SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: MARCH 11, 1998
PCD INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 0-27744 04-2604950
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2 Technology Drive, Centennial Park, Peabody, MA 01960-7977
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (978) 532-8800
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 26, 1997, PCD Inc. ("PCD") acquired from UL America,
Inc. all of the outstanding capital stock of Wells Electronics,
Inc. ("Wells") pursuant to a Share Purchase Agreement dated as
of November 17, 1997 (the "Share Purchase Agreement") for an
aggregate purchase price of $130,000,000 (subject to adjustment as
provided in the Share Purchase Agreement). The sources of funds
used for the purchase price were: (i) $83 million from a loan to
PCD under a Loan Agreement with Fleet National Bank as agent for
itself and certain other financial institutions; (ii) $25 million
from a loan to PCD under a Subordinated Debenture and Warrant
Purchase Agreement with Emerson Electric Co.; and (iii) $22
million from PCD's cash reserves.
Wells, a manufacturer of burn-in and test sockets for the global
semi-conductor industry, is headquartered in South Bend, Indiana
and has manufacturing facilities located in Swatara, Pennsylvania
and sales offices in San Jose, California, Northhampton, England
and Seoul, Korea. Wells also operates two principal subsidiaries
in Yokohama, Japan and Singapore.
In determining the amount of consideration to be paid for the
stock of Wells, PCD considered, among other things, the following
factors with respect to Wells: historical and projected financial
results, the quality and performance of management, and the
projected financial performance of Wells and PCD on a combined
basis.
Before December 26, 1997, there was no material relationship
between PCD and Wells or any of their respective officers,
directors or stockholders, other than the Share Purchase Agreement
and related agreements.
ITEM 5. OTHER EVENTS.
On December 26, 1997, PCD entered into a Loan Agreement (the
"Loan Agreement") with Fleet National Bank, as agent for itself
and certain other financial institutions. The Loan Agreement
provides for a $30,000,000 Secured Term Loan A, a $40,000,000
Secured Term Loan B and a $20,000,000 Secured Revolving Credit
Loan to PCD. The loans to PCD under the Loan Agreement are
secured by a pledge of all of the assets of PCD, including the
stock and assets of all subsidiaries of PCD (including Wells and
its subsidiaries).
On December 26, 1997, PCD entered into a Subordinated Debenture
and Warrant Purchase Agreement (the "Purchase Agreement") with
Emerson Electric Co. ("Emerson"). Pursuant to the Purchase
Agreement, PCD has issued to Emerson a $25,000,000 Subordinated
Debenture (the "Debenture") and a Common Stock Purchase Warrant
(the "Warrant") for the purchase of up to 525,000 shares of
common stock of PCD at an exercise price of $1.00 per share. The
unpaid principal and accrued interest under the Debenture is
convertible into common stock of PCD upon the occurrence of
certain events of default thereunder, at a conversion price equal
<PAGE>
to the lesser of $17.00 per share or 70% of the average daily
closing price of PCD common stock for the 90 days preceding such
default as reported by The Nasdaq Stock Market, Inc. Both the
shares issuable upon such a conversion of the Debenture and upon
exercise of the Warrant are subject to certain registration rights
granted pursuant to a Registration Rights Agreement of even date
with the Purchase Agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
WELLS ELECTRONICS, INC.
