Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED June 30, 2002
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD From ___________ to ___________.
Commission file number 000-31223
----------------------------
PEMSTAR INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1771227
- ----------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3535 TECHNOLOGY DRIVE N.W.
ROCHESTER, MN 55901
(Address of principal executive officers)
(Zip Code)
(507) 288-6720
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 periods 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
Common Stock, $0.01 Par Value, 36,948,231 shares as of July 31, 2002.
Index
Pemstar Inc.
Part I. Condensed Consolidated Financial Information Page
Item 1. Financial Statements (Unaudited):
Condensed consolidated balance sheets - June 30, 2002
(unaudited) and March 31, 2002 .................................................... 3
Condensed consolidated statements of operations (unaudited) - Three months ended June
30, 2002 and 2001 ................................................................. 4
Condensed consolidated statements of cash flows (unaudited) - Three months ended June
30, 2002 and 2001 ................................................................. 5
Notes to condensed consolidated financial statements (unaudited) - June30, 2002 ........ 6-9
Item 2. Management's Discussion and analysis of Financial Condition and Results of
Operations ........................................................................ 10-13
Item 3. Quantitative and Qualitative Disclosure of Market Risk ................................. 13
Part II. Other Information
Item 1. Legal Proceedings ...................................................................... 14
Item 2. Changes in Securities and Use of Proceeds .............................................. 14
Item 3. Defaults upon Senior Securities ........................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders .................................... 14-15
Item 5. Other Information ...................................................................... 15
Item 6. Exhibits and Reports on Form 8-K ....................................................... 15-16
Signatures .............................................................................................. 17
Exhibits ................................................................................................ 18
2
Part I. Financial Information
Pemstar Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data) June 30, March 31,
2002 2002
-------------- -----------
(Unaudited) (Note A)
Assets
Current assets
Cash and equivalents $ 11,571 $ 11,483
Restricted cash 1,019 1,423
Accounts receivable, net 120,253 122,752
Recoverable income taxes 127 3,873
Inventories 95,454 92,929
Unbilled services 17,645 16,356
Deferred income taxes 38 45
Prepaid expenses and other 7,300 8,507
--------- ---------
Total current assets 253,407 257,368
Property, plant and equipment 140,456 137,639
Less accumulated depreciation (43,279) (38,531)
--------- ---------
97,177 99,108
Goodwill, net 34,669 34,678
Other assets 4,940 3,459
Deferred income taxes 1,173 1,111
--------- ---------
Total assets $ 391,366 $ 395,724
========= =========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 88,312 $ 79,410
Income taxes payable 206 21
Other current liabilities 16,855 15,738
Current maturities of long-term debt 13,476 13,999
Current maturities of capitalized lease obligations 6,679 10,865
--------- ---------
Total current liabilities 125,528 120,033
Long-term debt, less current maturities 75,087 71,340
Capital lease obligations, less current maturities 3,295 3,122
Other liabilities and deferred credits 10,460 7,832
Shareholders' equity
Common stock, par value $0.01 per share--authorized
150,000 shares, issued and outstanding 36,852 at June
30, 2002 and 36,701 at March 31, 2002 369 367
Additional paid-in capital 233,938 232,233
Accumulated other comprehensive loss (403) (2,131)
Retained earnings - deficit (56,000) (36,164)
Loans to shareholders (908) (908)
--------- ---------
176,996 193,397
--------- ---------
Total liabilities and shareholders' equity $ 391,366 $ 395,724
========= =========
See notes to condensed consolidated financial statements.
3
Pemstar Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months Ended
June 30,
----------------------
2002 2001
--------- ---------
Net sales $ 153,104 $ 167,204
Costs of goods sold 152,436 151,765
--------- ---------
Gross profit 668 15,439
Selling, general and administrative expenses 14,370 10,130
Restructuring costs 2,956 --
Amortization 48 478
--------- ---------
Operating (loss) income (16,706) 4,831
Other expense (income)--net 23 (217)
Interest expense 2,835 2,006
--------- ---------
(Loss)income before income taxes (19,564) 3,042
Income tax expense 272 530
--------- ---------
Net (loss) income $ (19,836) $ 2,512
========= =========
Net (loss)income per common share:
Basic $ (0.54) $ 0.08
Diluted (0.54) 0.08
Shares used in computing net (loss)income per common share:
Basic 36,768 30,153
Diluted 36,768 32,041
See notes to condensed consolidated financial statements.
