<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1999 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 0-27744
PCD Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2604950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Technology Drive,
Centennial Park,
Peabody, Massachusetts
(Address of principal executive offices)
01960-7977
(Zip Code)
Registrant's telephone number, including area code: 978-532-8800
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
----- -----
Number of shares of common stock, $0.01 par value, outstanding at
May 4, 1999: 8,506,680
<PAGE>
PCD Inc.
FORM 10-Q
FOR THE QUARTER ENDED
APRIL 3, 1999
FORWARD LOOKING INFORMATION
Statements in this report concerning the future revenues,
profitability, financial resources, product mix, market demand,
product development and other statements in this report
concerning the future results of operations, financial condition
and business of PCD Inc. are "forward-looking statements" made
pursuant to the safe harbor provisions of the Securities Exchange
Act of 1934, as amended. Investors are cautioned that the
Company's actual results in the future may differ materially from
those projected in the forward-looking statements due to the
risks and uncertainties that exist in the Company's operations
and business environment, including the Company's dependence on
the integrated circuit package interconnect and semiconductor
industries, the Company's dependence on its principal customers
and independent distributors, acquisitions and indebtedness,
international sales and operations, fluctuations in demand for
the Company's products, patent litigation involving the Company,
rapid technological evolution in the electronics industry, Year
2000 compliance and the like.
In addition, the Company may experience unanticipated costs
or other difficulties in connection with the acquisition and
integration of a business such as Wells Electronics, Inc. The
Company's most recent filings with the Securities and Exchange
commission, including its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and current reports on Form 8-K, contain
additional information concerning such risk factors, and copies
of these filings are available from the Company upon request and
without charge.
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PCD INC.
Consolidated Balance Sheets as of April 3, 1999 and
December 31, 1998.
Consolidated Statements of Income for the quarters ended
April 3, 1999 and March 28, 1998.
Consolidated Statements of Cash Flows for the quarters ended
April 3, 1999 and March 28, 1998.
Notes to Condensed Consolidated Financial Statements.
3
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PCD Inc.
CONSOLIDATED BALANCE SHEETS
(Condensed and unaudited)
(In thousands)
<TABLE>
<CAPTION>
4/3/99 12/31/98
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 1,033 $ 852
Accounts receivable, net.................. 6,942 5,851
Inventory................................. 5,262 5,042
Prepaid expenses and other current assets. 643 643
-------- --------
Total current assets............... 13,880 12,388
Equipment and improvements
Equipment and improvements................ 26,548 25,569
Accumulated depreciation.................. 8,502 7,442
-------- --------
Equipment and improvements, net.............. 18,046 18,127
Deferred tax asset........................... 13,943 14,192
Goodwill..................................... 57,819 58,592
Intangible assets............................ 12,196 12,456
Debt financing fees.......................... 1,473 1,531
Other assets................................. 1,774 1,818
-------- --------
Total assets....................... $119,131 $119,104
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................... $ 12,200 $ 9,700
Current portion of long-term debt......... 8,500 8,400
Accounts payable.......................... 2,842 3,146
Accrued liabilities....................... 2,528 2,981
-------- --------
Total current liabilities.......... 26,070 24,227
Long-term debt, net of current portion....... 35,400 37,600
Accumulated other comprehensive income....... 93 146
Stockholders' equity......................... 57,568 57,131
-------- --------
Total liabilities and
stockholders' equity.......... $119,131 $119,104
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
PCD Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Condensed and unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
------------------
4/3/99 3/28/98
------ -------
<S> <C> <C>
Net sales................................... $12,633 $16,726
Cost of sales............................... 6,379 7,241
------- ------
Gross profit................................ 6,254 9,485
Operating expenses.......................... 3,523 3,762
Amortization................................ 1,048 1,071
------- ------
Income from operations...................... 1,683 4,652
Interest expense /(other income), net....... 1,097 4,662
------- -------
Income (loss) before income taxes........... 586 (10)
Provision for income taxes.................. 221 17
------- -------
Net income (loss)........................... $ 365 $ (27)
======= ======
Net income (loss) per share:
