-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, INH+piTYNXRDH4axlej3mpih3Cy+7qTzcuKpkt0bhqN92jXIxFHKyJFBhZpAorLO 0OB+giW1oobJdkxDFSengA== 0001007594-99-000004.txt : 19990510 0001007594-99-000004.hdr.sgml : 19990510 ACCESSION NUMBER: 0001007594-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCD INC CENTRAL INDEX KEY: 0001007594 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 042604950 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27744 FILM NUMBER: 99612972 BUSINESS ADDRESS: STREET 1: TWO TECHNOLOGY DR STREET 2: CENTENNIAL PARK CITY: PEABODY STATE: MA ZIP: 01960 BUSINESS PHONE: 5085328800 MAIL ADDRESS: STREET 1: 2 TECHNOLOGY DRIVE CITY: PEABODY STATE: MA ZIP: 01960 10-Q 1 AUDIT LETTER SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 3, 1999 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission file number 0-27744 PCD Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-2604950 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Technology Drive, Centennial Park, Peabody, Massachusetts (Address of principal executive offices) 01960-7977 (Zip Code) Registrant's telephone number, including area code: 978-532-8800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock, $0.01 par value, outstanding at May 4, 1999: 8,506,680 PCD Inc. FORM 10-Q FOR THE QUARTER ENDED APRIL 3, 1999 FORWARD LOOKING INFORMATION Statements in this report concerning the future revenues, profitability, financial resources, product mix, market demand, product development and other statements in this report concerning the future results of operations, financial condition and business of PCD Inc. are "forward-looking statements" made pursuant to the safe harbor provisions of the Securities Exchange Act of 1934, as amended. Investors are cautioned that the Company's actual results in the future may differ materially from those projected in the forward-looking statements due to the risks and uncertainties that exist in the Company's operations and business environment, including the Company's dependence on the integrated circuit package interconnect and semiconductor industries, the Company's dependence on its principal customers and independent distributors, acquisitions and indebtedness, international sales and operations, fluctuations in demand for the Company's products, patent litigation involving the Company, rapid technological evolution in the electronics industry, Year 2000 compliance and the like. In addition, the Company may experience unanticipated costs or other difficulties in connection with the acquisition and integration of a business such as Wells Electronics, Inc. The Company's most recent filings with the Securities and Exchange commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K, contain additional information concerning such risk factors, and copies of these filings are available from the Company upon request and without charge. 2 PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS PCD INC. Consolidated Balance Sheets as of April 3, 1999 and December 31, 1998. Consolidated Statements of Income for the quarters ended April 3, 1999 and March 28, 1998. Consolidated Statements of Cash Flows for the quarters ended April 3, 1999 and March 28, 1998. Notes to Condensed Consolidated Financial Statements. 3 PCD Inc. CONSOLIDATED BALANCE SHEETS (Condensed and unaudited) (In thousands)
4/3/99 12/31/98 ------- -------- ASSETS Current assets: Cash and cash equivalents................. $ 1,033 $ 852 Accounts receivable, net.................. 6,942 5,851 Inventory................................. 5,262 5,042 Prepaid expenses and other current assets. 643 643 -------- -------- Total current assets............... 13,880 12,388 Equipment and improvements Equipment and improvements................ 26,548 25,569 Accumulated depreciation.................. 8,502 7,442 -------- -------- Equipment and improvements, net.............. 18,046 18,127 Deferred tax asset........................... 13,943 14,192 Goodwill..................................... 57,819 58,592 Intangible assets............................ 12,196 12,456 Debt financing fees.......................... 1,473 1,531 Other assets................................. 1,774 1,818 -------- -------- Total assets....................... $119,131 $119,104 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt........................... $ 12,200 $ 9,700 Current portion of long-term debt......... 8,500 8,400 Accounts payable.......................... 2,842 3,146 Accrued liabilities....................... 2,528 2,981 -------- -------- Total current liabilities.......... 26,070 24,227 Long-term debt, net of current portion....... 35,400 37,600 Accumulated other comprehensive income....... 93 146 Stockholders' equity......................... 57,568 57,131 -------- -------- Total liabilities and stockholders' equity.......... $119,131 $119,104 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 PCD Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed and unaudited) (In thousands, except per share data)