4
Pemstar Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
June 30,
--------------------
2002 2001
--------- --------
Cash flows from operating activities:
Net (loss) income $(19,836) $ 2,512
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation 5,093 4,075
Amortization 680 623
Deferred revenue (90) (60)
Deferred income taxes (55)
Other 781 (39)
Change in operating assets and liabilities:
Accounts receivable 3,859 (5,853)
Inventories (1,902) (13,182)
Prepaid expenses and other 3,928 (6,686)
Accounts payable 7,929 (3,166)
Accrued expenses and other 3,208 6,399
-------- --------
Net cash provided by (used in) operating activities 3,595 (15,377)
Cash flows used in investing activities:
Decrease/(increase) in restricted cash 404 (1,249)
Business acquisitions, net of cash acquired -- (12,870)
Purchases of property and equipment (2,726) (8,837)
-------- --------
Net cash used in investing activities (2,322) (22,956)
Cash flows (used in) from financing activities:
Bank overdrafts -- (4,244)
Proceeds from sale/exercise of stock options 299 1,916
Proceeds from stock sales -- 79,774
Proceeds from sale of warrants 539 --
Principal payments on long-term borrowings (33,588) (41,255)
Proceeds from long-term borrowings 30,930 4,336
Proceeds from sale/leaseback of property and equipment 1,185 --
Increase of intangibles -- (10)
Other (555) 237
-------- --------
Net cash (used in) provided by financing activities (1,191) 40,755
Effect of exchange rate changes on cash 5 27
-------- --------
Net increase in cash and cash equivalents 88 2,449
Cash and cash equivalents:
Beginning of period 11,483 5,882
-------- --------
End of period $ 11,571 $ 8,331
======== ========
See notes to condensed consolidated financial statements.
5
Pemstar Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2002
(In thousands, except per share data)
Note A--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 the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they 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 (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended June 30, 2002,
are not necessarily indicative of the results that may be expected for the year
ending March 31, 2003.
The balance sheet at March 31, 2002 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Pemstar Inc. Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141 (SFAS 141), Business Combinations,
and SFAS No. 142 (SFAS 142), Goodwill and Other Intangible Assets. SFAS 141
addresses financial accounting and reporting for business combinations and
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Under SFAS 142, goodwill and certain
other intangible assets are no longer systematically amortized but instead will
be reviewed for impairment and written down and charged to results of operations
when their carrying amount exceeds their estimated fair value. The Company
adopted SFAS 142 effective April 1, 2002. Management expects that the effect of
ceasing amortization of goodwill will increase operating results by
approximately $840 after tax, or $0.02 per diluted share, in fiscal 2003. The
Company has not completed its assessment of the additional effects, if any, of
adopting SFAS 142.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144
(SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets,
which addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of. The Company
adopted SFAS 144 effective April 1, 2002. Management is currently evaluating the
provisions of SFAS 144, but believes there will be no effect on the Company's
financial position, results of operations or shareholders' equity resulting from
the adoption.
6
A reconciliation of reported net (loss) income adjusted to reflect the adoption
of SFAS 142 is provided below:
For the three months ended
June 30,
--------------------------
2002 2001
---------- ---------
Report net (loss) income $ (19,836) $ 2,512
Add back goodwill amortization, net of tax -- 329
---------- ---------
Adjusted net (loss) income $ (19,836) $ 2,841
========== =========
Reported basic and diluted net (loss) income
per share $ (.54) $ .08
Effect of add back of goodwill amortization -- .01
---------- ---------
Adjusted basic and dilted net (loss) income
per share $ (.54) $ .09
========== =========
Note B--Inventories
The components of inventories consist of the following:
June 30, March 31,
2002 2002
-------- ---------
Raw materials $ 84,956 $ 85,587
Work in process 12,527 8,763
Finished goods 6,794 5,255
Less allowance for inventory obsolescence (8,823) (6,676)
-------- --------
$ 95,454 $ 92,929
======== ========
Note C--Acquisitions
In May 2001, the Company acquired certain assets and assumed certain liabilities
of U.S. Assemblies New England, Inc., which operates through an 85 square foot
facility located in Taunton, Massachusetts. The purchase price was approximately
$14,300, including $1,600 of assumed indebtedness.