Basic.................................. $ 0.04 $ -
======= ======
Diluted................................ $ 0.04 $ -
======= ======
Weighted average number of common and common
equivalent shares outstanding
Basic.................................. 8,451 6,045
===== =====
Diluted................................ 9,053 6,045
===== =====
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
PCD Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited)
(In thousands)
<TABLE>
<CAPTION>
Quarter Ended
------------------
4/3/99 3/28/98
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 365 $ (27)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation.................................. 1,062 853
Amortization of deferred compensation......... - 15
Amortization of intangible assets............. 1,030 1,068
Amortization of warrant....................... - 2,328
Deferred taxes................................ 239 (185)
Changes in operating assets and liabilities:
Accounts receivable......................... (1,138) (2,139)
Inventory................................... (261) (249)
Prepaid expenses and other current assets... (16) (405)
Other assets................................ 36 (115)
Accounts payable............................ (207) (94)
Accrued liabilities......................... (447) 506
------- -------
Net cash provided by operating activities. 663 1,556
Cash flows from investing activities:
Capital expenditures............................. (980) (816)
------- -------
Net cash used in investing activities..... (980) (816)
Cash flows from financing activities:
Borrowings of short-term debt.................... 2,500 -
Payments of long-term debt....................... (2,100) -
Amortization of debt financing fees.............. 59 67
Purchase of warrant.............................. - 5
Exercise of common stock options................. 73 35
------- -------
Net cash provided by financing activities. 532 107
------- -------
Net increase in cash............................... 215 847
Effect of exchange rate on cash.................... (34) (76)
Cash and cash equivalents at beginning of period... 852 3,990
------- -------
Cash and cash equivalents at end of period......... $ 1,033 $ 4,761
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
PCD Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(April 3, 1999 Unaudited)
Note 1. INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of
management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of
normal recurring accruals, considered necessary for a fair
presentation. This financial data should be read in conjunction
with the audited financial statements and notes thereto for the
year ended December 31, 1998. Certain reclassifications in the
Company's Consolidated Statements of Cash Flows were made to
prior year's first quarter amounts to conform with the Annual
Report presentation.
Note 2. NET INCOME PER SHARE
In accordance with FAS No. 128, the following tables
reconcile net income and weighted average shares outstanding to
the amounts used to calculate basic and diluted earnings per
share for each of the periods ended April 3, 1999 and March 28,
1998:
<TABLE>
<CAPTION>
Net Income Per Share
(Loss) Shares Amount
----------- --------- -------
<S> <C> <C> <C>
For the period ended April 3, 1999
Basic earnings.............................. $ 365,000 8,450,961 $ 0.04
Assumed exercise of options (treasury method) - 601,998 -
---------- --------- ------
Diluted earnings............................ $ 365,000 9,052,959 $ 0.04
========== ========= ======
For the period ended March 28, 1998
Basic and diluted loss...................... $ (27,000) 6,045,360 $ -
========== ========= ======
</TABLE>
7
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Anti-dilutive shares of 119,556 and 787,121 for the quarters
ended April 3, 1999 and March 28, 1998, respectively, have been
excluded from the calculation of EPS.
Note 3. INVENTORY
4/3/99 12/31/98
------ --------
(In Thousands)
Inventory:
Raw materials and finished subassemblies $3,623 $3,536
Work in process......................... 623 491
Finished goods.......................... 1,016 1,014
------ ------
Total................................. $5,262 $5,042
====== ======
Note 4. COMPREHENSIVE INCOME
The Company's only other comprehensive income is foreign
currency translation adjustments. For the three months ended
April 3, 1999 and March 28, 1998 the Company's total
comprehensive income was as follows:
Three Months Ended
------------------
4/3/99 3/28/98
------ -------
(In thousands)
Net earnings (loss) $ 365 $ (27)
Other comprehensive loss, net (32) (46)
------- -------
Total comprehensive earnings (loss) $ 333 $ (73)
======= =======
Note 5. NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities (FAS 133),
which becomes effective for all fiscal quarters beginning after
8
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June 15, 1999. FAS 133 standardizes the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement
of financial position and measure them at fair value. The
Company is currently evaluating the impact that FAS 133 will have
on its future operating performance.
