Financial Statements and the related notes thereto. This Quarterly Report on Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report, other than statements that are purely historical are forward-looking statements. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions also identify forward looking statements. The forward looking statements in this Quarterly Report are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward looking statements and include, without limitation, statements regarding:
| • | Further restructuring charges for workforce reduction, idled facilities and obsolete equipment in connection with the move of our manufacturing facility to Singapore; | |
| • | Our expectation that there will not be a significant technological change in our legacy products in the next eighteen months; | |
| • | Our valuation of the inventory based on our rolling forecast beyond twelve months; | |
| • | Our expectation regarding expenditures in 2002 for leasehold improvements and equipment to outfit our Singapore manufacturing facility; | |
| • | How demand for our products fluctuates with the semiconductor business cycles and is expected to continue to fluctuate from period to period; | |
| • | Our intention to control discretionary expenses and continue investing in our new product development programs during the current business cycle downturn; | |
| • | Our anticipation that our existing capital resources and cash flows generated from future operations will enable us to maintain our current level of operations, planned operations and planned capital expenditures for the foreseeable future, including our significant contractual obligations and commercial commitments; and | |
| • | Our ability to continue to collect our receivables without significant delays in payments or product concessions. |
All forward looking statements included in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward looking statement or statements. The reader should also consult the cautionary statements and risk factors listed from time to time in our Reports on Forms 10-Q, 8-K, and our most recent Annual Report on Form 10-K for the year ended December 31, 2001.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ELECTROGLAS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net sales |
$ | 20,530 | $ | 21,919 | $ | 32,200 | $ | 61,998 | |||||||||
Cost of sales |
19,267 | 16,706 | 30,486 | 41,630 | |||||||||||||
Gross profit |
1,263 | 5,213 | 1,714 | 20,368 | |||||||||||||
Operating expenses: |
|||||||||||||||||
Engineering, research and development |
8,795 | 8,026 | 16,765 | 16,713 | |||||||||||||
Selling, general and administrative |
10,555 | 10,115 | 19,855 | 20,633 | |||||||||||||
In-process research and development |
— | — | — | 281 | |||||||||||||
Restructuring charge |
308 | — | 668 | — | |||||||||||||
Total operating expenses |
19,658 | 18,141 | 37,288 | 37,627 | |||||||||||||
Operating loss |
(18,395 | ) | (12,928 | ) | (35,574 | ) | (17,259 | ) | |||||||||
Interest income |
650 | 2,016 | 1,420 | 4,378 | |||||||||||||
Other income (expense), net |
(30 | ) | (20 | ) | 256 | 22 | |||||||||||
Loss before income taxes |
(17,775 | ) | (10,932 | ) | (33,898 | ) | (12,859 | ) | |||||||||
Provision (benefit) for income taxes |
30 | 15,963 | (1,245 | ) | 16,194 | ||||||||||||
Net loss |
$ | (17,805 | ) | $ | (26,895 | ) | $ | (32,653 | ) | $ | (29,053 | ) | |||||
Basic and diluted net loss per share |
$ | (0.85 | ) | $ | (1.29 | ) | $ | (1.55 | ) | $ | (1.39 | ) | |||||
Shares used in basic and diluted calculations |
21,045 | 20,889 | 21,026 | 20,881 | |||||||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
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ELECTROGLAS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data)
| June 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | (1) | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 57,378 | $ | 40,565 | ||||||
Short-term investments |
26,594 | 46,219 | ||||||||
Accounts receivable, net |
13,877 | 12,053 | ||||||||
Inventories |
35,860 | 40,249 | ||||||||