APRIL 27, 1996 AND MAY 3, 1997
Independent Auditors' Report
Consolidated Balance Sheets as of April 27, 1996 and May 3, 1997
Consolidated Statements of Income for the 52 weeks ended June 3, 1995,
48 weeks ended April 27, 1996 and 53 weeks ended May 3, 1997
Consolidated Statements of Shareholder's Equity for the 52 weeks ended
June 3, 1995, 48 weeks ended April 27, 1996 and 53 weeks ended May 3, 1997
Consolidated Statements of Cash Flows for the 52 weeks ended June 3, 1995,
48 weeks ended April 27, 1996 and 53 weeks ended May 3, 1997
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wells Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Wells
Electronics, Inc. and subsidiaries as of April 27, 1996 (Predecessor) and May
3, 1997 (Successor), and the related consolidated statements of income,
shareholders' equity, and cash flows for the 52 weeks ended June 3, 1995, the
48 weeks ended April 27, 1996 (Predecessor periods), and the 53 weeks ended
May 3, 1997 (Successor period). These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the aforementioned Predecessor consolidated financial
statements present fairly, in all material respects, the financial position of
Wells Electronics, Inc. and subsidiaries as of April 27, 1996, and the results
of their operations and their cash flows for the Predecessor periods, the
aforementioned Successor consolidated financial statements present fairly, in
all material respects, the financial position of Wells Electronics, Inc. and
subsidiaries as of May 3, 1997, and the results of their operations and their
cash flows for the Successor period, in conformity with generally accepted
accounting principles. Further, in our opinion, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
effective May 2, 1996, Siebe plc acquired all of the outstanding stock of
Unitech plc in a business combination accounted for as a purchase. As a result
of the acquisition, the consolidated financial information for the periods
after the acquisition is presented on a different cost basis than that for the
periods before the acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
January 15, 1998
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 27, 1996 AND MAY 3, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 27, 1996 MAY 3, 1997
-------------- -----------
<S> <C> <C>
ASSETS
Cash & cash equivalents.......................... $ 441 $ 95
Accounts receivable -- trade..................... 3,843 4,516
Allowance for uncollectible accounts............. (100) (100)
Inventory........................................ 3,446 2,540
Prepaid expenses and other current assets........ 475 416
Deferred tax assets.............................. 547 571
------- -------
Total current assets................... 8,652 8,038
Property, plant and equipment, net............... 4,319 9,224
Intangible assets, net........................... 714 10,157
Due from affiliate............................... -- 3,231
Other assets..................................... 228 135
------- -------
Total assets........................... $ 13,913 $30,785
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term debt.................................. $ 1,153 $ 268
Accounts payable -- trade........................ 2,801 3,016
Accrued expenses and other current liabilities... 2,008 2,669
Due to affiliate................................. 11 --
------- -------
Total current liabilities.............. 5,973 5,953
Long-term debt................................... 1,458 --
Deferred tax liabilities......................... 149 6,185
Minority interest................................ -- 6
------- -------
Total liabilities...................... 7,580 12,144
------- -------
SHAREHOLDER'S EQUITY
Common stock, $10 par value; 13,500 authorized
shares; issued 7,825 shares...................... 78 78
Additional paid-in capital......................... 6,547 14,510
Retained earnings.................................. (292) 4,367
Foreign currency translation adjustments........... -- (314)
------- -------
Total shareholder's equity............... 6,333 18,641
------- -------
Commitment and contingencies....................... -- --
Total liabilities and shareholder's equity $ 13,913 $30,785
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR 52 WEEKS ENDED JUNE 3, 1995; 48 WEEKS ENDED APRIL 27, 1996
AND 53 WEEKS ENDED MAY 3, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 3, 1995 APRIL 27, 1996 MAY 3, 1997
------------ -------------- -----------
<S> <C> <C> <C>
Net sales...................... $ 18,579 $ 17,998 $27,492
Cost of sales.................. 9,732 9,271 13,181
------- ------- -------
Gross profit.............. 8,847 8,727 14,311
Operating expenses............. 7,272 6,624 8,758
------- ------- -------
Income from operations.... 1,575 2,103 5,553
Non-operating income(expense):
Interest income................ 10 6 11
Interest expense............... (126) (115) (93)