Note 6. LITIGATION
On August 21, 1995, a predecessor ("CTi") of the Company's
wholly-owned subsidiary, Wells-CTI, Inc. ("Wells-CTI"), filed an
action in the United States District Court for the District of
Arizona against Wayne K. Pfaff, an individual residing in Texas
("Pfaff") alleging and seeking a declaratory judgment that two
United States patents issued to Pfaff and relating to certain
burn-in sockets for "leadless" IC packages (the "Pfaff Leadless
Patent") and ball grid array ("BGA") IC packages (the "Pfaff BGA
Patent") are invalid and are not infringed by CTi, the products
of which include burn-in sockets for certain "leaded" packages
(including Quad Flat Paks) and BGA packages.
In other litigation between Wells-CTI and Pfaff concerning
the Pfaff Leadless Patent, the United States Supreme Court has
affirmed the decision of the United States Court of Appeals for
the Federal Circuit finding that all of the individual
descriptions of the invention covered by the Pfaff Leadless
Patent which were at issue in that case are invalid. Pfaff then
agreed not to sue CTi or Wells-CTI for infringement of the Pfaff
Leadless Patent, including infringement based upon claims not
adjudicated in that litigation. The litigation between Wells-CTI
and Pfaff and CTi and Pfaff relating to the Pfaff Leadless Patent
is thus concluded. However, issues concerning the Pfaff BGA
Patent remain to be resolved in the District of Arizona
litigation.
The Company believes, based on the advice of counsel, that
CTi has meritorious positions of non-infringement and invalidity
with respect to the Pfaff BGA Patent issues raised in the
District of Arizona litigation and, as necessary, will vigorously
litigate its position. There can be no assurance, however, that
the Company, CTi or Wells-CTI will prevail in any pending or
future litigation, and a final court determination that CTi or
9
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Wells-CTI has infringed the Pfaff BGA Patent could have a
material adverse effect on the Company. Such adverse effect
could include, without limitation, the requirement that CTi or
Wells-CTI pay substantial damages for past infringement and an
injunction against the manufacture or sale in the United States
of such products as are found to be infringing.
The Company and its subsidiaries are subject to legal
proceedings arising in the ordinary course of business. On the
basis of information presently available and advice received from
legal counsel, it is the opinion of management that the
disposition or ultimate determination of such legal proceedings
will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of
operations or its consolidated cash flows.
Note 7. SEGMENT INFORMATION:
THREE MONTHS ENDED
------------------
4/3/99 3/28/98
(In thousands)
SALES:
Industrial/Avionics................... $ 4,941 $ 4,574
IC Package interconnect............... 7,692 12,152
-------- --------
Total sales......................... $ 12,633 $ 16,726
======== ========
NET INCOME (loss):
Industrial/Avionics................... $ 757 $ 603
IC Package interconnect............... (427) (827)
Corporate activities.................. 35 197
-------- --------
Total net income (loss)............. $ 365 $ (27)
======== ========
4/3/99 12/31/98
-------- --------
(In thousands)
ASSETS:
Industrial/Avionics................... $ 9,238 $ 8,960
IC Package interconnect............... 108,103 108,521
Corporate activities.................. 1,790 1,623
-------- --------
Total assets........................ $119,131 $119,104
======== ========
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED APRIL 3, 1999 COMPARED TO THE QUARTER ENDED MARCH
28, 1998
NET SALES. Net Sales decreased 24.5% to $12.6 million for
the quarter ended April 3, 1999 from $16.7 million for the
quarter ended March 28, 1998. Our IC Package interconnect
business declined 36.7% to $7.7 million for the quarter ended
April 3, 1999 from $12.1 million for the quarter ended March 28,
1998. This decrease in net sales was attributable to the low
level of backlog at the beginning of the quarter corresponding to
the slowdown in the semiconductor industry. The
Industrial/Avionics business continues to grow with an 8%
increase from $4.6 million for the quarter ended March 28, 1998
to $4.9 million for the quarter ended April 3, 1999.
