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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-27744
PCD INC.
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-2604950
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2 Technology Drive
Centennial Park
Peabody, Massachusetts 01960-7977
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (978) 532-8800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of February 12, 2001, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $41,376,599,
based upon the closing sales price on the Nasdaq Stock Market for that date.
As of February 12, 2001, the number of issued and outstanding shares of the
registrant's Common Stock, par value $0.01 per share, was 8,823,822.
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information called for by Parts I through IV of this report on
Form 10-K is incorporated by reference from certain portions of the Proxy
Statement of the registrant to be filed pursuant to Regulation 14A and to be
sent to stockholders in connection with the Annual Meeting of Stockholders to
be held on April 27, 2001. Such Proxy Statement, except for the parts therein
that have been specifically incorporated herein by reference, shall not be
deemed "filed" as part of this report on Form 10-K.
PCD INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2000
TABLE OF CONTENTS
PART I Page
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 17
Item 3. Legal Proceedings............................................. 18
Item 4. Submission of Matters to a Vote of Security Holders........... 18
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................... 18
Item 6. Selected Financial Data........................................ 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results Of Operations................. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 26
Item 8. Financial Statements and Supplementary Data.................... 27
Item 9. Changes in and Disagreements with Accountants
on Auditing and Financial Disclosure.......................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant............. 50
Item 11. Executive Compensation......................................... 51
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 51
Item 13. Certain Relationships and Related Transactions................. 51
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K....................................... 52
Signatures............................................................... 58
PART I
ITEM 1. BUSINESS
As used herein, the terms "Company" and "PCD," unless otherwise indicated
or the context otherwise requires, refer to PCD Inc. and its subsidiaries.
However, all financial information for periods ended before December 26,
1997, unless otherwise indicated or the context otherwise requires, is for PCD
Inc. and its subsidiaries, excluding Wells Electronics, Inc. ("Wells").
GENERAL
PCD Inc. (the "Company") designs, manufactures and markets electronic
connectors for use in semi-conductor burn-in, industrial equipment and
avionics. Electronic connectors, which enable an electrical current or signal
to pass from one element to another within an electronic system, range from
minute individual connections within an integrated circuit ("IC") to rugged,
multiple lead connectors that couple various types of electrical/electronic
equipment. Electronic connectors are used in virtually all electronic systems,
including data communications, telecommunications, computers and computer
peripherals, industrial controls, automotive, avionics and test and
measurement instrumentation. The electronic connector market is both large and
broad. Bishop & Associates, a leading electronic connector industry market
research firm, estimates the total 2000 worldwide market at $30.8 billion with
more than 1,200 manufacturers.
The Company markets over 6,800 electronic connector products in three
product categories, each targeting a specific market. These product categories
are semiconductor burn-in sockets, industrial interconnects and avionics
junction modules and relay sockets. SEMICONDUCTOR BURN-IN SOCKETS are
specially designed electro-mechanical devices that connect ICs to printed
circuit boards during the reliability testing stages of IC production.
INDUSTRIAL INTERCONNECTS are used in industrial equipment systems both
internally, as input/output ("I/O") connectors to link the rugged electrical
environment of operating equipment to the electronic environment of
controllers and sensors, and externally, to facilitate the interface between
discrete factory wiring and cabling for standard computer interconnects.
AVIONICS JUNCTION MODULES AND RELAY SOCKETS perform similar functions as
industrial connectors, but are designed and built to operate in the harsher
environment and meet the more critical performance requirements of avionics
applications. Representative customers of the Company include Bombardier Inc.,
Micron Technology, Inc., Rockwell International Corp. (through its subsidiary,
the Allen-Bradley Company) and Advanced Micro Devices, Inc.
The Company believes it will benefit from three trends affecting the
electronics industry: (i) the increasing complexity of ICs and corresponding
evolution of IC package designs, which favor growth in PCD's semiconductor
burn-in market; (ii) the global nature of semiconductor manufacturers, which
requires suppliers with global design, manufacturing and marketing
capabilities; and (iii) the use of increasingly complex electronic controllers
and sensors in industrial and avionics applications, which creates
opportunities in PCD's industrial equipment and avionics markets.
1
The Company's goal is to identify and expand into selected electronic
connector markets where it can establish a position of leadership. The Company
intends to increase its presence in the markets in which it participates
through internal investment in product development, and expansion of its
existing product and customer base within each market. To facilitate capital
investment, the Company continues to strengthen the balance sheet by reducing
the level of bank debt outstanding.
The Company was incorporated in Massachusetts on November 9, 1976 under the
name Precision Connector Designs, Inc. In February 1996, the Company changed
its name to PCD Inc.
MARKET OVERVIEW
The electrical and electronic systems which utilize connectors have become
increasingly widespread and complex, in part as a result of the increased
automation of business systems and manufacturing equipment. Consequently, the
electronic connector industry has grown in size and electronic connectors have
become more sophisticated. Demand for smaller yet more powerful products have
resulted in continued improvements in electronic systems in general and
electronic connectors in particular. Product cycles continue to shorten and,
as time to market becomes increasingly important, equipment manufacturers seek
to reduce inventory and contend with pressures to keep up with new product
innovations. The growing demand for electronic connector complexity, coupled
with reduced product development cycles and delivery lead times, creates a
need for closer cooperation between connector suppliers and equipment
manufacturers, often leading to new connector requirements and market
opportunities.
Bishop & Associates estimates the total 2000 worldwide market at $30.8
billion. This market is highly fragmented with over 1,200 manufacturers. While
many of these companies produce connectors which are relatively standard and
often produced in large quantities, a substantial portion of the industry is
comprised of companies which produce both proprietary and standard products in
relatively low volumes for specialized applications. Fleck Research has
identified over 1,100 separate electronic connector product lines presently
offered in the marketplace.
PCD focuses its products and sales efforts in the selected key markets
listed below.
Semiconductor Burn-in Testing Market. Most leading-edge microprocessors,
logic and memory ICs undergo an extensive reliability screening and stress
testing procedure known as burn-in. The burn-in process screens for early
failures by operating the IC at elevated temperatures, usually at 125(degree
symbol)C (257(degree symbol)F) to 150(degree symbol) C (302(degree symbol) F),
for periods typically ranging from 8 to 48 hours. During burn-in, the IC is
secured in a socket, an electro-mechanical interconnect, which is generally a
permanent fixture on the burn-in printed circuit board. The socket is designed
to permit easy insertion and removal of the IC before and after burn-in.
Typically a burn-in socket must be able to withstand 10,000 mechanical
insertion and withdrawal cycles. Further, these sockets must withstand
thermal excursions from -10(degree symbol) C (14(degree symbol) F) to
150(degree symbol) C (302(degree symbol) F) during the burn-in process. The
2
nature of the semiconductor industry is such that constant advances in
technology and changes in IC packages require the introduction of new styles
and families of these sockets on a frequent and ongoing basis.
The worldwide semiconductor market expanded at a compound annual growth
rate of 17% during the period 1978-2000, and is projected by IC Insights,
Inc., a leading research company in the semiconductor field, to grow at a 17%
compound annual growth rate during the period 2000-2003.
INDUSTRIAL INTERCONNECT MARKET. The industrial interconnect market is
comprised of a broad range of control, measurement and manufacturing
equipment. Terminal blocks are most commonly used in this equipment to provide
an electrical link between discrete functions, such as monitoring and
measuring, and controlling devices, such as programmable logic controllers
("PLCs"), stand-alone PCs and single function controllers. The use of terminal
blocks has increased as electronic controllers and sensors in the industrial
environment have evolved to control more complex, multi-function activities.
In addition to increasing in number, these controllers and their connectors
are becoming smaller and are being configured in increasing variations.
Increased sophistication in industrial and process control equipment has
led to a demand for flexible, modular interconnection and interface products.
Control systems are used to facilitate the interface of discrete factory
wiring and cable systems with standard computer interconnects. The Company has
expanded its industrial market product offering with a broad line of interface
modules: printed board-mounted interconnect systems which incorporate passive
and often active components, and are designed in conjunction with customer
engineers. These interface systems allow industrial customers to reduce
installation time and decrease cabinet space, thereby improving their overall
system costs.
AVIONICS MARKET. The avionics market requires a diverse range of
electronic connectors that are designed and manufactured specifically for
avionics applications. Over the last five years, commercial aircraft
applications have represented an increasingly important part of this market.
The Company participates in selected areas of the avionics market with
junction modules and relay sockets that perform similar functions as its
industrial connectors but are designed to operate in the harsher environment
and meet the more critical performance requirements of avionics applications.
The two major market sectors in which the Company participates are the 100+
seat capacity large jet transports, and the smaller 30-95 seat capacity
regional aircraft. Business jets are also becoming an important market
segment.
The Boeing Company estimates that total worldwide demand for new airplanes
over the next twenty years will be 22,315 aircraft. The world fleet is
projected to grow from 13,670 airplanes at the end of 1999 to 31,755 airplanes
in 2019. Over the next twenty years, more than 22,315 new commercial jets -
21,512 passenger airplanes and 803 new freighters - are forecast to enter
service worldwide. The majority of these airplanes will meet industry demand
for growth, while the remainder will replace the 4,200 airplanes that are
projected to be removed from service.
3
STRATEGY
The Company's goal is to identify and expand into selected electronic
connector markets where it can establish a position of leadership. The Company
intends to increase its presence in the markets in which it participates
through internal investment in product development and potential strategic
acquisitions. The key elements of the Company's strategy are:
BE THE KEY SUPPLIER IN SELECTED NICHE MARKETS: The electronic connector
industry services a variety of different industries with connectors that
are often unique to particular applications within a given industry. The
Company actively identifies and pursues those markets which have the
following characteristics: demand for electronic connectors with relatively
high engineering content, high degree of customer interface, changing
technology, significant growth opportunities and a market size appropriate
to the Company's resources. Presently, the Company focuses on the
semiconductor burn-in, industrial and avionics interconnect markets. In
each of these markets for the products that the Company offers, it holds a
market position of either first or second or has a strategic plan to attain
that position. There can be no assurance that the Company, however, will
attain or maintain these positions.
GROW THROUGH INTERNAL PRODUCT DEVELOPMENT AND EXPANSION OF EXISTING PRODUCT
AND CUSTOMER BASE: The Company is committed to grow the sales revenue at a
rate that is higher than the connector industry projected growth rate. To
accomplish this, the Company invests heavily in new product development.
Over the last five years the Company has spent on average 5.0% of net sales
on new product tooling. For 2000, 51.3% of sales were generated from
products that were introduced in the last five years. It is the Company's
strategy to continually expand the range of products that it offers in its
existing markets and, through the additional synergy offered by these
products as well as focused sales efforts, work to both grow sales volume
to existing customers and to expand the customer base.
STRENGTHEN THE BALANCE SHEET: The acquisition of Wells Electronics, Inc. in
December of 1997 resulted in the Company taking on approximately $108
million of debt. The public stock offering of 2,300,000 shares of common
stock in April and May of 1998 raised approximately $42 million, and the
Company generated an additional $14.2 million, $5.7 million and $6.5
million of free cash flow in the years 2000, 1999 and 1998, respectively.
The Company defines free cash flow as cash flow from operations less
capital expenditures. The combination of the cash raised from the public
offering and the free cash flow, along with existing cash balances, reduced
the debt to $36.1 million as of December 31, 2000 and improved the total
debt-to-equity ratio to 0.74 to 1.00. Strengthening the balance sheet will
provide the Company the flexibility it needs in the area of acquisitions
and product development.
PRODUCTS AND APPLICATIONS
The Company markets over 6,800 electronic connector products in three
product categories, each targeting a specific market. These product categories
are: semiconductor burn-in sockets, industrial interconnects and avionics
4
terminal blocks and sockets. The products offered within each product category
can be characterized as proprietary, application-specific or industry
standard, as described below.
PROPRIETARY CONNECTORS are unique Company designs that are introduced and
sold to a broad market rather than a single customer.
APPLICATION-SPECIFIC INTERCONNECTS are products which are designed and
developed for a specific application, typically for one customer. These
products can be subsequently developed into proprietary product lines.
INDUSTRY STANDARD CONNECTORS are normally produced in accordance with a
relatively detailed industry or military design and performance specification
and sold to the broad market to which that specification relates.
SEMICONDUCTOR BURN-IN SOCKETS
Most leading-edge microprocessors, logic and memory ICs undergo an
extensive reliability screening and stress testing procedure known as burn-in.
