Second Quarter Operating Performance

Net sales were $88.3 million compared with $100.4 million in the prior-year quarter, in line with ongoing economic and industry trends plus lower demand for wireless products for smartphone programs in which the company participates. Sequentially, consolidated net sales increased 4.1 percent compared with first quarter net sales of $84.8 million mainly due to seasonal recovery from the typically weak first quarter offset by ongoing industry weakness of smartphone demand.

Cost of sales decreased 16.8 percent to $67.5 million from $81.2 million in the prior-year quarter. The company’s gross profit margin was 23.5 percent compared with 19.1 percent in the prior-year quarter and 23.8 percent in the first quarter. The higher gross profit margin compared to the prior year reflects the favorable effects of manufacturing plant consolidations and other cost reduction programs and resulting operational efficiencies. The sequential decrease in gross margin was due mainly to the implementation of a portion of government-mandated wage increases at the company’s manufacturing facilities in China. The remaining increases became effective in the third quarter and will also unfavorably affect gross margins.

Operating expenses were $19.0 million, essentially flat from the second quarter of 2012, as the company maintained sustained scrutiny over all discretionary spending. Operating expenses were flat compared to the first quarter.

Operating profit (U.S. GAAP) was $1.6 million compared with a loss of $0.1 million in the prior-year quarter. Non-GAAP operating profit was $2.2 million compared with $0.9 million in the prior-year quarter and $1.6 million in the first quarter.

The company had $23.2 million of cash and cash equivalents at June 28, 2013 compared with $31.5 million at December 28, 2012. The decrease in cash mainly reflects capital expenditures, refinancing transaction fees and expenses, and working capital needs.

On May 29, 2013, the U.S. District Court entered final judgment in the lawsuit filed in March 2007 by Halo Electronics, Inc. in the United States District Court, District of Nevada, which allows the case to be appealed. Although the court granted Halo's motion for a permanent injunction against the eight product groups subject to the jury verdict, the court granted Pulse's emergency motion to stay the injunction for 90 days through October 15, 2013. The company is introducing new and improved replacement products throughout this period that it will continue to ship to customers after the expiration of the stay. Many of these new parts are available now. The company maintains its counterclaim that Pulse owes no liability whatsoever to Halo, plans to contest the amount of damages asserted by Halo and its expert, and to consider its rights of appeal with respect to any adverse rulings.

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