GROSS PROFIT. Gross profit decreased to $6.3 million or
49.5% of sales for the quarter ended April 3, 1999 compared to
$9.5 million or 56.7% of sales for the quarter ended March 28,
1998. This decrease in gross profit is related to the sale
volume decrease in IC package interconnects combined with pricing
pressures in the more mature IC burn-in memory products.
OPERATING EXPENSES. Operating expenses include selling,
general and administrative expenses and costs of product
development. Operating expenses were $4.6 million for the
quarter ended April 3, 1999 compared to $4.8 million for the
quarter ended March 28, 1998. This decrease in operating
expenses was a result of the actions taken to reduce expenses in
response to the lower sales volume, specifically the closure of
our Control Systems Interconnect division and cost reductions in
our Wells-Cti division.
INTEREST AND OTHER INCOME (EXPENSE). Interest expense and
other income, net, decreased from $4.7 million for the quarter
ended March 28, 1998 to $1.1 million for the quarter ended April
3, 1999. This decrease in interest expense was due to the
reduction in bank debt from $83.0 million at March 28, 1998 to
$56.1 million at April 3, 1999 and the $2.3 million amortization
and $600,000 interest expense associated with the Emerson
Debenture, which was retired in April 1998.
11
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes
for the quarter ended April 3, 1999 was approximately 37.7% of
pretax income compared to a provision of $17,000 on a pre-tax
loss of approximately $10,000 for the quarter ended March 28,
1998. This rate decrease is the result of the Company's Japanese
subsidiary, where our tax rate is the highest, having a lower
pre-tax income as compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in the quarter ended
April 3, 1999 was $0.7 million compared to $1.6 million for the
quarter ended March 28, 1998. The Company's debt balance
increased $400,000 in the quarter from $55.7 million at December
31, 1998 to $56.1 million at April 3, 1999. The balance at April
3, 1999 consists of $12.2 million revolving line of credit and
$43.9 million term loan. The Company currently anticipates that
its capital expenditures for 1999 will be approximately $6.4
million, which consists primarily of purchased tooling and
equipment required to support the Company's business. The amount
of these capital expenditures will frequently change based on
future changes in business plans and conditions of the Company
and changes in economic conditions.
The Company believes its existing working capital and
borrowing capacity, coupled with the funds generated from the
Company's operations, will be sufficient to fund its anticipated
working capital, capital expenditure and debt payment
requirements through 1999. Because the Company's capital
requirements cannot be predicted with certainty, there can be no
assurance that any additional financing will be available on
terms satisfactory to the Company or not disadvantageous to the
Company's stockholders.
IMPACT OF YEAR 2000
The "Year 2000 Issue" is the result of computer programs
that were written using two digits rather than four to define the
applicable year. If the Company's computer programs with date-
sensitive functions are not Year 2000 compliant, they may
interpret a date using "00" in the year field as the Year 1900
rather than the Year 2000. This misinterpretation could result in
12
<PAGE>
a system failure or miscalculations causing disruptions of
operations, including, among other things, an interruption of
design or manufacturing functions or an inability to process
transactions, send invoices or engage in similar normal business
activities until the problem is corrected.
The Company has identified its Year 2000 risk in three
categories: internal information technology ("IT") systems;
internal non-IT systems, including embedded technology such as
microcontrollers; and external noncompliance by customers and
suppliers.
INTERNAL IT SYSTEMS. The Company utilizes a significant
number of information technology systems across its entire
organization, including applications used in manufacturing,
product development, financial business systems and various
administrative functions. During 1997 and 1998, the Company
reviewed the Year 2000 issue that encompassed operating and
administrative areas of the Company. The Company found that, with
the exception of the South Bend, Indiana location of Wells-CTI
("Wells-CTI South Bend"), its information technology systems will
be able to manage and manipulate all material data involving the
transition from the year 1999 to the year 2000 without functional
or data abnormality and without inaccurate results related to
such data. During the past year, Wells-CTI South Bend has
completed the modifications and testing of its information
technology systems, and the Company believes that the Wells-CTI
South Bend location is now Year 2000 compliant. The cost of the
modifications and testing at Wells-CTI South Bend was
approximately $90,000. The Company does not have a contingency
plan in place for Year 2000 failures of its internal IT systems.