The burn-in process screens for early failures by operating the IC at elevated
temperatures, usually at voltages and temperatures, between 125 degrees
Centigrade (257(degree symbol) F) to 150(degree symbol) C (302 (degree symbol)
F), for periods typically ranging from 8 to 48 hours. During burn-in, the IC
is secured in a socket, an electro-mechanical interconnect, which is generally
a permanent fixture on the burn-in printed circuit board. The socket is
designed to permit easy insertion and removal of the IC before and after burn-
in. Typically a burn-in socket must be able to withstand 10,000 mechanical
insertion and withdrawal cycles. Further, these sockets must withstand
thermal excursions from -10 degrees Centigrade (14(degree symbol) F) to
150(degree symbol) C (302(degree symbol) F) during the burn-in process.
ICs (which before being packaged are frequently referred to as dies) are
generally encased in a plastic or ceramic package to protect the device and
facilitate its connection with other system components. The IC package
industry offers a wide variety of evolving package designs. New package
designs are driven by the need to accommodate the increasing complexity,
density and higher I/O count of the ICs. Each unique IC package configuration
requires a socket that corresponds to the package's specific characteristics.
The nature of the semiconductor industry is such that constant advances in
technology and changes in IC packages require the introduction of new styles
and families of these sockets on a frequent and ongoing basis.
The IC packages on which PCD focuses its burn-in socket efforts are listed
below. These packages have been selected because the Company believes that
they represent the most advanced and fastest growing elements of the
semiconductor burn-in market.
CHIP SCALE PACKAGE: The chip scale ("CSP") is an array package that most
often terminates via a solder sphere much like a ball grid array ("BGA").
The definition of a CSP package is that the package is no greater than 120%
of the IC die area. Over 50 versions of CSP packages are in existence and
because the package outline is tied directly to the dies area, many socket
versions are required to address the market. Pitches range from 0.5mm to
5
0.8mm and ball counts range from 6 to 600. According to IC Insights, a
semiconductor industry market research firm, CSP packaging will grow from
1.1 billion units to 10.8 billion units in the next four years with strong
growth beyond.
THIN SMALL OUTLINE PACKAGE SOCKETS: The thin small outline ("TSOP") is a
plastic, rectangular package with leads on two sides, running along either
pair of opposite edges. With lead counts from 20 to 86 contacts, the TSOP
houses memory circuits. The small size, low price and surface mount design
of the TSOP makes it a highly desirable package. The Company currently
produces seven distinct socket series to accommodate a variety of TSOP
packages.
QUAD FLAT PACK SOCKETS: The quad flat pack ("QFP") is a plastic package
with leads on four sides. It is used for high lead count surface mount
applications and is characterized by lead counts typically ranging between
32 and 208 leads. The QFP is currently a predominant and rapidly growing
technology for packaging a wide variety of ICs used in microcontroller,
logic, communication and SRAM applications. The Company currently produces
over 37 distinct sockets to accommodate a wide variety of QFP packages.
PIN GRID ARRAY SOCKETS: The pin grid array ("PGA") is a square or
rectangular through-hole device. The pins are generally placed on the
package before insertion of the die. The differentiating feature of the PGA
is that the contacts are placed in an array over the bottom of the packaged
device, rather than protruding from the sides of the device in a perimeter
pattern, as with the QFP. As a result, the PGA offers greater lead density
and smaller overall profile. This makes the PGA ideal for devices with high
lead counts, in excess of 208, the upper range in which the QFP becomes
difficult to handle. The interstitial pin grid array ("IPGA") is a newer
and higher density version of the PGA, and a prime focus of the Company's
new product development work. Ball Grid Array Sockets: An area array
package, the ball grid array uses an underlying substrate, rather
than a lead frame, for die attachment. The die is then encapsulated and
solder balls are attached to the underside of the substrate. The solder
balls ultimately connect the package to the printed circuit board. The die
is placed on the substrate prior to the attachment of the solder balls to
ensure a flat surface for the die during processing. At a compound annual
growth rate of 49% from 1996 to 2005, according to IC Insights, the BGA
package is the most popular new package technology, utilized in every IC
segment. Wells-CTI has made a significant investment in BGA socket
technology and will continue to grow product lines to address the packaging
scheme.
LAND GRID ARRAY SOCKETS: Another grid array package, the land grid array
("LGA") achieves maximum density by eliminating both pins and solder balls,
and providing an array of tiny, gold plated contact pads on the bottom of
the package for interconnect purposes. Because of high density and high
performance, the LGA is primarily used in high lead count application
specific integrated circuits ("ASICS") and microprocessors applications.
Lower cost organic substrate versions are now being introduced to make this
package style more attractive in the future.
6
INDUSTRIAL INTERCONNECTS
The Company's product areas in this market are industrial terminal blocks
and interface modules. Terminal blocks are most commonly used in industrial
equipment to provide an electrical link between discrete functions, such as
monitoring and measuring, and a controlling device. Interface modules
facilitate the interface between discrete factory wiring and cabling for
standard computer interconnects. The Company's industrial interconnects are
targeted at the industrial and process control markets and affiliated markets
and applications such as environmental control systems, food and beverage
preparation, motor controls, machine tools, robotics, instrumentation and test
equipment.
TERMINAL BLOCKS: Terminal blocks are used in applications where I/O power
or signal wires are fed into a PLC or similar (and often simpler) control
system, and a connector is required to interface between the electrical
environment of relatively heavy wires and the electronic environment of
controllers and sensors. The Company's terminal blocks connect to and
capture the wires in spring-clamp or screw-clamp terminations, and
interface with printed circuit boards in a variety of manners. The Company
concentrates on four major product lines within this market: pluggable
terminal blocks, fixed mount terminal blocks, edgecard terminal blocks, and
application-specific terminal blocks. Application-specific terminal blocks
are developed for customers who are of strategic importance to the Company,
represent significant potential volume and are recognized market leaders.
INTERFACE MODULES: Interface modules are interconnect devices that
incorporate terminal blocks, high density connectors and often additional
electronic components and are used to form the interconnection between a
system I/O card and field equipment. Often these interconnections require
several discrete wire and standard computer connector interconnects. The
interface module simplifies the interconnection by incorporating both the
discrete wire and standard computer interconnects into a rail mounted
printed circuit board assembly consisting of terminal blocks, additional
connectors and possibly other electronic devices. Interface modules are
typically application-specific and may contain electronic components for
signal conditioning, fusing and various other electronic requirements.
AVIONICS JUNCTION MODULES AND RELAY SOCKETS
Avionics junction modules perform similar functions as industrial terminal
blocks, linking discrete wires that are individually terminated to a
connector. However, avionics terminal blocks are designed to withstand the
harsher environment and far more critical operating requirements to which they
are subject. The primary differences are that: contacts are gold plated; wires
are terminated by the crimped (metal deformation) technique rather than screw
clamps; and individual wires are installed and removed from the connector
through use of spring-actuated locking devices. The avionics connectors are
normally completely environmentally sealed through use of a silicone elastomer
sealing grommet, or are designed to operate in a sealed compartment.
The Company concentrates on three major product lines in the avionics
market:
7
JUNCTION MODULES: Junction modules are environmentally sealed, airborne
terminal blocks.
RELAY SOCKETS: Relay sockets are used throughout aircraft as a means to
facilitate installation, repair and maintenance of electro-mechanical
relays which are utilized for a wide variety of control purposes ranging
from main control circuits to landing gear.
APPLICATION-SPECIFIC AVIONICS CONNECTORS: Application-specific junction
modules have been developed in conjunction with Boeing Commercial Aircraft
for use on the 717-737-747-757-767 series of commercial aircraft and the
C17 military transport. Application-specific relay sockets are marketed to
Boeing subcontractors for the 777 commercial aircraft program and the C17
aircraft. Application specific junction modules which incorporate
electronic components and circuitry into module package are supplied to
(among others) Bombardier and British Aerospace for regional jet programs.
PRODUCT DEVELOPMENT
Currently, the Company markets over 6,800 products in a wide variety of
product lines. The Company seeks to broaden its product lines and to expand
its technical capabilities in order to meet anticipated needs of its
customers. The Company's product development strategy is to introduce new
products into markets where the Company has already established a leadership
position and to develop next generation products for other markets in which
the Company wishes to participate.
The Company's current product development projects in the semiconductor
burn-in market target new burn-in sockets for package device designs such as
IPGA, TSOP, CSP, LGA and BGA production packages. The Company believes, based
on industry trends, that TSOP and CSP will be the preferred package for high-
volume, high-density small outline IC devices.
SALES AND MARKETING
The Company distributes its products through a combination of its own
dedicated direct sales forces, a worldwide network of manufacturers
representatives and authorized distributors. The Company maintains separate
sales forces for the semiconductor burn-in markets and for the industrial
equipment and avionics markets. For the semiconductor burn-in markets, the
Company employs a global direct sales force with offices in England, Germany,
Japan, and the United States, augmented with sales representatives in smaller
markets. For the industrial equipment and avionics markets, the Company
generally uses its direct sales forces and manufacturer representatives for
large customers, new product introductions and application-specific products
and uses its authorized distributors for smaller and medium-sized customers of
standard and proprietary products. The Company's sales and marketing program
is focused on achieving and maintaining close working relationships with its
customers early in the design phase of the customer's own product development
cycle.
8
CUSTOMERS
In 2000, the Company sold its products to over 1,000 customers in a wide
range of industries and applications. The top five customers of the Company in
2000, 1999 and 1998 accounted for 46.7%, 39.8% and 43.5% of net sales,
respectively. Among customers that exceeded 10% of the Company's net sales,
Micron Technology, Inc. accounted for 20.8%, 17.6% and 15.8% of net sales of
the Company in 2000, 1999 and 1998, respectively. Advanced Micro Devices,
Inc. accounted for 12.7% of net sales in 1998. Sales to customers located
outside the United States, either directly or through U.S. and foreign
distributors, accounted for approximately 21.2%, 25.4%, and 21.9% of the net
sales of the Company in the years ended 2000, 1999, and 1998, respectively.
Examples of end users of the Company's products, by category, are presented
below:
Product Categories Representative Customers
- ------------------ ------------------------
Semiconductor burn-in sockets.......... Advanced Micro Devices, Inc.
Sharp Electronics Corporation
Micron Technology, Inc.
Motorola, Inc.
Industrial Interconnects............... Groupe Schneider (Modicon, Inc./
Square D Co./Telemecanique)
GE Fanuc
Parker Hannifin Corporation
Rockwell International Corp.
(Allen-Bradley Company)
Avionics Terminal Blocks and Sockets... The Boeing Company
Bombardier Inc.
(Canadair/deHavilland/Learjet Inc.)
British Aerospace Ltd.
Empresa Brasileira de Aeronautica S/A
(Embraer)
Smiths Industries
MANUFACTURING AND ENGINEERING
The Company is vertically integrated from the initial concept stage through
final design and manufacturing with regard to the key production processes
which the Company believes are critical to product performance and service.
These processes include precision stamping, plastic injection molding and
automated assembly. The Company believes that this vertical integration allows
the Company to respond to customers quickly, control quality and reduce the
time to market for new product development.
The Company seeks to reduce costs in its manufacturing fabrication and
assembly operations through formalized cost savings programs. Complementary
programs are dedicated to maximizing the return on capital investments and
reducing overhead expense.
9
The Company believes it is a leader in delivery responsiveness in its
target markets. The introduction of just-in-time ("JIT") manufacturing,
inventory control techniques and quick-change, in-house production tooling
have substantially reduced delivery lead times. Production cells operate under
a JIT pull system, with customer orders assembled as received. PCD carries
minimal finished goods inventory. An additional advantage of JIT manufacturing
is the almost complete elimination of rework. Shop floor orders are relatively
small and are not handled in bulk, and problems are resolved as they occur,
rather than continuing through an extended production run.
The Company subcontracts a portion of its labor-intensive product assembly
to a U.S.-based subcontractor with a manufacturing facility in Mexico. Wells-
CTI KK, our Japanese subsidiary, subcontracts all of its product manufacturing
and assembly operations to Japanese and Chinese vendors. The Company is not
contractually obligated to do business with any subcontractor, believes it
could substitute other subcontractors without significant additional cost or
delay, and could perform assembly itself if the need were to arise.
INTELLECTUAL PROPERTY
The Company seeks to use a combination of patents and other means to
establish and protect its intellectual property rights in various products.
The Company intends to vigorously defend its intellectual property rights
against infringement or misappropriation. Due to the nature of its products,
the Company believes that intellectual property protection is less significant
than the Company's ability to further develop, enhance and modify its current
products. The Company believes that its products do not infringe on the
intellectual property rights of others. However, many of the Company's
competitors have obtained or developed, and may be expected to obtain or
develop in the future, patents or other proprietary rights that cover or
affect products that perform functions similar to those performed by products
offered by the Company. There can be no assurance that, in the future, the
Company's products will not be held to infringe patent claims of its
competitors, or that the Company is aware of all patents containing claims
that may pose a risk of infringement by its products.
