1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 29, 2000
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 has 13,801,568 shares of Common Stock, $0.05 Par Value,
----------
outstanding at March 10, 2000.
--
2
HADCO CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
January 29, 2000 (unaudited) and October 30, 1999.................. 3
Consolidated Condensed Statements of Operations
for the Three Months ended January 29, 2000 and
January 30, 1999 (unaudited)....................................... 4
Consolidated Condensed Statements of Cash Flows
for the Three Months ended January 29, 2000 and
January 30, 1999 (unaudited)....................................... 5
Notes to Consolidated Condensed Financial
Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 19
Item 2. Changes in Securities........................................... 19
Item 6. Exhibits and Reports on Form 8-K................................ 19
SIGNATURE ................................................................... 20
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
January 29, October 30,
2000 1999
----------- -----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ...................................................... $ 885 $ 9,078
Accounts receivable, net of allowance of $1,472 in 2000
and $1,478 in 1999 ....................................................... 123,684 116,580
Inventories .................................................................... 60,392 63,926
Deferred tax asset ............................................................. 18,671 11,480
Prepaid expenses and other current assets ...................................... 8,299 7,688
--------- ---------
Total current assets ..................................................... 211,931 208,752
Property, Plant and Equipment, net .................................................... 319,560 328,181
Acquired Intangible Assets, net ....................................................... 176,268 179,319
Other Assets .......................................................................... 8,205 8,571
--------- ---------
$ 715,964 $ 724,823
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt .............................................. $ 2,362 $ 2,515
Accounts payable ............................................................... 79,669 100,100
Accrued payroll and other employee benefits .................................... 26,449 36,419
Other accrued expenses ......................................................... 16,648 21,937
--------- ---------
Total current liabilities ................................................ 125,128 160,971
--------- ---------
Long-Term Debt, net of current portion ................................................ 287,910 278,309
--------- ---------
Deferred Tax Liability ................................................................ 64,496 57,342
--------- ---------
Other Long-Term Liabilities ........................................................... 9,192 9,192
--------- ---------
Commitments and Contingencies
Stockholders' Investment:
Common stock, $.05 par value;
Authorized - 50,000 shares
Issued and outstanding - 13,749 in 2000 and 13,631 in 1999 ............... 689 683
Paid-in capital ................................................................ 183,529 179,528
Deferred compensation .......................................................... (1,029) (184)
Retained earnings .............................................................. 46,049 38,982
--------- ---------
Total stockholders' investment ........................................... 229,238 219,009
--------- ---------
$ 715,964 $ 724,823
========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
4
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
-------------------------
January 29, January 30,
2000 1999
----------- -----------
Net Sales ...................................................... $ 244,743 $ 235,979
Cost of Sales .................................................. 203,802 203,546
--------- ---------
Gross Profit ............................................. 40,941 32,433
Operating Expenses ............................................. 20,726 17,918
Amortization of Goodwill and Acquired Intangible Assets ........ 3,052 3,077
--------- ---------
Income from Operations ................................... 17,163 11,438
Interest and Other Income, net ................................. 920 601
Interest Expense ............................................... (6,684) (8,696)
--------- ---------
Income Before Provision for Income Taxes .............. 11,399 3,343
Provision for Income Taxes ..................................... 4,332 1,329
--------- ---------
Net Income ............................................... $ 7,067 $ 2,014
========= =========
Net Income per Share:
Basic ......................................... $ 0.52 $ 0.15
========= =========
Diluted ....................................... $ 0.51 $ 0.15
========= =========
Weighted Average Shares Outstanding:
Basic ......................................... 13,671 13,422
========= =========
Diluted ....................................... 13,940 13,651
========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
5
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
-----------------------
January 29, January 30,
2000 2000
----------- -----------
Cash Flows from Operating Activities:
Net income .......................................................... $ 7,067 $ 2,014
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization ................................. 20,489 19,406
Deferred compensation and deferred taxes ...................... 80 (339)
Director and executive officer stock grants ................... -- 390
Loss (Gain) on disposal of fixed assets ....................... (30) 29
Changes in assets and liabilities -
Increase in accounts receivable ............................... (7,104) (3,860)
Decrease (Increase) in inventories ............................ 3,534 (3,877)
Increase in prepaid expenses and other current assets ......... (611) (507)
Decrease in refundable taxes .................................. -- 9,644
Decrease (Increase) in other assets ........................... 366 (1,564)
Decrease in accounts payable and accrued expenses ............. (35,690) (3,513)
-------- --------
Net Cash Provided by (Used in) Operating Activities ...... (11,899) 17,823
-------- --------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment .......................... (8,817) (16,645)
Proceeds from sale of property, plant and equipment ................. 30 --
-------- --------
Net Cash Used in Investing Activities .................... (8,787) (16,645)
-------- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt ................................ (15,552) (20,836)
Net proceeds from issuance of long-term debt ........................ 25,000 20,000
Proceeds from exercise of stock options ............................. 650 207
Proceeds from employee stock purchase plan .......................... 1,843 1,574
Tax benefit from exercise of nonqualified stock options ............. 552 334
-------- --------
Net Cash Provided by Financing Activities ................ 12,493 1,279
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ...................... (8,193) 2,457
Cash and Cash Equivalents, Beginning of Period ............................ 9,078 7,169
-------- --------
Cash and Cash Equivalents, End of Period .................................. $ 885 $ 9,626
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................................... $ 11,201 $ 13,509
======== ========
Income taxes (net of refunds) ................................. $ 2,928 $ 61
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
6
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
Hadco Corporation (the "Company" or "Hadco") was incorporated in
Massachusetts in 1966. Principal products and services of the Company
include:
PRINTED CIRCUITS:
Printed circuits are the basic platform used to interconnect
microprocessors, integrated circuits and other components essential to the
functioning of electronic systems. The Company provides customers with
printed circuit designs and fabricates the printed circuit for the
customer. The design and fabricated printed circuits are sold either
separately or as a complete package. The majority of printed circuits
fabricated by the Company are based on designs provided by the customer.