If the Company has not achieved or does not timely achieve Year
2000 compliance for its major IT systems, the Year 2000 Issue
could have a material adverse effect on the financial condition,
results of operations and business of the Company.
Independent of the Year 2000 Issue and in order to improve
access to business information through common, integrated
computing systems across the Company, PCD began a worldwide
information technology systems replacement project with systems
that use programs from Oracle Corporation. The Company is in the
implementation phase for this system and is expected to be
complete by December 31, 1999.
13
<PAGE>
INTERNAL NON-IT SYSTEMS, INCLUDING EMBEDDED TECHNOLOGY. The
Company is in the data-gathering phase with regard to non-IT
systems including embedded technology such as microcontrollers.
PCD is currently gathering data to assess the impact of the Year
2000 on its non-IT systems such as design, manufacturing, testing
and security, with Year 2000 compliance targeted for April 30,
1999. The Company does not at this time have sufficient data to
estimate the cost of achieving Year 2000 compliance for its non-
IT systems. The Company does not currently have a contingency
plan in place for Year 2000 failures of its internal non-IT
systems and embedded technology. If the Company is unable to
achieve Year 2000 compliance for its major non-IT systems, the
Year 2000 Issue could have a material adverse effect on the
financial condition, results of operations and business of the
Company.
EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. The
Company is in the process of identifying and contacting its
material suppliers, service providers and contractors to
determine the extent of the Company's vulnerability to those
third parties' failure to remedy their own Year 2000 issues. PCD
expects to complete its assessment of that vulnerability by April
30, 1999. To the extent that responses to Year 2000 readiness
inquiries are unsatisfactory, the Company intends to change
suppliers, service providers or contractors to those who have
demonstrated Year 2000 readiness, but the Company cannot assure
that it will be successful in finding such alternative suppliers,
service providers and contractors. The Company does not currently
have any formal information concerning the Year 2000 compliance
status of its customers but has received indications that most of
its customers are working on Year 2000 compliance. If any of the
Company's significant customers and suppliers do not successfully
and timely achieve Year 2000 compliance, and the Company is
unable to replace them with new customers or alternative
suppliers, the Company's financial condition, results of
operations and business could be materially adversely affected.
The above discussion of the Company's efforts, and
management's expectations, relating to Year 2000 compliance
contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934. See "Forward Looking
Information." The Company's ability to achieve Year 2000
compliance, the level of incremental costs associated with
14
<PAGE>
compliance and the timing of compliance, could be adversely
impacted by, among other things, the availability and cost of
programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in
the ongoing compliance review.
15
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceeding
See Note 6 to the Company's Condensed Consolidated
Financial Statements (above).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.43 Third Amendment to Loan Agreement between Fleet
National Bank and other lenders dated March 19, 1999
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
NONE
16
<PAGE>
S I G N A T U R E S
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.
PCD INC.
(Registrant)
Dated: May 6, 1999 /s/ John L. Dwight, Jr.
------------ ------------------------------
John L. Dwight, Jr.
Chairman of the Board, Chief
Executive Officer and
President (Principal Executive
Officer)
