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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 1995
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 organization) Identification No.)
12A Manor Parkway, Salem, New Hampshire 03079
(Address of principal executive offices) --------
(Zip Code)
Telephone: (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 9,841,741 shares of Common Stock, $.05 Par Value, outstanding at
May 25, 1995.
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HADCO CORPORATION AND SUBSIDIARIES
INDEX
Page
Part I.
Financial Information:
Consolidated Condensed Balance Sheets as of
April 29, 1995 and October 29, 1994............ 3
Consolidated Condensed Statements of Income
for the Quarters ended April 29, 1995 and
April 30, 1994 and six months ended April 29,
1995 and April 30, 1994, respectively.......... 4
Consolidated Condensed Statements of Cash
Flows for the six months ended April 29, 1995
and April 30, 1994, respectively............... 5
Notes to Consolidated Condensed Financial
Statements..................................... 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition.......... 11
Part II.
Other Information............................... 14
Signatures...................................... 15
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HADCO CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(In thousands, except share data)
ASSETS
------
April 29, October 29,
1995 1994
------------- -------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 20,124 $ 19,064
Short-Term Investments (Note 2) 12,113 12,499
Accounts receivable, net of allowance
for doubtful accounts of $851,000 in 1995
and $725,000 1994 30,862 25,312
Inventories 11,494 10,295
Prepaid expenses 5,726 4,419
-------- --------
Total Current Assets 80,319 71,589
-------- --------
Property, Plant and Equipment, at cost 160,759 156,663
Less - Accumulated depreciation and amortization 108,844 102,910
-------- --------
51,915 53,753
-------- --------
Other Assets 909 984
-------- --------
$133,143 $126,326
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 2,555 $ 4,678
Accounts payable and accrued expenses 30,032 29,915
Other accrued expenses 5,990 5,167
-------- --------
Total Current Liabilities 38,577 39,760
-------- --------
Long-Term Debt and Capital Lease Obligations 3,255 4,526
-------- --------
Long-Term Liabilities Commitments &
Contingencies (Note 6) 5,800 4,600
-------- --------
Stockholders' Investment:
Common stock, $.05 par value -
Authorized 25,000,000 shares
Issued and outstanding 9,763,461
and 9,738,117 shares in 1995 and 1994,
respectively 488 487
Paid-in Capital 23,180 22,763
Deferred Compensation Resulting from
the Granting of Non-qualified Stock Options (587) (731)
Retained Earnings 62,430 54,921
-------- --------
Total Stockholders' Investment 85,511 77,440
-------- --------
$133,143 $126,326
======== ========
The accompanying notes are an integral part
of these consolidated condensed financial statements.
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HADCO CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
unaudited
---------
(In thousands, except share data)
Quarter Ended Six Months Ended
--------------------- -----------------------
April 29, April 30, April 29, April 30,
1995 1994 1995 1994
--------- --------- --------- ---------
Net Sales $ 67,637 $ 56,195 $ 124,462 $ 102,659
Cost of Sales 51,376 45,526 96,909 84,695
---------- ---------- ---------- ----------
Gross Profit 16,261 10,669 27,553 17,964
Selling, General and
Administrative Expenses 7,919 6,707 14,441 12,164
---------- ---------- ---------- ----------
Income from Operations 8,342 3,962 13,112 5,800
Interest Income 372 177 705 359
Interest Expense (130) (202) (269) (495)
---------- ---------- ---------- ----------
Income Before Provision for
Income Taxes 8,584 3,937 13,548 5,664
Provision for Income Taxes 3,391 1,554 5,352 2,223
---------- ---------- ---------- ----------
Net Income $ 5,193 $ 2,383 $ 8,196 $ 3,441
========== ========== ========== ==========
Net Income Per Common and
Common Equivalent Share $ .49 $ .22 $ .78 $ .32
========== ========== ========== ==========
Weighted Average Common and Common
Equivalent Shares Outstanding 10,626,412 10,803,599 10,553,048 10,799,532
========== ========== ========== ==========
The accompanying notes are an integral part
of these consolidated condensed financial statements.
