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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-27460
PERFORMANCE TECHNOLOGIES, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 16-1158413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
205 Indigo Creek Drive, Rochester, New York 14626
(Address of principal executive offices) (Zip Code)
-----------------------------
Registrant's telephone number, including area code: (585) 256-0200
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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 X No .
The number of shares outstanding of the registrant's common stock was
12,280,853 as of July 31, 2002.
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PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and
December 31, 2001 3
Consolidated Statements of Income For The Three and Six Months
Ended June 30, 2002 and 2001 (unaudited) 4
Consolidated Statements of Cash Flows For The Six
Months Ended June 30, 2002 and 2001 (unaudited) 5
Notes to Consolidated Financial Statements For The Six
Months Ended June 30, 2002 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
--------------- ------------------
(unaudited)
Current assets:
Cash and cash equivalents $26,479,000 $26,913,000
Marketable securities 2,016,000
Accounts receivable, net 5,470,000 6,905,000
Inventories, net 4,180,000 3,756,000
Prepaid expenses and other 258,000 359,000
Deferred taxes 620,000 608,000
--------------- ------------------
Total current assets 39,023,000 38,541,000
Property, equipment and improvements, net 2,582,000 2,465,000
Software development costs, net 2,214,000 1,948,000
--------------- ------------------
Total assets $43,819,000 $42,954,000
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 778,000 $ 417,000
Income taxes payable 571,000 350,000
Accrued expenses 2,199,000 3,046,000
--------------- ------------------
Total current liabilities 3,548,000 3,813,000
Deferred taxes 886,000 799,000
--------------- ------------------
Total liabilities 4,434,000 4,612,000
--------------- ------------------
Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000
shares authorized; none issued
Common stock - $.01 par value; 50,000,000
shares authorized; 13,260,038 shares issued 133,000 133,000
Additional paid-in capital 10,934,000 11,305,000
Retained earnings 41,039,000 40,239,000
Treasury stock - at cost; 979,185 and
1,024,547 shares held at June 30, 2002
and December 31, 2001, respectively (12,663,000) (13,284,000)
Accumulated other comprehensive loss (58,000) (51,000)
--------------- ------------------
Total stockholders' equity 39,385,000 38,342,000
--------------- ------------------
Total liabilities and
stockholders' equity $43,819,000 $42,954,000
=============== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------------- ---------------- ---------------- ---------------
Sales $6,619,000 $9,444,000 $13,026,000 $19,144,000
Cost of goods sold 2,676,000 3,611,000 5,328,000 7,420,000
--------------- ---------------- ---------------- ---------------
Gross profit 3,943,000 5,833,000 7,698,000 11,724,000
--------------- ---------------- ---------------- ---------------
Operating expenses:
Selling and marketing 1,210,000 1,388,000 2,273,000 2,898,000
Research and development 1,683,000 1,975,000 3,181,000 4,260,000
General and administrative 582,000 832,000 1,159,000 1,564,000
Restructuring charge 163,000
--------------- ---------------- ---------------- ---------------
Total operating expenses 3,475,000 4,195,000 6,776,000 8,722,000
--------------- ---------------- ---------------- ---------------
Income from operations 468,000 1,638,000 922,000 3,002,000
Other income, net 121,000 241,000 237,000 596,000
--------------- ---------------- ---------------- ---------------
Income before income taxes 589,000 1,879,000 1,159,000 3,598,000
Provision for income taxes 182,000 620,000 359,000 1,187,000
--------------- ---------------- ---------------- ---------------
Net income $ 407,000 $1,259,000 $ 800,000 $ 2,411,000
=============== ================ ================ ===============
Basic earnings per share $ .03 $ .10 $ .07 $ .20
=============== ================ ================ ===============
Diluted earnings per share $ .03 $ .10 $ .06 $ .19
=============== ================ ================ ===============
Weighted average number of
common shares used in basic earnings
per share 12,260,554 12,196,674 12,249,325 12,335,344
Common equivalent shares 124,782 453,630 219,162 453,231
--------------- ---------------- ---------------- ---------------
Weighted average number of
common shares used in diluted earnings
per share 12,385,336 12,650,304 12,468,487 12,788,575
=============== ================ ================ ===============
The accompanying notes are an integral part of these consolidated financial
statements
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2002 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 800,000 $ 2,411,000
Non-cash adjustments:
Depreciation and amortization 861,000 804,000
Other 246,000 265,000
Changes in operating assets and liabilities:
Accounts receivable 1,261,000 (92,000)
Inventories (424,000) 1,264,000
Prepaid expenses and other 101,000 124,000
