<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 2, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-12102
HADCO CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2393279
- ------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12A MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 898-8000
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Registrant had 13,242,127 shares of Common Stock, $0.05 Par Value, outstanding
at June 8, 1998.
<PAGE> 2
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q/A of Hadco Corporation (Amendment No. 1 to
Quarterly Report on Form 10-Q for the quarter ended May 2, 1998) amends and
restates Item 1 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended May 2, 1998 (File No. 0-12102), by adding Note 11 to the Notes to
Consolidated Condensed Financial Statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(In thousands)
ASSETS May 2, October 25,
1998 1997
-------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................. $ 4,997 $ 12,171
Short-term investments ................................ - 1,562
Accounts receivable, net of allowance for
doubtful accounts of $2,589 in 1998 and
$1,700 in 1997, respectively ......................... 114,352 92,222
Inventories ........................................... 75,095 46,000
Deferred tax asset .................................... 20,106 10,483
Prepaid and other current expenses .................... 8,058 4,245
-------- --------
Total Current Assets ............................. 222,608 166,683
Property, Plant and Equipment, net .................... 318,335 231,490
Acquired Intangible Assets, net ....................... 195,026 101,131
Other Assets .......................................... 3,472 3,213
-------- --------
$739,441 $502,517
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt and current portion of long-term debt.. $ 4,837 $ 5,064
Accounts payable ...................................... 74,169 68,594
Accrued Payroll and other employee benefits ........... 29,246 28,279
Accrued Taxes ......................................... 494 1,775
Other accrued expenses ................................ 15,229 9,278
-------- --------
Total Current Liabilities ........................ 123,975 112,990
-------- --------
Long Term Debt, net of current portion .................... 359,037 109,716
-------- --------
Deferred Tax Liability .................................... 51,668 30,685
-------- --------
Other Long-Term Liabilities ............................... 9,192 9,214
-------- --------
Commitments and Contingencies
Stockholders' investment:
Common stock, $.05 par value -
Authorized 50,000 shares in 1998 and 25,000 in 1997
Issued and outstanding 13,212 in
1998 and 13,086 in 1997 ............................... 662 655
Paid-in capital ........................................... 171,466 168,246
Deferred compensation ..................................... (75) (117)
Retained earnings ......................................... 23,516 71,128
-------- --------
Total Stockholders' Investment ................... 195,569 239,912
-------- --------
$739,441 $502,517
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
2
<PAGE> 3
<TABLE>
<CAPTION>
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited )
(In thousands, except share data)
Three Months Ended Six Months Ended
------------------ ----------------
May 2, April 26, May 2, April 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales .................................................. $ 209,587 $ 180,662 $ 407,863 $ 292,198
Cost of Sales .............................................. 172,857 142,199 332,065 227,358
----------- ----------- ----------- -----------
Gross Profit .......................................... 36,730 38,463 75,798 64,840
Operating Expenses ......................................... 21,526 17,999 39,310 28,819
Restructuring and other non-recurring charges (Note 7) ..... 5,947 - 5,947 -
Write-off of acquired in-process
research and development ................................. 63,050 - 63,050 78,000
----------- ----------- ----------- -----------
Income (Loss) From Operations .............................. (53,793) 20,464 (32,509) (41,979)
Interest and Other Income (Expense), net ................... 844 (70) 1,377 806
Interest Expense ........................................... (4,195) (4,318) (6,294) (5,251)
----------- ----------- ----------- -----------
Income (Loss) Before
Provision for Income Taxes ................................. (57,144) 16,076 (37,426) (46,424)
Provision for Income Taxes ................................. 2,595 6,123 10,186 12,788
Net Income (Loss) .......................................... $ (59,739) $ 9,953 $ (47,612) $ (59,212)
----------- ----------- ----------- -----------
Income (loss) per common and common equivalent Shares (Note 1)
Basic Net Income (Loss) Per Share.......................... $(4.54) $.95 $(3.63) $(5.67)
====== ==== ====== ======
Diluted Net Income (Loss) Per Share........................ $(4.54) $.91 $(3.63) $(5.67)
====== ==== ====== ======
Weighted average common and common equivalent Shares
outstandingc (Note 1)
Basic .................................................... 13,161,078 10,458,213 13,130,418 10,434,555
=========== =========== =========== ===========
Diluted .................................................. 13,161,078 10,956,458 13,130,418 10,434,555
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Six Months Ended
----------------