Royalty income................. 404 844 630
Minority interest.............. -- -- (6)
Other expense.................. (42) (40) (23)
Foreign exchange gain/(loss)... (180) 40 264
------- ------- -------
Total non-operating income 66 735 783
------- ------- -------
Income before income taxes..... 1,641 2,838 6,336
Provision for income taxes..... 798 586 1,969
------- ------- -------
Net Income........... $ 843 $ 2,252 $ 4,367
======= ======= =======
Earnings per share............. $ 107.73 $ 287.80 $558.08
======= ======= =======
Average number of shares........ 7,825 7,825 7,825
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR 52 WEEKS ENDED JUNE 3, 1995; 48 WEEKS ENDED APRIL 27, 1996
AND 53 WEEKS ENDED MAY 3, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
----------------- PAID-IN RETAINED TRANSLATION TOTAL
SHARES PAR VALUE CAPITAL EARNINGS ADJUSTMENTS EQUITY
------ --------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance,
May 29, 1994.. 7,825 $78 $ 6,547 $ (3,387) $ 35 $ 3,273
Net income..... 843 843
Net change
foreign
currency
translation
adjustment.... 238 238
----- --- ------- ------- ----- -------
Balance,
June 3, 1995.. 7,825 78 6,547 (2,544) 273 4,354
Net income..... 2,252 2,252
Net change
foreign
currency
translation
adjustment.... (273)
(273)
----- --- ------- ------- ----- -------
Balance,
April 27, 1996 7,825 78 6,547 (292) -- 6,333
Acquisition
adjustments... 7,963 292 8,255
Net income..... 4,367 4,367
Net change
foreign
currency
translation
adjustment.... (314)
(314)
----- --- ------- ------- ----- -------
Balance,
May 3, 1997... 7,825 $78 $ 14,510 $ 4,367 $(314) $18,641
===== === ======= ======= ===== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR 52 WEEKS ENDED JUNE 3, 1995; 48 WEEKS ENDED APRIL 27, 1996
AND 53 WEEKS ENDED MAY 3, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 3, 1995 APRIL 27, 1996 MAY 3, 1997
------------ -------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 843 $ 2,252 $ 4,367
------- ------- -------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization......... 1,870 1,426 2,205
Gain on disposition of equipment...... (38) (12) (59)
Provision for (benefit from)
deferred taxes...................... (49) (30) 50
Changes in operating assets
and liabilities:
Increase in accounts receivable.... (1,550) (732) (673)
Decrease (increase) in inventory... (520) (1,038) 906
Decrease (increase) in prepaid
expenses and other current assets. 193 (176) 60
Decrease (increase) in other assets 9 (23) 93
Decrease in due from affiliate..... (1,433) (454) (3,242)
Increase in accounts payable....... 1,902 337 215
Increase (decrease) in
current liabilities.............. 476 (91) 661
Increase (decrease) in
other liabilities................ (260) 4 3
------- ------- -------
Total adjustments.............. 600 (789) 219
------- ------- -------
Net cash provided by operating activities 1,443 1,463 4,586
Cash flows from investing activities:
Capital expenditures................... (2,093) (1,971) (2,975)
Proceeds from sale of fixed assets..... 67 18 386
------- ------- -------
Net cash used in investing activities... (2,026) (1,953) (2,589)
Cash flow from financing activities:
Net (payments of) proceeds from
short-term debt..................... 414 739 (885)
Principal payments of long-term debt.. -- (241) (1,458)
Proceeds from loan.................... 56 -- --
------- ------- -------
Net cash (used in) provided by financing
activities............................ 470 498 (2,343)
Net (decrease) increase in cash and cash
equivalents........................... (113) 8 (346)
Cash and cash equivalents at beginning of
the period............................. 546 433 441
------- ------- -------
Cash and cash equivalents
at end of period....................... $ 433 $ 441 $ 95
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.............................. $ 116 $ 109 $ 82
======= ======= =======
Income taxes.......................... $ 567 $ 1,055 $ 1,301
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statement
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 27, 1996 AND MAY 3, 1997
(IN THOUSANDS)
1. NATURE OF BUSINESS
As of May 3, 1997 and for the year then ended (fiscal 1997), Wells
Electronics, Inc. ("the Company"), an Indiana Corporation, was a wholly owned
subsidiary of UL America, Inc., whose ultimate parent company, Siebe plc, is a
publicly held corporation based in the United Kingdom. On April 24, 1989, UL
America, Inc. acquired Wells Electronics, Inc., and for the eleven months
ended April 27, 1996 (fiscal 1996) and the year ending May 31, 1995 (fiscal
1995), the Company was a wholly owned subsidiary of UL America, Inc.
The Company has two subsidiaries: Wells Electronics Asia Pte Ltd. in
Singapore ("Wells Asia") which is a wholly owned subsidiary and Wells Japan
Ltd. ("Wells Japan") in Japan which is approximately 98% owned by the Company.