Prepaid expenses and other current assets |
2,171 | 1,572 | ||||||||
Total current assets |
135,880 | 140,658 | ||||||||
Restricted cash |
48,300 | 48,300 | ||||||||
Equipment and leasehold improvements, net |
20,387 | 16,100 | ||||||||
Goodwill, net |
2,099 | 1,849 | ||||||||
Other intangible assets, net |
1,539 | 2,218 | ||||||||
Other assets |
9,775 | 4,746 | ||||||||
Total assets |
$ | 217,980 | $ | 213,871 | ||||||
Liabilities and stockholders’ equity |
||||||||||
Current liabilities: |
||||||||||
Short-term borrowings |
$ | 1,333 | $ | 1,171 | ||||||
Accounts payable |
4,595 | 3,461 | ||||||||
Accrued liabilities |
16,216 | 16,829 | ||||||||
Total current liabilities |
22,144 | 21,461 | ||||||||
Convertible subordinated notes |
32,932 | — | ||||||||
Non-current liabilities |
14,797 | 12,594 | ||||||||
Stockholders’ equity: |
||||||||||
Preferred
stock, $0.01 par value; authorized shares: 1,000; none outstanding |
— | — | ||||||||
Common
stock, $0.01 par value; authorized shares: 40,000; issued and outstanding shares: 21,327 and 21,236 |
213 | 212 | ||||||||
Additional paid-in capital |
157,030 | 155,836 | ||||||||
Retained earnings |
(6,524 | ) | 26,129 | |||||||
Accumulated other comprehensive loss |
(316 | ) | (65 | ) | ||||||
Cost of common stock in treasury: 155 shares |
(2,296 | ) | (2,296 | ) | ||||||
Total stockholders’ equity |
148,107 | 179,816 | ||||||||
Total liabilities and stockholders’ equity |
$ | 217,980 | $ | 213,871 | ||||||
| (1) | The information in this column was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2001. |
See accompanying Notes to Consolidated Condensed Financial Statements.
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ELECTROGLAS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Six months ended June 30, | |||||||||
| 2002 | 2001 | ||||||||
Cash flows from operating activities: |
|||||||||
Net income (loss) |
$ | (32,653 | ) | $ | (29,053 | ) | |||
Charges to income not affecting cash |
4,482 | 3,969 | |||||||
Deferred income taxes |
— | 18,925 | |||||||
Changes in operating assets and liabilities |
1,944 | (1,000 | ) | ||||||
| (26,227 | ) | (7,159 | ) | ||||||
Cash flows from investing activities: |
|||||||||
Capital expenditures |
(7,819 | ) | (2,894 | ) | |||||
Purchases of investments |
(5,523 | ) | (90,430 | ) | |||||
Maturities of investments |
24,729 | 106,835 | |||||||
Increase in restricted cash |
— | (48,300 | ) | ||||||
Acquisition, net of cash acquired |
— | (561 | ) | ||||||
Other assets |
(2,644 | ) | (508 | ) | |||||
| 8,743 | (35,858 | ) | |||||||
Cash flows from financing activities: |
|||||||||
Net proceeds from issuance of convertible subordinated notes |
32,965 | — | |||||||
Net payments of short-term borrowings |
162 | (121 | ) | ||||||
Sales of common stock |
1,195 | 98 | |||||||
| 34,322 | (23 | ) | |||||||
Effect of exchange rate changes |
(25 | ) | 25 | ||||||
Net increase (decrease) in cash and cash equivalents |
16,813 | (43,015 | ) | ||||||
Cash and cash equivalents, beginning of period |
40,565 | 59,648 | |||||||
Cash and cash equivalents, end of period |
$ | 57,378 | $ | 16,633 | |||||
Supplemental cash flow disclosures: |
|||||||||
Gross proceeds from issuance of convertible subordinated
notes |
35,500 | — | |||||||
Fees paid to placement agent |
(2,485 | ) | — | ||||||
Fees paid to auditors |
(50 | ) | — | ||||||
Net proceeds from issuance of convertible subordinated notes |
32,965 | — | |||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
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ELECTROGLAS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. These consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K.
Operating results for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
The Company’s fiscal year end is December 31. The Company’s fiscal quarters end on the Saturday nearest the end of the calendar quarters. For convenience, the Company has indicated that its quarters end on March 31, June 30 and September 30.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current year presentation.
