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 Ended June 30, 2003
Commission File Number 0-21626
ELECTROGLAS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| DELAWARE |
77-0336101 | |
| (State of Incorporation) |
(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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes x No ¨
As of July 25, 2003, 21,343,000 shares of the Registrant’s common stock, $0.01 par value, were outstanding (excluding 155,275 shares held by the Company as treasury stock).
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 include, without limitation, statements regarding:
| • | Our belief that we have and can maintain certain technological and other advantages over our competitors; |
| • | Our expectation that international sales will continue to represent a significant percentage of net sales; |
| • | Our intention to control discretionary expenses and continue investing in our new wafer prober product development programs during the current business cycle downturn; |
| • | Our belief that as a result of the purchase of our San Jose campus facility, depreciation expense will increase by approximately $0.9 million per year, and rent expense and interest income will decrease by approximately $0.8 million and $0.7 million, respectively, per year based on current interest rates, effective the second quarter of 2003; |
| • | Our anticipation that our future cash from operations, and available cash and cash equivalents at June 30, 2003, should be sufficient to meet our anticipated needs for working capital and capital expenditures through December 31, 2003; |
| • | Our expectation that FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” will not have a material impact on our financial position or results of operations; |
| • | Our belief that the adoption of FASB Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities will not have a material effect on our consolidated financial position, results of operations or cash flows; |
| • | Our belief that our gross profit will continue to be affected by a number of factors, including competitive pressures, changes in demand for semiconductors, product mix, the proportion of international sales, the level of software sales, our share of the available market, the move of manufacturing operations to Singapore, and excess manufacturing capacity costs; |
| • | Our anticipation that we will continue to experience significant fluctuations in our quarterly results; and |
| • | Our ability to continue to collect our receivables without significant delays in payments or product concessions. |
The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied by the forward looking statements. These risks and uncertainties include:
| • | Continued downturn in the semiconductor industry; |
| • | The ability to secure additional funding, if needed; |
| • | The ability to achieve broad market acceptance of existing and future products; and |
| • | Loss of one or more of our major customers. |
For a detailed description of these and other risks associated with our business that could cause actual results to differ from those stated or implied in such forward-looking statements, see the disclosure contained under the heading “Factors that May Affect Results and Financial Condition” in this Quarterly Report or Form 10-K. 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-K, 10-Q, 8-K and other reports filed from time to time with the Securities and Exchange Commission.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ELECTROGLAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||||
| Net sales |
$ | 10,335 | $ | 20,530 | $ | 19,800 | $ | 32,200 | ||||||||||
| Cost of sales |
10,524 | 19,267 | 19,140 | 30,486 | ||||||||||||||
| Gross profit (loss) |
(189 | ) | 1,263 | 660 | 1,714 | |||||||||||||
| Operating expenses: |
||||||||||||||||||
| Engineering, research and development |
6,501 | 8,795 | 13,318 | 16,765 | ||||||||||||||
| Sales, general and administrative |
7,211 | 10,555 | 22,575 | 19,855 | ||||||||||||||
| Restructuring and impairment charges |
2,384 | 308 | 2,481 | 668 | ||||||||||||||
| Total operating expenses |
16,096 | 19,658 | 38,374 | 37,288 | ||||||||||||||
| Operating loss |
(16,285 | ) | (18,395 | ) | (37,714 | ) | (35,574 | ) | ||||||||||
| Interest income (expense), net |
(404 | ) | 560 | (1,809 | ) | 1,326 | ||||||||||||
| Other income (expense), net |
202 | 60 | (179 | ) | 350 | |||||||||||||
| Loss before income taxes |
(16,487 | ) | (17,775 | ) | (39,702 | ) | (33,898 | ) | ||||||||||
| Provision (benefit) for income taxes |
(702 | ) | 30 | (659 | ) | (1,245 | ) | |||||||||||
| Net loss |
$ | (15,785 | ) | $ | (17,805 | ) | $ | (39,043 | ) | $ | (32,653 | ) | ||||||
| Basic and diluted net loss per share |
$ | (0.74 | ) | $ | (0.85 | ) | $ | (1.83 | ) | $ | (1.55 | ) | ||||||
| Shares used in basic and diluted calculations |
21,315 | 21,045 | 21,297 | 21,026 | ||||||||||||||
See the accompanying notes to condensed consolidated financial statements.