May 2, April 26,
1998 1997
----- ---------
<S> <C> <C>
Total Cash Provided From Operating Activities .................................... $ 12,595 $ 13,990
--------- ---------
Cash Flows From Investing Activities:
Purchases of short-term investments ......................................... (2,020) -
Maturities of short-term investments ........................................ 3,582 9,401
Purchases of property, plant and equipment .................................. (48,186) (29,611)
Acquisitions of Continental in 1998 and Zycon in 1997 ....................... (190,032) (209,661)
--------- ---------
Net Cash Used In Investing Activities ............................................ (236,656) (229,871)
Cash Flows From Financing Activities:
Principal payments of long-term debt ........................................ (43,218) (36,621)
Proceeds from issuance of long-term debt .................................... 256,878 225,000
Proceeds from exercise of stock options ..................................... 477 435
Tax benefit from exercise of stock options .................................. 1,270 1,387
Proceeds from the sale of Common Stock ...................................... 1,480 -
--------- ---------
Net Cash Provided by Financing Activities ........................................ 216,887 190,201
--------- ---------
Net decrease in Cash and Cash Equivalents ........................................ (7,174) (25,680)
Cash and Cash Equivalents Beginning of Period .................................... 12,171 32,786
--------- ---------
Cash and Cash Equivalents End of Period .......................................... $ 4,997 $ 7,106
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest ................................................................... $ 4,689 $ 4,282
========= =========
Income taxes (net of refunds) ............................................. $ 10,906 $ 9,070
========= =========
Acquisitions of Continental in 1998 and Zycon in 1997:
Fair value of assets acquired ............................................... $ 140,123 $ 212,509
Liabilities assumed ......................................................... (47,905) (114,993)
Cash paid ................................................................... (186,083) (204,885)
Acquisition costs incurred .................................................. (3,949) (7,600)
Write-off of acquired in-process
research and development ................................................... 63,050 78,000
--------- ---------
Goodwill .................................................................... $ (34,764) $ (36,969)
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
<PAGE> 5
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hadco Corporation's (the "Company" or "Hadco") principal products are
multilayer rigid printed circuits and backplane assemblies. The
consolidated condensed financial statements reflect the application of
certain accounting policies. For information as to the significant
accounting policies followed by the Company and other financial and
operating information, see this note and elsewhere in the accompanying
notes to consolidated condensed financial statements, as well as the
Company's Annual Report on Form 10-K for the fiscal year ended October 25,
1997, Quarterly Report on Form 10-Q for the fiscal quarter ended January
31, 1998, Current Reports on From 8-K dated February 18, 1998. February
20, 1998, and May 1, 1998 and current report on From 8-K dated March 26,
1998 as amended by Current Report on Form 8-K/A dated May 1, 1998. These
financial statements should be read in conjunction with the financial
statements included in those above-referenced SEC filings.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Malaysian subsidiary is the
United States dollar. Accordingly, all remeasurement gains and losses
resulting from transactions denominated in currencies other than United
States dollars are included in the consolidated condensed statements of
operations. To date, the resulting gains and losses have not been
material.
RECLASSIFICATION
The Company has reclassified certain prior year information to conform
with the current year's presentation.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated condensed balance sheet as of May 2, 1998,
and the consolidated statements of operations and cash flows for the six
month periods ended May 2, 1998 and April 26, 1997 are unaudited but, in
the opinion of management, include all adjustments (consisting only of
normal, recurring adjustments) necessary for a fair presentation of
results for these interim periods. Results of operations for the interim
period are not necessarily indicative of results to be expected for the
entire year or any future period.
NET INCOME (LOSS) PER SHARE
The Company adopted SFAS No. 128, "Earnings per share", effective for the
quarter ended January 31, 1998 which replaces the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Prior period amounts have been restated to conform to the current
period presentation. Under SFAS No. 128, basic net income (loss) per
common share is computed based on income (loss) available to common
stockholders and the weighted average number of common shares outstanding
during the period. The dilutive net income (loss) per share is computed
based on including the number of additional common shares that would have
been outstanding if the dilutive potential of common shares had been
issued.