In September 2001, the Company purchased the membership interests and business
of Pacific Consultants LLC (a provider of electromechanical design and test
consulting services) to complement and extend its engineering capabilities. The
initial purchase price was approximately $20,100, including common stock valued
at $10,000, cash and costs of $4,400, and cash or common stock of $5,700 payable
up to two years from the date of the acquisition. The purchase agreement
provides for additional purchase price, payable in cash or common stock, of up
to $40,000, if earnings targets are met for the acquired business in the two
years following the close, which will be reported as additional goodwill.
In November 2001, the Company purchased certain assets of MTS Systems
Corporation including equipment located at the 57 square foot facility in
Chaska, Minnesota. The purchase price was approximately $3,600.
7
These acquisitions were accounted for as purchases and, accordingly, the results
of operations of these businesses have been included in the Consolidated
Statement of Operations since their respective dates of acquisition. The pro
forma unaudited results of operations for the three months ended June 30, 2002
and 2001 are as follows:
Three Months Ended
June 30,
---------------------------
2002 2001
----------- -----------
Net sales $ 153,104 $ 176,921
Net (loss)income (19,836) 2,857
Per share data:
Basic earnings $ (0.54) $ 0.09
Diluted earnings (0.54) 0.09
Note D--Comprehensive (Loss) Income
Total comprehensive (loss)income was $(18,108) and $2,085 for the three months
ended June 30, 2002 and 2001. Comprehensive (loss) income differs from net
(loss) income due to unrecognized currency gains and losses.
Note E--Financing Arrangements
In May 2002, the Company sold $5,000 face value of 6 1/2% convertible senior
subordinated notes with a conversion price of $2.28 together with related seven
year warrants to purchase shares of the Company's common stock to two investors.
The related seven year warrants are exercisable for 788 shares of the Company's
common stock at an exercise price of $2.28 per share, and the Company granted
additional warrants to the investors on May 10, 2002 to purchase 1,000 shares of
the Company's common stock at an exercise price of $2.00 per share. In July
2002, the Company entered into an amendment and termination agreement
terminating its remaining obligations to sell notes and related warrants
pursuant to the securities purchase agreement. In the amendment and termination
agreement, the Company agreed to issue additional warrants to purchase 250
shares of the Company's common stock at an exercise price of $1.62 and to
provide the investors certain rights to participate in any offering by the
Company of equity securities (or rights to purchase equity securities) during
the next six months.
In June 2002, the Company obtained a credit facility with a foreign bank for
borrowing of up to approximately $7,200, of which $4,812 was borrowed at June
30, 2002.
8
Note F--Earnings Per Share Data
The following table set forth the computation of basic and diluted earnings per
share for the periods indicated.
Three Months Ended
June 30,
--------------------
2002 2001
-------- --------
Basic:
Net (loss) income $(19,836) $ 2,512
Average shares outstanding 36,768 30,153
Basic (loss) income per share $ (0.54) $ 0.08
======== ========
Diluted:
Net (loss) income $(19,836) $ 2,512
Add back interest on convertible debt, net of tax 103 --
-------- --------
Net (loss) income, as adjusted $(19,733) $ 2,512
======== ========
Average shares outstanding 36,768 30,153
Share issued on conversion of convertible debt -- --
Net effect of dilutive stock options and warrants--based on
the treasury stock method -- 1,888
-------- --------
Totals 36,768 32,041
======== ========
Diluted (loss) income per share $ (0.54) $ 0.08
======== ========
During the first quarter of fiscal 2003, employees exercised stock options to
acquire 20 shares at an average exercise price of $0.91 per share and purchased
130 shares in the employee stock purchase plan at an average price of $2.16.
