SBS TECHNOLOGIES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

Commission File Number 1-10981

SBS Technologies, Inc.

Incorporated in New Mexico

IRS Employer Identification No. 85-0359415

2400 Louisiana Blvd. NE AFC Building 5, Suite 600,
Albuquerque, New Mexico 87110
(505) 875-0600

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 [ü] NO [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES [ü] NO [ ]

The total number of shares outstanding of the registrant’s Common Stock as of April 28, 2003 was 14,602,308 shares.

TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statement of Change in Stockholders’ Equity
		Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3 — Quantitative and Qualitative Disclosures about Market Risk
	Item 4 — Controls and Procedures
PART II — OTHER INFORMATION
	Item 1 — Legal Proceedings
	Item 6 — Exhibits and Reports on Form 8-K.
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EX-10.bx Employment Agreement - Bruce E. Castle
EX-99.1 Certification of Chief Executive Officer
EX-99.2 Certification of Chief Financial Officer

SBS Technologies, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended March 31, 2003
Table of Contents


			Page

Forward-Looking Statements				2
PART I – FINANCIAL INFORMATION
	Item 1 –	Unaudited Condensed Financial Statements
		Consolidated Balance Sheets as of March 31, 2003 and June 30, 2002		3
		Consolidated Statements of Operations, Nine and Three Months Ended March 31, 2003 and 2002		4
		Consolidated Statement of Changes in Stockholders’ Equity, Nine Months Ended March 31, 2003		5
		Consolidated Statements of Cash Flows, Nine Months Ended March 31, 2003 and 2002		6
		Notes to Condensed Consolidated Financial Statements as of March 31, 2003		8
	Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
	Item 3 –	Quantitative and Qualitative Disclosures about Market Risk		24
	Item 4 –	Controls and Procedures		24
PART II – OTHER INFORMATION
	Item 1 –	Legal Proceedings		25
	Item 6 –	Exhibits and Reports on Form 8-K		25
SIGNATURES				26
CERTIFICATIONS				27
EXHIBIT INDEX				29

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations and business of SBS Technologies, Inc. and subsidiaries (“SBS” or the “Company”). You may find many of these statements by looking for words like “intends,” “expects,” “projects,” “believes,” “anticipates” or similar expressions in this Form 10-Q. These forward-looking statements include statements regarding future events and the future financial performance of SBS, expected sales and gross margin for the quarter ending June 30, 2003, expectations of internally-generated cash flows, and the recording of any transitional impairment under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” in the year ending June 30, 2003.

These statements are based upon certain assumptions and assessments made by the Company in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These assumptions and assessments include the volume and product mix of sales, estimates of costs and inventory and receivable levels based on preliminary information, and other items.

The forward-looking statements included in this document are subject to a number of risks, uncertainties, and other factors. Among these factors are: business and economic conditions generally affecting our customers and their end customers, including but not limited to the changes in size and program priorities of military procurement budgets; a high degree of uncertainty and rapid change in the markets addressed by our products; customer demand for and acceptance of our products which may affect both sales and margins; our ability to design, test and introduce new products on a timely basis; our technology capabilities; the financial condition of our customers; and the other risk factors listed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2002.

Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by them. SBS cautions you not to place undue reliance on these statements, which speak only as of the date of this Form 10-Q.

SBS does not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Page 2

SBS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Thousands (except share amounts)
(Unaudited)


			March 31,			June 30,
			2003			2002

Assets
Current assets:
	Cash and cash equivalents		$	28,899			24,811
	Receivables, net			22,146			22,619
	Inventories			17,807			18,428
	Deferred income taxes			5,504			9,446
	Income tax receivable			9,724			4,584
	Prepaid expenses			1,941			1,226
	Other current assets			379			165

		Total current assets		86,400			81,279

Property and equipment, net				9,533			11,507
Goodwill, net				21,414			20,468
Intangible assets, net				4,995			6,284
Deferred income taxes				4,383			5,703
Other assets				380			407

		Total assets	$	127,105			125,648

Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		$	2,994			4,528
	Accrued representative commissions			844			518
	Accrued compensation			3,377			4,170
	Other current liabilities			2,918			2,759

		Total current liabilities		10,133			11,975

Other long-term liabilities				27			27

		Total liabilities		10,160			12,002

Stockholders’ equity:
	Common stock, no par value; 200,000,000 shares authorized, 14,602,308 issued and outstanding at March 31, 2003, 14,628,709 issued and outstanding at June 30, 2002			86,341			86,338
	Unearned compensation			(65	)		—
	Accumulated other comprehensive loss			(1,246	)		(3,113	)
	Retained earnings			31,915			30,421

		Total stockholders’ equity		116,945			113,646

		Total liabilities and stockholders’ equity	$	127,105			125,648

See accompanying notes to condensed consolidated financial statements

Page 3

SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
Thousands (except per share amounts)
(Unaudited)