Accounts payable and accrued expenses (486,000) (1,100,000)
Income taxes payable 221,000 (219,000)
-------------- --------------
Net cash provided by operating activities 2,580,000 3,457,000
-------------- --------------
Cash flows from investing activities:
Purchases of property, equipment and improvements (615,000) (712,000)
Capitalized software development costs (633,000) (832,000)
Purchase of marketable securities (2,016,000) (5,000)
Maturities of marketable securities 10,000,000
-------------- --------------
Net cash (used) provided by investing
activities (3,264,000) 8,451,000
-------------- --------------
Cash flows from financing activities:
Exercise of stock options and warrants 250,000 318,000
Purchase of treasury stock (6,821,000)
-------------- --------------
Net cash provided (used) by financing activities 250,000 (6,503,000)
-------------- --------------
Net (decrease) increase in cash and
cash equivalents (434,000) 5,405,000
Cash and cash equivalents at beginning of period 26,913,000 17,187,000
-------------- --------------
Cash and cash equivalents at end of period $26,479,000 $22,592,000
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)
Note - A The unaudited Consolidated Financial Statements of Performance
Technologies, Incorporated and Subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, the
Consolidated Financial Statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The results for the
interim periods are not necessarily indicative of the results to be expected for
the year. The accompanying Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of the Company as
of December 31, 2001, as reported in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note - B During the six months ended June 30, 2002, 45,362 common shares were
issued upon the exercise of stock options.
Note - C Inventories consisted of the following at June 30, 2002 and December
31, 2001:
June 30, December 31,
2002 2001
------------ ------------
Purchased parts and components $1,394,000 $1,329,000
Work in process 3,038,000 2,778,000
Finished goods 652,000 468,000
------------ ------------
5,084,000 4,575,000
Less: reserve for inventory obsolescence (904,000) (819,000)
------------ ------------
Net $4,180,000 $3,756,000
============ ============
Note - D On January 15, 2002, the Company announced plans to improve its cost
structure primarily through reductions in the Company's staff. This plan has
been completed and resulted in a reduction in workforce of approximately 10%.
During the first quarter of 2002, the Company recorded a restructuring charge,
primarily related to severance costs, of $163,000.
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Matters discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this Form 10-Q include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Actual results of operations could
differ materially from those discussed in the forward-looking statements.
Overview
Business Strategy: Performance Technologies, Incorporated (the "Company") is a
global supplier of innovative embedded hardware and software systems products
for a broad range of communications infrastructure including traditional data
communications and wireline/wireless telecommunication systems. The Company's
products fall into three distinct areas: SS7 signaling, IP Ethernet switch and
network access. The Company's development efforts are directed at future growth
opportunities that utilize the evolving IP (Internet Protocol) standards for
communications and networking equipment. IP based communications and systems
products are generally viewed in the industry as the foundation for
next-generation telecommunications systems and services, as well as embedded
systems for video, data communications and mass storage applications. Customers
who use the Company's products and technologies include: telecommunications
equipment manufacturers (TEMs), communications service providers/operators,
international mobile/cellular wireless operators and embedded systems platform
suppliers/integrators. The Company's products are based on open-architectures
and are focused on high availability requirements.
Financial Information: Revenue in the second quarter 2002 was $6.6 million,
compared to $9.4 million in the corresponding quarter a year earlier. Net income
for the second quarter 2002 amounted to $.4 million, or $.03 per share, compared
to $1.3 million, or $.10 per share for the second quarter 2001, based on 12.4
million and 12.7 million shares outstanding, respectively.
Revenue for the six months ended June 30, 2002 was $13.0 million, compared to
$19.1 million in the corresponding period a year earlier. Net income for the
first six months of 2002 amounted to $.8 million, or $.06 per share including
expenses associated with a restructuring charge recorded in the first quarter
amounting to $.2 million (pre-tax), or $.01 per share. Excluding the
restructuring charge, net income for the six months amounted to $.9 million, or
$.07 per share on 12.5 million shares outstanding. Net income amounted to $2.4
million, or $.19 per share for the comparable period in 2001, based on 12.8
million shares outstanding.