9
Item 2--Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Results this quarter continue to reflect the impact of the difficult economic
environment that our customers and we share. Sales declines and customer
bankruptcies have again affected our results.
Net Sales - Net sales for the first quarter of fiscal 2003 decreased $14.1
million, or 8.4%, to $153.1 million, from $167.2 million for the comparable
three months of the prior fiscal year. This decrease in net sales was due to
lower volume from optical and communications customers, partially offset by net
sales from businesses acquired after the first quarter of fiscal 2002.
Gross Profit - Our gross profit decreased $14.8 million to $0.7 million in the
first quarter of fiscal 2003 from $15.4 million in the first quarter of the
prior fiscal year. This decrease was due to reduced net sales and the change in
sales mix including less net sales from higher gross profit optical and
communication customers. We also incurred inventory write-downs of approximately
$3.5 million in the first quarter of fiscal 2003, primarily as a result of
customer financial difficulties and bankruptcies.
Selling, general and administrative expenses - Selling, general and
administrative expenses in the first quarter of fiscal 2003 increased $4.2
million to $14.4 million from $10.1 million in the first quarter of fiscal 2002.
As a percentage of net sales, our selling, general and administrative expenses
increased to 9.4% from 6.1% in the first quarter of fiscal 2002. This increase
was a result of additional expenses from acquired businesses, increased expenses
from information technology infrastructure and software implemented after the
first quarter of fiscal 2002. We also incurred charges in fiscal 2003 of $1.9
million for the uncertainty of collection of accounts receivable from bankrupt
and troubled customers.
Restructuring costs - Restructuring costs of $3.0 million were recognized in the
first quarter of fiscal 2003 for the consolidation of certain facilities and
worldwide workforce reductions. These actions were taken to rescale physical
space and employee counts in affected operations to the current business levels.
Further actions may be required as indicated by our continuing analysis.
Amortization - Amortization decreased approximately $0.5 million to an
insignificant amount for the first quarter of fiscal 2003 as a result of
adopting SFAS No. 142, "Goodwill and Other Intangible Assets", on April 1, 2002
and the resultant discontinuation of amortization of goodwill.
Other income (expense) - Other income (expense), which occurs principally as a
result of exchange gains in certain international operations, was negligible in
the first quarter of fiscal 2003 and the comparable period of fiscal 2002.
Interest expense - Our interest expense increased $0.8 million to $2.8 million
for the first quarter of fiscal 2003 from $2.0 million for the comparable period
of the prior fiscal year. This increase was primarily a result of fees and
deferred financing charges associated with the amending our credit facilities in
the first quarter of fiscal 2003.
Income tax) expense - Income tax expense decreased $0.2 million to $0.3 million
in the first quarter of fiscal 2003 from a tax expense of $0.5 million in the
first quarter of fiscal 2002. The effective tax rate for the first quarter of
fiscal 2003 was 1.4%. This results from the 0% rate in the United States and The
Netherlands, resulting from the inability to recognize benefits for loss
carryforwards there, due to the uncertainty regarding their realization, and the
low tax rates or tax holidays in certain non-United States jurisdictions.
10
Liquidity and Capital Resources
The Company has funded its operations from the proceeds of bank debt, private
offerings of debt, private and public offerings of equity, and lease financing
of capital equipment. Our principal uses of cash have been to finance working
capital, acquisitions, new operations, and capital expenditures and to fulfill
debt service requirements. We anticipate these uses will continue to be our
principal uses of cash in the future.