Quarter Ended ------------------ 4/3/99 3/28/98 ------ ------- Net sales................................... $12,633 $16,726 Cost of sales............................... 6,379 7,241 ------- ------ Gross profit................................ 6,254 9,485 Operating expenses.......................... 3,523 3,762 Amortization................................ 1,048 1,071 ------- ------ Income from operations...................... 1,683 4,652 Interest expense /(other income), net....... 1,097 4,662 ------- ------- Income (loss) before income taxes........... 586 (10) Provision for income taxes.................. 221 17 ------- ------- Net income (loss)........................... $ 365 $ (27) ======= ====== Net income (loss) per share: Basic.................................. $ 0.04 $ - ======= ====== Diluted................................ $ 0.04 $ - ======= ====== Weighted average number of common and common equivalent shares outstanding Basic.................................. 8,451 6,045 ===== ===== Diluted................................ 9,053 6,045 ===== =====
The accompanying notes are an integral part of the consolidated financial statements. 5 PCD Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited) (In thousands)
Quarter Ended ------------------ 4/3/99 3/28/98 ------ ------- Cash flows from operating activities: Net income (loss)................................ $ 365 $ (27) Adjustments to reconcile net income to net cash provided by operating activities Depreciation.................................. 1,062 853 Amortization of deferred compensation......... - 15 Amortization of intangible assets............. 1,030 1,068 Amortization of warrant....................... - 2,328 Deferred taxes................................ 239 (185) Changes in operating assets and liabilities: Accounts receivable......................... (1,138) (2,139) Inventory................................... (261) (249) Prepaid expenses and other current assets... (16) (405) Other assets................................ 36 (115) Accounts payable............................ (207) (94) Accrued liabilities......................... (447) 506 ------- ------- Net cash provided by operating activities. 663 1,556 Cash flows from investing activities: Capital expenditures............................. (980) (816) ------- ------- Net cash used in investing activities..... (980) (816) Cash flows from financing activities: Borrowings of short-term debt.................... 2,500 - Payments of long-term debt....................... (2,100) - Amortization of debt financing fees.............. 59 67 Purchase of warrant.............................. - 5 Exercise of common stock options................. 73 35 ------- ------- Net cash provided by financing activities. 532 107 ------- ------- Net increase in cash............................... 215 847 Effect of exchange rate on cash.................... (34) (76) Cash and cash equivalents at beginning of period... 852 3,990 ------- ------- Cash and cash equivalents at end of period......... $ 1,033 $ 4,761 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. PCD Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (April 3, 1999 Unaudited) Note 1. INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. This financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1998. Certain reclassifications in the Company's Consolidated Statements of Cash Flows were made to prior year's first quarter amounts to conform with the Annual Report presentation. Note 2. NET INCOME PER SHARE In accordance with FAS No. 128, the following tables reconcile net income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of the periods ended April 3, 1999 and March 28, 1998:
Net Income Per Share (Loss) Shares Amount ----------- --------- ------- For the period ended April 3, 1999 Basic earnings.............................. $ 365,000 8,450,961 $ 0.04 Assumed exercise of options (treasury method) - 601,998 - ---------- --------- ------ Diluted earnings............................ $ 365,000 9,052,959 $ 0.04 ========== ========= ====== For the period ended March 28, 1998 Basic and diluted loss...................... $ (27,000) 6,045,360 $ - ========== ========= ======
