UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
FORM 10-Q
| x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
|
| ||
| For the Quarterly Period Ended March 31, 2003 | ||
|
| ||
| OR | ||
|
| ||
| o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
|
| ||
| Commission File Number 000-31283 | ||
|
| ||
| PECO II, INC. | ||
| (Exact name of Registrant as specified in its charter) | ||
|
|
|
|
| OHIO |
|
34-1605456 |
| (State or other jurisdiction of Incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
| 1376 STATE ROUTE 598, GALION, OHIO 44833 | ||
| (Address of principal executive office) |
|
(Zip Code) |
|
|
|
|
| Registrant’s telephone number including area code: |
|
(419) 468-7600 |
Indicate by check mark (“X”) whether the Registrant: (1) has filed all reports to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve 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 o |
Indicate by check mark (“X”) whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| YES o |
NO x |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| CLASS |
|
OUTSTANDING AT APRIL 30, 2003 |
| |
|
|
| Common Shares, without par value |
|
21,071,989 |
PECO II, INC.
INDEX
|
|
|
Page |
|
|
|
|
| PART 1 |
| |
|
|
|
|
| Item 1. |
| |
|
|
|
|
|
|
3 | |
|
|
4 | |
|
|
5 | |
|
|
6 | |
|
|
|
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
7 |
|
|
|
|
| Item 3. |
8 | |
|
|
|
|
| Item 4. |
9 | |
|
|
|
|
| PART II |
| |
|
|
|
|
| Item 2(d) |
9 | |
|
|
|
|
| Item 6. |
9 | |
|
|
|
|
|
|
10 | |
|
|
|
|
|
|
11 |
2
PECO II, INC.
PART I.
FINANCIAL INFORMATION
PECO II, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
| Current Assets: |
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
9,183 |
|
$ |
25,674 |
|
| Accounts receivable |
|
|
9,174 |
|
|
7,802 |
|
| Inventories |
|
|
18,463 |
|
|
18,738 |
|
| Prepaid expenses and other current assets |
|
|
1,147 |
|
|
1,170 |
|
| Refundable and deferred income taxes |
|
|
12,500 |
|
|
12,500 |
|
| Assets held for sale |
|
|
8,405 |
|
|
8,405 |
|
| Restricted industrial revenue bond funds |
|
|
10,466 |
|
|
137 |
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
69,338 |
|
|
74,426 |
|
|
|
|
|
|
|
|
|
|
| Property and equipment, at cost: |
|
|
|
|
|
|
|
| Land and land improvements |
|
|
254 |
|
|
254 |
|
| Buildings and building improvements |
|
|
10,365 |
|
|
11,462 |
|
| Machinery and equipment |
|
|
9,841 |
|
|
9,833 |
|
| Furniture and fixtures |
|
|
8,451 |
|
|
8,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,911 |
|
|
30,034 |
|
| Less-accumulated depreciation |
|
|
(9,836 |
) |
|
(9,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,075 |
|
|
20,853 |
|
| Other Assets: |
|
|
|
|
|
|
|
| Goodwill and other intangibles, net |
|
|
13,542 |
|
|
13,542 |
|
| Long term notes receivable |
|
|
24 |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
| Total Assets |
|
$ |
101,979 |
|
$ |
108,856 |
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
|
|
| Borrowings under line of credit |
|
$ |
702 |
|
$ |
— |
|
| Current portion of long-term debt |
|
|
9,425 |
|
|
9,425 |
|
| Capital leases payable |
|
|
321 |
|
|
316 |
|
| Accounts payable |
|
|
2,978 |
|
|
2,799 |
|
| Accrued compensation expense |
|
|
1,640 |
|
|
1,587 |
|
| Other accrued expenses |
|
|
6,981 |
|
|
7,638 |
|
| Accrued income taxes |
|
|
578 |
|
|
613 |
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
22,625 |
|
|
22,378 |
|
|
|
|
|
|
|
|
|
|
| Long-term Liabilities: |
|
|
|
|
|
|
|
| Capital leases payable, net of current portion |
|
|
611 |
|
|
691 |
|
|
|
|
|
|
|
|
|
|
| Total long-term liabilities |
|
|
611 |
|
|
691 |
|
| Shareholders’ Equity: |
|
|
|
|
|
|
|
| Common shares |
|
|
2,816 |
|
|
2,816 |
|
| Additional paid-in capital |
|
|
111,335 |
|
|
111,335 |
|
| Retained deficit |
|
|
(33,004 |
) |
|
(25,960 |
) |
| Treasury shares |
|
|
(2,404 |
) |
|
(2,404 |
) |
|
|
|
|
|
|
|
|
|
| Total shareholders’ equity |
|
|
78,743 |
|
|
85,787 |
|
|
|
|
|
|
|
|
|
|
| Total Liabilities and Shareholders’ Equity |
|
$ |
101,979 |
|
$ |
108,856 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated balance sheets.
