<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Commission
Date of Report (Date of earliest event reported): January 10, 1997
Hadco Corporation
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Massachusetts 0-12102 04-2393279
- ------------------------------- ------------------------ ---------------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
Incorporation
</TABLE>
12A Manor Parkway, Salem, New Hampshire, 03079
---------------------------------------------------
(Address of principal executive offices)
(603) 898-8000
---------------------------------------------------
Registrant's telephone number, including area code
<PAGE> 2
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired
-----------------------------------------
Report of Independent Public Accountants (Arthur Andersen LLP)
Independent Auditors' Report (KPMG Peat Marwick LLP)
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December
31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
--------------------------------
1. Pro Forma Combined Condensed Balance Sheet as of October 26, 1996
2. Pro Forma Combined Condensed Statement of Income for the Year
Ended October 26, 1996
3. Notes to Pro Forma Combined Condensed Financial Statements
<PAGE> 3
ZYCON CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Arthur Andersen LLP..............................................F-2
Report of KPMG Peat Marwick LLP............................................F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995...............F-4
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994.........................................F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994...................................F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.........................................F-7
Notes to Consolidated Financial Statements.................................F-8
F-1
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Zycon Corporation:
We have audited the accompanying consolidated balance sheet of Zycon Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly, in
all material respects, the financial position of Zycon Corporation and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
January 17, 1997
F-2
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Zycon Corporation:
We have audited the accompanying consolidated balance sheet of Zycon Corporation
and subsidiary as of December 31, 1995 and the related consolidated statements
of income, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zycon Corporation
and subsidiary as of December 31, 1995 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
January 19, 1996
F-3
<PAGE> 6
ZYCON CORPORATION
-----------------
<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1996 AND 1995
(In thousands, except share and per share data)
ASSETS
------
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,549 $11,264
Receivables, net of allowances of $255 in 1996 and $250
in 1995 28,430 20,886
Inventories 11,343 6,131
Prepaid expenses and other current assets 2,569 1,734
-------- -------
Current assets 49,891 40,015
PLANT AND EQUIPMENT, net 95,297 52,130
DEPOSITS AND OTHER ASSETS 3,304 2,830
EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated
amortization of $272 in 1996 5,396 -
-------- -------
$153,888 $94,975
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt and bank borrowings $ 9,122 $ 2,567
Accounts payable 26,192 17,624
Accrued liabilities 7,479 5,021
Income taxes payable 870 1,770
-------- -------
Current liabilities 43,663 26,982
LONG-TERM DEBT AND LIABILITIES, net of current portion 43,777 5,458
DEFERRED INCOME TAXES 7,003 6,634
-------- -------
Total liabilities 94,443 39,074
-------- -------
COMMITMENTS AND CONTINGENCIES (see Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock; $0.001 par value; 20,000,000
shares authorized; none outstanding - -
Common stock; $0.001 par value; 25,000,000 shares authorized;
11,056,600 and 11,000,000 shares issued and outstanding
in 1996 and 1995, respectively 11 11
Additional paid-in capital 33,024 32,369
Retained earnings 26,410 23,521
-------- -------
Total stockholders' equity 59,445 55,901
-------- -------
$153,888 $94,975
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 7
ZYCON CORPORATION
-----------------
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(In thousands)
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET SALES $219,660 $180,944 $149,151
COST OF SALES 186,314 153,109 133,043
-------- -------- --------
Gross profit 33,346 27,835 16,108
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 16,079 11,233 8,350
-------- -------- --------
Income from operations 17,267 16,602 7,758
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 726 711 264
Interest expense (2,567) (2,427) (2,250)
Other expense (6,019) - -
-------- -------- --------
Other income (expense) (7,860) (1,716) (1,986)
-------- -------- --------
Income before income taxes 9,407 14,886 5,772
PROVISION FOR INCOME TAXES 6,518 7,409 97
-------- -------- --------
NET INCOME $ 2,889 $ 7,477 $ 5,675
======== ======== ========
PRO FORMA NET INCOME DATA (Unaudited):