5
<PAGE> 6
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Basic and diluted shares outstanding, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(in thousands, except per share data)
May 2, April 26, May 2, April 26,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding 13,161 10,458 13,130 10,435
Weighted average common equivalent shares - 498 - -
------ ------ ------ ------
Diluted weighted average shares outstanding 13,161 10,956 13,130 10,435
====== ====== ====== ======
</TABLE>
Diluted weighted average shares outstanding for the three month periods
ended May 2, 1998 and April 26, 1997, do not include 383,997 and 575,366
common equivalent shares, respectively, as their effect would be
anti-dilutive. Diluted weighted averages shares outstanding for the six
month periods ended May 2, 1998 and April 26, 1997, respectively, do not
include 401,798 and 571,815 common equivalent shares as their effect would
be anti- dilutive.
2. AQUISITIONS
On January 10, 1997, the Company acquired (the "Zycon Acquisition") all of
the outstanding common stock of Zycon Corporation ("Zycon"), and on March
20, 1998, the Company acquired (the "Continental Acquisition", and
together with the Zycon Acquistion, the "Acquisitions") all of the
outstanding common stock of Continental Circuits Corp. ("Continental").
These acquisitions were financed by the $400 million unsecured senior
revolving credit facility with a group of banks, which amended and
restated an existing credit facility (the "Amended Credit Facility"),
under which the Company borrowed approximately $215,000,000 upon
consummation of the Zycon Acquisition and approximately $220,000,000 upon
consummation of the Continental Acquisition. These acquisitions were
accounted for as purchases in accordance with Accounting Principles Board
Opinion No. 16, and accordingly, Zycon's and Continental's operating
results since the respective dates of acquisition are included in the
accompanying consolidated condensed financial statements. In accordance
with ABP Opinion No. 16, the Company allocated the purchase price of the
Acquisitions based on the fair value of assets acquired and liabilities
assumed. Significant portions of the purchase price of both Acquisitions
were identified in independent appraisals as intangible assets using
proven valuation procedures and techniques. These intangible assets
include approximately $78,000,000 and $63,050,000 for Zycon and
Continental, respectively, for acquired in-process research and
development ("in-process R&D") for projects that did not have a future
alternative use. Acquired intangibles include developed technology,
customer relationships, assembled workforce, trade names and trademarks.
These intangibles are being amortized over their estimated useful lives of
12 to 30 years.
Unaudited pro forma operating results for the Company, assuming the
acquisitions of Zycon and Continental occurred on October 27, 1996, are as
follows:
6
<PAGE> 7
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(in thousands, except per share data)
May 2, April 26, May 2, April 26,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ............................ $226,196 $212,524 $459,814 $414,633
Net Income ........................... $ (473) $ 9,010 $ 8,880 $ 16,275
Basic Net Income (Loss) Per Share .... $(.04) $.86 $.68 $1.56
Diluted Net Income (Loss) Per Share .. $(.04) $.82 $.66 $1.49
</TABLE>
For purposes of these pro forma operating results, the acquired in-process
R&D was assumed to have been written off prior to October 27, 1996, so
that the operating results presented include only recurring costs.
3. INVENTORIES
Inventories are stated at the lower of cost, first-in, first-out (FIFO),
or market and consist of the following (in thousands):
<TABLE>
<CAPTION>
May 2, October 25,
1998 1997
---- ----
<S> <C> <C>
Raw Materials....................... $33,656 $14,167
Work-in-process..................... 41,439 31,833
------- -------
$75,095 $46,000
======= =======
</TABLE>
4. INTANGIBLE ASSETS
The Company has assessed the realizability of its acquired intangible
assets in accordance with SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. " Under
SFAS No. 121, the Company is required to assess the valuation of its
long-lived assets, including intangible assets, based on the estimated
cash flows to be generated by such assets. See Note 7.
5. LINES OF CREDIT
The Company's $400 million Amended Credit Facility is pursuant to an
Amended and Restated Revolving Credit Agreement, as amended (the
"Agreement). The Agreement provides for direct borrowings or letters of
credit for up to $400 million and expires January 8, 2002. Borrowings
under the Agreement bear interest, at the Company's option, at either: (i)
the Eurodollar Rate plus the Applicable Eurodollar Rate Margin (both as
defined in the Agreement) ranging between .5% and 1.1375%, based on
certain financial
7
<PAGE> 8
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
LINES OF CREDIT (CONTINUED)
ratios of the Company, or (ii) the Base Rate (as defined in the
Agreement). The Company is required to pay a quarterly commitment fee
ranging from .2% to .375% per annum, based on certain financial ratios of
the Company, of the unused commitment under the Agreement. If the Company
obtains certain debt financing, as defined, the banks may require the
Company to repay up to $150,000,000 of amounts outstanding under the
Agreement. At May 2, 1998, borrowings of $345,000,000 were outstanding
under the agreement at a weighted average interest rate of 6.56%.