3
PECO II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
For the Three Months |
| ||||
|
|
|
|
| ||||
|
|
|
2003 |
|
2002 |
| ||
|
|
|
|
|
|
|
|
|
| Net sales: |
|
|
|
|
|
|
|
| Product |
|
$ |
6,148 |
|
$ |
6,547 |
|
| Services |
|
|
4,962 |
|
|
10,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,110 |
|
|
16,974 |
|
| Cost of goods sold: |
|
|
|
|
|
|
|
| Product |
|
|
6,709 |
|
|
8,110 |
|
| Services |
|
|
5,997 |
|
|
9,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,706 |
|
|
17,188 |
|
| Gross margin: |
|
|
|
|
|
|
|
| Product |
|
|
(561 |
) |
|
(1,563 |
) |
| Services |
|
|
(1,035 |
) |
|
1,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,596 |
) |
|
(214 |
) |
| Operating expenses: |
|
|
|
|
|
|
|
| Research, development and engineering |
|
|
1,195 |
|
|
2,683 |
|
| Selling, general and administrative |
|
|
3,147 |
|
|
4,699 |
|
| Real estate impairment |
|
|
1,096 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,438 |
|
|
7,382 |
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(7,034 |
) |
|
(7,596 |
) |
| Interest income (expense), net |
|
|
17 |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
| Loss before income taxes and before cumulative effect of accounting change |
|
|
(7,017 |
) |
|
(7,499 |
) |
| Provision (benefit) for income taxes |
|
|
27 |
|
|
(2,757 |
) |
|
|
|
|
|
|
|
|
|
| Loss before cumulative effect of accounting change |
|
|
(7,044 |
) |
|
(4,742 |
) |
| Impairment of goodwill |
|
|
— |
|
|
(1,835 |
) |
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(7,044 |
) |
$ |
(6,577 |
) |
|
|
|
|
|
|
|
|
|
| Net loss per common share before cumulative effect of accounting change: |
|
|
|
|
|
|
|
| Basic |
|
$ |
(0.33 |
) |
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
| Diluted |
|
$ |
(0.33 |
) |
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
| Net loss per common share: |
|
|
|
|
|
|
|
| Basic |
|
$ |
(0.33 |
) |
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
| Diluted |
|
$ |
(0.33 |
) |
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding: |
|
|
|
|
|
|
|
| Basic |
|
|
21,142 |
|
|
21,868 |
|
|
|
|
|
|
|
|
|
|
| Diluted |
|
|
21,142 |
|
|
21,868 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
4
PECO II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the Three Months |
| ||||
|
|
|
|
| ||||
|
|
|
2003 |
|
2002 |
| ||
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
| Net loss |
|
$ |
(7,044 |
) |
$ |
(6,577 |
) |
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
687 |
|
|
866 |
|
| Goodwill impairment |
|
|
— |
|
|
1,835 |
|
| Loss on disposals of property and equipment |
|
|
11 |
|
|
3 |
|
| Deferred income taxes. |
|
|
— |
|
|
(896 |
) |
| Asset impairment |
|
|
1,096 |
|
|
— |
|
| Stock compensation expense |
|
|
— |
|
|
122 |
|
| Working capital changes: |
|
|
|
|
|
|
|
| Accounts and notes receivable |
|
|
(1,361 |
) |
|
2,516 |
|
| Inventories |
|
|
275 |
|
|
642 |
|
| Prepaid expenses and other current assets |
|
|
23 |
|
|
136 |
|
| Accounts payable, other accrued expenses and accrued income taxes |
|||||||