COMPETITION
The markets in which PCD operates are highly competitive, and the Company
faces competition from a number of different manufacturers. The Company has
experienced significant price pressure with respect to certain products,
including its TSOP and QFP products, and fixed mount and pluggable terminal
Industrial blocks. The principal competitive factors affecting the market for
the Company's products include design, responsiveness, quality, price,
reputation and reliability. The Company believes that it competes favorably on
these factors.
Generally, the electronic connector industry is competitive and fragmented,
with over 1,200 manufacturers worldwide. Competition in the Semiconductor
burn-in market, however, is highly concentrated among a small number of
significant competitors. Competition among manufacturers of application-
specific connectors in the industrial terminal blocks market depends greatly
on the customer, market and specific nature of the requirement. Competition is
fragmented in the avionics market, but there are fewer competitors due to the
10
demanding nature of the military and customer specifications which control
much of the markets and the cost and time required to tool and qualify
military standard parts. In each of the markets in which the Company
participates, the Company's significant competitors are much larger and have
substantially broader product lines and greater financial resources than the
Company. There can be no assurance that the Company will compete successfully,
and any failure to compete successfully could have a material adverse effect
on the financial condition, results of operations and business of the Company.
BACKLOG
The Company defines its backlog as orders that are scheduled for delivery
within the next 12 months. The Company estimates that its backlog of unfilled
orders was approximately $13.5 million at December 31, 2000 and $10.6 million
at December 31, 1999. The level and timing of orders placed by the Company's
customers vary due to customer attempts to manage inventory, changes in
manufacturing strategy and variations in demand for customer products due to,
among other things, introductions of new products, product life cycles,
competitive conditions or general economic conditions. The Company generally
does not obtain long-term purchase orders or commitments but instead seeks to
work closely with its customers to anticipate the volume of future orders.
Based on anticipated future volumes, the Company makes other significant
decisions regarding the level of business it will accept, the timing of
production and the levels and utilization of personnel and other resources. A
variety of conditions, both specific to the individual customer and generally
affecting the customer's industry, may cause customers to cancel, reduce or
delay purchase orders that were either previously made or anticipated.
Generally, customers may cancel, reduce or delay purchase orders and
commitments without penalty. For these reasons, backlog may not be indicative
of future demand or results of operations.
ENVIRONMENTAL
The Company is subject to a wide range of environmental laws and
regulations relating to the use, storage, discharge and disposal of hazardous
chemicals used during its manufacturing process. A failure by the Company to
comply with present or future laws and regulations could subject it to future
liabilities or the suspension of production. Such laws and regulations could
also restrict the Company's ability to expand its facilities or could require
the Company to acquire costly equipment or incur other significant expenses.
EMPLOYEES
As of December 31, 2000, the Company had 325 employees and 167 contract
workers. The Company's 492 employees and contract workers include 441 in
manufacturing and engineering, 23 in sales and marketing and 28 in
administration. Of the Company's U.S. employees, 25 are represented by the
International Brotherhood of Electrical Workers, Local 1392. The Company
believes that its relations with its employees and its union are good. The
current collective bargaining agreement with unionized employees expires on
February 18, 2003.
11
FORWARD LOOKING INFORMATION/RISK FACTORS
STATEMENTS IN THIS REPORT CONCERNING THE FUTURE REVENUES, EXPENSES,
PROFITABILITY, FINANCIAL RESOURCES, PRODUCT MIX, MARKET DEMAND, PRODUCT
DEVELOPMENT AND OTHER STATEMENTS IN THIS REPORT CONCERNING THE FUTURE RESULTS
OF OPERATIONS, FINANCIAL CONDITION AND BUSINESS OF PCD INC. ARE "FORWARD-
LOOKING" STATEMENTS AS DEFINED IN THE SECURITIES ACT OF 1933 AND SECURITIES
EXCHANGE ACT OF 1934. INVESTORS ARE CAUTIONED THAT THE COMPANY'S ACTUAL
RESULTS IN THE FUTURE MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS DUE TO RISKS AND UNCERTAINTIES THAT EXIST IN THE
COMPANY'S OPERATIONS AND BUSINESS ENVIRONMENT, INCLUDING:
DEPENDENCE ON SEMICONDUCTOR BURN-IN INDUSTRY. The Company's semiconductor
burn-in sockets are used by producers and testers of ICs and original
equipment manufacturers ("OEMs"). For the years ended December 31, 2000, 1999
and 1998, the Company derived 68.5%, 64.5% and 71.7% of its net sales,
respectively, from these products. The Company's future success will depend in
substantial part on the vitality of the semiconductor and the related
semiconductor burn-in industries. Historically, the Semiconductor burn-in
industry has been driven by both the technology requirements and unit demands
of the semiconductor industry. Depressed general economic conditions and
cyclical downturns in the semiconductor industry have had an adverse economic
effect on the Semiconductor burn-in market. In addition, the product cycle of
existing IC package designs and the timing of new IC package development and
introduction can affect the demand for Semiconductor burn-in sockets.
DEPENDENCE ON PRINCIPAL CUSTOMERS. Micron Technology, Inc. ("Micron"), a
provider of DRAMs, SRAMs and other semiconductor components, was the largest
customer of the Company in 2000 and 1999. Micron accounted for 20.8% and 17.6%
of the net sales of the Company for the years ended December 31, 2000, and
1999, respectively. The Company does not have written agreements with any of
its customers, including Advanced Micro Devices, Inc. ("AMD") or Micron
Technology Inc. ("Micron"), and therefore, no customer has any minimum
purchase obligations. Accordingly, there can be no assurance that any of the
Company's customers will purchase the Company's products beyond those covered
by released purchase orders. The loss of, or significant decrease in, business
from AMD or Micron, for any reason, could have a material adverse effect on
the financial condition, results of operations and business of the Company.
AVAILABILITY OF CERTAIN RAW MATERIALS. The Company has had difficulty with
the worldwide shortage of Beryllium Copper and has been successful in locating
alternative materials to supplement this worldwide shortage. There can be no
assurance that the Company will continue to locate adequate alternative
materials if this worldwide shortage continues.
RESTRICTIVE COVENANTS UNDER SENIOR CREDIT FACILITY. The agreement
governing the Company's credit facility with Fleet Bank (the "Senior Credit
Facility") contains numerous financial and operating covenants. Failure to
meet such covenants would result in an event of default under the Senior
Credit Facility. Among the operating covenants are restrictions that the
Company (i) must maintain John L. Dwight, Jr. as chief executive officer of
the Company or obtain the consent of the lenders under the Senior Credit
Facility to any replacement of Mr. Dwight; (ii) may not, without the prior
12
consent of such lenders, acquire the assets of or ownership interests in, or
merge with, other companies; and (iii) may not, without the prior consent of
such lenders, pay cash dividends. The Senior Credit Facility also requires
the Company to maintain certain financial covenants, including minimum EBITDA
(earnings before interest, taxes, depreciation and amortization), minimum
fixed charge coverage ratio, minimum quick ratio, maximum ratio of total
senior debt to EBITDA, maximum ratio of total indebtedness for borrowed money
to EBITDA, minimum interest coverage ratio, and maximum capital expenditures,
during the term of the Senior Credit Facility.
The Company has experienced difficulty meeting all of the covenants under
its Senior Credit Facility. Accordingly, in September 1999, certain covenants
were amended by agreement between the Company and its lenders. In March 2000,
the Company obtained from its lenders a waiver of compliance with certain
covenants for the fourth quarter of 1999. At the same time, certain covenants
were amended by agreement between the Company and its lenders through June 30,
2000. In conjunction with the March 2000 agreement, the Company issued
warrants to its lenders covering 203,949 shares of Common Stock at an exercise
price of $4.90 per share. Since the Company did not obtain at least $10
million of subordinated debt or other capital infusions ("Junior Capital")
junior to loans under the Senior Credit Facility by June 30, 2000, or by June
30, 2000 had not entered into definitive arrangements permitting repayment of
amounts outstanding under the Senior Credit facility by December 31, 2000, the
warrants became exercisable. In addition, since the Company did not obtain
Junior Capital by April 30, 2000, the Company started on May 1, 2000 paying
the lenders a quarterly fee of 0.25% of the sum of the total outstanding
principal balance under the Term Loan plus the Revolving Credit Loan
Commitment.
At December 31, 2000, the Company was in compliance with its debt
covenants. There can be no assurance, however, that the Company will be able
to maintain compliance with its debt covenants in the future, and failure to
meet such covenants would result in an event of default under the Senior
Credit Facility. To avoid an event of default, the Company would attempt to
obtain waivers from its lenders, restructure the Senior Credit Facility or
secure alternative financing. Under these scenarios, there can be no
assurance that the terms and conditions would be satisfactory to the Company
or not disadvantageous to the Company's stockholders.
INTERNATIONAL SALES AND OPERATIONS. Sales to customers located outside the
United States, either directly or through U.S. and foreign distributors,
accounted for approximately 21.2%, 25.4% and 21.9% of the net sales of the
Company in the years ended December 31, 2000, 1999 and 1998, respectively.
International revenues are subject to a number of risks, including: longer
accounts receivable payment cycles; exchange rate fluctuations; difficulty in
enforcing agreements and intellectual property rights and in collecting
accounts receivable; tariffs and other restrictions on foreign trade;
withholding and other tax consequences; economic and political instability;
and the burdens of complying with a wide variety of foreign laws. Sales made
to foreign customers or foreign distributors may be denominated in either U.S.
dollars or in the currencies of the countries where sales are made. The
Company has not to date sought to hedge the risks associated with fluctuations
in foreign exchange rates and does not currently plan to do so. The Company's
13
foreign sales and operations are also affected by general economic conditions
in its international markets. A prolonged economic downturn in its foreign
markets could have a material adverse effect on the Company's business. The
Company has an operating subsidiary in Japan, and sales and technical support
operations in England. The laws of certain countries do not protect the
Company's products and intellectual property rights to the same extent as do
the laws of the United States. There can be no assurance that the factors
described above will not have an adverse effect on the Company's future
international revenues and, consequently, on the financial condition, results
of operations and business of the Company.
FLUCTUATIONS IN OPERATING RESULTS. The variability of the level and timing
of orders from, and shipments to, major customers may result in significant
fluctuations in the Company's quarterly results of operations. The Company
generally does not obtain long-term purchase orders or commitments but instead
seeks to work closely with its customers to anticipate the volume of future
orders. Generally, customers may cancel, reduce or delay purchase orders and
commitments without penalty. Cancellations, reductions or delays in orders by
a customer or groups of customers could have a material adverse effect on the
financial condition, results of operations and business of the Company. In
addition to the variability resulting from the short-term nature of its
customers' commitments, other factors have contributed, and may in the future
contribute, to such fluctuations. These factors may include, among other
things, customers' and competitors' announcement and introduction of new
products or new generations of products, evolutions in the life cycles of
customers' products, timing of expenditures in anticipation of future orders,
effectiveness in managing manufacturing processes, changes in cost and
availability of labor and components, shifts in the Company's product mix and
changes or anticipated changes in economic conditions. Because the Company's
operating expenses are based on anticipated revenue levels and a high
percentage of the Company's operating expenses are relatively fixed, any
unanticipated shortfall in revenue in a quarter may have a material adverse
impact on the Company's results of operations for the quarter. Results of
operations for any period should not be considered indicative of the results
to be anticipated for any future period.
TECHNOLOGICAL EVOLUTION. The rapid technological evolution of the
electronics industry requires the Company to anticipate and respond rapidly to
changes in industry standards and customer needs and to develop and introduce
new and enhanced products on a timely and cost-effective basis. In particular,
the Company must target its development of Semiconductor burn-in sockets based
on which next-generation IC package designs the Company expects to be
successful. The Company must manage transitions from products using present
technology to those that utilize next-generation technology in order to
maintain or increase sales and profitability, minimize disruptions in customer
orders and avoid excess inventory of products that are less responsive to
customer demand. Any failure of the Company to respond effectively to changes
in industry standards and customer needs, develop and introduce new products
and manage product transitions would have a material adverse effect on the
financial condition, results of operations and business of the Company.
14
PROPRIETARY TECHNOLOGY AND PRODUCT PROTECTION. The Company's success
depends in part on its ability to maintain the proprietary and confidential
aspects of its products as they are released. The Company seeks to use a
combination of patents and other means to establish and protect its
proprietary rights. There can be no assurance, however, that the precautions
taken by the Company will be adequate to protect the Company's technology. In
addition, many of the Company's competitors have obtained or developed, and
may be expected to obtain or develop in the future, patents or other
proprietary rights that cover or affect products that perform functions
similar to those performed by products offered by the Company. There can be no
assurance that, in the future, the Company's products will not be held to
infringe patent claims of its competitors, or that the Company is aware of all
patents containing claims that may pose a risk of infringement by its
products. The inability of the Company for any reason to protect existing
technology or otherwise acquire such technology could prevent distribution of
the Company's products, having a material adverse effect on the financial
condition, results of operations and business of the Company.