The remaining 2% is owned by a Japanese corporation.
The Company is principally engaged in designing, developing,
manufacturing and marketing a broad line of burn-in/test sockets and plastic
carriers for the global semiconductor industry. These products are employed in
the handling and quality assurance phase of semiconductor manufacturing.
The Company's ultimate parent, Unitech plc, was acquired by Siebe plc, on
May 2, 1996. Following the acquisition, a new basis of accounting was applied.
The fair market revaluation of the Company's assets and liabilities resulted
in an acquisition adjustment of $8,255, net of the related deferred tax
liability of $5,962. As a result of the acquisition, property, plant and
equipment was written up to appraised fair market value of $8,535 (net
historical cost was $4,319). Additionally, trademarks and software were
written up to appraised fair market value of $10,001 (net historical cost was
$0) and goodwill of $708 was retained. There were no other significant
accounting adjustments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Wells
Electronics, Inc. and its subsidiaries. Significant intercompany balances and
transactions have been eliminated.
The consolidated financial statements are prepared in accordance with
United States generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates. The most significant estimates
included in these financial statements are allowance for uncollectible
accounts, inventory reserves, and warranty reserves.
There are 52, 48, and 53 weeks in fiscal 1995, 1996 and 1997,
respectively, due to the change in the fiscal year end subsequent to the Siebe
plc acquisition.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products
to customers.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company provides credit to customers in the normal course of business.
Collateral is not required for trade receivables, but ongoing credit
evaluations of customers' financial condition are performed. Additionally, the
Company maintains reserves for potential credit losses. As of April 27, 1996
and May 3, 1997 the Company had no significant receivable write-offs. The
Company operates in a single segment of the semiconductor industry.
Research and Development
Research and development costs are charged to expense as incurred.
Inventories
Inventories are stated at the lower of cost or market. The inventories
are valued at standard cost which approximates the first-in, first-out (FIFO)
Cost method. Certain inventories are valued at the moving average cost method.
Property, Plant and Equipment
For fiscal 1995 and 1996, property, plant and equipment are stated on the
basis of cost. For fiscal 1997, property, plant and equipment are stated at
fair value based upon independent appraisal. Equipment under capital leases is
stated at the present value of minimum lease payments at the inception of the
lease.
Material, labor and overhead costs associated with the manufacture of
molds are capitalized and classified as tooling. Acquisition cost is used to
cost molds which are purchased from outside vendors.
Depreciation is provided using the straight-line method over the
estimated useful lives of depreciable properties as follows: buildings and
improvements, 10 to 33 years; machinery and equipment, 7 to 13 years; and
tooling, 2 to 6 years.
Equipment held under capital leases and lease improvements are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
financial statement bases and the tax bases of the Company's assets and
liabilities using enacted statutory tax rates applicable to future years.
Intangible Assets
The straight-line method is used to amortize intangible assets. The
goodwill and trademarks are amortized to expense over 20 years and computer
software is amortized over 6 years.
Foreign Currency Translation
The accounts of foreign subsidiaries are measured using local currency as
the functional currency. For those operations, assets and liabilities are
translated into US dollars at the end of period exchange rates and income and
expenses are translated at the average exchange rates. Net exchange gains or
losses resulting from such translation are excluded from net income and
accumulated in a separate component of shareholder's equity.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of, during fiscal 1997.
This statement requires that long-lived assets, including associated goodwill,
and certain identifiable intangibles to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. It also requires that
long-lived assets and certain intangible assets to be disposed be reported at
the lower of carrying amount or fair value less costs to sell. Adoption of
this statement did not have any impact on the Company's financial position,
results of operations, or liquidity.
Net Income Per Common Share
Net income per common share is computed using the weighted average number
of shares of common stock outstanding.