VALUE ADDED MANUFACTURING:
Value Added Manufacturing (VAM) primarily consists of backplane and system
assemblies. Backplane assemblies are generally larger and thicker printed
circuits on which connectors are mounted to receive and interconnect
printed circuits, integrated circuits and other electronic components.
System assemblies include the backplane, power supply, fan card, cabling
and system chassis.
The consolidated condensed financial statements reflect the application of
certain accounting policies as described in this note and elsewhere in the
accompanying notes to the consolidated condensed financial statements, as
well as the Company's Annual Report on Form 10-K for the fiscal year ended
October 30, 1999. These financial statements should be read in conjunction
with the financial statements and related disclosures included in the
above-referenced SEC filings.
INTERIM FINANCIAL STATEMENTS
----------------------------
The accompanying consolidated condensed balance sheet as of January 29,
2000, and the consolidated condensed statements of operations for the three
months ended January 29, 2000 and January 30, 1999 and the consolidated
condensed statements of cash flows for the three month periods ended
January 29, 2000 and January 30, 1999 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 periods are not necessarily
indicative of results to be expected for the entire year or any future
period.
NET INCOME PER SHARE
--------------------
A reconciliation of basic and diluted weighted average shares outstanding
is as follows:
Three Months Ended
-------------------------
January 29, January 30,
2000 1999
----------- ----------
(in thousands)
Basic weighted average shares outstanding .... 13,671 13,422
Weighted average common equivalent shares .... 269 229
------ ------
Diluted weighted average shares outstanding .. 13,940 13,651
====== ======
Diluted weighted average shares outstanding for the three month periods
ended January 29, 2000 and January 30, 1999 do not include 595,130 and
698,224 common equivalent shares, respectively, as their effect would be
anti-dilutive.
6
7
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. INVENTORIES
-----------
Inventories are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis, and consist of the following (in thousands):
January 29, October 30,
2000 1999
----------- -----------
Raw Materials ....... $22,424 $18,679
Work-in-process ..... 37,968 45,247
------- -------
$60,392 $63,926
======= =======
3. LONG-TERM DEBT
--------------
Long-term debt consists of the following (in thousands):
January 29, October 30,
2000 1999
----------- -----------
Variable rate mortgages .................................. $ 617 $ 640
Revolving credit facility ................................ 85,000 75,000
9 1/2% Senior Subordinated Notes due 2008 ................ 199,439 199,422
Obligations under capital leases with interest rates
ranging from 7% to 7.75% ................................. 5,216 5,762
--------- ---------
290,272 280,824
Less - Current portion ................................... (2,362) (2,515)
--------- ---------
$ 287,910 $ 278,309
========= =========
Based on the amount outstanding on the Company's credit facility as of
January 29, 2000, the Company has approximately $113.75 million of
borrowings available.
4. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
--------------------------------------
During the fourth quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") NO. 131, Disclosure about Segments
of an Enterprise and Related Information. The Company's businesses are
internally reported as two segments. These segments, which are based on
differences in products, technologies, and services, are Printed Circuits
and Value Added Manufacturing (VAM). Hadco evaluates performance of these
segments based on profit or loss from operations, not including
non-recurring charges.
Transactions between segments are recorded at fair market value. Costs of
centralized sales, marketing and administration are allocated to the
segments receiving benefits of the centralized functions. Unallocated
general corporate expenses include the elimination of inter-segment
profits, the costs of executive management for the Company, plus the
amortization of acquired intangibles and goodwill relating to acquisitions.
Management does not represent that these segments, if operated separately,
would report the operating income and other financial information shown.