LEGAL MATTERS. The Company and its subsidiaries are subject to legal
proceedings arising in the ordinary course of business. On the basis of
information presently available and advice received from legal counsel, it is
the opinion of management that the disposition or ultimate determination of
such legal proceedings will not have a material adverse effect on the
Company's consolidated financial position, its consolidated results of
operations or its consolidated cash flows.
COMPETITION. The electronic connector industry is highly competitive and
fragmented, with more than 1,200 manufacturers worldwide. The Company believes
that competition in its targeted segments is primarily based on design,
responsiveness, quality, price, reputation and reliability. The Company has
experienced significant price pressure with respect to certain products,
including its thin, small outline package ("TSOP") and quad-flat pack ("QFP")
products, and fixed mount and pluggable Industrial terminal blocks. The
Company's significant competitors are much larger and have substantially
broader product lines and greater financial resources than the Company. There
can be no assurance that the Company will compete successfully, and any
failure to compete successfully would have a material adverse effect on the
financial condition, results of operations and business of the Company.
CONCENTRATION OF OWNERSHIP. The current officers, directors and Emerson
Electric Co. ("Emerson"), the Company's largest stockholder, beneficially own
approximately 34.2% of the outstanding shares of the Common Stock of the
Company based on the number of shares of Common Stock outstanding as of
December 31, 2000. Accordingly, such persons, if they act together, can exert
substantial control over the Company through their ability to influence the
election of directors and all other matters that require action by the
Company's stockholders. Such persons could prevent or delay a change in
control of the Company which may be favored by a majority of the remaining
stockholders. Such ability to prevent or delay such a change in control of
the Company also may have an adverse effect on the market price of the
Company's Common Stock.
DEPENDENCE ON KEY PERSONNEL. The Company is largely dependent upon the
skills and efforts of John L. Dwight, Jr., its Chairman of the Board,
15
President and Chief Executive Officer, Jeffrey A. Farnsworth, its Vice
President and General Manager, Wells-CTI-USA, John T. Doyle, Vice President
and General Manager, Industrial/Avionics Division, and other officers and key
employees. The Company does not have employment agreements with any of its
officers or key employees providing for their employment for any specific term
or non-competition agreements prohibiting them from competing with the Company
after termination of their employment. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the financial condition, results of operations and business of the
Company.
DEPENDENCE UPON INDEPENDENT DISTRIBUTORS. Sales through independent
distributors accounted for 29.0%, 19.4%, and 21.9% of the net sales of the
Company for the years ended December 31, 2000, 1999, and 1998, respectively.
The Company's agreements with its independent distributors are nonexclusive
and may be terminated by either party upon 30 days written notice, provided
that if the Company terminates the agreement with an independent distributor,
the Company will be obligated to purchase certain of such distributor's pre-
designated unsold inventory shipped by the Company within an agreed-upon
period prior to the effective date of such termination. The Company's
distributors are not within the control of the Company, are not obligated to
purchase products from the Company, and may also sell other lines of products.
There can be no assurance that these distributors will continue their current
relationships with the Company or that they will not give higher priority to
the sale of other products, which could include products of competitors. A
reduction in sales efforts or discontinuance of sales of the Company's
products by its distributors could lead to reduced sales and could materially
adversely affect the Company's financial condition, results of operations and
business. The Company grants to certain of its distributors limited inventory
return and stock rotation rights. If the Company's distributors were to
increase their general levels of inventory of the Company's products, the
Company could face an increased risk of product returns from its distributors.
There can be no assurance that the Company's historical return rate will
remain at a low level in the future or that such product returns will not have
a material adverse effect on the Company's financial condition, results of
operations and business.
PRODUCT LIABILITY. The Company's products provide electrical connections
between various electrical and electronic components. Any failure by the
Company's products could result in claims against the Company. Except with
respect to avionics products, the Company does not maintain insurance to
protect against possible claims associated with the use of its products. A
successful claim brought against the Company could have a material adverse
effect on the financial condition, results of operations and business of the
Company. Even unsuccessful claims could result in the Company's expenditure of
funds in litigation and management time and resources. There can be no
assurance that the Company will not be subject to product liability claims.
ENVIRONMENTAL COMPLIANCE. The Company is subject to a wide range of
environmental laws and regulations relating to the use, storage, discharge and
disposal of hazardous chemicals used during its manufacturing process. A
failure by the Company at any time to comply with environmental laws and
regulations could subject it to liabilities or the suspension of production.
Such laws and regulations could also restrict the Company's ability to expand
its facilities or could require the Company to acquire costly equipment or
incur other significant expense.
16
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market historically has
experienced volatility which has affected the market price of securities of
many companies and which has sometimes been unrelated to the operating
performance of such companies. The trading price of the Common Stock could
also be subject to significant fluctuations in response to variations in
quarterly results of operations, announcements of new products by the Company
or its competitors, other developments or disputes with respect to proprietary
rights, general trends in the industry, overall market conditions and other
factors. In addition, there can be no assurance that an active trading market
for the Common Stock will be sustained.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Board of
Directors has the authority without action by the Company's stockholders to
fix the rights and preferences of and to issue shares of the Company's
Preferred Stock, which may have the effect of delaying, deterring or
preventing a change in control of the Company. At present the Company has no
plans to issue any shares of Preferred Stock. The Company's Board of Directors
also has the authority without action by the Company's stockholders to impose
various procedural and other requirements that could make it more difficult
for stockholders to effect certain corporate actions. In addition, the
classification of the Company's Board of Directors and certain provisions of
Massachusetts law applicable or potentially applicable to the Company, could
have the effect of delaying, deterring or preventing a change in control of
the Company. These statutory provisions include a requirement that directors
of publicly-held Massachusetts corporations may only be removed for "cause,"
as well as a provision not currently applicable to the Company that any
stockholder who acquires beneficial ownership of 20% or more of the
outstanding voting stock of a corporation may not vote such stock unless the
stockholders of the corporation so authorize.
ITEM 2. PROPERTIES
PCD, headquartered in Peabody, Massachusetts, operates leased production
facilities in Peabody, Massachusetts (60,000 square feet), Phoenix, Arizona
(29,000 square feet), South Bend, Indiana (50,000 square feet), and Yokohama,
Japan (3,600 square feet). The Peabody facility is responsible for molding,
assembly, manufacturing automation development and quality assurance functions
relating to industrial terminal blocks and avionics terminal blocks. The
Phoenix facility is responsible for assembly and quality assurance functions
relating to burn-in sockets, as well as related product design and
development. The South Bend and Yokohama facilities are responsible for
design, assembly, manufacturing automation development and quality assurance
for burn-in sockets. Stamping operations for Peabody, Phoenix and South Bend
are handled at the Peabody facility. Molding fabrication of components for
South Bend and Phoenix are handled at the South Bend facility. The Company
also maintains distribution and technical sales support facilities in
Northhampton, England. The Company believes that its facilities are adequate
for its operations for the foreseeable future.
17
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to legal proceedings arising
in the ordinary course of business. On the basis of information presently
available and advice received from legal counsel, it is the opinion of
management that the disposition or ultimate determination of such legal
proceedings will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market of the
Nasdaq Stock Market, Inc. under the symbol "PCDI." The following table sets
forth the reported high and low sale prices for the Common Stock for the
periods indicated:
High Low
2000 ------- --------
First Quarter.......................................... $ 7-1/2 $ 4-3/16
Second Quarter......................................... 9-1/8 3
Third Quarter.......................................... 11-1/2 6-1/2
Fourth Quarter......................................... 11 5-5/8
1999
First Quarter.......................................... $20 $ 8
Second Quarter......................................... 13-3/8 7-1/4
Third Quarter.......................................... 9 7-3/8
Fourth Quarter......................................... 10-1/2 4-3/4
On February 12, 2001, the last reported sale price for the Common Stock on
the Nasdaq National Market was $7.125 per share. As of January 31, 2001,
there were approximately 1,200 holders of record of Common Stock.
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain future earnings, if any, to
fund the development and growth of its business and does not anticipate paying
any cash dividends on the Common Stock in the foreseeable future. The Board of
Directors of the Company intends to review this policy from time to time,
after taking into account various factors such as the Company's financial
condition, results of operation, current and anticipated cash needs and plans
for expansion. The Senior Credit Facility contains a covenant that prohibits
the Company from paying cash dividends.
18
ITEM 6. SELECTED FINANCIAL DATA
The statement of operations data for the years ended 2000, 1999 and 1998
are derived from audited consolidated financial statements included elsewhere
in this annual report on Form 10-K. The statement of operations data for the
years ended 1997 and 1996 are derived from audited consolidated financial
statements on file with the Securities and Exchange Commission. The balance
sheet data as of December 31, 2000 and 1999 is derived from audited
consolidated financial statements included elsewhere in this annual report on
Form 10-K and the balance sheet data as of December 31, 1998, 1997 and 1996
are derived from audited consolidated financial statements on file with the
Securities and Exchange Commission.
Year Ended December 31,
-----------------------------------------------
2000 1999 1998(1) 1997(2) 1996
-------- -------- -------- -------- -------
(in thousands, except per share amounts)
Consolidated Statement of Operations Data:
Net sales..................... $ 61,957 $ 51,838 $ 64,391 $ 29,796 $26,857
Gross profit.................. 28,467 23,855 37,060 14,676 12,400
Write-off of acquired
in-process research
and development............. - - - (44,438) -
Income (loss) from operations. 11,067 5,636 17,679 (35,578) 6,955
Interest income (expense), net (4,630) (4,558) (8,813) 940 725
Net income (loss) before
extraordinary item......... 3,783 679 5,191 (22,836) 4,785
Extraordinary item, net of
income tax benefit of $567.. - - (888) - -
Net income (loss)............. 3,783 679 4,303 (22,836) 4,785
Net income (loss) per share
before extraordinary item:
Basic................... $ 0.44 $ 0.08 $ 0.69 $ (3.83) $ 0.87
Diluted................. $ 0.42 $ 0.08 $ 0.57 $ (3.83) $ 0.76
Net income (loss) per share:
Basic................... $ 0.44 $ 0.08 $ 0.64 $ (3.83) $ 0.87
Diluted................. $ 0.42 $ 0.08 $ 0.53 $ (3.83) $ 0.76
Weighted Average Shares:
Basic................... 8,624 8,521 7,487 5,955 5,478
Diluted................. 9,088 9,049 8,168 5,955 6,292
December 31,
--------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
(in thousands)
Consolidated Balance Sheet Data:
Working capital (deficit)..... $(10,934) $(12,910) $(11,839) $(12,632) $23,054
Total assets.................. 109,113 114,786 119,104 126,592 32,456
Total debt.................... 35,873 49,600 55,700 105,903 -
Stockholders' equity.......... 62,547 58,024 57,277 8,995 28,706
19
1. Net loss for the year ended December 31, 1998 includes a non-recurring
charge relating to the Wells acquisition for the valuation of the
Emerson Warrant and an extraordinary charge relating to the write off of
the valuation of the Emerson Warrant and the prepayment penalty
associated with the Debenture (for the meaning of capitalized terms, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources"). Before deducting for
the non-recurring and extraordinary charges, net income per share -
basic was $0.89 (based on a weighted average number of shares
outstanding of 7,486,915), and net income per share - diluted was $0.81
(based on a weighted average number of common and common equivalent
shares outstanding of 8,167,525).
2. Net loss for the year ended December 31, 1997 includes a non-recurring
write-off relating to the Wells acquisition for acquired in-process
research and development. Before deducting the write-off, net income per
share - basic was $1.04 (based on a weighted average number of shares
outstanding of 5,954,657), and net income per share - diluted was $0.94
(based on a weighted average number of common and common equivalent
shares outstanding of 6,634,125).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 2000, net sales of the Company increased to $62.0 million from $51.8
million in 1999. This increase was due primarily to increased shipments of
burn-in sockets resulting from increased demand by semiconductor
manufacturers. The Company realized approximately 51.3% of its net sales in
2000 from products introduced in the last five years. The Company distributes
its products through a combination of its own dedicated direct sales force, a
worldwide network of manufacturers' representatives and authorized
distributors. Sales to customers located outside the United States, either
directly or through U.S. and foreign distributors, accounted for approximately
21.2%, 25.4%, and 21.9% of the net sales of the Company in the years ended
December 31, 2000, 1999 and 1998, respectively.