7 Anti-dilutive shares of 119,556 and 787,121 for the quarters ended April 3, 1999 and March 28, 1998, respectively, have been excluded from the calculation of EPS. Note 3. INVENTORY 4/3/99 12/31/98 ------ -------- (In Thousands) Inventory: Raw materials and finished subassemblies $3,623 $3,536 Work in process......................... 623 491 Finished goods.......................... 1,016 1,014 ------ ------ Total................................. $5,262 $5,042 ====== ====== Note 4. COMPREHENSIVE INCOME The Company's only other comprehensive income is foreign currency translation adjustments. For the three months ended April 3, 1999 and March 28, 1998 the Company's total comprehensive income was as follows: Three Months Ended ------------------ 4/3/99 3/28/98 ------ ------- (In thousands) Net earnings (loss) $ 365 $ (27) Other comprehensive loss, net (32) (46) ------- ------- Total comprehensive earnings (loss) $ 333 $ (73) ======= ======= Note 5. NEW ACCOUNTING STANDARDS In 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), which becomes effective for all fiscal quarters beginning after 8 June 15, 1999. FAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company is currently evaluating the impact that FAS 133 will have on its future operating performance. Note 6. LITIGATION On August 21, 1995, a predecessor ("CTi") of the Company's wholly-owned subsidiary, Wells-CTI, Inc. ("Wells-CTI"), filed an action in the United States District Court for the District of Arizona against Wayne K. Pfaff, an individual residing in Texas ("Pfaff") alleging and seeking a declaratory judgment that two United States patents issued to Pfaff and relating to certain burn-in sockets for "leadless" IC packages (the "Pfaff Leadless Patent") and ball grid array ("BGA") IC packages (the "Pfaff BGA Patent") are invalid and are not infringed by CTi, the products of which include burn-in sockets for certain "leaded" packages (including Quad Flat Paks) and BGA packages. In other litigation between Wells-CTI and Pfaff concerning the Pfaff Leadless Patent, the United States Supreme Court has affirmed the decision of the United States Court of Appeals for the Federal Circuit finding that all of the individual descriptions of the invention covered by the Pfaff Leadless Patent which were at issue in that case are invalid. Pfaff then agreed not to sue CTi or Wells-CTI for infringement of the Pfaff Leadless Patent, including infringement based upon claims not adjudicated in that litigation. The litigation between Wells-CTI and Pfaff and CTi and Pfaff relating to the Pfaff Leadless Patent is thus concluded. However, issues concerning the Pfaff BGA Patent remain to be resolved in the District of Arizona litigation. The Company believes, based on the advice of counsel, that CTi has meritorious positions of non-infringement and invalidity with respect to the Pfaff BGA Patent issues raised in the District of Arizona litigation and, as necessary, will vigorously litigate its position. There can be no assurance, however, that the Company, CTi or Wells-CTI will prevail in any pending or future litigation, and a final court determination that CTi or 9 Wells-CTI has infringed the Pfaff BGA Patent could have a material adverse effect on the Company. Such adverse effect could include, without limitation, the requirement that CTi or Wells-CTI pay substantial damages for past infringement and an injunction against the manufacture or sale in the United States of such products as are found to be infringing. The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. On the basis of information presently available and advice received from legal counsel, it is the opinion of management that the disposition or ultimate determination of such legal proceedings will not have a material adverse effect on the Company's consolidated financial position, its consolidated results of operations or its consolidated cash flows. Note 7. SEGMENT INFORMATION: THREE MONTHS ENDED ------------------ 4/3/99 3/28/98 (In thousands) SALES: Industrial/Avionics................... $ 4,941 $ 4,574 IC Package interconnect............... 7,692 12,152 -------- -------- Total sales......................... $ 12,633 $ 16,726 ======== ======== NET INCOME (loss): Industrial/Avionics................... $ 757 $ 603 IC Package interconnect............... (427) (827) Corporate activities.................. 