The Agreement places several restrictions on the Company, including
limitations on mergers, acquisitions and sales of a substantial portion of
its assets, as well as certain limitations on liens, guarantees,
additional borrowings, changes in the Company's capitalization, as
defined, and investments. The Agreement also requires the Company to
maintain certain financial covenants, including, among other things,
minimum levels of consolidated net worth, a maximum ratio of consolidated
funded debt to EBITDA, maximum capital expenditures and minimum interest
coverage, as defined, during the term of the Agreement. At May 2, 1998,
the Company was in compliance with all loan covenants.
The Company has a line of credit arrangement with a Malaysian bank
denominated in Malaysian ringgits and U.S. dollars for aggregate
borrowings of $3.4 million for the purpose of acquiring land, facilities
and equipment for the Company's Malaysian subsidiary. The arrangement is
renewable annually. At May 2, 1998, there were no amounts outstanding
under this arrangement.
6. LONG TERM DEBT
<TABLE>
<CAPTION>
May 2, October 25,
1998 1997
------- -----------
(In thousands)
<S> <C> <C>
Loan agreements in connection with the expansion
of a building. The loans bear interest at rates
from 1% to 7% through March, 2011 and are
collateralized by property and an irrevocable
letter of credit. Payments of principal and
interest are quarterly............................. $ 778 $ 820
Revolving credit agreement (Note 5)................ 345,000 100,000
Obligations under capital leases................... 18,096 13,960
-------- --------
363,874 114,780
Less - Current portion............................. 4,837 5,064
-------- --------
$359,037 $109,716
======== ========
</TABLE>
8
<PAGE> 9
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
7. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
On April 6, 1998, the Company announced the planned consolidation of its
two East Coast quick-turn prototype facilities into the larger of the two
facilities located at Haverhill, MA. The Company incurred and recorded in
the fiscal quarter ended May 2, 1998 non-recurring charges in connection
with the consolidation totaling $5.9 million. The component of this charge
classified as restructuring-related met the criteria set forth in Emerging
Issues and Task Force Issue ("EITF") 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The amount
recorded as a liability, which totaled $1.5 million, relates to severance
and other payroll-related costs, as well as lease termination costs.
Non-recurring costs include costs associated with the abandonment of
assets at one of the facilities. The components of the restructuring and
other non-recurring costs during the three months ended May 2, 1998 are as
follows:
<TABLE>
<CAPTION>
Amount
(in thousands)
<S> <C>
Loss on abandonment of assets ................................ $1,965
Severance benefits and associated legal costs ................ 129
Lease termination loss ....................................... 1,336
------
Total Restructuring Charges .................................. 3,430
Other Non-recurring Charges .................................. 2,517
------
Total Restructuring and Other Charges ........................ $5,947
======
</TABLE>
Included in the restructuring and other charges is $2.5 million, which
represents the write-down of existing assets to their net realizable
value, in accordance with SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of."
8. ENVIRONMENTAL MATTERS
The Company is required to comply with all federal, state, county and
municipal regulations regarding protection of the environment. There can
be no assurance that more stringent environmental laws will not be adopted
in the future and, if adopted, the costs of compliance with more stringent
environmental laws could be substantial. Waste treatment and disposal are
major considerations for printed circuit manufacturers. The Company uses
chemicals in the manufacture of its products that are classified by the
Environmental Protection Agency (EPA) as hazardous substances. The Company
is aware of certain chemicals that exist in the ground at certain of its
facilities. The Company has notified various governmental agencies and
continues to work with them to monitor and resolve these matters. During
March 1995, the Company received a Record Of Decision (ROD) from the New
York State Department of Environmental Conservation (NYSDEC),
9
<PAGE> 10
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
ENVIRONMENTAL MATTERS (CONTINUED)
regarding soil and groundwater contamination at its Owego, New York
facility. Based on a Remedial Investigation and Feasibility Study (RIFS)
for apparent on-site contamination at that facility and a Focused
Feasibility Study (FFS), each prepared by environmental consultants of the
Company, the NYSDEC has approved a remediation program of groundwater
withdrawal and treatment and iterative soil flushing. The Company has
executed a Modification of the Order on Consent to implement the approved
ROD. The cost, based upon the FFS, to implement this remediation is
estimated to be $4.6 million, and is expected to be expended as follows:
$260,000 for capital equipment and $4.3 million for operation and
maintenance costs which will be incurred and expended over the estimated
life of the program of 30 years. NYSDEC has notified the Company that it
will take additional samples from a wetland area near the Company's Owego
facility. Analytical reports of earlier sediment samples indicated the
presence of certain inorganics. There can be no assurance that the Company
and/or other third parties will not be required to conduct additional
investigations and remediation at that location, the costs of which are
currently indeterminable due to the numerous variables described in the
fifth paragraph of this Environmental Matters note.