The following table sets forth the relative percentages of the total net
sales of the Company attributable to each of the Company's product categories
for the periods indicated.
PRODUCT CATEGORIES 2000 1999 1998
------------------ ------ ------ ------
Semiconductor burn-in sockets........... 68.5% 64.5% 71.7%
Industrial interconnects................ 14.2 14.1 11.4
Avionic terminal blocks and sockets..... 17.3 21.4 16.9
------ ------ ------
Total.............................. 100.0% 100.0% 100.0%
====== ====== ======
20
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations as (1) a percentage of net sales and (2)
the percentage period-to-period change in dollar amounts of such items for the
periods indicated. The information for 1998 excludes the non-recurring and
extraordinary charges related to the Wells acquisition. The table and the
discussion below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
Year Ended December 31, Period-to-Period Change
------------------------- -----------------------------
2000 1999 1998 2000 vs. 1999 1999 vs. 1998
------ ------ ------ ------------- -------------
Net sales............. 100.0% 100.0% 100.0% 19.5% (19.5%)
Gross profit.......... 45.9 46.0 57.6 19.3 (35.6)
Income from
operations
before non-recurring
and extraordinary
charges.............. 17.9 11.4 27.5 87.7 (66.7)
Non-operating
income (expense), net (7.5) (9.3) (10.1) 1.6 (45.3)
Net income............ 6.1 1.3 10.3 457.1 (84.2)
YEARS ENDED DECEMBER 31, 2000 AND 1999
NET SALES. Net sales increased 20% to $62.0 million for 2000, from $51.8
million for 1999. The increase was due primarily to higher net sales in the
burn-in socket product lines which were up $9.0 million or 27% from 1999. The
net sales increase in this business was due to strong market conditions during
2000 together with new products introduced by the Company. Incoming orders for
burn-in sockets rose $8.9 million or 25% to $44.5 million in 2000.
Industrial/Avionics division net sales were up $1.1 million or 6% from 1999.
GROSS PROFIT. Gross profit increased by $4.6 million or 19.3% in 2000
from $23.9 million in 1999. As a percentage of net sales, gross profit was
45.9% in 2000 and 46.0% in 1999. The gross profit percentage was impacted by
several factors in 2000. First, depreciation increased by $0.6 million in
2000. Second, the burn-in socket business experienced higher than expected
manufacturing inefficiencies and inventory write-offs during the second half
of the year. This was due in part to the inconsistent availability of certain
material during a period of rapid increase in demand from the Company's
customers. Finally, the Industrial/Avionics division experienced an
unfavorable product mix shift in 2000. These negative factors were partially
offset by the favorable impact of higher sales volume in 2000. Changes in the
Company's product mix (most particularly in the burn-in socket business) can
have a material impact on the Company's gross profit percentage. These changes
cannot always be predicted with certainty.
OPERATING EXPENSES. Operating expenses include selling, general and
administrative expenses and costs of product development. Operating expenses
21
decreased by $0.6 million to $13.2 million or 21.3% of net sales in 2000 from
$13.8 million or 26.6% of net sales in 1999. The decrease in 2000 was
primarily due to specific actions taken to reduce expenses at the Wells-CTI
division in 1999 and 2000.
RESTRUCTURING COSTS. In 1999, the Company recorded a charge of $259,000
in connection with its Wells-CTI cost reduction program. During 1999, the
Pennsylvania stamping facility was closed and operations transferred to
Peabody, MA. The Japan subsidiary was downsized and restructure of
manufacturing operations was begun as certain assembly operations were
transferred from South Bend, IN to Phoenix, AZ. The expenses incurred were
for severance payments of $177,000, write-off of fixed assets of $42,000,
remodeling of Japanese office of $32,000 and other miscellaneous expenses of
$8,000. There are no amounts accrued for restructuring at December 31, 2000.
The annualized cost savings from the restructuring program approximate $1.0
million.
NON-OPERATING INCOME (EXPENSE), NET. Interest expense was $4.4 million in
2000 as compared with $4.6 million in 1999. Interest expense includes
interest on the Senior Credit Facility of which the balance was reduced by
$13.5 million during the year. The lower debt balances were partly offset by
higher borrowing costs in 2000. The higher borrowing costs were due to higher
interest rates in 2000 together with amortization of additional amendment
fees.
PROVISION FOR INCOME TAXES. The effective income tax rates for 2000 and
1999 were 41.2% and 37.0%, respectively. The increase in the effective rate
in 2000 was due to profitability in the Company's Wells-CTI Japan operation,
which carries a higher effective rate than the combined U.S. federal/state
effective rate. In 1999, the Japan operation reported a loss.
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Net sales decreased 20% to $51.8 million for 1999, from
$64.4 million for 1998. The decrease was due to lower net sales in the burn-
in socket product lines, which were negatively impacted by several factors in
1999. First, sales volume changes in this segment typically lag the
semiconductor industry overall. The worldwide slowdown in the semiconductor
industry began to impact the Company's shipments during the second half of
1998. Although the industry began to show signs of a recovery during the
second half of 1999, the Company's sales orders did not return to early 1998
levels. Also, in 1999, certain key customers of the Company exited segments of
the semiconductor business while others lost market share to their
competitors. Finally, the memory burn-in sockets market experienced
significant price pressure due to over capacity and an increasing emphasis on
low cost, standardized products.
GROSS PROFIT. Gross profit decreased by $13.2 million or 35.6% in 1999
from $37.1 million in 1998. As a percentage of net sales, gross profit
declined to 46.0% in 1999 from 58% in 1998. The decline in dollar and
percentage terms was due to lower sales volume, pricing pressure in certain
segments of the burn-in socket market and a shift in product mix which
resulted in a higher percentage of Industrial/Avionics net sales in 1999. As
22
presented in the table above, Industrial/Avionics net sales comprised 35.5% of
total net sales in 1999 as compared with 28.3% in 1998.
OPERATING EXPENSES. Operating expenses include selling, general and
administrative expenses and costs of product development. Operating expenses
decreased by $1.4 million to $13.8 million or 26.6% of net sales in 1999 from
$15.2 million or 23.6% of net sales in 1998. The decrease in 1999 was the
result of actions taken to reduce expenses in response to lower sales volume.
These actions included merging the PCD Control Systems Interconnect division
with the Industrial/Avionics division and closing the Pennsylvania sales
office during the first quarter of 1999. Cost reductions at the Wells-CTI
division instituted during the third and fourth quarters of 1998 together with
downsizing of its Japan operations during the third quarter of 1999 also
contributed to reduced operating expenses.
RESTRUCTURING COSTS. In 1999, the Company recorded a charge of $259,000
in connection with its Wells-CTI cost reduction program. During the year, the
Pennsylvania stamping facility was closed and operations transferred to
Peabody, MA. The Japan subsidiary was downsized and restructure of
manufacturing operations was begun as certain assembly operations were
transferred from South Bend, IN to Phoenix, AZ. The expenses incurred were
for severance payments of $177,000, write-off of fixed assets of $42,000,
remodeling of Japanese office of $32,000 and other miscellaneous expenses of
$8,000. At December 31, 1999, the only accrued expenses for these
restructuring costs were for severance payments in the amount of $48,000.
NON-OPERATING INCOME (EXPENSE), NET. Interest expense was $4.6 million in
1999 as compared with $10.3 million in 1998. Interest expense in 1999
includes interest on the Senior Credit Facility of which the balance was
reduced by $6.1 million during the year. As more fully discussed below,
interest expense in 1998 includes interest on the Senior Credit Facility in
addition to interest costs associated with the Emerson financing. See
"Liquidity and Capital Resources."
PROVISION FOR INCOME TAXES. The effective income tax rates for 1999 and
1998 were 37.0% and 41.9%, respectively. The decrease in the effective rate
in 1999 was due to losses incurred by the Company's Wells-CTI Japan operation,
which carries a higher effective rate than the combined U.S. federal/state
effective rate. In 1998, the Japan operation was profitable.
INCOMPLETE TECHNOLOGY UPDATE
The acquired in-process research and development ("IPR&D") which was
expensed in 1997 in connection with the Wells acquisition related to in-
process burn-in socket designs and manufacturing process for various next
generation high density IC package types. More specifically, there were six
projects for dual-sided surface mount ("SO") packages, six for chip scale
packages ("CSP"), three for land grid array ("LGA"), two for ball grid array
("BGA"), two for test sockets and one for a miscellaneous package. As of
December 31, 2000, none of the projects remain active.
23
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 2000 was $17.2 million, compared
to $9.4 million in 1999. These funds were sufficient to meet working capital
requirements and to fund capital expenditures of approximately $3.0 million.
The Company currently anticipates that its capital expenditures for 2001 will
be approximately $5.0 million, which consist primarily of purchased tooling
and equipment required to support the Company's business. The amount of these
anticipated capital expenditures will frequently change based on future
changes in business plans and conditions of the Company and changes in
economic conditions.
In December 1997, the Company obtained a Senior Credit Facility for $90
million from Fleet National Bank and other lenders (the "Senior Credit
Facility") to finance in part the Wells acquisition. The Senior Credit
Facility is secured by all of the assets of the Company. In conjunction with
the Senior Credit Facility, PCD and Wells-CTI (formerly Wells Electronics,
Inc.) each entered into a stock pledge agreement with Fleet and the other
lenders pledging all or substantially all of the stock of the subsidiaries of
PCD and Wells-CTI. Each of PCD, Wells-CTI and certain of their subsidiaries
also entered into a security agreement and certain other collateral or
conditional assignments of assets with Fleet and other lenders. In August
1998, the Company renegotiated the Senior Credit Facility. As a result, the
interest rate premium of 50 basis points charged on approximately $40 million
of the Senior Credit Facility was eliminated. According to its terms, the re-
negotiated Senior Credit Facility will terminate on or before December 31,
2003. At December 31, 2000 and 1999, borrowings of $36.1 million and $49.6
million were outstanding under the Senior Credit Facility at weighted average
interest rates of 8.70% and 7.78%, respectively.
The agreement governing the Senior Credit Facility contains numerous
financial and operating covenants. Among the operating covenants are
restrictions that the Company (i) must maintain John L. Dwight, Jr. as chief
executive officer of the Company or obtain the consent of the lenders under
the Senior Credit Facility to any replacement of Mr. Dwight; (ii) may not,
without the prior consent of such lender, acquire the assets of or ownership
interest in, or merge with other companies; and (iii) may not, without the
prior consent of such lenders, pay cash dividends. The Senior Credit Facility
also requires the Company to maintain certain financial covenants, including
minimum earnings before interest, taxes, depreciation and amortization
("EBITDA"), minimum fixed charge coverage ratio, minimum quick ratio, maximum
ratio of total senior debt to EBITDA, maximum ratio of total indebtedness for
borrowed money to EBITDA, minimum interest coverage ratio, and maximum capital
expenditures, during the terms of the Senior Credit Facility.
The Company has experienced difficulty meeting all of the covenants under
its Senior Credit Facility. Accordingly, in September 1999, certain covenants
were amended by agreement between the Company and its lenders. In March 2000,
the Company obtained from its lenders a waiver of compliance with certain
covenants for the fourth quarter of 1999. At the same time, certain covenants
were amended by agreement between the Company and its lenders through June 30,
2000. In conjunction with the March 2000 agreement, the Company issued
warrants to its lenders covering a total of 203,949 shares of Common Stock at
an exercise price of $4.90 per share. The warrants were structured to become
24
exercisable on June 30, 2000 if the Company had not obtained at least $10
million of subordinated debt or other capital infusions ("Junior Capital")
junior to loans under the Senior Credit Facility by June 30, 2000, or by June
30, 2000 had not entered into definitive agreements permitting repayment of
amounts outstanding under the Senior Credit Facility by December 31, 2000. In
addition, since the Company did not obtain the Junior Capital by April 30,
2000, the Company started on May 1, 2000 paying the lenders a quarterly fee of
0.25% of the sum of the total outstanding principal balance under the Term
Loan plus the Revolving Credit Loan Commitment.
During the second quarter of 2000, the Company's management and board of
directors, in conjunction with its outside financial advisors, concluded that
the cost of Junior Capital would have been prohibitively expensive under the
existing market conditions. Accordingly, the Company ceased efforts to raise
Junior Capital. The warrants for 203,949 shares of the Company's stock became
exercisable on June 30, 2000 and the lenders' 0.25% quarterly fee began on May
1, 2000.
