-----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, U3vAC3GThptNVZyYW/nMnr5ittS+S7c3wz7B6Wm6NhcoNvenhjYrr0EQaUlFgPe2 Lnb0irihI6NX80v2FXclKA== 0000950135-98-003955.txt : 19980624 0000950135-98-003955.hdr.sgml : 19980624 ACCESSION NUMBER: 0000950135-98-003955 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980623 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: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-12102 FILM NUMBER: 98652166 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 10-Q/A 1 HADCO CORPORATION 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. 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
HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited) (In thousands) ASSETS May 2, October 25, 1998 1997 -------- ----------- 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 ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. 2 3
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 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements. 3 4
HADCO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) Six Months Ended ---------------- May 2, April 26, 1998 1997 ----- --------- 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) ========= =========
The accompanying notes are an integral part of these consolidated condensed financial statements. 4 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 6 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) Basic and diluted shares outstanding, are as follows:
Three Months Ended Six Months Ended ------------------ ---------------- (in thousands, except per share data) May 2, April 26, May 2, April 26, 1998 1997 1998 1997 ---- ---- ---- ---- 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 ====== ====== ====== ======
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 7 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) ACQUISITIONS (CONTINUED)
Three Months Ended Six Months Ended ------------------ ---------------- (in thousands, except per share data) May 2, April 26, May 2, April 26, 1998 1997 1998 1997 ---- ---- ---- ---- 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
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):
May 2, October 25, 1998 1997 ---- ---- Raw Materials....................... $33,656 $14,167 Work-in-process..................... 41,439 31,833 ------- ------- $75,095 $46,000 ======= =======
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 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
May 2, October 25, 1998 1997 ------- ----------- (In thousands) 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 ======== ========
8 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:
Amount (in thousands) 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 ======
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 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 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 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 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 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)
AS OF MAY 2, 1998 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) 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 ======== ======= ======== ========= ========
15 HADCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDING MAY 2, 1998 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) 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) ======== ======= ======== ======= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDING MAY 2, 1998 ----------------------------------------------------------------------- GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL ------------ ------------- ----------- ----------- ------------ (IN THOUSANDS) 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 ======== ======= ======== ======= ========
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. 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 -----END PRIVACY-ENHANCED MESSAGE-----