From 1974 to 1980, the Company operated a printed circuit manufacturing
facility in Florida as a lessee of property that is now the subject of a
pending lawsuit (the "Florida Lawsuit") and investigation by the Florida
Department of Environmental Protection (FDEP). Hadco and others are
participating in alternative dispute resolution regarding the site with an
independent mediator. In connection with mediation, in February 1992 the
FDEP presented computer-generated estimates of remedial costs, for
activities expected to be spread over a number of years, that ranged from
approximately $3.3 million to $9.7 million. Mediation sessions were
conducted in March 1992 but were then suspended during ongoing assessment
and feasibility activities. On June 9, 1992, the Company entered into a
Cooperating Parties Agreement in which it and Gould, Inc., another prior
lessee of the site, agreed to fund certain assessment and feasibility
study activities at the site. The cost of such activities is not expected
to be material to the Company. Management believes it is likely that it
will participate in implementing a continuing remedial program for the
site, the costs of which are currently unknown. In June 1995, Hadco was
named a third-party defendant in the Florida Lawsuit. See Note 9 below.
The Company has commenced the operation of a groundwater extraction system
at its Derry, New Hampshire facility to address certain groundwater
contamination and groundwater migration control issues. Further
investigation is underway to determine the areal extent of the groundwater
contaminant plume. Because of the uncertainty regarding both the quantity
of contaminants beneath the building at the site and the long-term
effectiveness of the groundwater migration control system the Company has
installed, it is not possible to make a reliable estimate of the length of
time remedial activity will have to be performed. However, it is
anticipated that the groundwater extraction system will be operated for at
least 30 years. There can be no assurance that the Company will not be
required to conduct additional investigations and remediation relating to
the Derry facility. The total costs of such groundwater extraction system
and of conducting any additional investigations and remediation relating
to the Derry facility are not fully determinable due to the numerous
variables described in the fifth paragraph of this Environmental Matters
note.
10
<PAGE> 11
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
ENVIRONMENTAL MATTERS (CONTINUED)
The City of Santa Clara adopted an ordinance that, as of April 1, 1997,
reduced the amount of waste, including copper and nickel, that companies
such as the Company may discharge into the city sanitary sewer. The
ordinance provides for substantial penalties for intentional or negligent
violations. These penalties include fines ranging from $10,000 to $50,000
per day, revocation of required business permits, the issuance of a cease
and desist order and, under certain circumstances, up to nine months'
imprisonment. Under the ordinance, the Company is subject to stringent
requirements on the amount of water it can discharge. The concentration
limit for Hadco's copper discharge was reduced from 2.70 milligrams per
liter to 1.02 milligrams per liter, and the concentration limit for
Hadco's nickel discharge was reduced from 2.60 milligrams per liter to
0.15 milligrams per liter. The Company believes it is currently in
compliance with new discharge limits.
The Company accrues estimated costs associated with known environmental
matters, when such costs can be reasonably estimated. The cost estimates
relating to future environmental clean-up are subject to numerous
variables, the effects of which can be difficult to measure, including the
stage of the environmental investigations, the nature of potential
remedies, possible joint and several liability, the magnitude of possible
contamination, the difficulty of determining future liability, the time
over which remediation might occur, and the possible effects of changing
laws and regulations.
Management believes the ultimate disposition of above known environmental
matters described in this "Environmental Matters" note will not have a
material adverse effect upon the liquidity, capital resources, business or
consolidated financial position of the Company. However, one or more of
such environmental matters could have a significant negative impact on the
Company's consolidated financial results for a particular reporting
period.