Dated: May 6, 1999 /s/ Mary L. Mandarino
------------ ------------------------------
Mary L. Mandarino
Vice President, Finance and
Administration, Chief
Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
17
<PAGE>
Exhibit Index
- -------------
Exhibit
Number Description
- ------- -----------------------------------------
10.43 Third Amendment to Loan Agreement between Fleet
National Bank and other lenders dated March 19, 1999
27.1 Financial Data Schedule.
<EXHIBIT> EXHIBIT 10.43
THIRD AMENDMENT OF LOAN AGREEMENT
This THIRD AMENDMENT OF LOAN AGREEMENT (this "AMENDMENT") is
made as of the 19th day of March, 1999 by and among (a) PCD INC.,
a Massachusetts corporation with a principal place of business at
2 Technology Drive, Peabody, Massachusetts 01960 (the
"BORROWER"), (b) FLEET NATIONAL BANK, a national banking
association organized under the laws of the United States and
having an office at One Federal Street, Boston, Massachusetts
02110 as a Lender and in its capacity as Agent (the "AGENT") for
itself, and for each of the other Lenders who now or hereafter
become parties to the hereinafter defined Loan Agreement and (c)
the other Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders are parties
to that certain Loan Agreement, dated as of December 26, 1997, as
amended by that certain First Amendment of Loan Agreement dated
as of July 31, 1998 and as further amended by that certain Second
Amendment of Loan Agreement dated as of August 31, 1998 (as the
same may be further amended from time to time, the "Loan
Agreement") pursuant to the terms of which the Lenders made (a) a
$50,000,000 Secured Term Loan A and (b) a $20,000,000 Secured
Revolving Credit Loan to the Borrower; and
WHEREAS, capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Loan
Agreement; and
WHEREAS, the Borrower has requested, and the Agent and the
Lenders have agreed to make, amendments to certain financial
definitions and covenants set forth in the Loan Agreement.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Borrower,
the Agent and the Lender hereby agree as follows:
I. AMENDMENTS TO LOAN AGREEMENT: The Loan Agreement be and
hereby is amended in the following respects:
1. The definition of "EBITDA" appearing in Section 1.1 of
the Loan Agreement is hereby deleted in its entirety and the
following is substituted therefor:
<PAGE>
"EBITDA" means, for any fiscal period, Net Income
(without taking into account any non-cash, non-recurring
charge taken by the Borrower on or before December 31, 1997
on account of in-process research and development) plus, to
the extent accounted for in Net Income, Interest Expense,
taxes, depreciation and amortization, for such period
determined on an accrual and consolidated basis in
accordance with GAAP. EBITDA shall be calculated (excluding
however, the calculation of EBITDA for the purpose of
determining "Excess Cash Flow", in which case, the
calculation of EBITDA in the definition of "Excess Cash
Flow" shall govern) as follows: for the fiscal quarter of
the Borrower ending on March 31, 1998, EBITDA for the
Borrower fiscal quarter then ending multiplied by four (4),
for the fiscal quarter of the Borrower ending on June 30,
1998, EBITDA for the Borrower fiscal quarter then ending
plus EBITDA for the Borrower fiscal quarter immediately
preceding such quarter, multiplied by two (2), for the
fiscal quarter of the Borrower ending on September 30, 1998,
EBITDA for the Borrower fiscal quarter then ending plus
EBITDA for the two (2) Borrower fiscal quarters immediately
preceding such quarter, multiplied by one and one-third
(1.33) and, thereafter, for the rolling four Borrower fiscal
quarter period consisting of the Borrower fiscal quarter
then ending and the three immediately preceding Borrower
fiscal quarters; provided, however, that any extraordinary,
non-recurring charges incurred by the Borrower during the
Borrower's second fiscal quarter in 1998 arising solely in
connection with the acquisition by the Borrower of Wells
Electronics, Inc. on December 26, 1997 (the "Acquisition")
shall not be included in the definition of the term EBITDA
for the purposes of calculating the Borrower's financial
covenants set forth herein for the Borrower's fiscal
quarters ending on March 31, 1999, June 30, 1999 and
September 30, 1999.
2. The definition of "FIXED CHARGE COVERAGE RATIO"
appearing in Section 1.1 of the Loan Agreement is hereby deleted
in its entirety and the following is substituted therefor:
"FIXED CHARGE COVERAGE RATIO" means the ratio of
(i) EBITDA minus all Capital Expenditures permitted under
SECTION 5.2.17 and paid during each Borrower fiscal quarter
during the period in question, and taxes payable during each
Borrower fiscal quarter during the period in question to
(ii) Total Debt Service; provided, however, that, to the
extent not already excluded from the definition of EBITDA,
any extraordinary, non-recurring charges to Borrower's
earnings during the Borrower's second fiscal quarter in 1998
arising solely from certain pre-Acquisition tax liabilities
of Wells-CTI KK (Wells' Japanese subsidiary) due and payable
to the Japanese taxing authorities in the second fiscal
quarter of 1998, shall not be included in the definition of
the term Fixed Charge Coverage Ratio for the purposes of
determining Borrower's compliance with the financial
covenants set forth herein for the Borrower's fiscal
quarters ending on March 31, 1999, June 30, 1999 and
September 30, 1999.