35 197 -------- -------- Total net income (loss)............. $ 365 $ (27) ======== ======== 4/3/99 12/31/98 -------- -------- (In thousands) ASSETS: Industrial/Avionics................... $ 9,238 $ 8,960 IC Package interconnect............... 108,103 108,521 Corporate activities.................. 1,790 1,623 -------- -------- Total assets........................ $119,131 $119,104 ======== ======== 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED APRIL 3, 1999 COMPARED TO THE QUARTER ENDED MARCH 28, 1998 NET SALES. Net Sales decreased 24.5% to $12.6 million for the quarter ended April 3, 1999 from $16.7 million for the quarter ended March 28, 1998. Our IC Package interconnect business declined 36.7% to $7.7 million for the quarter ended April 3, 1999 from $12.1 million for the quarter ended March 28, 1998. This decrease in net sales was attributable to the low level of backlog at the beginning of the quarter corresponding to the slowdown in the semiconductor industry. The Industrial/Avionics business continues to grow with an 8% increase from $4.6 million for the quarter ended March 28, 1998 to $4.9 million for the quarter ended April 3, 1999. GROSS PROFIT. Gross profit decreased to $6.3 million or 49.5% of sales for the quarter ended April 3, 1999 compared to $9.5 million or 56.7% of sales for the quarter ended March 28, 1998. This decrease in gross profit is related to the sale volume decrease in IC package interconnects combined with pricing pressures in the more mature IC burn-in memory products. OPERATING EXPENSES. Operating expenses include selling, general and administrative expenses and costs of product development. Operating expenses were $4.6 million for the quarter ended April 3, 1999 compared to $4.8 million for the quarter ended March 28, 1998. This decrease in operating expenses was a result of the actions taken to reduce expenses in response to the lower sales volume, specifically the closure of our Control Systems Interconnect division and cost reductions in our Wells-Cti division. INTEREST AND OTHER INCOME (EXPENSE). Interest expense and other income, net, decreased from $4.7 million for the quarter ended March 28, 1998 to $1.1 million for the quarter ended April 3, 1999. This decrease in interest expense was due to the reduction in bank debt from $83.0 million at March 28, 1998 to $56.1 million at April 3, 1999 and the $2.3 million amortization and $600,000 interest expense associated with the Emerson Debenture, which was retired in April 1998. 11 PROVISION FOR INCOME TAXES. The provision for income taxes for the quarter ended April 3, 1999 was approximately 37.7% of pretax income compared to a provision of $17,000 on a pre-tax loss of approximately $10,000 for the quarter ended March 28, 1998. This rate decrease is the result of the Company's Japanese subsidiary, where our tax rate is the highest, having a lower pre-tax income as compared to the prior year. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities in the quarter ended April 3, 1999 was $0.7 million compared to $1.6 million for the quarter ended March 28, 1998. The Company's debt balance increased $400,000 in the quarter from $55.7 million at December 31, 1998 to $56.1 million at April 3, 1999. The balance at April 3, 1999 consists of $12.2 million revolving line of credit and $43.9 million term loan. The Company currently anticipates that its capital expenditures for 1999 will be approximately $6.4 million, which consists primarily of purchased tooling and equipment required to support the Company's business. The amount of these capital expenditures will frequently change based on future changes in business plans and conditions of the Company and changes in economic conditions. The Company believes its existing working capital and borrowing capacity, coupled with the funds generated from the Company's operations, will be sufficient to fund its anticipated working capital, capital expenditure and debt payment requirements through 1999. Because the Company's capital requirements cannot be predicted with certainty, there can be no assurance that any additional financing will be available on terms satisfactory to the Company or not disadvantageous to the Company's stockholders. IMPACT OF YEAR 2000 The "Year 2000 Issue" is the result of computer programs that were written using two digits rather than four to define the applicable year. If the Company's computer programs with date- sensitive functions are not Year 2000 compliant, they may interpret a date using "00" in the year field as the Year 1900 rather than the Year 2000. This misinterpretation could result in 12 a system failure or miscalculations causing disruptions of