Income before income taxes, as reported $ 14,886 $ 5,772
Pro forma provision for income taxes 5,925 2,333
-------- --------
Pro forma net income $ 8,961 $ 3,439
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 8
ZYCON CORPORATION
-----------------
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(In thousands)
<CAPTION>
Notes
Common Stock Additional Receivable Total
---------------- Paid-in from Retained Stockholders'
Shares Amount Capital Stockholders Earnings Equity
------ ------ ------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AS OF DECEMBER 31, 1993 8,000 $ 8 $ 22 $ - $23,483 $23,513
Stockholder distributions - - - - (3,859) (3,859)
Issuance of stockholder notes - - - (575) - (575)
Collections on stockholder notes - - - 45 - 45
Net income - - - - 5,675 5,675
------ --- ------- ----- ------- -------
BALANCES AS OF DECEMBER 31, 1994 8,000 8 22 (530) 25,299 24,799
Sale of common stock,
net of $3,650 issuance costs 3,000 3 32,347 - - 32,350
Stockholder distributions - - - - (9,255) (9,255)
Collections on stockholder notes - - - 530 - 530
Net income - - - - 7,477 7,477
------ --- ------- ----- ------- -------
BALANCES AS OF DECEMBER 31, 1995 11,000 11 32,369 - 23,521 55,901
Issuance of common stock in
connection with Alternate Circuit
Technology, Inc. (ACT) acquisition 50 - 600 - - 600
Issuance of common stock pursuant
to the stock option plan 7 - 55 - - 55
Net income - - - - 2,889 2,889
------ --- ------- ----- ------- -------
BALANCES AS OF DECEMBER 31, 1996 11,057 $11 $33,024 $ - $26,410 $59,445
====== === ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 9
ZYCON CORPORATION
-----------------
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
(In thousands)
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,889 $ 7,477 $ 5,675
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 11,016 9,691 9,199
Deferred income taxes 38 5,618 -
Changes in operating assets and liabilities, net of
effects from purchase of ACT:
Increase in receivables (5,538) (5,723) (4,234)
(Increase) decrease in inventories (3,106) (1,661) 156
(Increase) decrease in prepaid expenses, deposits
and other assets 2,134 (2,491) 339
Increase in accounts payable 7,862 7,010 772
Increase in accrued liabilities 1,060 1,708 204
Increase (decrease) in income taxes payable (607) 1,770 -
-------- -------- --------
Net cash provided by operating activities 15,748 23,399 12,111
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of ACT, net of cash acquired (8,888) - -
Purchases of plant and equipment (52,156) (22,365) (13,060)
Sale of short-term investments - - 2,026
-------- -------- --------
Net cash used for investing activities (61,044) (22,365) (11,034)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings, net 2,543 (7,000) 1,000
Proceeds from long-term debt 46,206 1,761 11,378
Repayment of long-term debt (7,223) (14,863) (7,685)
Proceeds from sale of common stock 55 32,350 -
Issuance of stockholder notes - - (575)
Collections on stockholder notes - 530 45
Distribution paid to stockholders - (10,765) (3,185)
-------- -------- --------
Net cash provided by financing activities 41,581 2,013 978
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,715) 3,047 2,055
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,264 8,217 6,162
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,549 $ 11,264 $ 8,217
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,351 $ 2,427 $ 2,149
Cash paid for income taxes $ 6,357 $ 60 $ 20
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in connection with ACT
acquisition $ 600 $ - $ -
Assets of $8,802 acquired, net of related liabilities
of $4,961 assumed from ACT $ 3,841 $ - $ -
Stockholder distributions declared but not paid $ - $ - $ 1,510
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 10
ZYCON CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996
-----------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The Company and Consolidation
- -----------------------------
Zycon Corporation (the "Company") manufactures multilayer printed circuit boards
for original equipment manufacturers and contract manufacturers of sophisticated
electronic equipment. The Company's principal customers serve diverse market
segments, including data communications, telecommunications, advanced storage
systems, workstation, servers and personal computers.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Cash Equivalents
- ----------------
Cash equivalents consist primarily of money market funds and highly liquid debt
instruments with original maturity dates up to 90 days.
Short-Term Investments
- ----------------------
In 1994, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Short-term investments are classified as available for sale under
the provisions of SFAS No. 115 and are stated at fair value. Any unrealized
gains and losses are reported as a separate component of stockholders' equity,
but to date have not been significant.
Inventories
- -----------
Inventories are stated at the lower of first-in, first-out cost or market. The
Company periodically reviews its inventories for potential slow-moving and
obsolete items and writes down impaired items to net realizable value.