As of June 30, 2002, the Company had cash and cash equivalents balances of $11.6
million and total bank and other interest bearing debt, including capital lease
obligations, totaling $98.5 million. Of these borrowings, we had approximately
$6.9 million outstanding under our US Bank revolving credit facility and $51.0
million outstanding under our IBM Credit Corporation credit facility. We also
have a $3.2 million credit facility serving our Netherlands operations, a $2.3
million credit facility serving our Singapore facility, $8.5 million facilities
for our China operation and a $8.2 million facility serving our Thailand
operation. As of June 30, 2002, we had $3.0 million outstanding under our
Netherlands credit facility, $2.2 million outstanding under our Singapore credit
facility, $5.7 million outstanding from China facilities and $4.8 million
outstanding under our Thailand credit facility. Each credit facility bears
interest on outstanding borrowings at variable interest rates, which as of June
30, 2002 were 7.75% for the IBM facility, 6.25% for the US Bank facility, 5.5%
for the Netherlands facility, 4.9% for our Singapore facility, from 5.35-6% to
5.85% for the China facilities and 5% for the Thailand facility. These credit
facilities are secured by substantially all of our assets. We are also required
to meet financial covenants under these facilities relating to net income as a
percentage of net sales, the ratio of our liabilities to net worth, the ratio of
our current assets to current liabilities, the ratio of our earnings before
interest, taxes, depreciation and amortization, or EBITDA, less specified
expenditures, to our principal and interest payments, our tangible net worth and
capital expenditures. As of June 30, 2002 we were in compliance with all
financial covenants. As stated in our July 24, 2002 first quarter earnings
release, the projected fiscal 2003 second quarter operating loss would put us
out of compliance with certain covenants in our existing IBM Credit Corporation
credit facilities. We are currently in discussion with the lender to obtain
financial covenant changes. In addition, we were in default of certain
non-financial covenants of our IBM Credit Corporation credit facilities, and we
have obtained a waiver of these non-financial covenants. A failure to change
these covenants or to obtain a waiver of expected violations of these covenants
could adversely affect our liquidity and capital resources.
Net cash provided from operating activities for the three months ended June 30,
2002 was $3.6 million compared to net cash used of $15.4 million for the
comparable period of the prior fiscal year. The net cash provided resulted
primarily from net reductions in working capital due to lower sales and expanded
accounts payable, offset by a net loss compared to net income in the comparable
period in the prior fiscal year.
Net cash used in investing activities for the three months ended June 30, 2002
was $2.3 million compared to $23.0 million for the comparable period of the
prior fiscal year. The reduction in net cash used in investing activities
resulted from a lower level of investment in equipment and in the absence of
business acquisitions in the fiscal 2003 quarter compared to the comparable
period of the prior fiscal year.
Net cash used by financing activities for the three months ended June 30, 2002
was $1.2 million compared to cash provided by financing activities of $48.5
million for the comparable period of the prior fiscal year. The net cash used by
financing activities resulted primarily from paying down debt, net of sale
leaseback proceeds, compared to cash provided by financing activities as a
result of the net proceeds from our second public offering of our common stock
in the prior fiscal year. Debt paid down included $4.0 million of the $7.9
million Bank of America lease facility repayment requirement needed to obtain a
waiver of a covenant violation earlier in the year. The remainder has since been
repaid.
11
On December 17, 2001, we filed a shelf registration statement to sell $200
million of common stock, preferred stock, debt securities, depositary shares,
securities warrants, and units in the future. The net proceeds from the sales of
any of these securities will be used for working capital and other general
corporate purposes.
On May 3, 2002, we entered into a Securities Purchase Agreement with two
institutional accredited investors. Pursuant to the Securities Purchase
Agreement, the Company agreed to sell up to $50 million principal amount of 6
1/2 % convertible senior subordinated notes due May 1, 2007 together with
related seven-year warrants to purchase shares of our common stock. In addition,
we entered into a letter agreement on May 8, 2002 with the investors pursuant to
which the Company agreed to issue the investors seven-year warrants to purchase
aggregate of 1,000,000 shares of the Company's common stock at an exercise price
of $2.00.
The sale of $5 million principal amount of 6 1/2 % convertible senior
subordinated notes and related warrants exercisable for approximately 788,312
shares of common stock occurred on May 10, 2002. The applicable conversion price
for the 6 1/2 % convertible senior subordinated notes and the exercise price for
their related warrants is $2.28. In addition, on May 10, 2002 the Company issued
the seven-year warrants issuable pursuant to the May 8, 2002, letter agreement.