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HADCO CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
unaudited
---------
(In thousands)
Six Months Ended
------------------------
April 29, April 30,
1995 1994
--------- ---------
Total Cash Provided By Operations $ 9,572 $ 7,527
------- -------
Cash Flows From Investing Activities:
Net purchases, sales and maturities of
short-term investments 386 1,042
Purchases of property, plant and equipment (5,512) (9,018)
Proceeds from sale of property, plant and
equipment 279 107
------- -------
Cash Used For Investing Activities (4,847) (7,869)
------- -------
Cash Flows From Financing Activities:
Principal payments under capital lease obligations (1,350) (2,980)
Principal payments of long-term debt (2,046) (46)
Proceeds from issuance of common stock 749 543
Purchase and retirement of common stock (1,018) 0
------- -------
Cash Used For Financing Activities (3,665) (2,483)
------- -------
Increase (Decrease) in Cash and Cash Equivalents 1,060 (2,825)
Cash and Cash Equivalents Beginning of Period 19,064 19,041
------- -------
Cash and Cash Equivalents End of Period $20,124 $16,216
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the respective periods for:
Interest $ 321 $ 486
======= =======
Income taxes $ 4,586 $ 2,861
======= =======
The accompanying notes are an integral part
of these consolidated condensed financial statements.
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HADCO CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
-----------
1. Basis of Presentation
---------------------
In the opinion of management, these consolidated condensed financial
statements contain all normal recurring adjustments for fair presentation. The
results of operations for the quarter and six months ended April 29, 1995, are
not necessarily an indication of the results expected for the full year.
The accompanying consolidated condensed financial statements include
the accounts of Hadco Corporation (the Company) and its wholly-owned
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation.
For information as to the significant accounting policies followed by
the Company and other financial and operating information, see the Company's
Form 10-K as filed with the Securities and Exchange Commission on January 11,
1995. These financial statements should be read in conjunction with the
financial statements included in that Form 10-K.
2. Short-term Investments
----------------------
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective October 30, 1994, the beginning of the first quarter of fiscal 1995.
This statement addresses the accounting and reporting for investments in
marketable equity securities that have readily determinable fair values and for
all investments in debt securities.
The Company classifies its investments in corporate and government
debt securities as held-to-maturity given the Company's intent and ability to
hold the securities to maturity. In accordance with the statement,
held-to-maturity securities are carried at amortized cost.
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HADCO CORPORATION AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
-----------
2. Short-term Investments (continued)
----------------------------------
As of April 29, 1995, the Company held investments in the following held-to-maturity securities:
Fair Market
-----------
Cost Value Maturity
---- ----- --------
(in thousands)
Debt securities issued by the US
Government $ 3,036 $ 3,054 within 1 year
Debt securities issued by states of
the US 1,998 2,001 within 1 year
Corporate debt securities 7,079 7,046 within 1 year
------- -------
$12,113 $12,101
======= =======
3. Inventories
-----------
Inventories are stated at the lower of cost, first-in, first-out (FIFO) or market and consist of the following:
April 29, October 29,
1995 1994
--------- -----------
(In thousands)
Raw Materials $ 4,882 $ 3,556
Work-in-process 6,612 6,739
------- -------
Total $11,494 $10,295
======= =======
4. Long-Term Debt and Capital Lease Obligations
--------------------------------------------
The long-term debt and capital lease obligations of the Company consisted of the following:
April 29, October 29,
1995 1994
--------- -----------
(In thousands)
Capital lease obligations $ 4,757 $ 6,105
Term-loan agreements 1,053 3,099
------- -------
5,810 9,204
Less - Current maturities 2,555 4,678
------- -------
$ 3,255 $ 4,526
======= =======
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HADCO CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
-----------
5. Stockholders' Investment
------------------------
As of April 29, 1995, options to purchase shares of common stock
were outstanding under the following plans:
Options Average Exercise Options
Plan Outstanding Price Exercisable
- -------------------- ----------- ---------------- ------------
December 1985 185,325 $2.12 185,325
(non-qualified plan)
December 1986 377,480 $2.96 377,480
(non-qualified plan)
December 1987 224,746 $3.00 196,746
(non-qualified plan)
September 1990 866,095 $7.47 180,965
(non-qualified plan)
December 1991 90,000 $8.08 45,000
(non-qualified plan)
Options outstanding under the December 1985 and December 1986 plans are
exercisable immediately. These options have various vesting periods up to ten
years. Upon termination of employment under certain circumstances, the Company
may at its option repurchase the exercised but unvested shares at the original
purchase price.
In September 1994, the Board of Directors authorized the purchase of
up to $1,500,000 of its shares of common stock in the open market during the
remainder of calendar 1994. As of the year ended October 29, 1994, a total of
28,000 shares of common stock were purchased and retired at an average price of
$7.75 per share. During the first quarter of fiscal 1995, an additional
113,800 shares were purchased and retired at an average price of $8.96. The
program expired on December 31, 1994.