operations, including, among other things, an interruption of design or manufacturing functions or an inability to process transactions, send invoices or engage in similar normal business activities until the problem is corrected. The Company has identified its Year 2000 risk in three categories: internal information technology ("IT") systems; internal non-IT systems, including embedded technology such as microcontrollers; and external noncompliance by customers and suppliers. INTERNAL IT SYSTEMS. The Company utilizes a significant number of information technology systems across its entire organization, including applications used in manufacturing, product development, financial business systems and various administrative functions. During 1997 and 1998, the Company reviewed the Year 2000 issue that encompassed operating and administrative areas of the Company. The Company found that, with the exception of the South Bend, Indiana location of Wells-CTI ("Wells-CTI South Bend"), its information technology systems will be able to manage and manipulate all material data involving the transition from the year 1999 to the year 2000 without functional or data abnormality and without inaccurate results related to such data. During the past year, Wells-CTI South Bend has completed the modifications and testing of its information technology systems, and the Company believes that the Wells-CTI South Bend location is now Year 2000 compliant. The cost of the modifications and testing at Wells-CTI South Bend was approximately $90,000. The Company does not have a contingency plan in place for Year 2000 failures of its internal IT systems. If the Company has not achieved or does not timely achieve Year 2000 compliance for its major IT systems, the Year 2000 Issue could have a material adverse effect on the financial condition, results of operations and business of the Company. Independent of the Year 2000 Issue and in order to improve access to business information through common, integrated computing systems across the Company, PCD began a worldwide information technology systems replacement project with systems that use programs from Oracle Corporation. The Company is in the implementation phase for this system and is expected to be complete by December 31, 1999. 13 INTERNAL NON-IT SYSTEMS, INCLUDING EMBEDDED TECHNOLOGY. The Company is in the data-gathering phase with regard to non-IT systems including embedded technology such as microcontrollers. PCD is currently gathering data to assess the impact of the Year 2000 on its non-IT systems such as design, manufacturing, testing and security, with Year 2000 compliance targeted for April 30, 1999. The Company does not at this time have sufficient data to estimate the cost of achieving Year 2000 compliance for its non- IT systems. The Company does not currently have a contingency plan in place for Year 2000 failures of its internal non-IT systems and embedded technology. If the Company is unable to achieve Year 2000 compliance for its major non-IT systems, the Year 2000 Issue could have a material adverse effect on the financial condition, results of operations and business of the Company. EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. The Company is in the process of identifying and contacting its material suppliers, service providers and contractors to determine the extent of the Company's vulnerability to those third parties' failure to remedy their own Year 2000 issues. PCD expects to complete its assessment of that vulnerability by April 30, 1999. To the extent that responses to Year 2000 readiness inquiries are unsatisfactory, the Company intends to change suppliers, service providers or contractors to those who have demonstrated Year 2000 readiness, but the Company cannot assure that it will be successful in finding such alternative suppliers, service providers and contractors. The Company does not currently have any formal information concerning the Year 2000 compliance status of its customers but has received indications that most of its customers are working on Year 2000 compliance. If any of the Company's significant customers and suppliers do not successfully and timely achieve Year 2000 compliance, and the Company is unable to replace them with new customers or alternative suppliers, the Company's financial condition, results of operations and business could be materially adversely affected. The above discussion of the Company's efforts, and management's expectations, relating to Year 2000 compliance contains forward-looking statements within the meaning of the Securities Exchange Act of 1934. See "Forward Looking Information." The Company's ability to achieve Year 2000 compliance, the level of incremental costs associated with 14 compliance and the timing of compliance, could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' ability to modify proprietary software, and unanticipated problems identified in the ongoing compliance review. 