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SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
For Quarter Ended June 30, 2002
Commission File Number 1-4373
THREE-FIVE SYSTEMS, INC.
| Delaware | 86-0654102 | |
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| (State or other jurisdiction of incorporation or organization) |
I.R.S. Employer Identification Number |
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| 1600 North Desert Drive, Tempe, Arizona | 85281 | |
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| (Address of principal executive offices) | (Zip Code) |
(602) 389-8600
(Registrant’s telephone number, including area code)
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 |
NO |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, at the latest practical date.
| CLASS | OUTSTANDING AS OF JUNE 30, 2002 | |
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| Common | 21,534,062 | |
| Par value $.01 per share |
THREE-FIVE SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION |
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| Page | ||||||||
| ITEM 1. | FINANCIAL STATEMENTS: |
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Condensed Consolidated Balance Sheets-
December 31, 2001 and June 30, 2002 |
1 | |||||||
Condensed Consolidated Statements of Operations-
Three Months and Six Months Ended June 30, 2001 and 2002 |
2 | |||||||
Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2001 and 2002 |
3 | |||||||
Notes to Condensed Consolidated Financial Statements |
4 | |||||||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 9 | ||||||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
17 | ||||||
PART II — OTHER INFORMATION |
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| ITEM 4. | SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS |
17 | ||||||
| ITEM 5. | OTHER INFORMATION |
17 | ||||||
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
18 | ||||||
SIGNATURES |
18 | |||||||
ITEM 1. FINANCIAL STATEMENTS
THREE-FIVE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| DECEMBER 31, | JUNE 30, | ||||||||||
| 2001 | 2002 | ||||||||||
| (unaudited) | |||||||||||
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 37,003 | $ | 25,916 | |||||||
Short-term investments |
110,016 | 97,484 | |||||||||
Accounts receivable, net |
18,102 | 14,196 | |||||||||
Inventories |
15,629 | 12,235 | |||||||||
Taxes receivable |
3,960 | 4,320 | |||||||||
Deferred tax asset |
3,930 | 3,905 | |||||||||
Assets held for sale |
— | 2,341 | |||||||||
Other current assets |
2,104 | 1,533 | |||||||||
Total current assets |
190,744 | 161,930 | |||||||||
Long-term Investments |
9,034 | 17,571 | |||||||||
Property, Plant and Equipment, net |
38,353 | 30,733 | |||||||||
Intangibles, net |
5,886 | 9,842 | |||||||||
Deferred Tax Asset, net |
219 | 6,629 | |||||||||
Other Assets, net |
1,652 | 1,652 | |||||||||
| $ | 245,888 | $ | 228,357 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
$ | 14,785 | $ | 9,685 | |||||||
Accrued liabilities |
4,130 | 2,871 | |||||||||
Term loan |
2,706 | 2,706 | |||||||||
Total current liabilities |
21,621 | 15,262 | |||||||||
Minority Interest in Consolidated Subsidiary |
323 | — | |||||||||
Commitments and Contingencies |
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Stockholders’ Equity: |
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Common stock |
219 | 219 | |||||||||
Additional paid-in capital |
200,395 | 200,658 | |||||||||
Retained earnings |
30,666 | 19,716 | |||||||||
Stock subscription note receivable |
(163 | ) | (169 | ) | |||||||
Accumulated other comprehensive loss |
(21 | ) | (177 | ) | |||||||
Less – treasury stock, at cost |
(7,152 | ) | (7,152 | ) | |||||||
Total stockholders’ equity |
223,944 | 213,095 | |||||||||
| $ | 245,888 | $ | 228,357 | ||||||||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
1
THREE-FIVE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
| Three Months | Six Months | |||||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
Net Sales |
$ | 25,013 | $ | 24,087 | $ | 60,629 | $ | 47,197 | ||||||||||
Costs and Expenses: |
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Cost of sales |
32,160 | 23,484 | 63,403 | 46,386 | ||||||||||||||
Selling, general, and administrative |
2,922 | 2,812 | 5,413 | 5,937 | ||||||||||||||
Research, development, and engineering |
4,795 | 4,796 | 8,456 | 9,614 | ||||||||||||||
Loss on assets held for sale |
— | 4,545 | — | 4,545 | ||||||||||||||
| 39,877 | 35,637 | 77,272 | 66,482 | |||||||||||||||
Operating loss |
(14,864 | ) | (11,550 | ) | (16,643 | ) | (19,285 | ) | ||||||||||
Other Income (Expense): |
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Interest, net |
1,811 | 944 | 3,939 | 2,006 | ||||||||||||||
Loss on investment in start-up company |
(3,820 | ) | — | (3,820 | ) | — | ||||||||||||
Other, net |
(64 | ) | (50 | ) | (52 | ) | 86 | |||||||||||
| (2,073 | ) | 894 | 67 | 2,092 | ||||||||||||||
Minority Interest in Loss (Income) of
Consolidated Subsidiary |