F-8
<PAGE> 11
Plant and Equipment
- -------------------
Plant and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, ranging from
3 to 40 years. Leasehold improvements are amortized over the shorter of the
respective lease terms, ranging from 10 to 20 years, or their estimated useful
lives.
Intangible Assets
- -----------------
Excess of cost over net assets acquired (goodwill) from the ACT acquisition (see
Note 5) is amortized using the straight-line method over ten years. In order to
comply with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the realizability is evaluated periodically by management as
events or circumstances indicate a possible inability to recover its carrying
amount. Such evaluation is based on various analyses, including cash flow and
profitability projections that incorporate, as applicable, the impact on
existing lines of business. The analysis necessarily involves significant
management judgment to evaluate the ability of an acquired business to perform
within projections.
Revenue Recognition
- -------------------
Sales are recognized upon shipment. Product returns and warranty costs have been
insignificant.
Other Expense
- -------------
The Company incurred other expense of $6,019,000 during the year ended December
31, 1996 relating to the acquisition of the Company by Hadco Corporation (see
Note 8).
Income Taxes
- ------------
The Company accounts for income taxes using the liability method under Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of changes in tax rates is recognized in
income in the period that includes the enactment date.
The Company was an S corporation for Federal and state income tax reporting
purposes prior to the initial public offering on September 26, 1995. Federal and
state income taxes on the income of an S corporation are generally payable by
the individual stockholders rather than the corporation. Accordingly, only the
California S corporation franchise tax was provided while the Company was as S
corporation.
F-9
<PAGE> 12
Upon termination of the Company's S corporation status, the Company established
its net deferred tax liability and recorded an accompanying charge of $4.5
million to income tax expense in 1995. The accompanying consolidated statements
of income for the years ended December 31, 1995 and 1994 includes provisions for
income taxes on an unaudited pro forma basis, using the asset and liability
method, as if the Company had been a C corporation, fully subject to Federal and
state income taxes.
Environmental Remediation Costs
- -------------------------------
The Company accrues for expenses associated with environmental remediation
obligations when such expenses are probable and can be reasonably estimated.
Accruals for estimated expenses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information becomes available or
circumstances change. Estimates of future expenditures for environmental
remediation obligations are not discounted to their present value.
Concentration of Credit Risk
- ----------------------------
Financial instruments potentially subjecting the Company to concentration of
credit risk consist primarily of cash equivalents and accounts receivable. By
policy, the Company limits the amounts invested in any one type of investment.
Management believes the financial risks associated with such investments are
minimal. Substantially all of the Company's accounts receivable are derived from
domestic sales to original equipment manufacturers and contract assemblers of
workstations, networking products, computers, telecommunications equipment and
instrumentation devices. A significant percentage of the Company's receivables
are concentrated with a few customers.
Historically, the Company has not incurred material credit-related losses.
Foreign Currency Translation
- ----------------------------
The functional currency of the Company's Malaysian subsidiary is the United
States dollar. Accordingly, all translation gains and losses resulting from
transactions denominated in currencies other than United States dollars are
included in the consolidated statements of income. To date, the resulting gains
and losses have not been material.
Reclassifications
- -----------------
Certain 1994 and 1995 balances have been reclassified to conform with the 1996
consolidated financial statement presentation.
F-10
<PAGE> 13
2. BALANCE SHEET COMPONENTS:
------------------------
Cash Equivalents
- ----------------
<TABLE>
Cash equivalents include certain investments classified as available-for-sale
securities as follows as of December 31 (in thousands):
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Money market funds $3,574 $ -
U.S. governmental treasury bills 1,975 1,995
Commercial paper 2,000 11,000
------ -------
$7,549 $12,995
====== =======
</TABLE>
These securities all have original maturity dates of 90 days or less, with fair
values approximating their cost.
Inventories
- -----------
<TABLE>
A summary of inventories follows as of December 31 (in thousands):
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Raw materials $ 5,599 $1,392
Work in process 5,744 4,739
------- ------
$11,343 $6,131
======= ======
</TABLE>
Plant and Equipment
- -------------------
<TABLE>
A summary of plant and equipment follows as of December 31 (in thousands):
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Machinery and equipment $ 98,699 $61,975
Leasehold improvements 25,744 23,704
Building and building improvements 15,458 -
Office furniture and equipment 553 520
Construction in progress 813 3,250
Other - 580
-------- -------
141,267 90,029
Less- Accumulated depreciation and
amortization (45,970) (37,899)
-------- -------
$ 95,297 $52,130
======== =======
</TABLE>
Plant and equipment with a cost of approximately $32 million are located at the
Company's wholly owned subsidiary in Malaysia.