Cash, cash equivalents and marketable securities amounted to $28.5 million at
June 30, 2002, compared to $26.9 million at the end of 2001 and no long-term
debt existed at either date. For the first six months of 2002, the Company
generated income from operations, excluding interest, taxes, depreciation and
amortization (EBITDA), of $1.8 million, compared to $3.8 million for the same
period in 2001.
During January 2002, the Company improved its cost structure by reducing
annualized expenses by approximately $1.6 million due to the uncertainty of the
economic conditions and lack of visibility for orders from its customers. These
reductions were primarily personnel related and were initiated throughout the
organization.
During April 2002, the Company's Rochester operations completed a smooth
transition to a new, larger facility and new manufacturing equipment became
operational to accommodate several new products that require leading-edge
manufacturing processes. The incremental expense for the new facility is
expected to be approximately $.1 million per quarter.
Following increased order momentum for the Company's products in general during
the first quarter 2002, the Company experienced continuing momentum during the
second quarter for its IPnexusTM switch products, which address broader markets
than just telecommunications, but the order momentum for its other products was
not sustained. The largest single customer during the second quarter represented
10% of revenue and the largest four customers represented 33% of the Company's
revenue. Two of these four customers sell into non-telecommunications markets.
During the second quarter, the Company continued to focus on realizing "design
wins" with its customers and prospective customers. A design win is when a
customer or prospective customer notifies the Company that its product has been
selected to be integrated with their product. During the second quarter 2002,
the Company realized five new "design wins" for its products, following seven
new "design wins" in the first quarter 2002 and thirty-five new "design wins"
during 2001. Recently announced design wins include Siemens Carrier Networks LLC
for an IPnexus network access product and NexusWareTM software for use in their
softswitch platform; Optibase for an IPnexus embedded Ethernet switch for use in
its video streaming platform; net.com for using an IPnexus network access
product in its telephony platform; and Northrop Grumman Information Technology
for a network access product for use within the National Weather Service's
Advanced Weather Interactive Processing System. Management believes that as
economic conditions improve, a greater number of customers will begin to move
their new products into production thereby accelerating the pace of orders for
the Company's products.
SEGwayTM SS7 link replacement products offer wireless and wireline carriers the
ability to reduce operating costs, enhance services and expand their networks by
utilizing lower cost IP networks for signaling. The SEGway Edge, introduced
fifteen months ago, was the first product in this family. General release and
initial shipments of the SEGway Link Concentrator began during the second
quarter of 2002. In May, the Company announced the SEGway IP-STP, the third
product in this family. This new product is a modular SS7 signaling router that
enables carriers to reliably perform traditional STP functions over IP networks.
This product is being deployed by one European customer and is generating
interest from a number of prospective customers.
On August 5, 2002, the Company announced that its Board of Directors had
authorized the Company to repurchase up to an additional one million shares of
its common stock. Under this new program, shares may be repurchased through open
market purchases over the next twelve months and may be used for the Company's
stock option plan, ongoing acquisition initiatives and general corporate
purposes.
The Company also disclosed that it is currently negotiating an acquisition that
would expand its line of embedded system level products. The terms of the
acquisition are being negotiated and the Company is still engaged in its due
diligence review.
The Company further disclosed that it is completing details of a minority
investment in an organization that provides custom embedded processor
technology. The investment includes an option to purchase the organization
within 24 months based on a performance related valuation model.
The two initiatives noted above, if successful, represent a total cost of less
than $10 million dollars to the Company.
FAS 144 - In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets to
be held and used, to be disposed of other than by sale, and to be disposed of by
sale. On January 1, 2002 the Company adopted SFAS No. 144. Adoption of this
statement did not have an impact on the results of operations or the financial
position of the Company.
FAS 145 - In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002." SFAS No. 145 rescinds FASB Statement No. 4,
Reporting Gains and Losses from Extinguishments of Debt, and an amendment of
that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers. This Statement also amends
FASB Statement No. 13, Accounting for Leases, as it relates to sale-leaseback
transactions. This Statement also amends certain other existing authoritative
pronouncements. On May 15, 2002 the Company adopted SFAS No. 145. Adoption of
this statement did not have an impact on the results of operations or the
financial position of the Company.