15 PART II OTHER INFORMATION Item 1. Legal Proceeding See Note 6 to the Company's Condensed Consolidated Financial Statements (above). Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.43 Third Amendment to Loan Agreement between Fleet National Bank and other lenders dated March 19, 1999 27.1 Financial Data Schedule. (b) Reports on Form 8-K NONE 16 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PCD INC. (Registrant) Dated: May 6, 1999 /s/ John L. Dwight, Jr. ------------ ------------------------------ John L. Dwight, Jr. Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Dated: May 6, 1999 /s/ Mary L. Mandarino ------------ ------------------------------ Mary L. Mandarino Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 17 Exhibit Index - ------------- Exhibit Number Description - ------- ----------------------------------------- 10.43 Third Amendment to Loan Agreement between Fleet National Bank and other lenders dated March 19, 1999 27.1 Financial Data Schedule. EXHIBIT 10.43 THIRD AMENDMENT OF LOAN AGREEMENT This THIRD AMENDMENT OF LOAN AGREEMENT (this "AMENDMENT") is made as of the 19th day of March, 1999 by and among (a) PCD INC., a Massachusetts corporation with a principal place of business at 2 Technology Drive, Peabody, Massachusetts 01960 (the "BORROWER"), (b) FLEET NATIONAL BANK, a national banking association organized under the laws of the United States and having an office at One Federal Street, Boston, Massachusetts 02110 as a Lender and in its capacity as Agent (the "AGENT") for itself, and for each of the other Lenders who now or hereafter become parties to the hereinafter defined Loan Agreement and (c) the other Lenders. W I T N E S S E T H: WHEREAS, the Borrower, the Agent and the Lenders are parties to that certain Loan Agreement, dated as of December 26, 1997, as amended by that certain First Amendment of Loan Agreement dated as of July 31, 1998 and as further amended by that certain Second Amendment of Loan Agreement dated as of August 31, 1998 (as the same may be further amended from time to time, the "Loan Agreement") pursuant to the terms of which the Lenders made (a) a $50,000,000 Secured Term Loan A and (b) a $20,000,000 Secured Revolving Credit Loan to the Borrower; and WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement; and WHEREAS, the Borrower has requested, and the Agent and the Lenders have agreed to make, amendments to certain financial definitions and covenants set forth in the Loan Agreement. NOW THEREFORE, in consideration of the mutual covenants herein contained and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Agent and the Lender hereby agree as follows: I. AMENDMENTS TO LOAN AGREEMENT: The Loan Agreement be and hereby is amended in the following respects: 1. The definition of "EBITDA" appearing in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: "EBITDA" means, for any fiscal period, Net Income (without taking into account any non-cash, non-recurring charge taken by the Borrower on or before December 31, 1997 on account of in-process research and development) plus, to the extent accounted for in Net Income, Interest Expense, taxes, depreciation and amortization, for such period determined on an accrual and consolidated basis in accordance with GAAP. EBITDA shall be calculated (excluding however, the calculation of EBITDA for the purpose of determining "Excess Cash Flow", in which case, the calculation of EBITDA in the definition of "Excess Cash Flow" shall govern) as follows: for the fiscal quarter of the Borrower ending on March 31, 1998, EBITDA for the Borrower fiscal quarter then ending multiplied by four (4), for the fiscal quarter of the Borrower ending on June 30, 1998, EBITDA for the Borrower fiscal quarter then ending plus EBITDA for the Borrower fiscal quarter immediately preceding such quarter, multiplied by two (2), for the fiscal quarter of the Borrower ending on September 30, 1998, EBITDA for the Borrower fiscal quarter then ending plus EBITDA for the two (2) Borrower fiscal quarters immediately preceding such quarter, multiplied by one and one-third (1.33) and, thereafter, for the rolling four Borrower fiscal quarter period consisting of the Borrower fiscal quarter then ending and the three immediately preceding Borrower fiscal quarters; provided, however, that any extraordinary, non-recurring charges incurred by the Borrower during the Borrower's second fiscal quarter in 1998 arising solely in connection with the acquisition by the Borrower of Wells Electronics, Inc. on December 26, 1997 (the "Acquisition") shall not be included in the definition of the term EBITDA for the purposes of calculating the Borrower's financial covenants set forth herein for the Borrower's fiscal quarters ending on March 31, 1999, June 30, 1999 and September 30, 1999. 