F-11
<PAGE> 14
Accrued Liabilities
- -------------------
<TABLE>
Accrued liabilities consisted of the following as of December 31 (in thousands):
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Vacation $2,120 $1,883
Payroll 1,764 1,099
Bonuses 1,104 1,170
Health care and workers compensation 1,150 530
Other 1,341 339
------ ------
$7,479 $5,021
====== ======
</TABLE>
Long-Term Debt and Liabilities and Bank Borrowings
- --------------------------------------------------
<TABLE>
Long-term debt and liabilities and bank borrowings consisted of the following as
of December 31 (in thousands):
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Line of credit arrangement with a U.S. bank $16,136 $ -
Line of credit arrangement with a
Malaysian bank 2,543 -
Notes payable to financial lending
companies and banks 32,857 8,025
Long-term liabilities 1,363 -
------- -------
52,899 8,025
Less - Current maturities (9,122) (2,567)
------- -------
Long-term debt and liabilities $43,777 $ 5,458
======= =======
</TABLE>
The Company has available a revolving bank line of credit arrangement with a
U.S. bank aggregating the lesser of $28,000,000 or a specified percentage of
eligible accounts receivable. As of December 31, 1996, there was $16,136,000
outstanding under the line of credit agreement. The line of credit agreement
expires on July 1, 1998. Borrowings under the line of credit agreement incur
interest at the bank's prime rate (8.25% as of December 31, 1996) and are
secured by receivables, inventories and machinery and equipment. The maximum
balance outstanding during the year under this arrangement was $20,752,000, and
the average outstanding balance during the year was $10,490,000.
The Company also has a line of credit arrangement with a Malaysian bank for
aggregate borrowings of approximately $4.3 million for the purpose of acquiring
land, facilities and equipment for the Company's Malaysian subsidiary. The
arrangement is renewable annually. As of December 31, 1996, there was $2,543,000
outstanding under this arrangement and the weighted average interest rate was
10%.
F-12
<PAGE> 15
Notes payable to financial lending companies and banks are secured by machinery
and equipment and are generally payable in equal monthly installments, bearing
interest ranging from approximately 7.2% to 11.4% (8.3% weighted average).
<TABLE>
Annual maturities of the notes payable are as follows (in thousands):
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $6,450
1998 6,788
1999 6,125
2000 5,260
2001 8,234
-------
$32,857
=======
</TABLE>
In connection with the acquisition of the Company by Hadco Corporation (see Note
8), approximately $33.5 million of these notes payable and borrowings under the
line of credit arrangement with the U.S. bank were repaid subsequent to year
end.
The Company has a commitment from a bank for a $15.5 million term loan facility
which expires in 2005 for the purpose of acquiring equipment and for working
capital to be invested in the Company's Malaysia subsidiary. Borrowings are to
be repaid over five years with interest payable at either a fixed rate equal to
the bank's cost of funds at the time of borrowing plus 3.25% or an adjustable
rate equal to the bank's prime rate plus 1.75%. As of December 31, 1996, there
were no borrowings outstanding under this facility.
3. STOCKHOLDERS' EQUITY:
--------------------
Stockholder Distributions
- -------------------------
On September 26, 1995, the Company elected C corporation status for Federal and
state income tax reporting purposes. Simultaneously with the election of C
corporation status, the Company declared a distribution payable to existing
stockholders of the Company. This distribution represented undistributed S
corporation earnings of the Company through the completion of the Company's
initial public offering and the amount of the stockholders' S corporation tax
bases.
Stock-Based Compensation Plan
- -----------------------------
In 1993, the Company adopted the 1993 Long-Term Equity Incentive Plan (the
"Stock Plan"). The Company accounts for this Stock Plan under APB Opinion No.