7
8
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
--------------------------------------------------
Three Months Ended
------------------------------
January 29, January 30,
2000 1999
--------- ---------
Net Sales:
Printed Circuits .................................................. $ 219,145 $ 196,371
VAM ............................................................... 32,923 45,292
Elimination ....................................................... (7,325) (5,684)
--------- ---------
$ 244,743 $ 235,979
========= =========
Three Months Ended
------------------------------
January 29, January 30,
2000 1999
--------- ---------
Operating Income:
Printed Circuits .................................................. $ 22,469 $ 12,864
VAM ............................................................... 46 1,309
Unallocated general corporate ..................................... (5,352) (2,735)
--------- ---------
$ 17,163 $ 11,438
========= =========
Depreciation and Amortization:
Printed Circuits .................................................. $ 16,119 $ 14,962
VAM ............................................................... 880 791
Unallocated general corporate ..................................... 3,490 3,653
--------- ---------
$ 20,489 $ 19,406
========= =========
Capital Expenditures:
Printed Circuits .................................................. $ 7,198 $ 15,907
VAM ............................................................... 1,100 200
Unallocated general corporate ..................................... 519 538
--------- ---------
$ 8,817 $ 16,645
========= =========
As of
------------------------------
January 29, October 30,
Identifiable Assets: 2000 1999
--------- ---------
Printed Circuits .................................................. $ 459,087 $ 462,211
VAM ............................................................... 45,852 48,608
Unallocated general corporate ..................................... 211,025 214,004
--------- ---------
$ 715,964 $ 724,823
========= =========
8
9
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
--------------------------------------------------
The following is a reconciliation of segment operating income to
consolidated income before provision for income taxes:
Three Months Ended
------------------------------
January 29, January 30,
2000 1999
----------- -----------
Total operating income for reportable segments ................... $ 17,163 $ 11,438
Unallocated amounts:
Interest and other income, net ............................ 920 601
Interest expense .......................................... (6,684) (8,696)
--------- ---------
Income before provision for income taxes ......................... $ 11,399 $ 3,343
========= =========
The following summarizes financial information by geographic areas:
Three Months Ended
------------------------------
January 29, January 30,
2000 1999
----------- -----------
Net Sales:
United States ........................................ $ 173,042 $ 181,735
Canada ............................................... 34,826 23,975
Europe ............................................... 17,819 13,715
Asia ................................................. 18,206 14,048
Other ................................................ 850 2,506
--------- ---------
$ 244,743 $ 235,979
========= =========
As of
------------------------------
January 29, October 30,
2000 1999
----------- -----------
Long-lived assets:
United States ........................................ $ 455,064 $ 466,434
Asia ................................................. 48,762 49,420
Europe ............................................... 207 217
--------- ---------
$ 504,033 $ 516,071
========= =========
5. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------------------------
Basis of presentation. The Company sold on May 18, 1998, $200 million
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 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 consolidating condensed financial
statements of the Guarantors are presented below and should be read in
connection with the Consolidated Condensed 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 consolidating condensed
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.
9
10
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------------------------
(Continued)
CONSOLIDATING CONDENSED BALANCE SHEET
(unaudited)
As of January 29, 2000
----------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
--------- --------- --------- --------- --------
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ (1,743) $ 912 $ 1,716 $ -- $ 885
Accounts receivable, net 51,745 8,351 63,588 -- 123,684
Inventories 27,206 6,464 26,722 -- 60,392
Deferred tax asset -- -- 18,671 -- 18,671
Prepaid and other current assets 1,283 234 6,782 -- 8,299
--------- --------- --------- --------- --------
Total current assets 78,491 15,961 117,479 -- 211,931
Property, Plant and Equipment, net 137,863 48,968 132,729 -- 319,560