2. The definition of "FIXED CHARGE COVERAGE RATIO" appearing in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: "FIXED CHARGE COVERAGE RATIO" means the ratio of (i) EBITDA minus all Capital Expenditures permitted under SECTION 5.2.17 and paid during each Borrower fiscal quarter during the period in question, and taxes payable during each Borrower fiscal quarter during the period in question to (ii) Total Debt Service; provided, however, that, to the extent not already excluded from the definition of EBITDA, any extraordinary, non-recurring charges to Borrower's earnings during the Borrower's second fiscal quarter in 1998 arising solely from certain pre-Acquisition tax liabilities of Wells-CTI KK (Wells' Japanese subsidiary) due and payable to the Japanese taxing authorities in the second fiscal quarter of 1998, shall not be included in the definition of the term Fixed Charge Coverage Ratio for the purposes of determining Borrower's compliance with the financial covenants set forth herein for the Borrower's fiscal quarters ending on March 31, 1999, June 30, 1999 and September 30, 1999. 3. The definition of "INTEREST EXPENSE" appearing in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: "INTEREST EXPENSE" means, with respect to any fiscal quarter, the aggregate amount required to be accrued by the Borrower and any Subsidiaries in such fiscal quarter for interest, fees, charges and expenses, however characterized, on its Indebtedness, including without limitation, all such interest, fees, charges and expenses required to be accrued with respect to Indebtedness under the Financing Documents, all determined in accordance with GAAP; provided, however, that, to the extent not already excluded from the definition of EBITDA, the extraordinary, non-recurring pretax earnings charge of $1,455,000 incurred by the Borrower during the Borrower's second fiscal quarter in 1998 arising solely from prepayment of the Emerson Warrant, shall not be included in the definition of the term Interest Expense for the purposes of determining the Borrower's compliance with financial covenants set forth herein for the Borrower's fiscal quarters ending on March 31, 1999, June 30, 1999 and September 30, 1999. 4. SECTION 5.1.10 of the Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: SECTION 5.1.10. MINIMUM FIXED CHARGE COVERAGE RATIO. Maintain at the end of each fiscal quarter of the Borrower in each period set forth below a Fixed Charge Coverage Ratio of not less than the ratio set forth below opposite such period, such ratio to be measured (i) at each Borrower fiscal quarter end on or prior to December 31, 1998 for the period commencing as of January 1, 1998 and ending on such fiscal quarter end and (ii) at each Borrower fiscal quarter end thereafter for the rolling four Borrower fiscal quarter period consisting of the Borrower fiscal quarter then ending and the three immediately preceding Borrower fiscal quarters: BORROWER FISCAL QUARTER(S) ENDING RATIO March 31, 1998 1.05:1.00 June 30, 1998 1.05:1.00 September 30, 1998 1.10:1.00 December 31, 1998 1.15:1.00 March 31, 1999 1.00:1.00 June 30, 1999 1.00:1.00 September 30, 1999 1.10:1.00 December 31, 1999 1.20:1.00 March 31, 2000 1.20:1.00 June 30, 2000 1.20:1.00 September 30, 2000 1.20:1.00 December 31, 2000 and thereafter 1.25:1.00 II. OTHER AGREEMENTS: 1. All references to the Loan Agreement in any of the other Financing Documents, are hereby amended to refer to the Loan Agreement, as amended by this Amendment. 2. All of the terms and provisions of this Amendment are hereby incorporated in the Loan Agreement and the Loan Agreement is amended accordingly. In the event that any term or condition contained in this Amendment conflicts with, or is inconsistent with, any provision of the Loan Agreement, as amended hereby, the terms and conditions of this Amendment shall supersede and control. In all other respects, the provisions of the Loan Agreement, shall remain in full force and effect, including, without limitation, any and all additional terms and conditions therein which are not in conflict with the provisions of this Amendment. 