25, "Accounting for Stock Issued to Employees," under which no compensation
expense has been recognized. Had compensation expense for the Stock Plan been
F-13
<PAGE> 16
determined consistent with Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," the Company's net income
would have been reduced to the following pro forma amounts (in thousands):
1996 1995
---- ----
As Reported $2,889 $7,477
Pro Forma $1,579 $6,975
The Company may grant up to 1,100,000 shares of stock to its employees and
consultants under the Stock Plan. The Company grants options with an exercise
price at least equal to the fair market price at date of grant. Options granted
under the Stock Plan vest between 20% and 60% at the end of the first year and
ratably thereafter for a period of four years.
<TABLE>
There was no activity under the Stock Plan during 1994. A summary of the
activity under the Stock Plan during 1995 and 1996 follows:
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
Outstanding at December 31, 1994 - $ -
Granted 707,600 10.36
------- ------
Outstanding at December 31, 1995 707,600 10.36
Granted 105,200 10.50
Exercised (6,600) 8.36
Cancelled (36,900) 11.54
------- ------
Outstanding at December 31, 1996 769,300 $10.35
======= ======
</TABLE>
As of December 31, 1996, 765,800 of the 769,300 options outstanding have
exercise prices between $8 and $12.00, with a weighted average exercise price of
$10.34 and a weighted average remaining contractual life of 3.7 years. 230,200
of these options are exercisable as of December 31, 1996. The remaining 3,500
options have an exercise price and a weighted average exercise price of $13.25
and a weighted average remaining contractual life of 3.88 years. 700 of these
options are exercisable as of December 31, 1996. There was no options
exercisable as of December 31, 1995.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996; risk-free interest rate of 6
percent; expected dividend yields of 0 percent; expected lives of 7 years;
expected volatility of 35 percent. Weighted average fair values of options
granted in 1995 and 1996 were $4.30 and $3.00, respectively.
In connection with the acquisition of the Company by Hadco Corporation (see Note
8), the vesting for all outstanding options as of January 9, 1997 was
immediately
F-14
<PAGE> 17
accelerated pursuant to the terms of the Stock Plan and then redeemed for cash
equal to the difference between the exercise price of the vested option and
$18.00 per share.
4. INCOME TAXES:
------------
The components of income tax expense, as presented in the accompanying
consolidated statements of income, comprise California S corporation franchise
taxes for 1994 and through September 26, 1995, and Federal and state taxes for
the remainder of 1995 and all of 1996. The pro forma provision for income taxes
reflects the income tax expense that would have been reported if the Company had
been a C corporation in 1994 and all of 1995. The components of the provision
for income taxes and unaudited pro forma provision for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------------
Actual Pro Forma
-------------------------------- ------------------
1996 1995 1994 1995 1994
------ ------ --- ------ ------
<S> <C> <C> <C> <C> <C>
Current-
Federal $4,835 $1,349 $ - $3,547 $1,431
State 483 342 97 975 453
------ ------ --- ------ ------
Total current 5,318 1,691 97 4,522 1,884
------ ------ --- ------ ------
Deferred-
Federal 928 1,123 - 1,271 368
State 272 116 - 132 81
Termination of S
corporation status - 4,479 - - -
------ ------ --- ------ ------
Total deferred 1,200 5,718 - 1,403 449
------ ------ --- ------ ------
Net tax provision $6,518 $7,409 $97 $5,925 $2,333
====== ====== === ====== ======
</TABLE>
F-15
<PAGE> 18
<TABLE>
The following table reconciles the expected Federal income tax expense to the
Company's actual income tax expense and unaudited pro forma income tax expense
(in thousands):
<CAPTION>
Years Ended December 31
---------------------------------------------------------
Actual Pro Forma
--------------------------------- -------------------
1996 1995 1994 1995 1994
------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Expected Federal income tax
expense $3,292 $ 5,061 $ 1,962 $5,061 $1,962
State income taxes, net of
Federal tax benefit 569 337 97 776 352
Nondeductible foreign
subsidiary loss 721 - - - -
Nondeductible acquisition costs 2,107 - - - -
Termination of S corporation
status - 4,479 - - -
Effect of S corporation earnings
taxable to stockholders - (2,557) (1,962) - -
Other, net (171) 89 - 88 19
------ ------- ------- ------ ------
$6,518 $ 7,409 $ 97 $5,925 $2,333
====== ======= ======= ====== ======
</TABLE>
<TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liability are presented below as of
December 31 (in thousands):
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred income tax assets:
Reserves and accruals $ 1,013 $ 749
State income taxes 234 167
------- -------
Total deferred income tax assets 1,247 916
Deferred income tax liability:
Depreciation and amortization (7,003) (6,634)
------- -------
Net deferred income tax liability $(5,756) $(5,718)
======= =======
</TABLE>
Deferred income tax assets are classified in other current assets in the
accompanying consolidated balance sheets.