3. FOREIGN OPERATIONS
The Company's net income is affected by foreign currency exchange (gains)
losses resulting from translating foreign currency denominated trade
receivables and payables of Wells Japan and Wells Asia and other realized and
unrealized foreign currency (gains) losses.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Raw material and supplies.......................... $1,463 $ 778
Work in process.................................... 349 223
Finished goods..................................... 1,634 1,539
------ ------
$3,446 $2,540
====== ======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Land........................................... $ 165 $ --
Buildings and improvements..................... 1,467 171
Machinery and equipment........................ 5,480 4,186
Tooling........................................ 9,374 5,499
Construction in progress....................... 480 576
------- -------
16,966 10,432
Less accumulated depreciation.................. (12,647) (1,208)
------- -------
$ 4,319 $ 9,224
======= =======
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
---- -------
<S> <C> <C>
Goodwill........................................... $708 $ 708
Computer software.................................. 6 349
Trademarks......................................... -- 9,674
---- -------
714 10,731
Less accumulated amortization...................... -- (574)
---- -------
$714 $10,157
==== =======
</TABLE>
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Compensation and benefits......................... $1,013 $1,038
Income taxes payable.............................. 22 605
Product warranty.................................. 100 300
Other accrued liabilities......................... 873 726
------ ------
$2,008 $2,669
====== ======
</TABLE>
8. DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ ----
<S> <C> <C>
Line of credit...................................... $1,108 $214
Current maturities of long-term debt................ 45 54
------ ----
Total short-term debt............................. $1,153 $268
====== ====
</TABLE>
Wells Japan has a Y125 million (approximately $985 at May 3, 1997) line
of credit with a Japanese bank that was guaranteed by its ultimate parent. The
interest rate at May 1997 was 2.375% per annum.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ ---
<S> <C> <C>
Bank loan............................................ $1,400 $--
Capital lease obligation............................. 103 54
------ ---
Total long-term debt....................... 1,503 54
Less current maturities.............................. 45 54
------ ---
$1,458 $--
====== ===
</TABLE>
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The outstanding bank loan balance of $1,400 as of 1996 represents
borrowings against the Company's revolving line of credit. The line was repaid
in January 1997 and the interest rate at the time of repayment was 7% per
annum. Subsequent to the repayment the line was cancelled.
9. INCOME TAX EXPENSE
Components of income tax expense (benefit) consist of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
1995:
Federal........................... $ 535 $(49) $ 486
State and local................... 155 -- 155
Foreign........................... 157 -- 157
------ ---- ------
$ 847 $(49) $ 798
====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
1996:
Federal........................... $ 358 $(30) $ 328
State and local................... 109 -- 109
Foreign........................... 149 -- 149
------ ---- ------
$ 616 $(30) $ 586
====== ==== ======
1997:
Federal........................... $1,370 $ 43 $1,413
State and local................... 353 -- 353
Foreign........................... 196 7 203
------ ---- ------
$1,919 $ 50 $1,969
====== ==== ======
</TABLE>
Actual income tax expense differs from the amounts computed by applying
the enacted US federal corporate rate to income before income taxes as a
result of the following:
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ------
<S> <C> <C> <C>
Federal income tax expense at statutory rate... $558 $ 965 $2,190
Increase (decrease) resulting from:
Foreign tax rate differential................ (35) (50) 2
Reduction of valuation allowance............. -- (299) (499)
Foreign subsidiary losses.................... 144 -- --
State income taxes, net...................... 102 72 233
Other, net................................... 29 (102) 43
---- ----- ------
$798 $ 586 $1,969
==== ===== ======
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
(assets) and liabilities follow:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Inventories -- principally obsolescence............... $ 215 $ 201
Bad debts............................................. 38 36
Other -- principally accruals......................... 294 334
Net operating loss carryforward....................... 499 --
------ ------
Total deferred tax assets..................... 1,046 571
Valuation allowance........................... (499) --
------ ------
Net deferred tax assets....................... 547 571
------ ------
Deferred tax liabilities:
Property, plant & equipment........................... 10 1,828
Capital lease......................................... 131 148
Intangible assets..................................... -- 4,200
Other................................................. 8 9
------ ------
Total deferred tax liabilities................ 149 6,185
------ ------
Net deferred tax liability (asset)............ $ (398) $5,614
====== ======
</TABLE>
10. LEASES
The company leases certain of its manufacturing facilities, sales offices
and equipment. Some leases include provisions for renewals and purchases at
the Company's option.