Intercompany Receivable 24,890 4,582 44,280 (73,752) --
Investments in Subsidiaries 11,288 -- 282,904 (294,192) --
Acquired Intangible Assets, net 176,268 -- -- -- 176,268
Other Assets 22 -- 8,183 -- 8,205
--------- --------- --------- --------- --------
$ 428,822 $ 69,511 $ 585,575 $(367,944) $715,964
========= ========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 2,134 $ 73 $ 155 $ -- $ 2,362
Accounts payable 31,135 5,833 42,701 -- 79,669
Intercompany payable 27,516 46,236 -- (73,752) --
Accrued payroll and other
employee benefits 2,312 354 23,783 -- 26,449
Other accrued expenses 40,751 274 (24,350) -- 16,648
--------- --------- --------- --------- --------
Total current liabilities 103,848 52,743 42,289 (73,752) 125,128
--------- --------- --------- --------- --------
Long-Term Debt, net of current portion 2,849 25 285,036 -- 287,910
--------- --------- --------- --------- --------
Deferred Tax Liability 44,676 -- 19,820 -- 64,496
--------- --------- --------- --------- --------
Other Long-Term Liabilities -- -- 9,192 -- 9,192
--------- --------- --------- --------- --------
Stockholders' Investment:
Common stock, $0.05 par value;
Authorized - 50,000 shares
Issued and outstanding - 13,749 11 29,655 689 (29,666) 689
Paid-in capital 400,616 130 183,529 (400,746) 183,529
Deferred compensation -- -- (1,029) -- (1,029)
Retained earnings (123,178) (13,042) 46,049 136,220 46,049
--------- --------- --------- --------- --------
Total stockholders' investment 277,449 16,743 229,238 (294,192) 229,238
--------- --------- --------- --------- --------
$ 428,822 $ 69,511 $ 585,575 $(367,944) $715,964
========= ========= ========= ========= ========
10
11
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------------------------
(Continued)
CONSOLIDATING CONDENSED BALANCE SHEET
As of October 30, 1999
---------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------ ----------- ------- -----
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ (2,679) $ 1,378 $ 10,379 $ -- $ 9,078
Accounts receivable, net 49,926 7,566 59,088 -- 116,580
Inventories 28,085 6,590 29,251 -- 63,926
Deferred tax asset -- -- 11,480 -- 11,480
Prepaid and other current assets 2,221 244 5,223 -- 7,688
--------- --------- -------- --------- --------
Total current assets 77,553 15,778 115,421 -- 208,752
Property, Plant and Equipment, net 141,510 49,638 137,033 -- 328,181
Intercompany Receivable 24,783 3,122 46,365 (74,270) --
Investments in Subsidiaries 12,162 -- 280,444 (292,606) --
Acquired Intangible Assets, net 179,319 -- -- -- 179,319
Other Assets 29 -- 8,542 -- 8,571
--------- --------- -------- --------- --------
$ 435,356 $ 68,538 $ 587,805 $(366,876) $724,823
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 2,114 $ 73 $ 328 $ -- $ 2,515
Accounts payable 41,842 5,583 52,675 -- 100,100
Intercompany payable 28,089 46,181 -- (74,270) --
Accrued payroll and other
employee benefits 1,628 300 34,491 -- 36,419
Other accrued expenses 37,355 97 (15,515) -- 21,937
--------- --------- -------- --------- --------
Total current liabilities 111,028 52,234 71,979 (74,270) 160,971
--------- --------- -------- --------- --------
Long-Term Debt, net of current portion 3,307 43 274,959 -- 278,309
--------- --------- -------- --------- --------
Deferred Tax Liability 44,676 -- 12,666 -- 57,342
--------- --------- -------- --------- --------
Other Long-Term Liabilities -- -- 9,192 -- 9,192
--------- --------- -------- --------- --------
Stockholders' Investment:
Common stock, $0.05 par value;
Authorized - 50,000 shares
Issued and outstanding - 13,631 11 29,655 683 (29,666) 683
Paid-in capital 400,616 -- 179,528 (400,616) 179,528
Deferred compensation -- -- (184) -- (184)
Retained earnings (124,282) (13,394) 38,982 137,676 38,982
--------- --------- -------- --------- --------
Total stockholders' investment 276,345 16,261 219,009 (292,606) 219,009
--------- --------- -------- --------- --------
$ 435,356 $ 68,538 $ 587,805 $(366,876) $ 724,823
========= ========= ======== ========= ========
11
12
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------------------------
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(unaudited)
For the Three Months Ended January 29, 2000
-----------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------ ----------- ------- -----
(in thousands)
Net Sales $ 103,661 $ 15,061 $ 126,021 $ -- $ 244,743
Cost of Sales 93,472 14,061 96,269 -- 203,802
--------- -------- --------- -------- ---------
Gross Profit 10,189 1,000 29,752 -- 40,941
Operating Expenses 2,271 910 17,545 -- 20,726
Amortization of Goodwill and Acquired
Intangible Assets 3,052 -- -- -- 3,052
--------- -------- --------- -------- ---------
Income From Operations 4,866 90 12,207 -- 17,163
Interest and Other Income, net 499 428 (1,233) 1,226 920
Interest Expense (68) (5) (6,611) -- (6,684)
--------- -------- --------- -------- ---------
Income Before Provision for
Income Taxes 5,297 513 4,363 1,226 11,399
