-----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, NcmyIGKxL1Bj+qtXSS4XWzkWWbscbggEbM7GVWwESQ8RfYk8E3IHfGD4+1BgKlvG jy1rX/nKSPke8s6bT1A1sg== 0000950135-97-000705.txt : 19970222 0000950135-97-000705.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950135-97-000705 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970110 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HADCO CORP CENTRAL INDEX KEY: 0000729533 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 042393279 STATE OF INCORPORATION: MA FISCAL YEAR END: 1030 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12102 FILM NUMBER: 97534770 BUSINESS ADDRESS: STREET 1: 12A MANOR PKWY CITY: SALEM STATE: NH ZIP: 03079 BUSINESS PHONE: 6038988000 MAIL ADDRESS: STREET 1: 12A MONOR PARKWAY CITY: SALEM STATE: NH ZIP: 03079 8-K/A 1 HADCO CORPORATION AMENDMENT TO FORM 8-K 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) Massachusetts 0-12102 04-2393279 - ------------------------------- ------------------------ --------------------------------- (State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.) Incorporation
12A Manor Parkway, Salem, New Hampshire, 03079 --------------------------------------------------- (Address of principal executive offices) (603) 898-8000 --------------------------------------------------- Registrant's telephone number, including area code 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 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 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 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 6 ZYCON CORPORATION ----------------- CONSOLIDATED BALANCE SHEETS --------------------------- DECEMBER 31, 1996 AND 1995 (In thousands, except share and per share data) ASSETS ------
1996 1995 -------- ------- 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 ======== =======
The accompanying notes are an integral part of these financial statements. F-4 7 ZYCON CORPORATION ----------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ---------------------------------------------------- (In thousands)
1996 1995 1994 -------- -------- -------- 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 ======== ========
The accompanying notes are an integral part of these financial statements. F-5 8 ZYCON CORPORATION ----------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ----------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ---------------------------------------------------- (In thousands)
Notes Common Stock Additional Receivable Total ---------------- Paid-in from Retained Stockholders' Shares Amount Capital Stockholders Earnings Equity ------ ------ ------- ------------ -------- ------ 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 ====== === ======= ===== ======= =======
The accompanying notes are an integral part of these financial statements. F-6 9 ZYCON CORPORATION ----------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ---------------------------------------------------- (In thousands)
1996 1995 1994 -------- -------- -------- 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
The accompanying notes are an integral part of these financial statements. F-7 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 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 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 13 2. BALANCE SHEET COMPONENTS: ------------------------ Cash Equivalents - ---------------- Cash equivalents include certain investments classified as available-for-sale securities as follows as of December 31 (in thousands):
1996 1995 ------ ------- Money market funds $3,574 $ - U.S. governmental treasury bills 1,975 1,995 Commercial paper 2,000 11,000 ------ ------- $7,549 $12,995 ====== =======
These securities all have original maturity dates of 90 days or less, with fair values approximating their cost. Inventories - ----------- A summary of inventories follows as of December 31 (in thousands):
1996 1995 ------- ------ Raw materials $ 5,599 $1,392 Work in process 5,744 4,739 ------- ------ $11,343 $6,131 ======= ======
Plant and Equipment - ------------------- A summary of plant and equipment follows as of December 31 (in thousands):
1996 1995 -------- ------- 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 ======== =======
Plant and equipment with a cost of approximately $32 million are located at the Company's wholly owned subsidiary in Malaysia. F-11 14 Accrued Liabilities - ------------------- Accrued liabilities consisted of the following as of December 31 (in thousands):
1996 1995 ------ ------ 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 ====== ======
Long-Term Debt and Liabilities and Bank Borrowings - -------------------------------------------------- Long-term debt and liabilities and bank borrowings consisted of the following as of December 31 (in thousands):
1996 1995 ------- ------- 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 ======= =======
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 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). Annual maturities of the notes payable are as follows (in thousands):
Year Ending December 31, ------------ 1997 $6,450 1998 6,788 1999 6,125 2000 5,260 2001 8,234 ------- $32,857 =======
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 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. There was no activity under the Stock Plan during 1994. A summary of the activity under the Stock Plan during 1995 and 1996 follows:
Weighted Average Number of Exercise Options Price --------- -------- 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 ======= ======
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 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):
Years Ended December 31 ----------------------------------------------------------- Actual Pro Forma -------------------------------- ------------------ 1996 1995 1994 1995 1994 ------ ------ --- ------ ------ 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 ====== ====== === ====== ======
F-15 18 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):
Years Ended December 31 --------------------------------------------------------- Actual Pro Forma --------------------------------- ------------------- 1996 1995 1994 1995 1994 ------ ------- ------- ------ ------ 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 ====== ======= ======= ====== ======
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):
1996 1995 ------- ------- 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) ======= =======
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 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 - ---------------- 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):
Year Ended December 31, ------------ 1997 $ 3,984 1998 3,830 1999 3,926 2000 4,022 2001 4,091 2002 and thereafter 26,175 ------- $46,028 =======
F-17 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 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 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. 23 HADCO CORPORATION PRO FORMA COMBINED CONDENSED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
Historical ----------------------------- Hadco Zycon October 26, December 31, Pro Forma 1996 1996 Adjustments Combined 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 ======== ======== ========= ========
(See accompanying notes to the pro forma combined condensed financial statements) 24 HADCO CORPORATION PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical -------------------------- Hadco Zycon Year Ended Year Ended October 26, December 31, Pro Forma 1996 1996 Adjustments Combined 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 ======== ========
(See accompanying notes to the pro forma combined condensed financial statements) 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. 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 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 EX-23.1 2 CONSENT OF ARTHUR ANDERSEN, LLP 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 -----END PRIVACY-ENHANCED MESSAGE-----