3. The Borrower hereby restates and repeats all of the representations, warranties and covenants of the Borrower set forth in the Loan Agreement and each of the other Financing Documents to the same extent as if fully set forth herein and the Borrower hereby certifies that all such representations and warranties are true and accurate as of date hereof. 4. The Borrower hereby further represents, warrants and confirms that (a) all of the Financing Documents and the terms thereof are hereby ratified and confirmed, (b) the Loan Agreement, as amended hereby, and each of the other Financing Documents, as amended hereby, are all in full force and effect and evidence the valid and binding obligation of Borrower enforceable in accordance with their respective terms and (c) there does not exist (i) any Default or Event of Default, (ii) any offset or defense against the payment or performance of any of the Indebtedness or Obligations of the Borrower evidenced or secured by the Financing Documents or (iii) any claim or cause of action by the Borrower against the Agent or any Lender. III. CONDITIONS PRECEDENT: 1. The provisions of this Third Amendment of Loan Agreement and the commitment of the Lenders to make any extensions of credit pursuant hereto are subject to the receipt by the Agent, in form and substance approved by the Agent, of the following, all of which shall be due to the Agent prior to the effectiveness of this Third Amendment of Loan Agreement except as where otherwise indicated: a. This Third Amendment of Loan Agreement, duly executed on behalf of the Borrower by an officer of the Borrower so authorized. b. Certificates from an officer of the Borrower certifying as to the resolutions of the directors of the Borrower authorizing and approving this Third Amendment of Loan Agreement and each of the other documents, instruments and other documents to which the Borrower is a party and certifying as to the names and signatures of each officer of the Borrower authorized to execute and deliver this Third Amendment of Loan Agreement and/or such other documents on behalf of the Borrower. The Agent and the Lenders may rely on such officer's certificate until the Agent shall receive a further certificate of the Borrower canceling or amending the signatures of the officers named in such further certificate. c. The payment by the Borrower to the Agent of all of the Agent's reasonable fees and out-of-pocket expenses of legal counsel for the Agent incurred in connection with the preparation, negotiation, execution and delivery of this Third Amendment of Loan Agreement and each of the agreements, instruments and other documents entered into in connection herewith and therewith. d. The payment to the Agent, for the pro rata benefit of the Lenders, of an amendment fee of $70,000.00. [SIGNATURES APPEAR ON NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written, under seal. WITNESS: AGENT: FLEET NATIONAL BANK, as Agent for the Lenders By: /s/ Scott D Wheelock ----------------------------- Scott D. Wheelock Vice President LENDERS: FLEET NATIONAL BANK, as Lender By: /s/ Scott D. Wheelock ----------------------------- Scott D. Wheelock Vice President STATE STREET BANK AND TRUST COMPANY By: /s/ Bruce Daniels ----------------------------- Bruce Daniels Vice President IMPERIAL BANK By: /s/ William Sweeney ----------------------------- William Sweeney Assistant Vice President EASTERN BANK By: /s/ Thomas F. Brady ----------------------------- Thomas F. Brady Vice President IBJ WHITEHALL BANK & TRUST COMPANY (formerly IBJ Schroder Bank & Trust Company) By: /s/ Patricia McCormack ----------------------------- Patricia McCormack Director FIRST UNION NATIONAL BANK (Successor by merger with Coresstates Bank, N.A.) By: /s/ Susan T. Vitale ----------------------------- Susan T. Vitale Assistant Vice President FIRST SOURCE FINANCIAL LLP By: FIRST SOURCE FINANCIAL, INC., its Agent/Manager By: /s/ Maureen Ault ----------------------------- Maureen Ault Vice President BORROWER: PCD, INC. By: /s/ Mary L. Mandarino ----------------------------- Mary L. Mandarino Vice President EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL INFORMATION 1,000 3-MOS DEC-31-1999 APR-03-1999 1,033 0 7,296 354 5,262 13,880 26,548 8,502 119,131 26,070 35,400 0 0 84 57,577 119,131 12,633 12,633 6,379 6,379 4,571 0 1,097 586 221 365 0 0 0 365 0.04 0.04
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