<PAGE>
3. The definition of "INTEREST EXPENSE" appearing in
Section 1.1 of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefor:
"INTEREST EXPENSE" means, with respect to any
fiscal quarter, the aggregate amount required to be accrued
by the Borrower and any Subsidiaries in such fiscal quarter
for interest, fees, charges and expenses, however
characterized, on its Indebtedness, including without
limitation, all such interest, fees, charges and expenses
required to be accrued with respect to Indebtedness under
the Financing Documents, all determined in accordance with
GAAP; provided, however, that, to the extent not already
excluded from the definition of EBITDA, the extraordinary,
non-recurring pretax earnings charge of $1,455,000 incurred
by the Borrower during the Borrower's second fiscal quarter
in 1998 arising solely from prepayment of the Emerson
Warrant, shall not be included in the definition of the term
Interest Expense for the purposes of determining the
Borrower's compliance with financial covenants set forth
herein for the Borrower's fiscal quarters ending on March
31, 1999, June 30, 1999 and September 30, 1999.
4. SECTION 5.1.10 of the Loan Agreement is hereby deleted
in its entirety and the following is substituted therefor:
SECTION 5.1.10. MINIMUM FIXED CHARGE COVERAGE
RATIO. Maintain at the end of each fiscal quarter of the
Borrower in each period set forth below a Fixed Charge
Coverage Ratio of not less than the ratio set forth below
opposite such period, such ratio to be measured (i) at each
Borrower fiscal quarter end on or prior to December 31, 1998
for the period commencing as of January 1, 1998 and ending
on such fiscal quarter end and (ii) at each Borrower fiscal
quarter end thereafter for the rolling four Borrower fiscal
quarter period consisting of the Borrower fiscal quarter
then ending and the three immediately preceding Borrower
fiscal quarters:
BORROWER FISCAL QUARTER(S) ENDING RATIO
March 31, 1998 1.05:1.00
June 30, 1998 1.05:1.00
September 30, 1998 1.10:1.00
December 31, 1998 1.15:1.00
March 31, 1999 1.00:1.00
June 30, 1999 1.00:1.00
September 30, 1999 1.10:1.00
December 31, 1999 1.20:1.00
<PAGE>
March 31, 2000 1.20:1.00
June 30, 2000 1.20:1.00
September 30, 2000 1.20:1.00
December 31, 2000 and thereafter 1.25:1.00
II. OTHER AGREEMENTS:
1. All references to the Loan Agreement in any of the
other Financing Documents, are hereby amended to refer to the
Loan Agreement, as amended by this Amendment.
2. All of the terms and provisions of this Amendment are
hereby incorporated in the Loan Agreement and the Loan Agreement
is amended accordingly. In the event that any term or condition
contained in this Amendment conflicts with, or is inconsistent
with, any provision of the Loan Agreement, as amended hereby, the
terms and conditions of this Amendment shall supersede and
control. In all other respects, the provisions of the Loan
Agreement, shall remain in full force and effect, including,
without limitation, any and all additional terms and conditions
therein which are not in conflict with the provisions of this
Amendment.
3. The Borrower hereby restates and repeats all of the
representations, warranties and covenants of the Borrower set
forth in the Loan Agreement and each of the other Financing
Documents to the same extent as if fully set forth herein and the
Borrower hereby certifies that all such representations and
warranties are true and accurate as of date hereof.
4. The Borrower hereby further represents, warrants and
confirms that (a) all of the Financing Documents and the terms
thereof are hereby ratified and confirmed, (b) the Loan
Agreement, as amended hereby, and each of the other Financing
Documents, as amended hereby, are all in full force and effect
and evidence the valid and binding obligation of Borrower
enforceable in accordance with their respective terms and (c)
there does not exist (i) any Default or Event of Default, (ii)
any offset or defense against the payment or performance of any
of the Indebtedness or Obligations of the Borrower evidenced or
secured by the Financing Documents or (iii) any claim or cause of
action by the Borrower against the Agent or any Lender.