5. ACQUISITION OF ALTERNATIVE CIRCUIT TECHNOLOGY, INC.:
--------------------------------------------------
On June 7, 1996, the Company completed the acquisition of the assets of
Alternate Circuit Technology, Inc. (ACT). ACT was in the business of owning,
operating and managing a quick turnaround printed circuit board manufacturing
facility in Massachusetts. The purchase price consisted of cash of $8,641,000,
50,000 shares of the Company's common stock with a total market value of
$600,000 and a
F-16
<PAGE> 19
covenant not to compete arrangement to two ACT shareholders amounting to
$200,000. The acquisition has been recorded using the purchase method of
accounting. The excess of the aggregate purchase price over the fair market
value of net assets acquired was $5,668,000, and this goodwill is being
amortized over ten years. The operating results of ACT have been included in the
Company's consolidated financial statements since the date of acquisition.
6. CUSTOMERS:
---------
In 1996, one customer accounted for 12% of the Company's consolidated net
sales. Included in the accounts receivable balance at December 31, 1996 is an
amount equal to 9% of the balance related to this customer. In 1995, one
customer accounted for 13% and two companies each accounted for 10% of the
Company's consolidated net sales. These three customers comprised 35% of
accounts receivable at December 31, 1995. In 1994, one customer accounted for
15%, one for 11% and one for 10% of consolidated net sales.
7. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Operating Leases
- ----------------
<TABLE>
The Company occupies its facilities under various operating lease agreements. In
addition, the Company leases certain machinery and equipment under operating
leases. Future minimum lease payments required under operating leases in the
years subsequent to December 31, 1996 will be as follows (in thousands):
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1997 $ 3,984
1998 3,830
1999 3,926
2000 4,022
2001 4,091
2002 and thereafter 26,175
-------
$46,028
=======
</TABLE>
F-17
<PAGE> 20
Facility and equipment rent expense was approximately $4,609,000, $4,566,000 and
$4,452,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Approximately $135,000 and $360,000 of these amounts in 1995 and 1994,
respectively were paid to a partnership whose partners were also stockholders of
the Company.
Purchase Commitments
- --------------------
Purchase commitments aggregated $4,126,000 as of December 31, 1996, primarily
for the acquisition of machinery and equipment.
Stockholders' Benefit and Deferred Compensation Plan
- ----------------------------------------------------
The Company has agreements with its original four stockholders providing for
payment aggregating two years salary per stockholder in the event of death in
service or disability and for payments in the event of an adjustment of the
Company's taxable income for any period the corporation was subject to S
corporation status under the Federal or state income tax laws. To date, no
payments have been required under these agreements.
Subsequent to the year end and upon the acquisition of the Company by Hadco
Corporation, the Company entered into a deferred compensation plan with key
executive employees (none of whom were directors of the Company). The plan will
provide these key executive employees with certain deferred compensation under
certain circumstances.
Workers' Compensation
- ---------------------
The Company self-insures its workers' compensation plan and accrues for incurred
claims development and estimated incurred but not reported claims. If future
incurred claims development substantially exceeds historical claim patterns used
to estimate the accrual, the Company could incur significant additional
obligations.
Environmental Matters
- ---------------------
In March 1993, the U.S. Environmental Protection Agency (EPA) notified Zycon of
its potential liability for maintenance and remediation costs in connection with
a hazardous waste disposal facility operated by Casmalia Resources, a California
Limited Partnership, in Santa Barbara County, California. The EPA identified
Zycon as one of the 65 generators which had disposed the greatest amounts of
materials at the site. Based on the total tonnage contributed by all generators,
Zycon's share is estimated at approximately 0.2% of the total weight.
The Casmalia site was regulated by the EPA during the period when the material
was accepted. There is no allegation that Zycon violated any law in the
disposal of material at the site, rather the EPA's actions stemmed from the
fact that Casmalia Resources may not have the financial means to implement a
closure plan for the site and because of Zycon's status as a generator of
hazardous waste.