Forward Looking Guidance for the Third Quarter 2002 (published July 24, 2002):
The following includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 and are subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.
Performance Technologies provides products to communications and network
equipment suppliers that are integrated into current and next-generation network
infrastructure products. Design wins are an important metric for management to
judge the Company's success in its marketplace. Design wins reach production
volumes at varying rates, typically beginning twelve to eighteen months after
the design win occurs. A variety of risks such as schedule delays,
cancellations, changes in customer markets and general economic conditions can
adversely affect a design win before production is reached or during deployment.
Not all design wins can be expected to result in production orders. Furthermore,
when economic conditions deteriorate, customers' visibility also deteriorates,
causing delays in the placement of orders. These factors often result in a
substantial portion of the Company's revenue being derived from orders placed
within the quarter and often shipped in the final month of the quarter.
Performance Technologies continued to experience the effects of the difficult
economic conditions and slowdown of capital spending in the communications
market during the second quarter 2002. New project deployments and design
activity were sluggish and a number of customers requested cancellations or
delays in shipments.
Based upon the current distribution of business, the current backlog, review of
sales forecasts, possible postponement of product deliveries to a particular
customer, and the general softness of European business during the summer
months, management expects revenue in the third quarter 2002 to be $6.0 million
to $7.5 million. Gross margin is expected to be approximately 57% to 62% and
diluted earnings per share for the third quarter is expected to be $.02 to $.06.
More in-depth discussions of the Company's strategy and financial performance
can be found in the Company's recent Annual and Quarterly Reports, on Form 10-K
and Form 10-Q, as filed with the Securities and Exchange Commission.
Quarter and Six Months Ended June 30, 2002, Compared with
the Quarter and Six Months Ended June 30, 2001
The following table presents the percentage of sales represented by each item in
the Company's consolidated statements of income for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---------- ----------- ----------- ------------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 40.4 38.2 40.9 38.8
---------- ----------- ----------- ------------
Gross profit 59.6 61.8 59.1 61.2
---------- ----------- ----------- ------------
Operating expenses:
Selling and marketing 18.3 14.7 17.4 15.1
Research and development 25.4 20.9 24.4 22.2
General and administrative 8.8 8.8 8.9 8.2
Restructuring charge 1.3
---------- ----------- ----------- ------------
Total operating expenses 52.5 44.4 52.0 45.5
---------- ----------- ----------- ------------
Income from operations 7.1 17.4 7.1 15.7
Other income, net 1.8 2.5 1.8 3.1
---------- ----------- ----------- ------------
Income before income taxes 8.9 19.9 8.9 18.8
Provision for income taxes (2.8) (6.6) (2.8) (6.2)
---------- ----------- ----------- ------------
Net income 6.1 13.3 6.1 12.6
========== =========== =========== ============
Sales. Total revenue for the second quarter 2002 was $6.6 million, compared to
$9.4 million for the same quarter in 2001. Revenue for the first six months of
2002 was $13.0 million, compared to $19.1 million for the same period in 2001.
For the periods indicated, the Company's products are grouped into three
distinct categories in one market segment: Signaling and network access
products, IP Switching products and Other products. Revenue from each product
category is expressed as a percentage of sales for the three and six months
ending June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---------- --------- ---------- -----------
Signaling and network access products 89% 87% 88% 85%
IP Switching products 10% 5% 9% 4%
Other 1% 8% 3% 11%
---------- --------- ---------- -----------
Total 100% 100% 100% 100%
========== ========= ========== ===========
Signaling and Network Access Products: During the past twelve months, the
decline in capital expenditure investments by carriers has significantly reduced
the Company's signaling and network access products revenue.
IP Switching Products: The Company's IPnexus switch product family has been
designed for the embedded systems market and is based on the PICMG 2.16 systems
architecture, which was ratified in September 2001. While still a modest
percentage of the Company's revenue, IP switch product revenue increased by 34%
to $.6 million in the second quarter 2002, compared to the respective quarter in
2001. During the second quarter, the Company began shipping the production
version of the CPC5400, an 8-port gigabit switch and pre-production units of the
CPC6400, a 24 port gigabit switch. The Company also realized its first design
win for the CPC5400 during the second quarter 2002.