Rental expense for all operating leases approximated $233, $241 and $562
in fiscal year 1995, 1996 and 1997, respectively.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum operating lease payments consist of the following at May
3, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------
<S> <C>
1998................................................ $ 619
1999................................................ 615
2000................................................ 564
2001................................................ 511
2002................................................ 499
Thereafter.......................................... 1,738
------
Total minimum lease payments........................ $4,546
======
</TABLE>
11. PROFIT SHARING AND RETIREMENT PLANS
The Company has adopted a Plan ("401(k) Plan") pursuant to Section 401 of
the Internal Revenue Code. Salaried employees may contribute a percentage of
their compensation to the 401(k) Plan, but not in excess of the maximum
allowed under the Code. Salaried employees are eligible for participation at
their one year anniversary. The Company makes matching contributions of 25
percent of employee contributions but not in excess of the maximum allowed
under the Code. In addition to any Employer 401(k) Contribution discussed
above, the Company in any Plan Year, to the extent it has Net Profits or
retained earnings, may make additional matching Employer 401(k) Contributions
to the extent it deems appropriate at its complete discretion.
Effective February 19, 1997, the Company adopted a Retirement Income Plan
for the hourly employees whereby the Company will make a contribution of $0.19
per hour for all hours worked into a retirement income plan, with the
employees contributing a matching amount. The contribution will increase to
$0.20 and $0.22 per all hours worked effective February 19, 1998 and 1999,
respectively. The employee matching contribution will increase accordingly.
The Company's combined matching contributions for the 401(k) Plan and
Retirement Income Plan were approximately $61, $63 and $67 in 1995, 1996 and
1997, respectively.
12. RELATED PARTY TRANSACTIONS
The Company was charged with corporate management fees of $272 in 1995,
$193 in 1996, and $25 in 1997. Non-interest bearing long-term receivable due
from affiliates was $3,231 at May 3, 1997. This consists of $2,550 from Siebe
Inc. and $681 from UL America, Inc.
13. COMMITMENTS AND CONTINGENCIES
The Company has been party to ongoing litigation with Wayne K. Pfaff and
an affiliated corporation regarding alleged patent infringements. Subsequent
to the balance sheet date, the Federal Circuit Court of Appeals found in favor
of the Company. Management believes that the likelihood of any future
liability in this regard is remote and as such, has established no provision.
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENT
On November 17, 1997, UL America, Inc. agreed to sell all of the
Company's issued and outstanding shares of common stock to PCD Inc. The
purchase price of this transaction is $130 million.
15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in the integrated circuit connector industry which
is a single industrial segment. One customer accounted for approximately 18%,
15% and 18% of the Company's sales in 1995, 1996 and 1997, respectively. The
Company had no other single customer with sales greater than 10% of total
sales.
Sales between geographic areas are at cost plus approximately 50%
mark-up. The Company has significant operations in foreign countries.
Information regarding operations by geographic area for fiscal 1995, 1996 and
1997 is as follows:
<TABLE>
<CAPTION>
FAR
USA EAST
------- ------
<S> <C> <C>
Fiscal 1995:
Net Sales.......................................... $12,900 $5,679
Operating income................................... 572 1,003
Identifiable assets................................ 7,001 3,785
Fiscal 1996:
Net Sales.......................................... $10,049 $7,949
Operating income................................... 735 1,368
Identifiable assets................................ 7,302 5,903
Fiscal 1997:
Net Sales.......................................... $17,528 $9,964
Operating income................................... 3,749 1,804
Identifiable assets................................ 22,734 7,378
</TABLE>
16. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) FOR THE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWO MONTHS
--------------------------- ENDED
Fiscal 1996: APR 27, JAN 27, OCT 28, JUL 29,
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales........................ $ 4,261 $ 4,635 $ 5,918 $3,184
Gross profit..................... 2,036 2,049 3,026 1,616
Net income....................... 647 424 957 224
</TABLE>
<PAGE>
WELLS ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
Fiscal 1997: MAY 3, FEB 1, OCT 26, JUL 27,
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Net Sales........................ $8,767 $7,471 $ 5,284 $5,970
Gross profit..................... 3,605 4,609 2,816 3,281
Net income....................... 2,189 1,178 412 588
</TABLE>
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
On December 26, 1997, pursuant to the Share Purchase Agreement dated
November 17, 1997, the Company acquired all of the outstanding common stock of
Wells Electronics, Inc. ("Wells") for approximately $130 million in cash. The
Company also incurred approximately $1.2 million in acquisition related costs
resulting in a total purchase price of approximately $131.2 million. The
acquisition was financed by a combination of a new bank credit facility of $90
million (the "Senior Credit Facility") of which the Company borrowed
approximately $83 million upon consummation of the acquisition and a $25
million subordinated debenture issued to Emerson Electric Co.