In September 1996, a Consent Decree among the EPA and 48 entities (including
Zycon) acting through the Casmalia Steering Committee ("CSC") was lodged with
the United States District Court in Los Angeles, California, which must approve
the agreement. Although this approval is pending, work has started under the
Consent Decree. The Consent Decree sets forth the terms and conditions under
which the CSC will carry out work aimed at final closure of the site. Certain
closure activities will be performed by the CSC. Later work will be performed
by the CSC, if funded by other parties. Under the Consent Decree, the settling
parties will work with the EPA to pursue the non-settling parties to ensure
they participate in contributing to the closure and long-term operation and
maintenance of the facility.
F-18
<PAGE> 21
8. ACQUISITION BY HADCO CORPORATION:
--------------------------------
In December 1996, Hadco Corporation ("Hadco") agreed to acquire all of the
outstanding shares of the Company's common stock at a purchase price of $18.00
per share upon the terms and subject to the conditions set forth in the Tender
Offer Statement. The Tender Offer Statement was made pursuant to an Agreement
and Plan of Merger dated as of December 4, 1996 between Hadco and the Company.
The offer expired on January 9, 1997 after which substantially all of the
outstanding shares of the Company's common stock were acquired by Hadco. The
Company incurred costs aggregating $2,869,000 which represented investment
banking, financial advisory and legal fees incurred relating to the acquisition
by Hadco. These costs have been expensed in the accompanying consolidated
statement of income for the year ended December 31, 1996 as other expense. The
Company paid approximately $2,100,000 of the total costs incurred to a financial
advisory firm in which the president of such firm was also a member of the
Company's Board of Directors.
Prior to entering into the Agreement and the Plan of Merger with Hadco, the
Company and certain of its principal shareholders had entered into an agreement
to sell all of the outstanding shares of the Company's common stock at $16.25
per share to an unrelated party, but the Company subsequently terminated this
agreement. In connection with this termination, the Company incurred break-up
fees and legal costs amounting to approximately $3,150,000, which was expensed
in the accompanying consolidated statement of income for the year ended December
31, 1996 as other expense.
F-19
<PAGE> 22
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
In January 1997, the Registrant purchased substantially all of Zycon's
Common Stock and stock options for approximately $205 million in cash. The
Registrant also incurred approximately $7.5 million in acquisition related
costs resulting in a total purchase price of approximately $212.5 million. The
acquisition was financed by the newly issued Credit Facility of up to $250
million. The Registrant borrowed approximately $215 million under the new
Credit Facility, upon consummation of the transaction.
This acquisition is being accounted for as a purchase, and due to the
different bases in certain assets for book and tax purposes, deferred taxes have
been provided for as part of the purchase price allocation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109. A significant
portion of the purchase price, as outlined in the attached notes to these pro
forma financial statements, has been identified in an appraisal as intangible
assets, including approximately $78 million of research and development in
process (see discussion in Note 1).
The accompanying pro forma combined condensed balance sheet as of October
26, 1996 assumes that the acquisition of the Company took place as of October
26, 1996. The accompanying pro forma combined condensed statement of income
assumes that the acquisition of the Company took place on October 29, 1995, the
beginning of the Registrant's fiscal year ended October 26, 1996. The pro forma
combined condensed statement of income does not include the effect of any
non-recurring charges directly attributable to the acquisition.
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 pro forma combined condensed financial statements should
be read in conjunction with the historical financial statements and related
notes thereto for the Registrant and the Company.