9. LEGAL PROCEEDINGS AND CLAIMS
The Company is one of 33 entities which have been named as potentially
responsible parties in a lawsuit pending in the federal district court of
New Hampshire concerning environmental conditions at the Auburn Road,
Londonderry, New Hampshire landfill site. Local, state and federal
entities and certain other parties to the litigation seek contribution for
past costs, totaling approximately $20 million, allegedly incurred to
assess and remediate the Auburn Road site. In December 1996, following
publication and comment period, the EPA amended the ROD to change the
remedy at the Auburn Road site from active groundwater remediation to
future monitoring. Other parties to the lawsuit also allege that future
monitoring will be required. The Company is contesting liability, but is
participating in mediation with 27 other parties in an effort to resolve
the lawsuit.
In connection with the Florida Lawsuit pending in the Circuit Court for
Broward County, Florida (described in Note 8 above), each of Hadco and
Gould, Inc., another prior lessee of the site of the printed circuit
manufacturing facility in Florida, was served with a third-party complaint
in June 1995, as third-party defendants in such pending Florida Lawsuit by
a party who had previously been named as a defendant when the Florida
Lawsuit was commenced in 1993 by the FDEP. The Florida Lawsuit seeks
damages relating to environmental pollution and FDEP costs and expenses,
civil penalties, and declaratory and injunctive relief to require the
parties to complete assessment and remediation of soil and groundwater
contamination. The other parties include alleged owners of the property
and Fleet Credit Corporation, a secured lender to a prior lessee of the
property.
11
<PAGE> 12
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
LEGAL PROCEEDINGS AND CLAIMS (CONTINUED)
In March 1993, the EPA notified Hadco Santa Clara (formerly 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 Hadco Santa Clara 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, Hadco Santa Clara'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 Hadco Santa Clara
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
Hadco Santa Clara's status as a generator of hazardous waste.
In June 1997, the United States District Court in Los Angeles, California
approved and entered a Consent Decree among the EPA and 49 entities
(including Hadco Santa Clara) acting through the Casmalia Steering
Committee (CSC). 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.
The EPA will continue as the lead regulatory agency during the final
closure work. Because long-term maintenance plans for the site will not be
determined for a number of years, it has not yet been decided which
regulatory agency will oversee this phase of the work plan or how the
long-term costs will be funded. However, the agreement provides a
mechanism for ensuring that an appropriate federal, state or local agency
will assume regulatory responsibility for long-term maintenance.
The future costs in connection with the lawsuits described in the
preceding paragraphs are currently indeterminable due to such factors as
the unknown timing and extent of any future remedial actions which may be
required, the extent of any liability of the Company and of other
potentially responsible parties, and the financial resources of the other
potentially responsible parties.
On March 27, 1998, the Company received a written notice from legal
counsel for the Lemelson Medical, Education & Research Foundation Limited
Partnership (the "Lemelson Partnership"), alleging that the Company is
infringing certain patents held by the Lemelson Partnership and offering
to license such patents to the Company. The ultimate outcome of this
matter is not currently determinable, and there can be no assurance that
the outcome of this matter will not have a material adverse effect upon
the Company's business, financial condition and results of operations.
12
<PAGE> 13
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
LEGAL PROCEEDINGS AND CLAIMS (CONTINUED)
Litigation with respect to patents and other intellectual property matters
can result in substantial damages, require the cessation of the
manufacture, use and sale of infringing products and the use of certain
processes, or require the infringing party to obtain a license to the
relevant intellectual property.
On January 12, 1998, Hadco Santa Clara (formerly Zycon) received notice of
the filing of a lawsuit, before the Superior Court (County of Santa Clara,
California), against it by Jackie Riley, Keith Riley and Richard Riley for
damages (including punitive damages) for alleged injuries suffered,
including Richard Riley's cancer, as a result of the alleged emission at a
Zycon facility of effluent from allegedly toxic and hazardous chemical
substances. Because this matter is at an early stage, the Company believes
it cannot assess the potential range of damages that might be awarded
should the plaintiffs prevail.
10. SUBSEQUENT EVENT - DEBT OFFERING
On May 18, 1998, the Company sold $200.0 million aggregate principal
amount of its 9-1/2% Senior Subordinated Notes due 2008 (the "Notes") to
certain purchasers. The purchasers subsequently resold the Notes to
"qualified institutional buyers" in reliance upon Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), and offshore
purchasers pursuant to Rule 904 of Regulation S under the Securities Act.
The Notes were so resold at a price equal to 99.66% of their principal
amount.