At December 31, 2000, the Company was in compliance with its debt
covenants. There can be no assurance, however, that the Company will be able
to maintain compliance with its debt covenants in the future, and failure to
meet such covenants would result in an event of default under the Senior
Credit Facility. To avoid an event of default, the Company would attempt to
obtain waivers from its lenders, restructure the Senior Credit Facility or
secure alternative financing. Under these scenarios, there can be no
assurance that the terms and conditions would satisfactory to the Company or
not disadvantageous to the Company's stockholders.
In December 1997, the Company entered into a Subordinated Debenture and
Warrant Purchase Agreement ("Purchase Agreement") with Emerson Electric Co.
("Emerson"), the Company's largest stockholder. Pursuant to the Purchase
Agreement, the Company issued to Emerson a Subordinated Debenture
("Debenture") with a principal amount of $25 million at an annual rate of
interest of 10% and a Common Stock Purchase Warrant (the "Emerson Warrant")
for the purchase of up to 525,000 shares of PCD Common Stock at a purchase
price of $1.00 per share. In April 1998, the Company paid the principal,
interest and prepayment penalty of 3.25%, or $812,500, in full, resulting in
an extraordinary charge to income of $888,000, net of taxes, in the second
quarter of 1998. Accordingly, 375,000 shares of the Emerson Warrant
terminated by the terms thereof, leaving the Emerson Warrant only exercisable
for 150,000 shares of PCD Common Stock. The Emerson Warrant for 150,000 shares
was exercised in 2000.
The Company believes its existing working capital and borrowing capacity,
coupled with the funds generated from the Company's operations, will be
sufficient to fund its anticipated working capital, capital expenditure and
debt payment requirements through 2001. Because the Company's capital
requirements cannot be predicted with certainty, there can be no assurance
that any additional financing will be available on terms satisfactory to the
Company or not disadvantageous to the Company's stockholders.
25
INFLATION AND COSTS
The cost of the Company's products is influenced by the cost of a wide
variety of raw materials, including precious metals such as gold used in
plating, copper and brass used for contacts, and plastic material used in
molding connector components. In the past, increases in the cost of raw
materials, labor and services have been offset by price increases,
productivity improvements and cost saving programs. There can be no assurance,
however, that the Company will be able to similarly offset such cost increases
in the future.
ITEM 7A. MARKET RISK
INTEREST RATE RISK
PCD is exposed to fluctuations in interest rates in connection with its
variable rate term loan. In order to minimize the effect of changes in
interest rates on earnings, PCD entered into an interest rate swap that fixed
the interest rate on a notional amount of its variable rate term loan. Under
the swap agreement, PCD pays a variable rate under LIBOR and receives a fixed
rate of 5.72% on a notional amount of $35,000,000. The potential increase in
the fair value of its term loan when adjusting for the interest rate swap
paying at a fixed rate resulting from a hypothetical 10% decrease in interest
rates was not material.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants....................................... 21
Consolidated Balance Sheets as of December 31, 2000 and 1999............ 22
Consolidated Statements of Income
for the years ended December 31, 2000, 1999 and 1998................... 23
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998................... 24
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998................... 25
Notes to the Consolidated Financial Statements.......................... 26
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of PCD Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, cash flows and stockholders'
equity present fairly, in all material respects, the financial position of
PCD Inc. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 2001
28
PCD INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
-------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash.............................................. $ 837 $ 652
Accounts receivable - trade (less
allowance for uncollectible accounts
of $347 in 2000 and $367 in 1999)................ 8,318 6,831
Inventory.......................... .............. 6,199 5,479
Income tax refund receivable...................... - 1,416
Prepaid expenses and other current assets......... 823 674
-------- --------
Total current assets...................... 16,177 15,052
Equipment and improvements, net..................... 15,801 17,542
Deferred tax asset.................................. 11,151 12,258
Goodwill, net....................................... 52,423 55,506
Intangible assets, net.............................. 10,381 11,418
Debt financing fees................................. 1,574 1,276
Other assets........................................ 1,606 1,734
-------- --------
Total assets.............................. $109,113 $114,786
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................... $ 7,300 $ 12,000
Current portion of long-term debt................. 9,118 8,800
Accounts payable - trade.......................... 5,134 3,972
Accrued liabilities............................... 5,559 3,190
Total current liabilities................. 27,111 27,962
-------- --------
Long-term debt, net of current portion.............. 19,455 28,800
-------- --------
Total liabilities......................... 46,566 56,762
Commitments and contingencies (Notes 8, 9 and 11)
Stockholders' equity:
Preferred stock - $0.10 par value; 1,000,000 shares
authorized; no shares issued
Common stock - $0.01 par value; 25,000,000 shares
authorized; 8,811,822 and 8,561,735 shares issued
and outstanding in 2000 and 1999, respectively.... 88 86
Additional paid-in capital.......................... 62,642 61,913
Accumulated deficit................................. (165) (3,948)
Accumulated other comprehensive income (loss) ...... (18) (27)
-------- --------
Total stockholders' equity................ 62,547 58,024
-------- --------
Total liabilities and stockholders' equity $109,113 $114,786
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
29
PCD INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Net sales................................... $ 61,957 $ 51,838 $ 64,391
Cost of sales............................... 33,490 27,983 27,331
-------- -------- --------
Gross profit.............................. 28,467 23,855 37,060
Operating expenses.......................... 13,210 13,770 15,172
Restructuring costs......................... - 259 -
Amortization................................ 4,190 4,190 4,209
-------- -------- --------
Income from operations.................... 11,067 5,636 17,679
Interest and other income/(expense), net.... (253) 33 421
Interest expense............................ (4,377) (4,591) (9,234)
-------- -------- --------
Income before provision for
income taxes and extraordinary item..... 6,437 1,078 8,866
Provision for income taxes.................. 2,654 399 3,675
-------- -------- --------
Net income before extraordinary item........ 3,783 679 5,191
Extraordinary item,
net of income tax benefit of $567 (Note 3) - - (888)
-------- -------- --------
Net income.................................. $ 3,783 $ 679 $ 4,303
======== ======== ========
Basic earnings per share:
Income before extraordinary item....... $ 0.44 $ 0.08 $ 0.69
Extraordinary item..................... - - (0.12)
-------- -------- --------
Net income............................. $ 0.44 $ 0.08 $ 0.57
======== ======== ========
Diluted earnings per share:
Income before extraordinary item....... $ 0.42 $ 0.08 $ 0.64
Extraordinary item..................... - - (0.11)
-------- -------- --------
Net income............................. $ 0.42 $ 0.08 $ 0.53
======== ======== ========
Weighted average number of common
and common equivalent shares outstanding:
Basic.................................. 8,624 8,521 7,487
======== ======== ========
Diluted................................ 9,088 9,049 8,168
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
30
PCD INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1999 and 2000
(In thousands, except share amounts)
Accumulated
Common Stock Additional Other Total
------------------- Paid-in Accumulated Comprehensive Deferred Stockholders' Comprehensive
Shares Par Value Capital (Deficit) Income (Loss) Compensation Equity Income
--------- --------- ---------- ----------- ------------- ------------ ------------- -------------
Balance, December 31, 1997 6,020,182 $ 60 $ 17,904 $ (8,930) $ - $ (39) $ 8,995
Comprehensive income:
Net income............. 4,303 4,303 $ 4,303
Foreign currency
translation adjustment 146 146 146
-------
Comprehensive income $ 4,449
=======
Public stock offering, net 2,300,000 23 42,439 42,462
Exercise of stock options. 119,500 1 149 150
Tax benefit from
stock options exercised.. 357 357
Valuation of stock warrant 820 820
Purchase of stock warrant. 5 5
Amortization of
deferred compensation.... 39 39
--------- ---- -------- -------- -------- --------- ----------
Balance, December 31, 1998 8,439,682 84 61,674 (4,627) 146 - 57,277
Comprehensive income:
Net income............. 679 $ 679
Foreign currency
translation adjustment (173) (173) (173)
-------
Comprehensive income $ 506
=======
Employee stock
purchase plan............ 7,053 65 65
Exercise of stock options. 115,000 2 135 137
Tax benefit from
stock options exercised.. 39 39
--------- ---- -------- -------- -------- --------- ----------
Balance, December 31, 1999 8,561,735 86 61,913 (3,948) (27) - 58,024
Comprehensive income:
Net income............. 3,783 3,783 $ 3,783
Foreign currency
translation adjustment 9 9 9
-------
Comprehensive income $ 3,792
=======
Employee stock
purchase plan............ 9,737 42 42
Exercise of stock options. 90,350 1 116 117
Exercise of warrant....... 150,000 1 149 150
Valuation of stock warrant 289 289
Tax benefit from
stock options exercised.. 133 133
--------- ---- -------- -------- -------- --------- ----------
Balance, December 31, 2000 8,811,822 $ 88 $ 62,642 $ (165) $ (18) $ - $ 62,547
========= ==== ======== ======== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements.
31
PCD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
--------------------------
2000 1999 1998
------- ------- -------
Cash flows from operating activities:
Net income....................................... $ 3,783 $ 679 $ 4,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 4,885 4,315 3,472
Amortization of warrant........................ 69 - 2,917
Amortization of goodwill and intangible assets. 4,190 4,190 4,209
Loss on disposal of equipment.................. 13 19 9
Amortization of deferred compensation.......... - - 39
Amortization of debt financing fees............ 470 348 269
Tax refunds.................................... 1,380 - -
Tax benefit from stock options exercised....... 133 39 357
Provision for deferred taxes................... 1,082 1,934 1,143
Changes in operating assets and liabilities:
Accounts receivable........................... (1,925) (1,078) 1,262
Inventory..................................... (825) (363) (93)
Prepaid expenses and other current assets..... (92) (1,418) 949
Other assets.................................. 45 (61) (100)
Accounts payable.............................. 1,416 649 (1,448)
Accrued liabilities........................... 2,584 116 (4,972)
------- ------- -------
Total adjustments............................ 13,425 8,690 8,013
------- ------- -------
Net cash provided by operating activities... 17,208 9,369 12,316
------- ------- -------
Cash flows from investing activities:
Equipment and improvements expenditures.......... (3,037) (3,703) (5,827)
------- ------- -------
Net cash used in investing activities....... (3,037) (3,703) (5,827)
------- ------- -------
Cash flows from financing activities:
Borrowings of short-term debt.................... - 2,300 -
Payments for short-term debt..................... (4,700) - (3,300)
Payments for long-term debt...................... (8,800) (8,400) (24,000)
Payments for subordinated debenture.............. - - (25,000)
Proceeds from employee stock purchase plan....... 42 65 -
Proceeds from exercise of common stock options... 117 137 150
Proceeds from exercise of warrant................ 150 - -
Proceeds from issuance of warrant................ - - 5
Deferred financing and loan amendment fees....... (768) - -
Proceeds from issuance of common stock, net...... - - 42,462
------- ------- -------
Net cash used in financing activities........... (13,959) (5,898) (9,683)
------- ------- -------
Net increase (decrease) in cash................... 212 (232) (3,194)
Effect of exchange rate on cash................... (27) 32 56
Cash and cash equivalents at beginning of year.... 652 852 3,990
------- ------- -------
Cash and cash equivalents at end of year.......... $ 837 $ 652 $ 852
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................ $ 3,436 $ 4,140 $ 7,580
======= ======= =======
Income taxes.................................... $ 302 $ 395 $ 4,793
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
32
PCD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
PCD Inc. ("the Company") is engaged principally in designing, manufacturing
and marketing electronic connectors for use in semiconductor burn-in
applications, industrial equipment and avionics. Electronic connectors are
used in virtually all electronic systems, including data communications,
telecommunications, computers and computer peripherals, industrial controls,
automotive, avionics and test and measurement instrumentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Certain reclassifications have been made to prior year
footnote amounts to conform with current year presentation.
REVENUE RECOGNITION
Revenue is recognized upon shipment to customers. The Company grants to
certain of its distributors limited return and stock rotation rights.
Historically, the Company's return rate has been insignificant.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or fewer to be cash equivalents. The Company
had all its cash in interest bearing accounts at December 31, 2000 and
December 31, 1999.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Collateral is not required for trade receivables, but ongoing credit
evaluations of customer's financial condition are performed. A greater portion
of the Company's accounts receivables are concentrated in the Semiconductor
burn-in industry. The Company has not experienced significant losses related
to receivables from individual customers or groups of customers in the
Semiconductor burn-in industry or by geographic region. Additionally, the
Company maintains reserves for potential credit losses. Due to these factors,
no additional credit risk beyond amounts provided for collection losses is
believed by management to be inherent in the Company's accounts receivables.
33
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates included in these financial statements are allowances
for uncollectible accounts, allowances for inventory valuation, goodwill,
intangible assets and deferred taxes.
INTEREST RATE SWAP
The Company uses derivative financial instruments for purposes other than
trading and does so to reduce its exposure to fluctuations in interest rates.