— | (21 | ) | — | 84 | |||||||||||||
Loss before Income Taxes |
(16,937 | ) | (10,677 | ) | (16,576 | ) | (17,109 | ) | ||||||||||
Benefit from income taxes |
(5,589 | ) | (4,037 | ) | (5,470 | ) | (6,159 | ) | ||||||||||
Net Loss |
$ | (11,348 | ) | $ | (6,640 | ) | $ | (11,106 | ) | $ | (10,950 | ) | ||||||
Loss per Common Share: |
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Basic |
$ | (0.53 | ) | $ | (0.31 | ) | $ | (0.52 | ) | $ | (0.51 | ) | ||||||
Diluted |
$ | (0.53 | ) | $ | (0.31 | ) | $ | (0.52 | ) | $ | (0.51 | ) | ||||||
Weighted Average Number of Common Shares: |
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Basic |
21,342 | 21,522 | 21,385 | 21,515 | ||||||||||||||
Diluted |
21,342 | 21,522 | 21,385 | 21,515 | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
THREE-FIVE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2001 | 2002 | |||||||||||
Cash Flows from Operating Activities: |
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Net loss |
$ | (11,106 | ) | $ | (10,950 | ) | ||||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
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Depreciation and amortization |
2,855 | 3,383 | ||||||||||
Stock compensation |
— | 74 | ||||||||||
Minority interest in consolidated subsidiary |
— | (84 | ) | |||||||||
Provision for accounts receivable valuation reserves |
185 | 186 | ||||||||||
Loss on disposal of assets |
1,289 | 4,545 | ||||||||||
Loss on investment in start-up company |
3,820 | — | ||||||||||
Benefit from deferred taxes, net |
— | (6,359 | ) | |||||||||
Change in assets and liabilities: |
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Decrease in accounts receivable |
448 | 3,720 | ||||||||||
Decrease in inventories |
3,849 | 3,394 | ||||||||||
Increase (decrease) in other assets |
(216 | ) | 610 | |||||||||
Decrease in accounts payable and accrued liabilities |
(3,436 | ) | (6,282 | ) | ||||||||
Increase in taxes receivable |
(5,589 | ) | (360 | ) | ||||||||
Net cash used in operating activities |
(7,901 | ) | (8,123 | ) | ||||||||
Cash Flows from Investing Activities: |
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Purchase of property, plant, and equipment |
(4,470 | ) | (2,402 | ) | ||||||||
Deposit received for assets held for sale |
— | 600 | ||||||||||
Purchase of intangibles |
— | (4,803 | ) | |||||||||
Purchase of investments |
(151,325 | ) | (72,946 | ) | ||||||||
Proceeds from maturities/sales of investments |
150,840 | 76,630 | ||||||||||
Payments/interest on stock subscription note receivable |
— | (6 | ) | |||||||||
Other investments |
(1,000 | ) | — | |||||||||
Net cash used in investing activities |
(5,955 | ) | (2,927 | ) | ||||||||
Cash Flows from Financing Activities: |
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Stock options exercised |
42 | 150 | ||||||||||
Distribution to minority interest holder |
— | (239 | ) | |||||||||
Purchase of treasury stock |
(2,526 | ) | — | |||||||||
Net cash used in financing activities |
(2,484 | ) | (89 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
(85 | ) | 52 | |||||||||
Net decrease in cash and cash equivalents |
(16,425 | ) | (11,087 | ) | ||||||||
Cash and cash equivalents, beginning of period |
45,645 | 37,003 | ||||||||||
Cash and cash equivalents, end of period |
$ | 29,220 | $ | 25,916 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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THREE-FIVE SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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| Note A | The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the Company, all adjustments (which include only normal recurring adjustments and to record a loss on assets held for sale) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the three- and six-month periods ended June 30, 2002 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2002. These financial statements should be read in conjunction with the Company’s December 31, 2001 financial statements and accompanying notes thereto. | |
| Note B | Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the three- and six-month periods ended June 30, 2001 and 2002. Diluted loss per common share is determined assuming that outstanding dilutive options and warrants were exercised at the beginning of the period or at the time of issuance, if later. No outstanding options were assumed to be exercised for purposes of calculating diluted loss per share for the three- and six-month periods ended June 30, 2001 and June 30, 2002, as their effect was anti-dilutive. Set forth below are the disclosures for the three- and six-month periods ended June 30, 2001 and 2002. |
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||
Basic loss per share: |
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Net loss |
$ | (11,348 | ) | $ | (6,640 | ) | $ | (11,106 | ) | $ | (10,950 | ) | ||||||
Weighted average common shares |
21,342 | 21,522 | 21,385 | 21,515 | ||||||||||||||
Basic per share amount |
$ | |||||||||||||||||