Interest on the Notes is payable semiannually on each June 15 and December
15, commencing December 15, 1998. The Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after June 15,
2003, at 104.75% of their principal amount, plus accrued interest, with
such percentages declining ratably to 100% of their principal amount, plus
accrued interest. At any time on or prior to June 15, 2001 and subject to
certain conditions, up to 35% of the aggregate principal amount of the
Notes may be redeemed, at the option of the Company, with the proceeds of
certain equity offerings of the Company at 109.50% of the principal amount
thereof, plus accrued interest. In addition, at any time prior to June 15,
2003, the Company may redeem the Notes, at its option, in whole or in
part, at a price equal to the principal amount thereof, together with
accrued interest, plus the Applicable Premium (as defined in the Indenture
governing the Notes).
The Notes are guaranteed, on a senior subordinated basis, by each of the
Company's U.S. Restricted Subsidiaries (as defined in the Indenture) (the
"Guarantors"). The net proceeds received by the Company from the issuance
and sale of the Notes, approximately $193,820 million, was used to repay
outstanding indebtedness under the Amended Credit Facility previously
incurred to, among other things, finance the Acquisitions.
The Indenture under that which the Notes were issued (the "Indenture")
imposes certain limitations on the ability of the Company, its
subsidiaries and, in certain circumstances, the Guarantors, to, among
other things, incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, create liens,
engage in transactions with stockholders and affiliates, sell assets and
engage in mergers and consolidations.
13
<PAGE> 14
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
11. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF MAY 2, 1998
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 927 $ 1,534 $ 2,536 $ -- $ 4,997
Accounts receivable, net................. 18,776 441 95,135 -- 114,352
Inventories.............................. 28,696 6,815 40,095 (511) 75,095
Deferred tax asset....................... 8,623 -- 11,483 -- 20,106
Prepaid expenses and other current
assets................................ 2,015 4,173 1,870 -- 8,058
-------- ------- -------- --------- --------
Total current assets............. 59,037 12,963 151,119 (511) 222,608
Property, Plant and Equipment, net......... 139,696 43,481 135,158 -- 318,335
Intercompany Receivable.................... 5,218 87 54,694 (59,999) --
Investments in subsidiaries................ 24,106 -- 274,044 (298,150) --
Acquired Intangible Assets, net............ 195,026 -- -- -- 195,026
Other Assets............................... 2,036 330 1,106 -- 3,472
-------- ------- -------- --------- --------
$425,119 $56,861 $616,121 $(358,660) $739,441
======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt........ $ 3,899 $ 107 $ 831 $ -- $ 4,837
Accounts payable......................... 30,237 6,313 37,619 -- 74,169
Intercompany payable..................... 35,219 26,699 -- (61,918) --
Accrued payroll and other employee
benefits.............................. 3,755 167 25,324 -- 29,246
Accrued taxes............................ 12,388 368 (12,262) -- 494
Other accrued expenses................... 3,080 80 12,069 -- 15,229
-------- ------- -------- --------- --------
Total current liabilities........ 88,578 33,734 63,581 (61,918) 123,975
Long-term Debt, net of current portion..... 12,326 327 346,384 -- 359,037
Deferred Tax Liability..................... 50,785 -- 883 -- 51,668
Other Long-term Liabilities................ -- -- 9,192 -- 9,192
Stockholders' Investment:
Common stock, $0.05 par value;
Authorized -- 50,000 shares
Issued and outstanding -- 13,212 in
1998................................ 11 29,654 662 (29,665) 662
Paid-in Capital.......................... 400,616 -- 171,466 (400,616) 171,466
Deferred Compensation.................... -- -- (75) -- (75)
Retained Earnings........................ (127,197) (6,854) 24,028 133,539 23,516
-------- ------- -------- --------- --------
Total stockholders' investment... 273,430 22,800 196,081 (296,742) 195,569
-------- ------- -------- --------- --------
$425,119 $56,861 $616,121 $(358,660) $739,441
======== ======= ======== ========= ========
</TABLE>
<PAGE> 15
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING MAY 2, 1998
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $152,103 $17,278 $240,078 $(1,596) $407,863
Cost of Sales..................................... 129,926 16,112 187,112 (1,085) 332,065
-------- ------- -------- ------- --------
Gross Profit.................................... 22,177 1,166 52,966 (511) 75,798
Operating Expenses................................ 7,444 1,836 30,030 -- 39,310