INVENTORIES
The following is a summary of inventories by major category (in thousands):
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
Raw materials |
$ | 20,471 | $ | 23,812 | ||||
Work in process |
13,163 | 7,075 | ||||||
Finished goods |
2,226 | 9,362 | ||||||
| $ | 35,860 | $ | 40,249 | |||||
The Company periodically reviews the carrying value of its inventories by evaluating material usage and requirements to determine inventory obsolescence and excess quantities, and reduces the value when appropriate.
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Intangible Assets” (SFAS 142), which was issued by the Financial Accounting Standards Board in July 2001. Under this standard, the Company ceased amortizing goodwill, assigned entirely to the EGsoft reporting unit, effective January 1, 2002. In addition, the Company reclassified assembled workforce and acquired customer list, which are no longer defined as acquired intangibles under SFAS 141, to goodwill. Accordingly, there was no amortization of assembled workforce or acquired customer list recognized during the three or six months ended June 30, 2002. In the second quarter of fiscal 2002, in accordance with SFAS 142,
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the Company completed the transitional impairment test of goodwill as of January 1, 2002 and concluded that no impairment existed.
The following table presents a reconciliation of previously reported net loss and net loss per share to the amounts adjusted to exclude goodwill, assembled workforce and acquired customer list amortization (in thousands, except per share data):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net loss, as reported |
$ | (17,805 | ) | $ | (26,895 | ) | $ | (32,653 | ) | $ | (29,053 | ) | |||||
Goodwill amortization |
— | 115 | — | 231 | |||||||||||||
Assembled workforce amortization |
— | 12 | — | 23 | |||||||||||||
Acquired customer list amortization |
— | 20 | — | 39 | |||||||||||||
Adjusted net loss |
$ | (17,805 | ) | $ | (26,748 | ) | $ | (32,653 | ) | $ | (28,760 | ) | |||||
Net loss per share, as reported |
$ | (0.85 | ) | $ | (1.29 | ) | $ | (1.55 | ) | $ | (1.39 | ) | |||||
Goodwill amortization |
— | 0.01 | — | 0.01 | |||||||||||||
Assembled workforce amortization |
— | — | — | — | |||||||||||||
Acquired customer list amortization |
— | — | — | — | |||||||||||||
Basic and diluted adjusted net loss
per share |
$ | (0.85 | ) | $ | (1.28 | ) | $ | (1.55 | ) | $ | (1.38 | ) | |||||
Shares used in basic and diluted
calculations |
21,045 | 20,889 | 21,026 | 20,881 | |||||||||||||
Amortization expense for other intangible assets was $0.2 million and $0.4 million for the three and six months ended June 30, 2002. The estimated annual amortization expense for other intangible assets is $0.9 million, $0.8 million, and $0.2 million for the years ended December 31, 2002, 2003, and 2004, respectively.
Other intangible assets subject to amortization were as follows (in thousands):
| June 30, | December 31, | ||||||||
| 2002 | 2001 | ||||||||
Licenses and other intellectual property |
$ | 2,440 | $ | 2,440 | |||||
Assembled workforce |
— | 140 | |||||||
Acquired customer list |
— | 235 | |||||||
Developed technology |
760 | 760 | |||||||
Gross intangible assets |
3,200 | 3,575 | |||||||
Less accumulated amortization |
(1,661 | ) | (1,357 | ) | |||||
Other intangible assets, net |
$ | 1,539 | $ | 2,218 | |||||
NET LOSS PER SHARE
Basic and diluted net loss per share amounts were computed using the weighted average number of shares of common stock outstanding during the period. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Numerator: Net loss |
$ | (17,805 | ) | $ | (26,895 | ) | $ | (32,653 | ) | $ | (29,053 | ) | ||||
Denominator: Basic and diluted net
loss per share — weighted average
shares |
21,045 | 20,889 | 21,026 | 20,881 | ||||||||||||
Basic and diluted net loss per share |
$ | (0.85 | ) | $ | ||||||||||||