6. Environmental Matters
---------------------
During March 1995, the Company received a Record Of Decision (ROD) from
the New York State Department of Environmental Conservation (NYSDEC), 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 selected,
a remediation program of groundwater
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HADCO CORPORATION AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
-----------
6. Environmental Matters (continued)
---------------------------------
withdrawal and treatment and iterative soil flushing. 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: $300,000 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 requested that
the Company 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
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 second sentence of the penultimate
paragraph of this "Environmental Matters" section.
From 1974 to 1980, the Company operated a printed circuit manufacturing
facility as a lessee of property that is now the subject of a pending lawsuit
and investigation by the Florida Department of Environmental Protection (FDEP).
On June 9, 1992, the Company entered into a Cooperating Parties Agreement in
which it and another prior lessee of the site have agreed to fund certain
assessment and feasibility study activities at the site, and an environmental
consultant has been retained to perform such activities. The cost of such
activities is not expected to be material to the Company. In addition to the
Cooperating Parties Agreement, and in the absence of pending litigation against
the Company, Hadco and others are participating in alternative dispute
resolution regarding the site with an independent mediator. In connection with
the 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 have been suspended during the
ongoing assessment and feasibility activities. 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. However, based on
information currently known by the Company, management does not expect these
costs to have a material adverse effect on the Company.
The Company accrues estimated costs associated with known environmental
matters, when such costs can be 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
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HADCO CORPORATION AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
-----------
6. Environmental Matters (Continued)
---------------------------------
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. The total reserve for
environmental matters currently identified by the Company amounted to $6.7
million and $5.5 million at April 29, 1995 and October 29, 1994, respectively.
The current portion of these costs as of each of April 29, 1995 and October 29,
1994, amounted to approximately $900,000, and is included in "Other accrued
expenses." The long-term portion of these costs amounted to approximately $5.8
million and $4.6 million as of April 29, 1995 and October 29, 1994,
respectively, and is reported under the caption "Long-term Liabilities." Based
upon its assessment at the current time, management estimates the cost of
ultimate disposition of the above known environmental matters to range from
approximately $5.0 million to $10.0 million, and is expected to be spread over
a number of years. Management believes the ultimate disposition of the above
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.
The Company is one of thirty-three 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. These parties also allege that future monitoring will be
required. In addition, the EPA contends that future remediation actions may be
required. The Company is contesting liability. The future costs in connection
with the lawsuit 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.
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HADCO CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
-----------
Results of Operations
- ---------------------
Second Quarter
- --------------
Net sales for the second quarter of 1995 increased 20.4% over the same
period in 1994. The change was due to an 8.5% increase in the volume of
production and shipments, and a shift in product mix to higher layer, higher
density products, as compared to the second quarter last year. Average pricing
per unit increased 3.1% for the second quarter of 1995 over the second quarter
of 1994. The Company believes that the potential exists for excess capacity in
the industry, which could have an adverse impact on future pricing.
The gross profit margin increased from 19.0% in the second quarter of
1994 to 24.0% in the second quarter of 1995. The increase is a direct result
of higher volume of shipments, an increase in the technology level of product
mix and improvements in operating efficiencies. Continued productivity
improvements have lead to increased unit volume and lower unit costs.
Selling, general and administrative (SG&A) expenses, as a percent of
net sales, decreased to 11.7% in the second quarter of 1995 as compared to
11.9% in the second quarter of 1994 due to increased revenue. SG&A expenses
increased from $6.7 million in the second quarter of 1994 to $7.9 million in
the second quarter of 1995, as a result of increased variable costs directly
attributable to increased net sales and charges for environmental related
matters. Included in SG&A expenses are charges for actual expenditures and
accruals, based on estimates, for environmental matters. During the second
quarter of 1995 and 1994, the Company made, and charged to SG&A expenses,
actual payments of approximately $242,000 and $119,000, respectively, for
environmental matters. In the second quarter of 1995 and 1994, the Company
also accrued and charged to SG&A expenses approximately $922,000 and $303,000,
respectively, as cost estimates relating to known environmental matters. To
the extent and in amounts Hadco believes circumstances warrant, it will
continue to accrue and charge to SG&A expenses cost estimates relating to
environmental matters. Management 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.
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Interest income increased in the second quarter of 1995 as compared to
the second quarter of 1994 due to higher yields on investments, and higher
average cash balances available for investing.
Interest expense decreased in the second quarter of 1995 as compared
to the second quarter of 1994 due to a decrease in outstanding debt.