Restructuring and Other Non-Recurring Charges..... -- -- 5,947 -- 5,947
Write-off of Acquired In-Process Research and
Development..................................... 63,050 -- -- -- 63,050
-------- ------- -------- ------- --------
Income (Loss) From Operations................... (48,317) (670) 16,989 (511) (32,509)
Interest and Other Income......................... 822 612 (57) -- 1,377
Interest Expense.................................. (390) (390) (5,514) -- (6,294)
-------- ------- -------- ------- --------
Income (Loss) Before Provision for Income
Taxes......................................... (47,885) (448) 11,418 (511) (37,426)
Provision for Income Taxes........................ 7,524 98 2,564 -- 10,186
Equity in income (loss) of subsidiary............. (1,249) -- (55,955) 57,204 --
-------- ------- -------- ------- --------
Net Income (Loss)............................... $(56,658) $ (546) $(47,101) $56,693 $(47,612)
======== ======= ======== ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING MAY 2, 1998
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities...................................... $ 206 $(2,017) $ 14,917 $ (511) $ 12,595
-------- ------- -------- ------- --------
Cash Flows from Investing Activities:
Purchases of short-term investments............. -- -- (2,020) -- (2,020)
Maturities of short-term investments............ -- -- 3,582 -- 3,582
Foreign Sales Corp. dividend.................... -- (703) 703 -- --
Purchases of property, plant and equipment...... (11,735) (11,491) (24,960) -- (48,186)
Investments in subsidiaries..................... 5,691 -- (6,202) 511 --
Acquisition of Continental Circuits in 1998, net
of cash acquired.............................. -- -- (190,032) -- (190,032)
-------- ------- -------- ------- --------
Net cash used in investing activities......... (6,044) (12,194) (218,929) 511 (236,656)
-------- ------- -------- ------- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt............ (42,433) (22) (763) -- (43,218)
Proceeds from issuance of long-term debt........ 10,730 -- 246,148 -- 256,878
Proceeds from exercise of stock options......... -- -- 476 -- 476
Increase (Decrease) of intercompany payable..... 40,071 13,518 (53,589) -- --
Sale of common stock, net of issuance costs..... -- -- 1,480 -- 1,480
Tax benefit from exercise of stock options...... -- -- 1,271 -- 1,271
Net cash provided by financing activities..... 8,368 13,496 195,023 -- 216,887
-------- ------- -------- ------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... 2,530 (715) (8,989) 3,085 (7,174)
Cash and Cash Equivalents, Beginning of Period.... (1,603) 2,249 11,525 -- 12,171
-------- ------- -------- ------- --------
Cash and Cash Equivalents, End of Period.......... $ 927 $ 1,534 $ 2,536 $ 3,085 $ 4,997
======== ======= ======== ======= ========
</TABLE>
<PAGE> 16
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Basis of presentation. In connection with the acquisition of Continental
Circuits Corp., which was financed with approximately $184 million of
borrowings from the Credit Facility, the Company on May 18, 1998 sold
$200,000,000 aggregate principal amount of 9 1/2% Senior Subordinated Notes due
in 2008 (the Notes). The Notes are fully and unconditionally guaranteed on a
senior subordinated basis, jointly and severally, by certain of the Company's
direct wholly-owned domestic subsidiaries (the Guarantors). The Guarantors are
Hadco Santa Clara, Inc., Hadco Phoenix, Inc., CCIR of Texas Corp., and CCIR of
California Corp. The condensed consolidating financial statements of the
Guarantors are presented above and should be read in connection with the
Consolidated Financial Statements of the Company. Separate financial statements
of the Guarantors are not presented because (i) the Guarantors are wholly-owned
and have fully and unconditionally guaranteed the Notes on a joint and several
basis and (ii) the Company's management has determined such separate financial
statements are not material to investors and believes the condensed
consolidating financial statements presented are more meaningful in
understanding the financial position of the Guarantors.
There are no significant restrictions on the ability of the Guarantors to make
distributions to the Company.
Condensed consolidating financial information has not been presented for 1996
and 1995 because the Guarantors were not subsidiaries of the Company in its
1996 and 1995 fiscal years.
<PAGE> 17
SIGNATURE
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.
Hadco Corporation
Date: June 23, 1998 By: /s/ Timothy P. Losik
-----------------------------------
Timothy P. Losik
Senior Vice President and Chief
Financial Officer (principal financial
officer and principal accounting officer)
14