On July 19, 2002, the Company entered an amendment and termination agreement to
terminate its remaining obligations to sell notes and related warrants provided
for in the securities purchase agreement. In this amendment and termination
agreement, the Company agreed to issue additional warrants to purchase 250,000
shares of common stock at an exercise price of $1.62 and to provide the
investors certain rights to participate in any offering by the Company of equity
securities (or rights to purchase equity securities) during the next six months.
Our continued viability depends on our ability to generate additional cash from
operations or obtain additional sources of funds for working capital. Our
ability to maintain sufficient liquidity depends, in part, on our achieving
anticipated revenue targets and intended expense reductions from our
restructuring activities and further improvement of working capital management.
We believe that as a result of the restructuring actions we have taken in fiscal
2003 to reduce cash expenditures, the efforts we continue to make to increase
revenues from continuing customers, as well as efforts to generate new customers
in various industry sectors, together with the new agreements we have reached to
provide additional borrowing capacity, we have sufficient cash flow to meet our
needs for fiscal 2003. We may not achieve these targets, realize the intended
expense reductions or improvement of working capital management. If our
operating goals are not met, we will be required to secure additional financing
from lenders or sell additional securities.
We regularly review acquisition and additional facilities expansion or joint
venture opportunities, as well as major new program opportunities with new or
existing customers, any of which may require us to sell additional equity or
secure additional financing in order to fund the requirement. The sale of
additional equity could result in additional dilution to our shareholders. We
cannot be assured that financing arrangements will be available in amounts or on
terms acceptable to us.
Forward-looking Statements: This discussion contains certain "forward-looking"
statements. These forward-looking statements may contain statements of intent,
belief or current expectations of Pemstar and its management. Such
forward-looking statements are not guarantees of future results and involve
risks and uncertainties that may cause actual results to differ materially from
the potential results discussed in the forward-looking statements. In addition
to factors discussed above, risks and uncertainties that may cause such
differences include but are not limited to: a continued decline in economic
conditions or a renewed recession; any future terrorist attacks on the United
States, rumors or threats of war, actual conflicts or trade disruptions; changes
in demand for electronics manufacturing services; changes in demand by major
customers due to cancellations, reductions or delays of orders; shortages or
price fluctuations in component parts;
12
difficulties managing our expansion and integrating acquired businesses;
increased competition and other risk factors listed from time to time in our
Securities and Exchange Commission filings, including but not limited to Exhibit
99 of our Annual Report on Form 10K for the fiscal year ended March 31, 2001.
The foregoing list is not exhaustive and we disclaim any obligation to
subsequently revise any forward-looking statements to reflect events or
circumstances after the date of such statements.
Item 3--Quantitative and Qualitative Disclosure of Market Risk
The unrecognized losses from foreign currency translation, as reflected in the
balance sheet item captioned accumulated other comprehensive loss, decreased by
$1,728 for the three months ended June 30, 2002. These changes result primarily
from changes in the exchange rate of the Baht and Euro in relationship to the
United States dollar applied to our net invested asset currency exposure in
Thailand and the Netherlands ($18,976 and $7,119 respectively, at June 30,
2002). Additional credit facilities denominated in local currencies of foreign
locations are programmed to limit these risks.
13
Part II. Other Information
Item 1--Legal Proceedings
In July 2002, class action suits were commenced in the United States District
Court for the District of Minnesota on behalf of purchasers of our publicly
traded securities during the period between June 8, 2001 and May 3, 2002. We
believe the allegations are without merit and intend to vigorously defend the
lawsuits. We maintain directors' and officers' insurance to address these types
of allegations.