Year-to-Date
- ------------
Net sales for the first half of 1995 increased 21.2% above the same
period in 1994. The increase is the result of an 8.5% higher volume of
production and shipments and an increase in the technology level of product mix
from the same period last year. The increase in net sales was affected by a
1.0% increase in average pricing.
The gross profit margin increased from 17.5% to 22.1% for the first
half of 1994 and 1995, respectively. The increase is a direct result of higher
volume of shipments, an increase in the technology level of product mix and
improvements in operating efficiencies. Continued productivity improvements
have lead to increased unit volume and lower costs.
SG&A expenses decreased, as a percent of net sales, from 11.8% to
11.6% for the first half of 1994 and 1995, respectively. This resulted from
increased net sales. The SG&A expenses increased from $12.2 million to $14.4
million for the first half of 1994 and 1995, respectively, as a result of
increased variable costs directly attributable to increased net sales and
charges for environmental related matters. Included in SG&A expenses are
charges for actual expenditures and accruals, based on estimates, for
environmental matters. During the first half of 1995 and 1994, the Company
made, and charged to SG&A expenses, actual payments of approximately $586,000
and $173,000, respectively, for environmental matters. In the first half of
1995 and 1994, the Company also accrued and charged to SG&A cost estimates
approximately $1,227,000 and $610,000, respectively, as cost estimates relating
to known environmental matters.
Interest income increased in the first half of 1995 as compared to the
same period in 1994 due to higher yields on investments, and higher cash
balances available for investing.
Interest expense decreased in the first half of 1995 as compared to
the second quarter of 1994 due to a decrease in outstanding debt.
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As of April 29, 1995, the Company's released backlog was $49.7 million
as compared with $53.1 million as of April 30, 1994 and $37.7 million as of
October 29, 1994.
Income Taxes
- ------------
In accordance with generally accepted accounting principles, the
Company has provided for income taxes in the second quarter at its estimated
annual effective rate. The Company presently anticipates that the effective
annual rate for income taxes for 1995 will be 39.5%, which is less than the
current combined federal and state statutory rates. This difference is caused
by tax-advantaged short-term investments and cash equivalents, the tax benefit
of a Foreign Sales Corporation (FSC), and various state investment tax credits.
The effective tax rate for 1995 is based on current tax laws.
Liquidity and Capital Resources
- -------------------------------
At April 29, 1995, the Company's working capital was $41.7 million,
including cash, cash equivalents and short-term investments of $32.2 million,
as compared to working capital of $31.8 million, including cash, cash
equivalents and short-term investments of $31.6 million, at October 29, 1994.
At April 29, 1995, the following lines of credit were available to the Company:
(In thousands)
--------------
Leasing Line of Credit $ 3,901
Revolving/Term Lines of Credit 25,000
-------
Total Credit Available $28,901
=======
The Company believes that the available cash balances, together with cash
flow from operations, will be sufficient to meet the Company's cash
requirements through its fiscal year ending October 28, 1995.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Investments
in Debt and Equity Securities." The Company adopted SFAS No. 115 effective
October 30, 1994, the beginning of the first quarter of fiscal 1995. This
accounting change had no material effect on net income or financial position.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of Hadco
Corporation was held on March 1, 1995.
(b) No information provided due to inapplicability of item.
(c) A vote was proposed to (1) fix the number of Directors at
nine (9) and elect the Board of Directors to serve for the
ensuing year or until their respective successors are duly
elected and qualified; and (2) to ratify the selection of
Arthur Andersen LLP as independent auditors for the fiscal
year ending October 28, 1995.
The shareholder voting results are as follows:
Votes Votes Votes Votes Broker
For Against Withheld Abstained Non-Votes
(1) Horace H. Irvine II 8,478,437 N/A 55,000 N/A 0
Patrick Sweeney 8,478,387 N/A 55,050 N/A 0
Andrew E. Lietz 8,478,437 N/A 55,000 N/A 0
John O. Irvine 8,489,337 N/A 44,100 N/A 0
J. Stanley Hill 8,387,012 N/A 146,425 N/A 0
Oliver O. Ward 8,487,137 N/A 46,300 N/A 0
Lawrence Coolidge 8,489,337 N/A 44,100 N/A 0
Mikael Salovaara 8,486,937 N/A 46,500 N/A 0
John F. Smith 8,486,817 N/A 46,620 N/A 0
(2) Arthur Andersen LLP 8,505,787 18,500 N/A 9,150 0
(d) No information provided due to inapplicability of item.
Item 6. Exhibits and reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Hadco Corporation
Date: June 9, 1995 By: /s/ Timothy P. Losik
Timothy P. Losik
Chief Financial Officer,
Vice President
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