III. CONDITIONS PRECEDENT:
1. The provisions of this Third Amendment of Loan
Agreement and the commitment of the Lenders to make any
extensions of credit pursuant hereto are subject to the
receipt by the Agent, in form and substance approved by the
Agent, of the following, all of which shall be due to the
<PAGE>
Agent prior to the effectiveness of this Third Amendment of
Loan Agreement except as where otherwise indicated:
a. This Third Amendment of Loan Agreement, duly executed on
behalf of the Borrower by an officer of the Borrower so
authorized.
b. Certificates from an officer of the Borrower certifying as
to the resolutions of the directors of the Borrower authorizing
and approving this Third Amendment of Loan Agreement and each of
the other documents, instruments and other documents to which the
Borrower is a party and certifying as to the names and signatures
of each officer of the Borrower authorized to execute and deliver
this Third Amendment of Loan Agreement and/or such other
documents on behalf of the Borrower. The Agent and the Lenders
may rely on such officer's certificate until the Agent shall
receive a further certificate of the Borrower canceling or
amending the signatures of the officers named in such further
certificate.
c. The payment by the Borrower to the Agent of all of the
Agent's reasonable fees and out-of-pocket expenses of legal
counsel for the Agent incurred in connection with the
preparation, negotiation, execution and delivery of this Third
Amendment of Loan Agreement and each of the agreements,
instruments and other documents entered into in connection
herewith and therewith.
d. The payment to the Agent, for the pro rata benefit of the
Lenders, of an amendment fee of $70,000.00.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written, under seal.
WITNESS: AGENT:
FLEET NATIONAL BANK, as Agent for
the Lenders
By: /s/ Scott D Wheelock
-----------------------------
Scott D. Wheelock
Vice President
LENDERS:
FLEET NATIONAL BANK, as Lender
By: /s/ Scott D. Wheelock
-----------------------------
Scott D. Wheelock
Vice President
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Bruce Daniels
-----------------------------
Bruce Daniels
Vice President
IMPERIAL BANK
By: /s/ William Sweeney
-----------------------------
William Sweeney
Assistant Vice President
EASTERN BANK
By: /s/ Thomas F. Brady
-----------------------------
Thomas F. Brady
Vice President
<PAGE>
IBJ WHITEHALL BANK & TRUST COMPANY
(formerly IBJ Schroder Bank & Trust Company)
By: /s/ Patricia McCormack
-----------------------------
Patricia McCormack
Director
FIRST UNION NATIONAL BANK
(Successor by merger with Coresstates
Bank, N.A.)
By: /s/ Susan T. Vitale
-----------------------------
Susan T. Vitale
Assistant Vice President
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL,
INC., its Agent/Manager
By: /s/ Maureen Ault
-----------------------------
Maureen Ault
Vice President
BORROWER:
PCD, INC.
By: /s/ Mary L. Mandarino
-----------------------------
Mary L. Mandarino
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY TO REFERENCE TO SUCH FINANCIAL INFORMATION
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-03-1999
<CASH> 1,033
<SECURITIES> 0
<RECEIVABLES> 7,296
<ALLOWANCES> 354
<INVENTORY> 5,262
<CURRENT-ASSETS> 13,880
<PP&E> 26,548
<DEPRECIATION> 8,502
<TOTAL-ASSETS> 119,131
<CURRENT-LIABILITIES> 26,070
<BONDS> 35,400
0
0
<COMMON> 84
<OTHER-SE> 57,577
<TOTAL-LIABILITY-AND-EQUITY> 119,131
<SALES> 12,633
<TOTAL-REVENUES> 12,633
<CGS> 6,379
<TOTAL-COSTS> 6,379
<OTHER-EXPENSES> 4,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,097
<INCOME-PRETAX> 586
<INCOME-TAX> 221
<INCOME-CONTINUING> 365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