Item 2--Changes in Securities and Use of Proceeds
On May 3, 2002, we entered into a Securities Purchase Agreement with two
institutional accredited investors. Pursuant to the Securities Purchase
Agreement, we agreed to issue and sell up to $50 million principal amount of 6
1/2 % convertible senior subordinated notes due May 1, 2007 together with
related seven-year warrants to purchase shares of common stock. In addition, we
entered into a letter agreement on May 8, 2002 with investors pursuant to which
we agreed to issue the investors seven-year warrants to purchase an aggregate of
1,000,000 shares of our common stock at an exercise price of $2.00.
The sale of $5 million principal amount of 6 1/2% convertible senior
subordinated notes and related warrants exercisable for approximately 788,312
shares of common stock occurred on May 10, 2002. The applicable conversion price
for the 6 1/2 % convertible senior subordinated notes and the exercise price for
their related warrants is $2.28. In addition, on May 10, 2002 we issued the
seven-year warrants issuable pursuant to the May 8, 2002 letter agreement. On
July 19, 2002, we entered an amendment and termination agreement to terminate
our remaining obligations to sell notes and related warrants provided for in the
securities purchase agreement. In this amendment and termination agreement, we
agreed to issue additional warrants to purchase 250,000 shares of our common
stock at an exercise price of $1.62 and to provide the investors certain rights
to participate in any offering by us of equity securities (or rights to purchase
equity securities) during the next six months.
Item 3--Default on Senior Securities
There have been no events of default on the Company's senior securities
agreements
Item 4--Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on July 25, 2002 at the main offices
of the Company at 3535 Technology Drive NW, Rochester, Minnesota. The
stockholders took the following actions (with voting tallies, from eligible
voting shares, as noted):
i. Elected three Class II directors for terms expiring in 2005 as
disclosed in the Company's Proxy Statement effective July 1 2002.
(Thomas A. Burton: Votes for-31,180,473, withheld-2,310,112; Kenneth
E. Hendrickson: Votes for-31,182,151, withheld-2,308,434; Michael
Odrich: Votes for-31,224,171, withheld-2,266,414). The following
directors' terms of office continued after the meeting: Allen J.
Berning, Steve V. Petracca, Gregory S. Lea, Karl D. Shurson, Robert D.
Ahmann and Bruce M. Jaffe.
ii. Approved the Pemstar Inc. 2002 Stock Option Plan (Votes for-
12,487,252, against - 8,358,753, abstain - 165,697, broker
non-vote-12,478,883)
14
iii. Amended the Pemstar Inc. 2000 Employee Stock Purchase Plan to increase
the number of shares available for purchase under the Plan by 500,000
shares and to remove the eligibility requirement of being employed by
Pemstar for at least 90 days. (Votes for - 20,364,570, against -
476,147, abstained -170,985, broker non-vote -12,478,883)
iv. Ratified the appointment of Ernst & Young LLP as independent public
accountants for the fiscal year ending March 31, 2003. (Votes
for-32,769,287, against - 622,161, abstained - 99,137)
Item 5--Other Information
No information is required in response to this requirement.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits.
4.1 Rights Agreement Amendment by and between the Company and Wells Fargo
Bank Minnesota, N.A. dated May 8, 2002 (incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form 8-A/A
filed on July 29, 2002).
10.1 Fourth Amendment between the Company and the U.S. Bank National
Association dated June 27, 2002, to the Loan and Security Agreement
with U.S. Bank National Association dated June 28, 2001, as amended on
December 20, 2001, March 25, 2002 and May 3, 2002.
10.2 Amendment No. 5 to the Amended and Restated Revolving Credit Agreement
between the Company, Turtle Mountain Corporation, Pemstar Pacific
Consultants Inc. and IBM Credit Corporation dated June 27, 2002, to
the Amended and Restated Revolving Credit Agreement dated June 29,
2001, as amended February 14, 2002, March 29, 2002, May 3, 2002 and
May 10, 2002.
10.3 Amendment No. 6 to the Amended and Restated Revolving Credit Agreement
between the Company, Turtle Mountain Corporation, Pemstar Pacific
Consultants Inc. and IBM Credit Corporation dated June 28, 2002, to
the Amended and Restated Revolving Credit Agreement dated June 29,
2001, as amended on February 14, 2002, March 29, 2002, May 3, 2002,
May 10, 2002 and June 27, 2002.