The acquisition is being accounted for as a purchase, and the Company has
allocated the purchase price based on the fair value of assets acquired and
liabilities assumed. A significant portion of the purchase price has been
allocated based on an independent appraisal as intangible assets using proven
valuation procedures and techniques, including approximately $44 million of
acquired in-process research and development.
The accompanying Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the 12 months ended December 31, 1997 assumes that the
acquisition of Wells took place on January 1, 1997.
The accompanying pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations which would actually have been reported had the
acquisition been in effect during the periods presented, or which may be
reported in the future.
The accompanying Unaudited Pro Forma Condensed Consolidated Statement of
Operations should be read in conjunction with the historical financial
statements and related notes thereto for PCD and for Wells that have been filed
as part of a Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on February 12, 1998 (Registration No. 333-46137).
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PCD WELLS
DEC. 31, DEC. 31, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED (1)
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................... $ 29,796 $41,590 $ 71,386
Cost of sales................ 15,120 15,242 30,362
-------- ------ ------- --------
Gross profit............... 14,676 26,348 41,024
Operating expenses, excluding
amortization............... 5,816 9,289 15,105
Write-off of acquired
in-process research and
development................ 44,438 (44,438)(2)
Amortization of acquired
intangible assets.......... 484 3,558(3) 4,042
-------- ------ ------- --------
Income (loss) from
operations............... (35,578) 16,575 40,880 21,877
Interest and other income.... 1,167 (1,067)(4) 100
Interest expense............. (227) (8) (11,878)(5) (12,113)
-------- ------ ------- --------
Income (loss) before
provisions for taxes..... (34,638) 16,567 27,935 9,864
Provisions (benefit) for
income taxes............... (11,802) 7,157 8,939(6) 4,294
-------- ------ ------- --------
Net income (loss).......... $(22,836) $ 9,410 $ 18,996 $ 5,570
======== ====== ======= ========
Net income (loss) per share:
Basic.................... $(3.83) $0.94
======== ========
Diluted.................. $(3.83) $0.82
======== ========
Weighted average number of
common and common equivalent
shares outstanding:
Basic.................... 5,955 5,955
Diluted.................. 5,955 6,769
</TABLE>
- ----------------
See notes on following page
<PAGE>
(1) Before deducting the additional interest expense for the value of the
exercisable portion of the Warrant, pro forma net income combined
was approximately $6,849,000, pro forma net income combined per
share-basic was $1.15 (based on a weighted average number of shares
outstanding of 5,954,657) and pro forma net income combined per
share-diluted was $1.01 (based on a weighted average number of common
and common equivalent shares outstanding of 6,769,479).
(2) Reflects the elimination of non-recurring acquired in-process research
and development relating to the Wells acquisition so that the pro forma
combined statement of operations includes only recurring costs.
(3) Includes amortization of intangible assets as a result of the Wells
acquisition consisting of 20 years for goodwill, trademarks and
tradenames and 9 years for patented technologies to reflect a full
year's charge.
(4) Represents a reduction of interest income as a result of utilizing cash
and cash equivalents for the Wells acquisition.
(5) Includes interest expense on debt issued to finance the Wells
acquisition, at an assumed weighted average rate of 8.96% for the Senior
Credit Facility and at 10% for the subordinated debenture and additional
interest expense of $2.1 million representing the interest expense of the
exercisable portion of the Warrant.
(6) Reflects the related tax effect of adjustments (2) through (5) at an
assumed tax rate of 32%.