Gains and losses on hedges of existing assets and liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income. The amounts receivable and payable are recorded as a
current liability with realized gains or losses recognized as adjustments to
interest expense.
Under the interest rate swap contract, the Company agrees to pay an amount
equal to a specified floating rate of interest times a notional principal
amount, and to receive in return an amount equal to the difference between the
specified floating rate and the specified fixed rate of interest times the
same notional principal amount. The notional amounts of the contract are not
exchanged. No other cash payments are made unless the contract is terminated
prior to maturity, in which case the amount paid or received in settlement is
established by agreement at the time of termination, and usually represents
the net present value, at current rates of interest, of the remaining
obligations to exchange payments under the terms of the contract. The interest
rate swap contract is entered into with a major financial institution in order
to minimize credit risk. This contract has a term from February 1998 through
March 2001. At December 31, 2000, the Company was a variable rate payer of
6.67% and received a fixed rate of 5.72% on notional amount of $35,000,000.
The fair value at December 31, 2000, was an unfavorable $17,600.
INVENTORY
Inventories are stated at the lower of cost, determined on a first-in,
first-out method, or market.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
NET INCOME (LOSS) PER COMMON SHARE
The following table reconciles net income and weighted average shares
outstanding to the amounts used to calculate basic and diluted earnings (loss)
per share for each of the years ended December 31, 2000, 1999 and 1998.
34
Net Income Per Share
(Loss) Shares Amount
For the year ended December 31, 2000 ---------- --------- ---------
Basic earnings............................... $3,783,000 8,623,976 $ 0.44
Assumed exercise of options (treasury method) - 464,005 -
---------- --------- ------
Diluted earnings............................. $3,783,000 9,087,981 $ 0.42
========== ========= ======
For the year ended December 31, 1999
Basic earnings............................... $ 679,000 8,520,670 $ 0.08
Assumed exercise of options (treasury method) - 528,043 -
---------- --------- ------
Diluted earnings............................. $ 679,000 9,048,713 $ 0.08
========== ========= ======
For the year ended December 31, 1998
Basic earnings before extraordinary item..... $5,191,000 7,486,915 $ 0.69
Assumed exercise of options (treasury method) - 680,610 -
---------- --------- ------
Diluted earnings before extraordinary item... $5,191,000 8,167,525 $ 0.64
========== ========= ======
Extraordinary item........................... $ (888,000) 7,486,915 $(0.12)
Assumed exercise of options (treasury method) - 680,610 -
---------- --------- ------
Diluted extraordinary item................... $ (888,000) 8,167,525 $(0.11)
========== ========= ======
Basic earnings............................... $4,303,000 7,486,915 $ 0.57
Assumed exercise of options (treasury method) - 680,610 -
---------- --------- ------
Diluted earnings............................. $4,303,000 8,167,525 $ 0.53
========== ========= ======
In 2000, 1999 and 1998, anti-dilutive Common Stock equivalents of 145,357,
125,963 and 79,366 shares, respectively, were not included in the calculation
of diluted EPS.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are recorded at cost and are depreciated
utilizing the straight-line method over their estimated useful lives (Note 5).
Maintenance and repairs which neither materially add to the value of the
property nor appreciably prolong its life are charged to expense as incurred.
Upon retirement or other disposition, the cost and related accumulated
depreciation are eliminated from the accounts and the resulting gain or loss
is included in the results of operations.
INCOME TAXES
The Company utilizes the asset and liability approach of accounting for income
taxes. Under the asset and liability approach, deferred taxes are determined
based on the difference between the financial statement and tax bases of
35
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Deferred tax expense (benefit)
represents the change in the deferred tax asset or deferred tax liability
balance. Tax credits are treated as reductions of income taxes in the year in
which the credits become available for tax purposes.
GOODWILL AND INTANGIBLE ASSETS
Goodwill is accounted for in accordance with Accounting Principles Board
("APB") No. 17, Intangible Assets. Goodwill represents costs in excess of net
assets of the business acquired and is amortized on a straight-line basis over
the expected periods to be benefited, which is currently 20 years. The
Company's policy is to assess the goodwill based on an evaluation of such
factors as the occurrence of a significant adverse event or change in the
environment in which the business operates. An impairment loss would be
recorded in the period such determination is made based on the undiscounted
cash flows of the related businesses. No impairment losses have been
recognized in any of the periods presented. Intangible assets are stated at
cost and are amortized using the straight-line method. Loan acquisition fees
are amortized over the life of the applicable indebtedness. Trademarks and
trade names are amortized over their estimated remaining economic lives of 20
years, consistent with industry norms. Patented technologies are amortized
over their estimated remaining economic lives of 6 years.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Financial Accounting Standards ("FAS") 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, the Company reviews long-lived assets for impairment whenever
events of change in business circumstances indicate that the carrying amount
of the assets may not be fully recoverable. Each impairment test is based on
comparison of undiscounted cash flows to the recorded value of the asset. If
an impairment is indicated, the asset is written down to its fair value. No
impairment losses have been recognized in any of the periods indicated.
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
The functional currency of the Company's foreign operation is the foreign
subsidiary's local currency. Assets and liabilities of the foreign subsidiary
are translated using the current exchange rate in effect at the balance sheet
date. Revenue and expense items are translated at average exchange rates for
the period. The resulting translation adjustments are recorded as a component
of stockholders' equity. Gains or losses resulting from foreign currency
transactions of approximately $5,000 are included in other income.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board ("FASB") released FAS
133, Accounting for Derivative Instruments and Hedging Activities, which
initially would have been effective for all fiscal quarters beginning after
June 15, 1999. In June 1999, the FASB released FAS 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133. FAS 137 deferred the effective date of FAS 133
until June 15, 2000. In July 2000, the FASB released FAS 138, Accounting for
36
Certain Derivative Instruments and Certain Hedging Activities an amendment of
FASB Statement No. 13. FAS 138 amended the requirements of FAS 133 but
maintained the effective date as June 15, 2000. FAS 138, as FAS 133 did,
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Company has evaluated
the impact that FAS 138 and found it to be immaterial.
3. EXTRAORDINARY ITEM:
In the second quarter of 1998, the Subordinated Debenture issued to Emerson
Electric was paid in full. The Company incurred additional interest expense
of $642,500, which represents the amortized portion of the Emerson Warrant
applicable to the second quarter of 1998, and prepayment penalties of
$812,500, which represents the prepayment penalty associated with the
Subordinated Debenture.
4. INVENTORY:
Inventory consisted of the following at December 31:
2000 1999
------ ------
(In thousands)
Raw materials and finished subassemblies......... $4,213 $3,803
Work in process.................................. 34 308
Finished goods................................... 1,952 1,368
------ ------
Total.......................................... $6,199 $5,479
====== ======
5. EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consisted of the following at December 31:
Estimated Useful
Life In Years 2000 1999
--------------------- ------- -------
(In thousands)
Tools, dies and molds........... 5 $18,928 $17,123
Machinery and equipment......... 10 6,485 6,155
Office furniture and fixtures... 5 2,867 2,736
Computer software............... 3 1,421 1,205
Transportation equipment........ 4 131 134
Leasehold improvements.......... Shorter of lease term
or useful life 1,067 1,065
------- -------
30,899 28,418
Less accumulated depreciation... 16,315 11,547
------- -------
14,584 16,871
Capital expenditures in progress 1,217 671
------- -------
Equipment and improvements, net. $15,801 $17,542
======= =======
37
6. INTANGIBLE ASSETS AND GOODWILL:
Intangible assets and goodwill consisted of the following at December 31:
2000 1999
------- -------
(In thousands)
Patented technology.............................. $ 3,109 $ 3,109
Trade names/trademarks........................... 10,384 10,384
------- -------
Subtotal....................................... 13,493 13,493
Less accumulated amortization.................. 3,112 2,075
------- -------
Net intangibles.............................. $10,381 $11,418
======= =======
Goodwill......................................... $61,674 $61,674
Less accumulated amortization.................... 9,251 6,168
------- -------
Net goodwill............. ................... $52,423 $55,506
======= =======
7. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
2000 1999
------- -------
(In thousands)
Compensation and benefits..................... $ 1,781 $ 1,220
Commissions................................... 295 266
Income taxes payable.......................... 1,485 487
Interest...................................... 568 133
Professional fees............................. 238 269
Other......................................... 1,192 815
------- -------
Total....................................... $ 5,559 $ 3,190
======= =======
8. LINE OF CREDIT AND LONG-TERM DEBT:
On December 26, 1997, the Company entered into a secured $20,000,000
Revolving Credit Agreement ("Revolver"), $30,000,000 Secured Term Loan
Agreement A and $40,000,000 Secured Term Loan Agreement B (collectively
referred to as the "Senior Credit Facility") with several banks. The Senior
Credit Facility is collateralized by all of the assets of PCD and its
subsidiaries. In conjunction with the Senior Credit Facility, PCD and Wells-
CTI (formerly Wells Electronics, Inc.) each entered into a stock pledge
agreement pledging all or substantially all of the stock of the subsidiaries
of PCD and Wells-CTI. Each of PCD, Wells-CTI and certain of their subsidiaries
also entered into a security agreement and certain other collateral or
conditional assignments of assets.
38
In August 1998, the Company renegotiated the Senior Credit Facility. As a
result, Term Loan A and Term Loan B were combined into a single term loan.
Accordingly, the interest rate premium of 50 basis points charged on Term Loan
B was eliminated. According to its terms, the re-negotiated Senior Credit
Facility will terminate on or before December 31, 2003. At December 31, 2000
and 1999, borrowings of $36,100,000 and $49,600,000 were outstanding under the
Senior Credit Facility at a weighted average interest rate of 8.70% and 7.78%,
respectively. The unused portion of the Revolver at December 31, 2000 and
1999 was $12,700,000 and $8,000,000, respectively.
The agreement governing the Senior Credit Facility contains numerous
financial and operating covenants. Among these covenants are restrictions
that the Company (i) must maintain John L. Dwight, Jr. as chief executive
officer of the Company or obtain the consent of the lenders under the Senior
Credit Facility to any replacement of Mr. Dwight; (ii) may not, without the
prior consent of such lender, acquire the assets of or ownership interest in,
or merge with, other companies; and (iii) may not, without the prior consent
of such lenders, pay cash dividends. The Senior Credit Facility also requires
that the Company to maintain certain financial covenants, including minimum
fixed charge coverage ratio, as defined; minimum quick ratio, as defined;
maximum ratio of total senior debt to EBITDA, maximum ratio of total
indebtedness for borrowed money to earnings before interest, taxes,
depreciation and amortization ("EBITDA"), minimum interest coverage ratio,
maximum capital expenditures, as defined, during the terms of the Senior
Credit Facility.
In March 2000, the Company obtained from its lenders a waiver of compliance
with certain covenants for the fourth quarter of 1999. In addition, certain
covenants were amended by agreement between the Company and its lenders
through June 30, 2000. In conjunction with the March 2000 agreement, the
Company issued warrants to its lenders covering a total of 203,949 shares of
Common Stock at an exercise price of $4.90 per share. The value of this
warrant, utilizing the Black Scholes option pricing method, was determined to
be $289,000. The assumptions utilized under the Black Scholes method were 96%
volatility, 5.3675% riskless rate of return, no dividends and a term of six
months. This adjustment was made to offset the debt outstanding and the
contra amount was credited to additional paid in capital. This warrant is
being amortized over the remaining life of the debt. The following debt
information is being presented gross of this warrant valuation. Since the
Company did not obtain at least $10 million of subordinated debt or other
capital infusions ("Junior Capital") by June 30, 2000, the warrants became
exercisable. In addition, since the Company did not obtain the Junior Capital
by April 30, 2000, the Company started paying on May 1, 2000 the lenders a fee
of 0.25% of the sum of the total outstanding principal balance under the Term
Loan plus the Revolving Credit Loan Commitment. The Company was in compliance
with all of its debt covenants as of December 31, 2000.
Long-term debt consists of the following:
2000 1999
------- -------
(In thousands)
Total long-term debt............................. $28,800 $37,600
Less - current portion........................... 9,200 8,800
------- -------
$19,600 $28,800
======= =======
39
Maturities of long-term debt are as follows:
Year Ended December 31, Amount
(In thousands)
2001.................... $ 9,200
2002.................... 9,600
2003.................... 10,000
-------
$28,800
=======
9. SUBORDINATED DEBENTURE:
On December 26, 1997, the Company entered into a Subordinated Debenture and
Warrant Purchase Agreement ("Purchase Agreement") with Emerson Electric Co.