<PAGE> 23
HADCO CORPORATION
<TABLE>
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
Historical
-----------------------------
Hadco Zycon
October 26, December 31, Pro Forma
1996 1996 Adjustments Combined
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and short term investments $ 42,187 $ 7,549 $ (33,520) (1) $ 16,216
Accounts receivable, net 40,622 28,430 69,052
Inventories 21,786 11,343 33,129
Other current assets 8,966 2,569 11,535
-------- -------- --------- --------
Total current assets 113,561 49,891 (33,520) 129,932
Property, plant and equipment, net 103,735 95,297 199,032
Other assets 2,205 3,304 5,509
Goodwill and intangible assets - 5,396 103,573 (1) 108,969
-------- -------- --------- --------
$219,501 $153,888 $ 70,053 $443,442
======== ======== ========= ========
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 68,093 $ 34,541 $ (2,782) (1) $ 99,852
Current portion of long term debt 1,907 9,122 8,486
-------- -------- --------- --------
Total current liabilities 70,000 43,663 (2,782) 108,339
-------- -------- --------- --------
Long term debt 1,515 43,777 181,480 (1) 229,315
-------- -------- --------- --------
Other long term liabilities 9,145 - 9,145
-------- -------- --------
Deferred income taxes -- 7,003 28,800 (1) 35,803
-------- -------- --------- --------
STOCKHOLDERS' INVESTMENT:
Common stock 521 11 (11) (1) 521
Paid in capital 30,939 33,024 (33,024) (1) 30,939
Deferred compensation (240) -- -- (240)
Retained earnings 107,621 26,410 (104,410) (1) 29,621
-------- -------- --------- --------
Total stockholders' investment 138,841 59,445 (137,445) 60,841
-------- -------- --------- --------
$219,501 $153,888 $ 70,053 $443,442
======== ======== ========= ========
</TABLE>
(See accompanying notes to the pro forma combined condensed
financial statements)
<PAGE> 24
HADCO CORPORATION
<TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Historical
--------------------------
Hadco Zycon
Year Ended Year Ended
October 26, December 31, Pro Forma
1996 1996 Adjustments Combined
<S> <C> <C> <C> <C> <C>
Net sales $350,685 $219,660 $570,345
Cost of sales 264,537 186,314 450,851
-------- -------- --------
Gross profit 86,148 33,346 119,494
Selling, general and administrative expenses 34,616 16,079 3,831 (2)(5) 54,526
-------- -------- ------- --------
Income from operations 51,532 17,267 (3,831) 64,968
Interest income 1,287 726 (805) (4) 1,208
Interest expense (338) (2,567) (13,292) (3) (16,197)
Other expense -- (6,019) (6,019) (6) --
-------- -------- ------- --------
Income before provision for income taxes 52,481 9,407 (11,909) 49,979
Provision for income taxes 20,467 6,518 (5,706) (7) 21,279
-------- -------- ------- --------
Net income $ 32,014 $ 2,889 (6,203) $ 28,700
======== ======== ======= ========
Net income per common and common equivalent
share $ 2.89 $ 2.59
======== ========
Weighted average common and common equivalent
shares outstanding 11,084 11,084
======== ========
</TABLE>
(See accompanying notes to the pro forma combined condensed
financial statements)
<PAGE> 25
HADCO CORPORATION
Notes to Pro Forma Combined Condensed Financial Statements
Note 1: Allocation of Purchase Price
The following outlines the allocation of purchase price for the
acquisition of the Company:
(In Thousands)
Purchased in-process R&D (1) $78,000
Developed technology 30,000
Customer relationships 19,000
Assembled workforce 10,000
Tradenames/Trademarks 13,000
Goodwill 36,969
--------
186,969
Net book value of assets acquired 54,316
--------
241,285
Less: Deferred Taxes (28,800)
--------
$212,485
========
(1) For purposes of these Pro forma combined condensed financial
statements, the purchased in-process R&D was assumed to have
been written off prior to the period presented herein, in
order that the statements of income presented have only
recurring costs included.
Note 2: Pro Forma Adjustments
The following is a description of each pro forma combining
adjustment:
1. To record purchase price outlined above in Note (1).
2. Amortization of intangibles of $6,468 based on lives ranging from
12-30 years.
3. Interest expense on debt issued to finance acquisition.
4. Reduce interest income as a result of utilizing cash for
acquisition.
5. Eliminate non-recurring management salaries and certain bonuses
totaling $2,637 included in the Company's Statement of Income.
<PAGE> 26
6. Eliminate non-recurring acquisition related costs incurred by the
Company.
7. Related tax effect of adjustments 1-6.
(c) Exhibits
--------
23.1 Consent of Independent Public Accountants - Arthur Andersen LLP
<PAGE> 27
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.
HADCO CORPORATION
Dated: February 14, 1997 By: /s/ Timothy P. Losik
----------------------------
Timothy P. Losik
Chief Financial Officer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K into Hadco Corporation's previously filed
Registration Statements on Form S-8, File No. 33-2915, File No. 33-12555,
File No. 33-24975, File No. 33-24976, File No. 33-40616, File No. 33-48288 and
File No. 333-11485.
/s/ ARTHUR ANDERSEN, LLP
Boston, Massachusetts
February 14, 1997