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 June 30, 2004
OR
| ¨ | 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 ¨
Indicate by check mark (“X”) whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ 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 July 30, 2004 | |
| Common Shares, without par value |
21,522,219 |
INDEX
2
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| June 30, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 13,321 | $ | 17,366 | ||||
| Accounts receivable |
5,525 | 5,967 | ||||||
| Inventories |
8,334 | 8,573 | ||||||
| Prepaid expenses and other current assets |
360 | 410 | ||||||
| Assets held for sale |
4,136 | 4,136 | ||||||
| Restricted cash |
7,290 | 7,148 | ||||||
| Total current assets |
38,966 | 43,600 | ||||||
| Property and equipment, at cost: |
||||||||
| Land and land improvements |
254 | 254 | ||||||
| Buildings and building improvements |
10,363 | 9,945 | ||||||
| Machinery and equipment |
9,304 | 9,671 | ||||||
| Furniture and fixtures |
6,252 | 7,614 | ||||||
| 26,173 | 27,484 | |||||||
| Less-accumulated depreciation |
(13,152 | ) | (13,422 | ) | ||||
| Property and equipment, net |
13,021 | 14,062 | ||||||
| Other Assets: |
||||||||
| Goodwill, net |
7,842 | 7,842 | ||||||
| Long term notes receivable |
17 | 20 | ||||||
| Investment in joint venture |
43 | — | ||||||
| Total Assets |
$ | 59,889 | $ | 65,524 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Borrowings under line of credit |
$ | 108 | $ | — | ||||
| Industrial revenue bonds |
6,080 | 6,080 | ||||||
| Capital leases payable |
89 | 158 | ||||||
| Accounts payable |
1,387 | 1,113 | ||||||
| Accrued compensation expense |
1,569 | 1,492 | ||||||
| Other accrued expenses |
5,431 | 6,030 | ||||||
| Accrued income taxes |
132 | 579 | ||||||
| Total current liabilities |
14,796 | 15,452 | ||||||
| Long-term Liabilities: |
||||||||
| Capital leases payable, net of current portion |
492 | 535 | ||||||
| Total long-term liabilities |
492 | 535 | ||||||
| Shareholders’ Equity: |
||||||||
| Common shares, no par value: authorized 50,000,000 shares; 22,201,666 shares issued at June 30, 2004 and December 31, 2003 |
2,816 | 2,816 | ||||||
| Additional paid-in capital |
110,330 | 110,726 | ||||||
| Retained deficit |
(67,387 | ) | (62,327 | ) | ||||
| Treasury shares, at cost, 679,447 and 847,830 shares at June 30, 2004 and December 31, 2003, respectively |
(1,158 | ) | (1,678 | ) | ||||
| Total shareholders’ equity |
44,601 | 49,537 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 59,889 | $ | 65,524 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except for per share data)
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales: |
||||||||||||||||
| Product |
$ | 4,625 | $ | 3,922 | $ | 8,640 | $ | 10,071 | ||||||||
| Services |
2,564 | 5,937 | 5,123 | 10,898 | ||||||||||||
| 7,189 | 9,859 | 13,763 | 20,969 | |||||||||||||
| Cost of goods sold: |
||||||||||||||||
| Product |
4,176 | 4,770 | 8,217 | 11,488 | ||||||||||||
| Impairment of product segment machinery and equipment |
— | 3,300 | — | 3,300 | ||||||||||||
| Services |
2,453 | 6,413 | 5,364 | 12,410 | ||||||||||||
| Inventory impairment |
— | 8,633 | — | 8,633 | ||||||||||||
| 6,629 | 23,116 | 13,581 | 35,831 | |||||||||||||
| Gross margin: |
||||||||||||||||
| Product |
449 | (12,781 | ) | 423 | (13,350 | ) | ||||||||||
| Services |
111 | (476 | ) | (241 | ) | (1,512 | ) | |||||||||
| 560 | (13,257 | ) | 182 | (14,862 | ) | |||||||||||
| Operating expenses: |
||||||||||||||||
| Research, development and engineering |
704 | 1,038 | 1,452 | 2,233 | ||||||||||||
| Selling, general and administrative |
2,196 | 2,817 | 4,128 | 5,955 | ||||||||||||
| Impairment of service segment goodwill and other intangibles |
— | 5,700 | — | 5,700 | ||||||||||||
| Real estate impairment |
— | — | — | 1,096 | ||||||||||||
| 2,900 | 9,555 | 5,580 | 14,984 | |||||||||||||
| Loss from operations |
(2,340 | ) | (22,812 | ) | (5,398 | ) | (29,846 | ) | ||||||||
| Loss from joint venture |
57 | — | 57 | — | ||||||||||||
| Loss from operations after joint venture |
(2,397 | ) | (22,812 | ) | (5,455 | ) | (29,846 | ) | ||||||||
| Interest income, net |
27 | 34 | 52 | 51 | ||||||||||||
| Loss before income taxes |
(2,370 | ) | (22,778 | ) | (5,403 | ) | (29,795 | ) | ||||||||
| Provision for income taxes |
(363 | ) | 27 | (343 | ) | 54 | ||||||||||
| Net loss |
$ | (2,007 | ) | $ | (22,805 | ) | $ | (5,060 | ) | $ | (29,849 | ) | ||||
| Net loss per common share: |
||||||||||||||||
| Basic |
$ | (0.09 | ) | $ | (1.08 | ) | $ | (0.24 | ) | $ | (1.41 | ) | ||||
| Diluted |
$ | (0.09 | ) | $ | (1.08 | ) | $ | (0.24 | ) | $ | (1.41 | ) | ||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
21,486 | 21,177 | 21,444 | 21,159 | ||||||||||||
| Diluted |
21,486 | 21,177 | 21,444 | 21,159 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
| For the Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (5,060 | ) | $ | (29,849 | ) | ||
| Adjustments to reconcile net loss to net cash from (used for) operating activities: |
||||||||
| Depreciation and amortization |
822 | 1,323 | ||||||
| Service segment goodwill impairment |
— | 5,700 | ||||||
| Loss on disposals of property and equipment |
292 | |||||||