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ELECTROGLAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| June 30, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) | (1) | |||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 23,752 | $ | 35,727 | ||||
| Short-term investments |
13,048 | 22,428 | ||||||
| Accounts receivable, net of allowances of $398 and $428 |
13,958 | 10,771 | ||||||
| Inventories |
23,433 | 26,650 | ||||||
| Prepaid expenses and other current assets |
2,877 | 2,460 | ||||||
| Total current assets |
77,068 | 98,036 | ||||||
| Restricted cash |
— | 7,245 | ||||||
| Long-term lease receivable |
— | 41,055 | ||||||
| Equipment and leasehold improvements, net |
48,946 | 15,391 | ||||||
| Goodwill, net |
2,099 | 2,099 | ||||||
| Other intangible assets, net |
604 | 1,072 | ||||||
| Other assets |
7,540 | 8,282 | ||||||
| Total assets |
$ | 136,257 | $ | 173,180 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 7,502 | $ | 4,065 | ||||
| Accrued liabilities |
14,488 | 16,411 | ||||||
| Total current liabilities |
21,990 | 20,476 | ||||||
| Convertible subordinated notes |
33,395 | 33,169 | ||||||
| Non-current liabilities |
10,803 | 11,490 | ||||||
| Total liabilities |
66,188 | 65,135 | ||||||
| Commitments and contingencies (see footnote) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value; 1,000 shares authorized; none issued or |
— | — | ||||||
| Common stock, $0.01 par value; 40,000 shares authorized; 21,496 and |
215 | 214 | ||||||
| Additional paid-in capital |
158,734 | 157,605 | ||||||
| Accumulated deficit |
(86,545 | ) | (47,502 | ) | ||||
| Accumulated other comprehensive income (loss) |
(39 | ) | 24 | |||||
| Cost of common stock in treasury; 155 shares |
(2,296 | ) | (2,296 | ) | ||||
| Total stockholders’ equity |
70,069 | 108,045 | ||||||
| Total liabilities and stockholders’ equity |
$ | 136,257 | $ | 173,180 | ||||
| (1) | The information in this column was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2002. |
See the accompanying notes to condensed consolidated financial statements.
4
ELECTROGLAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Six months ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows (used in) provided by operating activities |
||||||||
| Net loss |
$ | (39,043 | ) | $ | (32,653 | ) | ||
| Charges to net loss not affecting cash |
5,766 | 4,482 | ||||||
| Changes in current assets and liabilities |
1,139 | 1,944 | ||||||
| (32,138 | ) | (26,227 | ) | |||||
| Cash flows provided by (used in) investing activities |
||||||||
| Capital expenditures |
(37,566 | ) | (7,819 | ) | ||||
| Proceeds from long-term lease receivable and and release of restricted cash |
48,300 | — | ||||||
| Purchases of investments |
(9,085 | ) | (5,523 | ) | ||||
| Maturities of investments |
18,388 | 24,729 | ||||||
| Other |
97 | (2,644 | ) | |||||
| 20,134 | 8,743 | |||||||
| Cash flows provided by financing activities |
||||||||
| Net proceeds from issuance of convertible subordinated notes |
— | 32,965 | ||||||
| Short-term borrowings |
— | 162 | ||||||
| Sales of common stock |
108 | 1,195 | ||||||
| 108 | 34,322 | |||||||
| Effect of exchange rate changes on cash |
(79 | ) | (25 | ) | ||||
| Net (decrease)/increase in cash and cash equivalents |
(11,975 | ) | 16,813 | |||||
| Cash and cash equivalents at beginning of period |
35,727 | 40,565 | ||||||
| Cash and cash equivalents at end of period |
$ | 23,752 | $ | 57,378 | ||||
| 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 the accompanying notes to condensed consolidated financial statements.
5
ELECTROGLAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2002, included in the Company’s Annual Report on Form 10-K. Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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 period amounts have been reclassified to conform to the current period presentation.
INVENTORIES
The following is a summary of inventories by major category:
| In thousands |
June 30, 2003 |
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