		Nine Months Ended						Three Months Ended
		March 31,						March 31,

		2003			2002			2003			2002

Sales		$	85,999			90,475			28,906			29,694
Cost of sales			43,309			58,043			14,775			14,466

	Gross profit		42,690			32,432			14,131			15,228

Selling, general and administrative expense			25,176			28,650			8,409			9,965
Research and development expense			13,581			13,396			4,160			4,621
Severance and other exit costs			598			572			—			251
Impairment of intangible assets			—			2,682			—			—
Amortization of intangible assets			1,488			5,658			452			1,805

	Operating income (loss)		1,847			(18,526	)		1,110			(1,414	)

Interest and other income, net			341			421			116			144
Foreign exchange gains (losses)			(54	)		24			(28	)		(1	)

			287			445			88			143

Income (loss) before income taxes			2,134			(18,081	)		1,198			(1,271	)
Income tax expense (benefit)			640			(6,957	)		387			(885	)

Net income (loss)		$	1,494			(11,124	)		811			(386	)

Net income (loss) per common share		$	0.10			(0.76	)		0.06			(0.03	)

Net income (loss) per common share – assuming dilution		$	0.10			(0.76	)		0.06			(0.03	)

See accompanying notes to condensed consolidated financial statements

Page 4

SBS Technologies, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity
Thousands (except share amounts)
(Unaudited)


		Common									Accumulated					Total
		stock						Unearned			other					stock-
								Compen-			comprehensive			Retained		holders’
		Shares			Amount			sation			income (loss)			earnings		equity

Balance at June 30, 2002			14,628,709		$	86,338			—			(3,113	)		30,421		113,646
Exercise of stock options			5,560			13			—			—			—		13
Restricted stock awards issued to directors			14,039			311			(109	)		—			—		202
Stock-based compensation			—			—			44			—			—		44
Stock repurchased and retired			(46,000	)		(321	)		—			—			—		(321	)
Net income			—			—			—			—			1,494		1,494
Other comprehensive income:
	Foreign currency translation adjustments		—			—			—			1,867			—		1,867

Balance at March 31, 2003			14,602,308		$	86,341			(65	)		(1,246	)		31,915		116,945

See accompanying notes to condensed consolidated financial statements

Page 5

SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Thousands
(Unaudited)


				Nine months ended
				March 31,
				2003			2002

Cash flows from operating activities:
	Net income (loss)			$	1,494			(11,124	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation			3,001			2,778
		Amortization of intangible assets			1,488			5,658
		Impairment of intangible assets			—			2,682
		Bad debt expense			346			362
		Deferred income taxes			5,309			(6,673	)
		Income tax benefit of stock options exercised			—			143
		Gain on disposition of assets			(2	)		(7	)
		Foreign exchange (gains) losses			55			(24	)
		Stock-based compensation			44			84
		Stock issued to directors under restricted stock awards			202			—
		Changes in assets and liabilities:
			Receivables		476			1,871
			Inventories		996			19,476
			Income tax receivable		(5,194	)		484
			Prepaid expenses and other assets		(895	)		407
			Accounts payable		(1,426	)		458
			Accrued representative commissions		319			(324	)
			Accrued compensation		(850	)		(1,029	)
			Other current liabilities		(76	)		1,569

			Net cash provided by operating activities		5,287			16,791
Cash flows from investing activities:
	Business acquisition				—			(1,034	)
	Acquisition of property and equipment				(985	)		(2,839	)
	Purchase of license agreement				(200	)		—

			Net cash used by investing activities		(1,185	)		(3,873	)
Cash flows from financing activities:
	Payments on notes payable				—			(2,500	)
	Repurchase and retirement of common stock				(321	)		(488	)
	Proceeds from exercise of stock options and warrants				13			1,394

			Net cash used by financing activities		(308	)		(1,594	)
Effect of exchange rate changes on cash					294			(10	)

Net change in cash and cash equivalents					4,088			11,314
Cash and cash equivalents at beginning of period					24,811			9,734

Cash and cash equivalents at end of period				$	28,899			21,048

Supplemental disclosure of cash flow information:
	Interest paid			$	12			15

	Income taxes paid (received)			$	528			(910	)

								(Continued)

Page 6

SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows – Continued
Thousands
(Unaudited)


			Nine months ended
				March 31,
			2003			2002

Summary of assets acquired and liabilities assumed
	through acquisition:
		Inventories	$		—		681
		Prepaid expenses and other assets			—		17
		Property and equipment, net			—		472
		Deferred income taxes			—		224
		Identifiable intangible assets			—		215
		Accrued expenses			—		(149	)
		Deferred revenue			—		(426	)