Provision for Income Taxes 3,319 161 852 -- 4,332
Equity in Income (Loss) of Subsidiary (874) -- -- (1,456) --
--------- -------- --------- -------- ---------
Net Income $ 1,104 $ 352 $ 5,841 $ (230) $ 7,067
========= ======== ========= ======== =========
For the Three Months Ended January 30, 1999
-----------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------ ----------- ------- -----
(in thousands)
Net Sales $ 114,955 $ 10,507 $ 110,517 $ -- $ 235,979
Cost of Sales 105,210 10,859 87,477 -- 203,546
--------- -------- --------- -------- ---------
Gross Profit 9,745 (352) 23,040 -- 32,433
Operating Expenses 2,170 678 15,070 -- 17,918
Amortization of Goodwill and Acquired
Intangible Expenses 3,077 -- -- -- 3,077
--------- -------- --------- -------- ---------
Income (Loss) From Operations 4,498 (1,030) 7,970 -- 11,438
Interest and Other Income, net (150) (626) 1,371 6 601
Interest Expense (198) (6) (8,492) -- (8,696)
--------- -------- --------- -------- ---------
Income (Loss) Before Provision for 4,150 (1,662) 849 6 3,343
Income Taxes
Provision for Income Taxes 2,873 -- (1,544) -- 1,329
Equity in Income (Loss) of Subsidiary (1,668) -- (385) 2,053 --
--------- -------- --------- -------- ---------
Net Income (Loss) $ (391) $ (1,662) $ 2,008 $ 2,059 $ 2,014
========= ======== ========= ======== =========
12
13
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------------------------
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
For the Three Months Ended January 29, 2000
----------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------ ----------- ------- -----
(in thousands)
Net cash provided by (used in) operating
activities $ 4,556 $ 635 $ (18,316) $ 1,226 $ (11,899)
-------- -------- --------- -------- ---------
Cash Flows from Investing Activities:
Foreign Sales Corp. dividend -- (1,226) 1,226 -- --
Purchase of property, plant and equipment (3,207) (1,083) (4,527) -- (8,817)
Proceeds from sale of property, plant and
equipment 25 -- 5 -- 30
Investments in subsidiaries -- 1,226 -- (1,226) --
-------- -------- --------- -------- ---------
Net cash used in investing activities (3,182) (1,083) (3,296) (1,226) (8,787)
-------- -------- --------- -------- ---------
Cash Flows from Financing Activities:
Principal payments of long-term debt (438) (18) (15,096) -- (15,552)
Proceeds from issuance of long-term debt -- -- 25,000 -- 25,000
Proceeds from exercise of stock options -- -- 650 -- 650
Proceeds from the employee stock
purchase plan -- -- 1,843 -- 1,843
Tax benefit from exercise of stock options -- -- 552 -- 552
-------- -------- --------- -------- ---------
Net cash provided by (used in)
financing activities (438) (18) 12,949 -- 12,493
-------- -------- --------- -------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents 936 (466) (8,663) -- (8,193)
Cash and Cash Equivalents,
Beginning of Period (2,679) 1,378 10,379 -- 9,078
-------- -------- --------- -------- ---------
Cash and Cash Equivalents,
End of Period $ (1,743) $ 912 $ 1,716 $ -- $ 885
======== ======== ========= ======== =========
13
14
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------------------------
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended January 30, 1999
--------------------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------ ----------- ------- -----
(in thousands)
Net cash provided by operating activities $ 4,937 $ 4,190 $ 8,690 $ 6 $ 17,823
------- ------- -------- ---- --------
Cash Flows from Investing Activities:
Foreign Sales Corp. dividend -- (6) 6 -- --
Purchase of property, plant and equipment (5,254) (3,119) (8,272) -- (16,645)
Investments in subsidiaries -- 6 -- (6) --
------- ------- -------- ---- --------
Net cash used in investing activities (5,254) (3,119) (8,266) (6) (16,645)
------- ------- -------- ---- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt (436) (206) (20,194) -- (20,836)
Proceeds from issuance of long-term debt -- -- 20,000 -- 20,000
Proceeds from exercise of stock options -- -- 207 -- 207
Proceeds from the employee stock
purchase plan -- -- 1,574 -- 1,574
Tax benefit from exercise of stock options -- -- 334 -- 334
------- ------- -------- ---- --------
Net cash provided by (used in)
financing activities (436) (206) 1,921 -- 1,279
------- ------- -------- ---- --------
Net Increase (Decrease) in Cash and Cash
Equivalents (753) 865 2,345 -- 2,457
Cash and Cash Equivalents,
Beginning of Period 836 2 6,331 -- 7,169
------- ------- -------- ---- --------
Cash and Cash Equivalents,
End of Period $ 83 $ 867 $ 8,676 $ -- $ 9,626
======= ======= ======== ==== ========
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained in this Quarterly Report on Form
10-Q, the matters discussed below or elsewhere in this Quarterly Report on Form
10-Q are forward-looking statements that involve risks and uncertainties. Hadco
Corporation makes such forward-looking statements under the provisions of the
"Safe Harbor" section of the Private Securities Litigation Reform Act of 1995.