<PAGE>
(c) EXHIBITS
EXHIBIT NUMBER
2.1* Share Purchase Agreement among UL America, Inc., Wells
Electronics, Inc. and PCD Inc. dated as of November 17,
1997.
2.2* Undertaking to Furnish Copies of Omitted Schedules to Share
Purchase Agreement dated as of November 17, 1997.
10.1* Loan Agreement between PCD Inc. and Fleet National Bank
dated as of December 26, 1997.
10.2* Unlimited Guaranty from Wells Electronics, Inc. to Fleet
National Bank dated as of December 26, 1997.
10.3* Security Agreement between PCD Inc. and Fleet National Bank
dated as of December 26, 1997.
10.4* Security Agreement between Wells Electronics, Inc. and Fleet
National Bank dated as of December 26, 1997.
10.5* Stock Pledge Agreement between PCD Inc. and Fleet National
Bank dated as of December 26, 1997.
10.6* Stock Pledge Agreement between Wells Electronics, Inc. and
Fleet National Bank dated as of December 26, 1997.
10.7* Conditional Patent Assignment from PCD Inc. to Fleet
National Bank dated as of December 26, 1997.
10.8* Conditional Patent Assignment from Wells Electronics, Inc.
to Fleet National Bank dated as of December 26, 1997.
10.9* Conditional Patent Assignment from Wells Japan Kabushiki
Kaisha to Fleet National Bank dated as of December 26, 1997.
10.10* Conditional Trademark Collateral Assignment from PCD Inc. to
Fleet National Bank dated as of December 26, 1997.
10.11* Conditional Trademark Collateral Assignment from Wells
Electronics, Inc. to Fleet National Bank dated as of
December 26, 1997.
10.12* Collateral Assignment of Contracts, Leases, Licenses and
Permits from PCD Inc. to Fleet National Bank dated as of
December 26, 1997.
10.13* Collateral Assignment of Contracts, Leases, Licenses and
Permits from Wells Electronics, Inc. to Fleet National Bank
dated as of December 26, 1997.
10.14* Undertaking to Furnish Copies of Omitted Exhibits and
Schedules to Loan Agreement and Related Documents dated as
of December 26, 1997.
10.15* Subordinated Debenture and Warrant Purchase Agreement
between PCD Inc. and Emerson Electric Co. dated as of
December 26, 1997.
<PAGE>
10.16* Subordinated Debenture issued to Emerson Electric Co. dated
December 26, 1997.
10.17* Common Stock Purchase Warrant issued to Emerson Electric Co.
dated December 26, 1997.
10.18* Registration Rights Agreement between PCD Inc. and Emerson
Electric Co. dated as of December 26, 1997.
10.19* Subordination Agreement among PCD Inc., Emerson Electric
Co. and Fleet National Bank dated as of December 26, 1997.
10.20* Undertaking to Furnish Copies of Omitted Exhibits to
Subordinated Debenture and Warrant Purchase Agreement dated
as of December 26, 1997.
23.1 Consent of KPMG Peat Marwick LLP, independent accountants.
99.1* Press Release of PCD Inc. dated December 29, 1997.
- -----------
*Previously filed.
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 hereunto duly authorized.
PCD INC.
----------------------------
Registrant
DATED: March 11, 1998 By: /S/ JOHN L. DWIGHT, JR.
-----------------------------
John L. Dwight, Jr.
Chairman of the Board, President and
Chief Executive Officer
<EXHIBIT> EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the incorporation be reference in the Registration Statements of
PCD Inc. on Form S-8 (File Nos. 333-07393, 333-07403 and 333-7405) of our
report dated January 15, 1998, relating to the consolidated balance sheets of
Wells Electronics, Inc. and subsidiaries as of May 3, 1997 and April 27, 1996
and the related consolidated statements of income, shareholder's equity, and
cash flows for the 53 weeks ended May 3, 1997, the 48 weeks ended April 27,
1996 and the 52 weeks ended June 3, 1995, which report is included in this
Amendment No. 1 to the Report on Form 8-K.
/s/ KPMG Peat Marwick LLP
- ---------------------------
Chicago, Illinois
March 10, 1998