Other product revenue: This revenue is related to legacy products. Customer
demand for these products has declined significantly over the past twelve months
as customers move to newer technology. Many of these products are project
oriented and shipments can fluctuate on a quarterly basis.
Gross profit. Gross profit consists of sales, less cost of goods sold including
material costs, manufacturing expenses, amortization of software development
costs, expenses associated with engineering contracts and technical support
function expenses. Gross margin was 59.6% of sales for the second quarter 2002,
compared to 61.8% in the second quarter of 2001. Fixed expenses spread over
lower sales volumes impacted gross margin as a percentage of sales during the
second quarter 2002.
Selling and marketing expenses were $1.2 million and $1.4 million for the second
quarter 2002 and 2001, respectively. For the six months, selling and marketing
expenses were $2.3 million and $2.9 million in 2002 and 2001, respectively. The
decrease in expense during 2002 is primarily the result of lower personnel and
commission expenses, and reductions in advertising, travel and trade show
participation. During the second quarter 2002, the Company increased its
allowance for doubtful accounts by $.1 million to reserve a specific customer
receivable.
Research and development expenses were $1.7 million and $2.0 million for the
second quarter 2002 and 2001, respectively. During the second quarter 2002, the
Company continued to focus engineering development efforts on new products for
IP networks and signaling applications. New products introduced during the
quarter include the SEGway IP-STP and the IPnexus Signaling Blade. For the six
months, research and development expenses were $3.2 million and $4.3 million in
2002 and 2001, respectively. The reduction in expense is primarily attributable
to lower headcount. In addition, the Company capitalizes certain software
development costs which reduce the amount of software development charged to
operating expense. During the second quarter, amounts capitalized were $.3
million and $.5 million for 2002 and 2001, respectively. During the six months,
amounts capitalized were $.6 million and $.8 million for 2002 and 2001,
respectively.
General and administrative expenses were $.6 million and $.8 million for the
second quarter 2002 and 2001, respectively. For the first six months, general
and administrative expenses were $1.2 million and $1.6 million in 2002 and 2001,
respectively. This decrease in expense is the result of tightened control over
general and administrative expenses and lower personnel related expenses.
Restructuring charges were $.2 million and zero for the first six months of 2002
and 2001, respectively. In January 2002, the Company improved its cost structure
primarily through the reduction of the Company's staff resulting in a decrease
in its workforce of approximately 10%.
Other income, net. Other income consists primarily of interest income from
marketable securities and cash equivalents. The funds are primarily invested in
high quality Municipal and U.S. Treasury securities with maturities of less than
one year. Over the past twelve months, interest rates have declined and
investment balances have increased.
Income taxes. The provision for income taxes for the second quarter and first
six months of 2002 is based on the combined federal, state and foreign effective
tax rate of 31%, compared to 33% for the comparable periods in 2001. Canadian
tax incentives contributed to a lower effective tax rate in 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, the Company's primary source of liquidity included cash and
cash equivalents of $26.5 million, marketable securities of $2.0 million and
available borrowings of $5.0 million under a revolving credit facility with a
bank. No amounts were outstanding under this credit facility as of June 30,
2002. The Company had working capital of $35.5 million at June 30, 2002,
compared to $34.7 million at December 31, 2001.
Cash provided by operating activities for the first six months of 2002 was $2.6
million, compared to $3.5 million for the same period in 2001.
Capital equipment purchases amounted to $.6 million for the first six months of
2002, compared to $.7 million for the same period in 2001. Capitalization of
certain software development costs amounted to $.6 million for the first six
months of 2002, compared to $.8 million for the same period in 2001.
In August 2000, the Board of Directors authorized the repurchase of up to 1
million shares of the Company's Common Stock and the Company completed this
repurchase program in March 2001. In March 2001, the Board of Directors
authorized a one-year plan to repurchase up to an additional 500,000 shares of
the Company's Common Stock under which the Company repurchased 206,000 shares.
Based on deteriorating economic conditions and an effort to preserve cash, the
Company did not repurchase any shares during the first six months of 2002,
compared to 541,000 shares repurchased at a total cost of $6.8 million during
the first six months of 2001. In August 2002, the Board of Directors authorized
a plan to repurchase up to 1 million shares of the Company's Common Stock.