Any forward-looking statements should be considered in light of the factors
described below in this Item 2 and under "Year 2000 Readiness Disclosure
Statement" and "Factors That May Affect Future Results" below. Actual results
may vary materially from those projected, anticipated or indicated in any
forward-looking statements. In this Quarterly Report on Form 10-Q, the words
"anticipates," "believes," "expects," "intends," "future," "could," "may," and
similar words or expressions (as well as other words or expressions referencing
future events, conditions or circumstances) identify forward-looking statements.
As used herein, the terms "Company" and "Hadco," unless otherwise indicated or
the context otherwise requires, refer to Hadco Corporation and its subsidiaries.
RESULTS OF OPERATIONS - FIRST QUARTER
- -------------------------------------
Net sales for the first quarter of fiscal 2000 increased 3.7%, or $8.8 million,
over net sales for the same period in fiscal 1999. Printed circuit net sales
increased 11.1%, or $21.1 million, in the first quarter of fiscal 2000 from the
comparable period in fiscal 1999 due to higher unit shipments and a shift in mix
towards higher priced printed circuits with more layers and greater densities.
This increase was partially offset by a 2.6 percentage point decline in average
pricing for printed circuits. VAM net sales decreased 27.3%, or $12.3 million,
in the first quarter of fiscal 2000 from $45.3 million in the comparable period
in fiscal 1999. VAM net sales decreased due to reduced production of low margin
assembly products.
The gross profit margin increased to 16.7% of net sales for the quarter ended
January 29, 2000 from 13.7% in the comparable quarter in fiscal 1999. Better
capacity utilization of printed circuit operations caused gross margins to
increase 5.6 percentage points, and the production of higher-margin assembly
products in the VAM segment increased gross margins by 0.5 percentage point.
These increases in gross margin were offset by lower pricing on printed
circuits, which decreased gross margins by 2.2 percentage points, and by lower
capacity utilization of VAM operations, which caused gross margins to decrease
by 0.9 percentage point. The changes in the VAM segment were a result of
management's decision to cease production of low margin assembly products.
Operating expenses increased by $2.8 million for the first quarter of fiscal
2000 over the first quarter of fiscal 1999. Operating expenses as a percent of
net sales increased to 8.5% in the first quarter of fiscal 2000 versus 7.6% in
the comparable period of fiscal 1999. The increase is due to an increase of $1.8
million in selling expenses from expanded sales coverage, an increase of $0.8
million in general and administrative expenses and slightly higher research and
development expenses. The Company includes in operating expenses charges for
actual expenditures and accruals, based on estimates, for environmental matters.
To the extent and in amounts Hadco believes circumstances warrant, it will
continue to accrue and charge to operating expenses cost estimates relating to
known environmental matters.
Interest and other income increased slightly for the quarter ended January 29,
2000 as compared to the comparable quarter in the prior fiscal year due to
higher average cash balances available for investing. Interest expense decreased
in the first quarter of fiscal 2000 as compared to the first quarter of fiscal
1999 due to lower average outstanding debt balances during the first quarter of
fiscal 2000 as compared to the first quarter of fiscal 1999.
15
16
INCOME TAXES
- ------------
The Company provides for income taxes on an interim basis using its anticipated
effective annual income tax rate. The Company anticipates an effective annual
income tax rate for fiscal 2000 of 38%, which is slightly less than the combined
federal and state statutory rates. The anticipated effective rate was increased
by amortization of goodwill (which is not tax deductible), offset by the benefit
of the Company's foreign sales corporation, research and development tax credits
and various state investment tax credits. The effective tax rate for fiscal 2000
is based on current tax laws.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used in operating activities for the first quarter of fiscal 2000 was
$11.9 million, as compared to net cash provided by operations in the first
quarter of fiscal 1999 of $17.8 million, a difference of $29.7 million. This
decrease resulted primarily from a reduction of $35.7 million in accounts
payable and accrued expenses. This decrease was offset by an increase of $6.1
million in earnings before non-cash items in the first quarter of fiscal 2000
versus the first quarter of fiscal 1999. The decrease in accounts payable and
accrued expenses is a result of higher incentive compensation accrued in fiscal
1999 and paid during the first quarter of fiscal 2000; in addition, the Company
incurred a significant amount of capital expenditures during the fourth quarter
of fiscal 1999, which were paid during the first quarter of fiscal 2000.
Net cash used in investing activities in the first quarter of fiscal 2000 was
$8.8 million, a decrease of $7.9 million from the first quarter of fiscal 1999,
due to lower capital expenditures.
Net cash provided by financing activities was $12.5 million in the first quarter
of fiscal 2000 as compared to $1.3 million in the comparable period in the prior
year. The increase was primarily due to borrowings on the Company's credit
facility to fund operating activities during the first quarter of fiscal 2000,
as described above.
At January 29, 2000, the Company had working capital of $86.8 million and a
current ratio of 1.69, as compared to working capital of $47.8 million and a
current ratio of 1.30 at October 30, 1999. The increase in working capital
resulted primarily from an increase in accounts receivable, as customer order
and shipment rates increased late in the quarter, combined with the reductions
in accounts payable noted above.