10.4 Loan Agreement, dated June 27, 2002, by and between the Pemstar
(Thailand) Limited and Thai Farmers Bank Public Company Limited and
related Guarantee Agreement by Pemstar Inc., dated June 25, 2002.
10.5 Amendment and Termination Agreement by and among the Company,
Smithfield Fiduciary LLC and Citadel Equity Fund Ltd. (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on July 19, 2002).
10.6 Pemstar, Inc. 2000 Employee Stock Purchase Plan, as amended.
15
10.7 Pemstar, Inc. 2002 Stock Option Plan.
12.1 Computation of Ratio of Earnings to Fixed Charges.
99.1 Certification pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) The company filed Form 8-K reports on the following dates:
i. May 6, 2002 reporting the execution of a Securities Purchase
Agreement with two investors under which the company agreed to
sell, in a private placement, up to $50 million of 6 1/2%
convertible senior subordinated notes together with related seven
year warrants to purchase shares of the Company's common stock.
ii. May 6, 2002 filing amendments to certain Loan and Security
agreements
iii. May 13, 2002 reporting the initial sale of $5 million of
convertible senior subordinated notes under a Securities Purchase
Agreement through a private placement with related warrants.
iv. July 19, 2002 filing the amendment and termination agreement with
respect to certain obligations under the terms of the Securities
Purchase Agreement.
v. August 1, 2002 filing press releases made in connection with
earnings of the quarter ended June 30, 2002 and the filing of a
shareholder lawsuit seeking class action.
16
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.
Pemstar Inc.
Date: August 14, 2002 \s\ Allen J. Berning
------------------------ -----------------------------------------------
Allen J. Berning
Chairman and Chief Executive Officer
Date: August 14, 2002 \s\ Gregory S. Lea
------------------------ -----------------------------------------------
Gregory S. Lea
Executive Vice President and Interim Chief
Financial Officer
17
EXHIBIT INDEX
Exhibit No.
-----------
4.1 Rights Agreement Amendment by and between the Company and
Wells Fargo Bank Minnesota, N.A. dated May 8, 2002
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form 8-A/A filed on July 29, 2002).
10.1 Fourth Amendment between the Company and U.S. Bank National
Association dated June 27, 2002, to the Loan and Security
Agreement with U.S. Bank National Association dated June 28,
2001, as amended on December 20, 2001, March 25, 2002 and May
3, 2002.
10.2 Amendment No. 5 to the Amended and Restated Revolving Credit
Agreement between the Company, Turtle Mountain Corporation,
Pemstar Pacific Consultants Inc. and IBM Credit Corporation
dated June27, 2002, to the Amended and Restated Revolving
Credit Agreement dated June 29, 2001, as amended on February
14, 2002, March 29, 2002 and May 3, 2002 and May 10, 2002.
10.3 Amendment No. 6 to the Amended and Restated Revolving Credit
Agreement between the Company, Turtle Mountain Corporation,
Pemstar Pacific Consultants Inc. and IBM Credit Corporation
dated June28, 2002, to the Amended and Restated Revolving
Credit Agreement dated June 29, 2001, as amended on February
14, 2002, March 29, 2002, May 3, 2002, May 10, 2002 and June
27, 2002.
10.4 Loan Agreement, dated June 27, 2002, by and between the
Pemstar (Thailand) Limited and Thai Farmers Bank Public
Company Limited and related Guarantee Agreement by Pemstar
Inc., dated June 25, 2002.
10.5 Amendment and Termination Agreement by and among the Company,
Smithfield Fiduciary LLC and Citadel Equity Fund Ltd.
(incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on July 19, 2002).
10.6 Pemstar, Inc. 2000 Employee Stock Purchase Plan, as amended.
10.7 Pemstar, Inc. 2002 Stock Option Plan.
12.1 Computation of Ratio of Earnings to Fixed Charges.
99.1 Certification pursuant to 18 U.S.C.ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C.ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
18