Assuming there is no significant change in the Company's business, management
believes that its current cash, cash equivalents and marketable securities
together with cash generated from operations and available borrowings under the
Company's loan agreement will be sufficient to meet the Company's anticipated
needs, including working capital and capital expenditure requirements, for at
least the next twelve months. However, an unfavorable determination in the
outstanding class action litigation could have a material adverse effect on the
Company's working capital. Furthermore, management is continuing its strategic
acquisition program to further accelerate new product and market penetration
efforts. This program could have an impact on the Company's working capital,
liquidity or capital resources.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Quarterly Report on Form 10-Q contains forward-looking statements, which
reflect the Company's current views with respect to future events and financial
performance, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and are subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believes,"
"anticipates," "plans," "may," "intend," "estimate," "will," "should," "could,"
"feels," "is optimistic," "expects," and other expressions which indicate future
events and trends also identify forward-looking statements. However, the absence
of such words does not mean that a statement is not forward-looking.
The Company's future operating results are subject to various risks and
uncertainties and could differ materially from those discussed in the
forward-looking statements and may be affected by various trends and factors
which are beyond the Company's control. These include, among other factors,
general business and economic conditions, rapid or unexpected changes in
technologies, cancellation or delay of customer orders including those relating
to the "design wins" referenced above, unreliability of customer forecasts,
changes in the product or customer mix of sales, delays in new product
development, delays or lack of availability of electronic components, customer
acceptance of new products and customer delays in qualification of products.
Furthermore, an unfavorable determination in the outstanding class action
litigation could have a material adverse effect on the Company's working
capital. This report on Form 10-Q should be read in conjunction with the
Consolidated Financial Statements, the notes thereto, Management's Discussion
and Analysis of Financial Condition and Results of Operations as of December 31,
2001 and "Risk Factors" as reported in the Company's Annual Report on Form 10-K,
and other reports as filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks in the normal course of business,
primarily interest rate risk and changes in the market value of its investments
and believes its exposure to such risk is minimal. The Company's investments are
made in accordance with the Company's investment policy and primarily consist of
U.S. Treasury securities, municipal securities and corporate obligations. The
Company does not participate in the investment of derivative financial
instruments.
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material changes have transpired since the Company's last filing relative to
the class action lawsuits filed on May 19, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2002 Annual Meeting of Stockholders was held June 4, 2002. The Directors
elected at the meeting were as follows:
Votes Cast
Nominees For Withheld
Bernard Kozel 11,089,508 110,184
Charles E. Maginness 11,089,508 110,184
Arlen Vanderwel 11,089,508 110,184
John M. Slusser, Stuart B. Meisenzahl, John E. Mooney, Paul L. Smith and Donald
L. Turrell continue as Directors until the next Annual Meeting, or such times as
their respective terms expire.
The stockholders also voted to ratify the appointment of PricewaterhouseCoopers
LLP as independent accountants for 2002. 11,106,908 shares of common stock were
voted in favor of the proposal, 85,609 voted against the proposal, and 7,175
shares of common stock abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
99.1 Chief Executive Officer Certification
99.2 Chief Financial Officer Certification
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the three month period ended June
30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFORMANCE TECHNOLOGIES, INCORPORATED
August 8, 2002 By: /s/ Donald L. Turrell
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Donald L. Turrell
President and
Chief Executive Officer
August 8, 2002 By: /s/ Dorrance W. Lamb
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Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
Exhibit 99.1
Form of Certification Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
I, Donald L. Turrell, the Chief Executive Officer of Performance
Technologies, Incorporated, certify that (i) the Form 10-Q for the quarter ended
June 2002 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and (ii) the information contained in the Form
10-Q fairly presents, in all material respects, the financial condition and
results of operations of Performance Technologies, Incorporated.
By:s/s Donald L. Turrell
-----------------------
Donald L. Turrell
Chief Executive Officer
August 8, 2002
Exhibit 99.2
Form of Certification Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
I, Dorrance W. Lamb, the Chief Financial Officer of Performance
Technologies, Incorporated, certify that (i) the Form 10-Q for the quarter ended
June 2002 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and (ii) the information contained in the Form
10-Q fairly presents, in all material respects, the financial condition and
results of operations of Performance Technologies, Incorporated.
By:s/s Dorrance W. Lamb
----------------------
Dorrance W. Lamb
Chief Financial Officer
August 8, 2002