The Company believes its current borrowing capacity, coupled with the funds
generated from the Company's operations will be sufficient to fund its
anticipated working capital, capital expenditure and debt payment requirements
through fiscal year 2000. Because the Company's capital requirements cannot be
predicted with certainty, however, there is no assurance that the Company will
not require additional financing during this period. There is no assurance that
any additional financing will be available on terms satisfactory to the Company
or not disadvantageous to the Company's security holders, including the holders
of the Notes.
The Company believes the ultimate disposition of known environmental matters
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.
YEAR 2000 READINESS DISCLOSURE STATEMENT
- ----------------------------------------
As part of the Year 2000 project, the Company completed an internal assessment
of its operations to determine the extent to which the Company could be
adversely affected by Year 2000 issues. This internal assessment included both
Information Technology (IT) systems and non-IT systems.
The critical software systems used by the Company to run its business include
MFG/PRO, PeopleSoft, Oracle, and Corsair. The Company conducted testing of its
various IT systems, running programs with dates including and after the Year
2000. During these tests the Company did not experience problems processing data
or effecting transactions.
16
17
YEAR 2000 READINESS DISCLOSURE STATEMENT (CONTINUED)
- ----------------------------------------------------
The Company's internal assessment of its manufacturing equipment for Year 2000
compliance was done on a plant-by-plant basis and was completed in May 1999.
Thereafter, software upgrades were installed in certain manufacturing systems.
The Company tested the new software and did not encounter date-related
processing issues. There can be no assurance, however, that the Company's
testing of its various IT systems and manufacturing equipment and software was
sufficient to discover all Year 2000 issues. Year 2000 issues not discovered by
the Company could have a material adverse effect on the Company's business,
results of operations and financial condition.
In fiscal 1999, the Company developed business continuity/contingency plans for
all its facilities. Such plans cover Year 2000 issues and potential disruptions.
There can be no assurance that the implementation of business
continuity/contingency plans developed by the Company will result in alleviation
or remediation of any business interruption or disruption that the Company may
experience.
As part of the Year 2000 project, the Company surveyed all of its active
suppliers to determine their Year 2000 compliance status. The Company worked
with its key suppliers to obtain more detailed information about their
compliance status, and performed on-site assessment of certain critical
suppliers. The Company also completed contingency plans for addressing potential
supply disruptions. There can be no assurance that the Company will not
experience disruption in its supply chain, or that its contingency plans will
alleviate or remedy any disruption experienced.
The Company has not to date encountered any date-related processing issues or
any business interruption in connection with the Year 2000 roll-over to January
1, 2000. The Company did, however, experience a greater than seasonal reduction
of customer orders due to Year 2000 concerns, particularly in the computer
server market, during the first two months of its first fiscal quarter, November
and December 1999. Customer order rates in January 2000 were 33% higher than in
the November/December 1999 period, across all end markets of the Company's
customer base.
To date, approximately 30,500 hours of employee time have been devoted to Year
2000 issues and approximately $5.9 million has been expended in systems upgrades
directly relating to Year 2000. The source of these funds has been the working
capital of the Company.
A software or system Year 2000 compliance failure, with respect to the Company's
internal systems, software and equipment or that of third party service
providers, major customers or suppliers, could prevent the Company from
fulfilling customer orders. Any such failure, if not quickly remedied, would
have a material adverse effect on the Company's business, results of operations,
and financial condition. The lost revenues that would result from the Company's
inability to operate even one of its major volume manufacturing plants for any
significant period of time would have a material adverse effect on the Company.
The Company could face an even greater risk of significant damages if the
Company were to be found responsible for the shutdown of one of its customers'
facilities. This could occur if the Company was unable to supply parts integral
to the end products manufactured by the Company's customers. In such
circumstances, the legal liability of the Company could have a material adverse
effect on the Company's business, results of operations, and financial
condition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
This Quarterly Report on Form 10-Q contains various "forward-looking" statements
within the meaning of the Securities Litigation Reform Act of 1995, including,
but not limited to, those concerning gross and operating margins, Year 2000
readiness and compliance, the sufficiency of the Company's working capital, and
environmental matters. In this Form 10-Q, the words "anticipates," "believes,"
"expects," "intends," "future," "could," "may," and similar words and
expressions (as well as other words or expressions referencing future events,
conditions or circumstances) identify forward-looking statements. Such
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those projected,
17
18
FACTORS THAT MAY AFFECT FUTURE RESULTS (CONTINUED)
- --------------------------------------------------
anticipated or indicated in the forward-looking statements. Potential risks and
uncertainties include, but are not limited to, such factors as: the Company's
dependence on the electronics industry; fluctuations in quarterly operating
results; the variability of customer orders; significant portions of released
backlog may be subject to cancellation or postponement without penalty; the
effect of unforeseen problems in the Company's computer systems and those of
third parties with which the Company deals; the effect of acquisitions on the
Company; the ability of the Company to compete successfully in the future; the
rapid technological change and continuing process development that characterizes
the Company's markets; manufacturing process disruptions; the operation of the
Company's Malaysia facility; the Company's significant customer concentration;
the Company's ability to obtain, integrate, manage and utilize manufacturing
capacity; the Company's ability to manage its growth; environmental matters; the
availability of raw materials, production services and components, and price
fluctuations in such materials, services and components; the Company's
dependence on key personnel; the Company's ability to protect its intellectual
property; and certain anti-takeover provisions applicable to the Company.
Further information on factors that could cause actual results to differ from
those anticipated is detailed in various publicly available documents filed by
the Company from time to time with the Securities and Exchange Commission. Such
information includes, but is not limited to, those factors appearing under the
caption "Factors That May Affect Future Results" and elsewhere in the Company's
Annual Report on Form 10-K for the year ended October 30, 1999. Any
forward-looking statement should be considered in light of these factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS
SFAS No. 107 requires disclosure about fair value of financial instruments.
Financial instruments consist of cash equivalents, accounts receivable, accounts
payable and long-term debt obligations. The fair value of these financial
instruments approximates their carrying amount, except for the 9 1/2% Senior
Subordinated Notes (the "Notes"), at January 29, 2000. The fair market value of
the Notes was $191 million with a carrying amount of $199.4 million at January
29, 2000. Although the fair market value of the Notes is less than the carrying
amount, settlement at the reported fair value is not possible due to
cost-prohibitive redemption premiums.
PRIMARY MARKET RISK EXPOSURES
The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk. The Company incurs interest
expense on loans made under the Company's credit facility at interest rates
which are fixed for a maximum of six months. At January 29, 2000, the Company's
outstanding borrowings under the credit facility were $85.0 million, at a
weighted average interest rate of 6.75%. This interest rate is a combination of
two Eurodollar loans, one for $50.0 million maturing February 25, 2000 and one
for $20.0 million maturing February 18, 2000, both at a rate of 6.625%. The
balance was comprised of a $10.0 million overnight swing-line loan at 6.75% and
a $5.0 million overnight base rate loan at 8.5%. The Company has the option to
fix the interest rates on the Eurodollar rate loans for periods of one, two,
three or six months. The Eurodollar Rate is subject to market risks and will
fluctuate.
Substantially all of the Company's business outside the United States is
conducted in U.S. dollar denominated transactions. The Company does operate a
volume manufacturing facility in Malaysia. Some of the expenses of this facility
are denominated in Malaysian ringgits. Expenses denominated in ringgits include
local salaries and wages, utilities and some operating supplies. The Company
also funds a small sales offices in Ireland and Great Britain, where expenses
are paid in British Pounds, Irish Punts and Eurodollars. However, the Company
believes that these operating expenses will not have a material adverse effect
on the Company's business, results of operations or financial condition.
18
19
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
In February 2000, the federal government moved for entry of the Consent Decree
in the Auburn Road environmental litigation. The Court must still approve the
Consent Decree. Under the terms of the Consent Decree, the Company is a cash-out
party and does not have responsibility for performance of ongoing remedial or
monitoring work at the site.
ITEM 2. - CHANGES IN SECURITIES
Pursuant to the Company's Executive Incentive Compensation Deferred Bonus Plan,
as Amended and Restated December 9, 1999 (the "Executive Bonus Plan"), certain
executives of the Company received payment of a portion of their incentive
compensation for fiscal 1999 in the form of restricted Common Stock of the
Company issued under the 1998 Stock Plan. On December 9, 1999, the executives
received an aggregate of 19,805 shares of restricted Common Stock pursuant to
the Executive Bonus Plan. The aggregate value of all such shares issued on
December 9, 1999 to executives was $962,325 (based on a fair market value on
that date of $48.59 per share).
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*10.1 Hadco Corporation Executive Incentive Compensation Deferred
Bonus Plan, as Amended and Restated December 9, 1999
*10.2 Form of Agreement, as amended, pursuant to Hadco Corporation
Executive Incentive Compensation Deferred Bonus Plan, as Amended and
Restated December 9, 1999
*10.3 Hadco Corporation Retirement Plan Amendment Exhibit "A", as
amended December 9, 1999
27. Financial Data Schedule
* Indicates a management contract or any compensatory plan, contract
or arrangement required to be filed as an exhibit pursuant to Item
6(a).
(b) Reports on Form 8-K None
19
20
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: March 10, 2000 By: /s/ F. GORDON BITTER
------------------------------
F. Gordon Bitter
Senior Vice President and Chief Financial
Officer (principal financial officer and
principal accounting officer)
20