("Emerson"), the Company's largest stockholder. Pursuant to the Purchase
Agreement, the Company issued to Emerson a Subordinated Debenture
("Debenture") with a principal amount of $25 million at an annual rate of
interest of 10% and a Common Stock Purchase Warrant (the "Emerson Warrant")
for the purchase of up to 525,000 shares of PCD Common Stock at a purchase
price of $1.00 per share. In April 1998, the Company paid the principal,
interest and prepayment penalty of 3.25%, or $812,500, in full. Accordingly,
375,000 shares of the Emerson Warrant terminated by the terms thereof, leaving
the Emerson Warrant only exercisable for 150,000 shares of PCD Common Stock.
The Emerson Warrant was exercised during 2000.
10. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December 31,
2000, 1999, and 1998 was as follows:
2000 1999 1998
------ ------- ------
(In thousands)
Current
Federal.................... $ 366 $(1,271) $ (220)
State...................... 166 111 625
Foreign.................... 1,015 (181) 1,560
------ ------- ------
Total current............ 1,547 (1,341) 1,965
------ ------- ------
Deferred
Federal.................... 977 1,647 1,345
State...................... 151 193 (32)
Foreign.................... (21) (100) (170)
------ ------- ------
Total deferred........... 1,107 1,740 1,143
------ ------- ------
$2,654 $ 399 $3,108
====== ======= ======
40
The components of the net deferred tax asset consisted of the following at
December 31, 2000 and 1999:
2000 1999
------- -------
(In thousands)
Deferred tax assets (liabilities):
Difference in accounting for inventory $ 493 $ 193
Accounts receivable allowances........ 128 81
Vacation and other accruals........... 570 357
Net operating loss carryforwards...... 426 416
Foreign tax credit carryforwards...... 808 744
Amortization.......................... (1,250) (906)
In-process research and development... 12,286 13,312
Difference in depreciation methods.... (1,751) (1,417)
Alternative minimum tax credits....... 30 24
Valuation allowance................... (589) (546)
------- -------
Net deferred tax asset.............. $11,151 $12,258
======= =======
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, if
appropriate. Realization of the future tax benefits related to the deferred
tax assets is dependent on many factors, including the Company's ability to
generate taxable income. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.
At December 31, 2000 and December 31, 1999, for state tax purposes, the
Company has net operating loss carryforwards of approximately $7,882,000 and
$7,218,000 respectively. These losses begin to expire after 2001. In
addition, the Company has foreign tax credit carryforwards of approximately
$808,000 and $744,000 at December 31, 2000 and December 31, 1999,
respectively. These foreign tax credit carryforwards are offset by valuation
allowances of $589,000 and $546,000 at December 31, 2000 and December 31,
1999, respectively. These credits begin to expire after 2003.
The analysis of the variance of income taxes as reported from income taxes
compiled at the U.S. statutory federal income tax rate for continuing
operations is as follows:
2000 1999 1998
------ ------- ------
(In thousands)
Income taxes at U.S. statutory rate of 34% $2,189 $ 366 $2,520
State income taxes........................ 209 177 391
Benefit of foreign sales corporation...... (113) (91) (127)
Benefit of foreign tax credits............ - - (156)
Foreign tax rate differential............. 210 (87) 501
Other, net................................ 159 34 (21)
------ ------- ------
$2,654 $ 399 $3,108
====== ======= ======
41
11. COMMITMENTS AND CONTINGENCIES:
LITIGATION:
The Company and its subsidiaries are subject to legal proceedings arising
in the ordinary course of business. On the basis of information presently
available and advice received from legal counsel, it is the opinion of
management that the disposition or ultimate determination of such legal
proceedings will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
LEASES:
The Company leases office and production facilities in Peabody,
Massachusetts, South Bend, Indiana, Yokohama, Japan, and Phoenix, Arizona and
leases distribution and a technical sales support facility in Northhampton,
England. These rentals are subject to escalation in real estate taxes and
operating expenses. Rental expense for the years ended December 31, 2000,
1999, and 1998 was $1,083,000, $1,116,000 and $1,270,000, respectively.
Minimum future rental commitments under leases with remaining terms in excess
of one year (including a lease extension entered into during January 2001) are
approximately as follows:
Year Ended December 31, Amount
------
(In thousands)
2001................... $ 956
2002................... 918
2003................... 760
2004................... 510
2005................... 516
Thereafter............. 2,219
12. STOCKHOLDERS EQUITY:
STOCK OPTIONS:
DIRECTORS STOCK PLAN
The Company's 1996 Eligible Directors Stock Plan (the "Directors Stock
Plan") was approved by the Board of Directors on January 30, 1996 and
thereafter by the Company's stockholders. Under the Directors Stock Plan,
commencing with the 1997 annual meeting of stockholders, each director who is
not an officer or employee of the Company or any subsidiary of the Company (an
"outside director") who has not previously been granted an option to purchase
shares of Common Stock will be granted, on the thirtieth day after such
meeting, an option to purchase 3,000 shares of Common Stock at an exercise
price equal to the fair market value on the date of grant. In addition, on the
thirtieth day after such meeting, each outside director will be granted an
option at each annual meeting of stockholders to purchase 1,500 shares of
Common Stock at an exercise price equal to the fair market value on the date
42
of grant. A total of 36,000 shares of Common Stock are available for awards
under the Directors Stock Plan. Each option shall vest 6 months after, and
expire 10 years from, the date of grant of such option. As of December 31,
2000, 12,000 shares of the Company's common stock were available for future
grants and 18,000 of the 24,000 options which are outstanding under the 1996
Directors Stock Plan were exercisable. No options may be granted under the
Directors Stock Plan after January 29, 2006.
1996 STOCK PLAN
The Company's 1996 Stock Plan was approved by the Board of Directors on
January 30, 1996, and thereafter by the Company's stockholders. The 1996 Stock
Plan provides for the grant or award of stock options, restricted stock and
other performance awards which may or may not be denominated in shares of
Common Stock or other securities (collectively, the "Awards"). Stock options
granted under the 1996 Stock Plan may be either incentive stock options or
non-qualified options. The 1996 Stock Plan is administered by the Compensation
Committee. Subject to the provisions of the 1996 Stock Plan, the Committee has
the authority to designate participants, determine the types of Awards to be
granted, the number of shares to be covered by each Award, the time at which
each Award is exercisable or may be settled, the method of payment and any
other terms and conditions of the Awards. While the Committee determines the
prices at which options and other Awards may be exercised under the 1996 Stock
Plan, the exercise price of an option shall be at least 100% of the fair
market value (as determined under the terms of the 1996 Stock Plan) of a share
of Common Stock on the date of grant. The aggregate number of shares of Common
Stock available for awards under the Plan is 324,000. No option shall be
exercisable with respect to any shares later than 10 years after the date of
grant of such options or 5 years in the case of incentive options granted to
the owner of stock possessing more than 10% of the value of all classes of
stock of the Company. Vesting is determined in the sole discretion of the
Compensation Committee of the Board of Directors and the typical vesting plan
is in four approximately equal annual installments, the first of which vests
on the date of grant. As of December 31, 2000, 119,250 shares of the Company's
common stock were available for future grants and 98,750 of the 198,000
options which are outstanding under the 1996 Stock Plan were exercisable. No
awards may be made under the 1996 Stock Plan after January 29, 2006.
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan as amended on January 30, 1996
provided for the grant or award of stock options, which may be either
incentive stock options or non-qualified stock options to key employees and
directors. The Compensation Committee administers the 1992 Stock Option Plan.
No option shall be exercisable with respect to any shares later than 10 years
after the date of grant of such options or 5 years in the case of incentive
options granted to the owner of stock possessing more than 10% of the value of
all classes of stock of the Company. Vesting is determined in the sole
discretion of the Compensation Committee of the Board of Directors and the
typical vesting plan is in four approximately equal annual installments, the
first of which vests on the date of grant. The aggregate number of shares of
Common Stock available for awards under the Plan is 954,000. As of December
31, 2000, 36,000 shares of the Company's common stock were available for
43
future grants and all 276,750 options which are outstanding under the 1996
Stock Plan are exercisable. No awards may be made under the 1996 Stock Plan
after January 29, 2006.
The following table summarizes the transactions from these plans:
Weighted
average
Options exercise price
------- --------------
Options outstanding at December 31, 1997 719,850 3.46
Options exercised..................... (119,500) 1.26
Options canceled...................... (2,000) 21.50
Options granted....................... 36,500 19.45
-------
Options outstanding at December 31, 1998 634,850 4.74
Options exercised..................... (115,000) 1.19
Options canceled...................... (19,500) 16.78
Options granted....................... 153,000 8.39
-------
Options outstanding at December 31, 1999 653,350 5.86
Options exercised..................... (90,350) 1.30
Options canceled...................... (133,750) 12.91
Options granted....................... 69,500 6.21
-------
Options outstanding at December 31, 2000 498,750 4.84
=======
Summarized information about stock options outstanding at December 31, 2000
is as follows:
Exercisable
Weighted ------------------
Average Weighted Weighted
Number of Remaining Average Average
Range of options Contractual Exercise Number of Exercise
Exercise prices outstanding Life Price Options Price
--------------- ----------- ----------- -------- --------- --------
$ 1.15 199,750 1.90 $ 1.15 199,750 $ 1.15
1.54-2.08 77,000 4.38 1.65 77,000 1.65
3.75 4,500 9.42 3.75 4,500 3.75
5.00-5.88 77,000 9.06 5.40 28,000 5.55
7.87-8.37 79,000 8.75 8.25 39,000 8.21
9.375 10,000 9.83 9.94 2,500 9.94
11.00 4,500 8.42 11.00 4,500 11.00
16.125-17.75 39,000 7.25 16.75 32,250 16.78
21.50 8,000 7.08 21.50 6,000 21.50
For the years ended December 31, 2000, 1999, and 1998, options to purchase
393,500, 504,851, and 560,768 shares, respectively, of Common Stock were
exercisable with the remaining options becoming exercisable at various dates
through October 27, 2003.
44
Generally, when shares acquired pursuant to the exercise of incentive stock
options are sold within one year of exercise or within two years from the date
of grant, the Company derives a tax deduction measured by the amount that the
fair market value exceeds the option price at the date the options are
exercised. When nonqualified stock options are exercised, the Company derives
a tax deduction measured by the amount that the fair market value exceeds the
option price at the date the options are exercised.
SUPPLEMENTAL DISCLOSURE FOR STOCK BASED COMPENSATION:
The Company has three stock-based compensation plans, which are described
above. In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123 requires that companies either recognize compensation
expense for grants of stock, stock options, and other equity instruments based
on fair value, or provide pro forma disclosure of net income and earnings per
share in the notes to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 in 1996 and has applied APB Opinion 25 and
related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS 123, the Company's net income and earnings per share for
the years ended December 31, 2000, 1999, and 1998 would have been reduced to
the pro forma amounts indicated below:
2000 1999 1998
-------------------------- -------------------------- --------------------------
Net income Net income Net income
Per share Per Share Per Share
------------- ------------- -------------
Net income Basic Diluted Net income Basic Diluted Net income Basic Diluted
----------- ----- ------- ---------- ----- ------- ---------- ----- -------
As reported.......... $ 3,783 $0.44 $0.42 $ 679 $0.08 $0.08 $ 4,303 $0.57 $0.53
Pro forma............ $ 3,534 $0.41 $0.39 $ 323 $0.04 $0.04 $ 3,898 $0.52 $0.48
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
2000 1999 1998
Dividend yield.............. None None None
Expected volatility......... 119.3% 81.6% 61.7%
Risk free interest rate..... 5.0% 5.62% 5.40%
Expected life (years)....... 5.0 5.0 5.0
Weighted average fair value of options granted at fair value at date of
grant:
1998............... $12.57
======
1999............... $ 6.26
======
2000............... $ 5.44
======
45
The effect of applying SFAS 123 in this pro forma disclosure is not
indicative of future amounts. Additional awards in future years are
anticipated.
14. PROFIT SHARING PLAN:
The Company has Employee Savings and Profit Sharing Plans (the "Plans")
under section 401(k) of the Internal Revenue Code of 1986, as amended. All
employees of the Company, after reaching the applicable service level, are
eligible to participate in the Plans. A participating employee may elect to
defer on a pre-tax basis up to 15% of his or her salary. This amount, plus a
matching amount provided by the Company, is contributed to the Plan. Company
contributions to the Plans for the years ended December 31, 2000, 1999,
and1998 amounted to $235,509, $210,170 and $190,000, respectively.
15. EMPLOYEE STOCK PURCHASE PLAN:
During 1998, the stockholders of the Company approved the 1998 Employee
Stock Purchase Plan (the "1998 Employee Stock Purchase Plan") covering 80,000
shares of the Company's Common Stock. All employees who have completed twelve
months of employment, except for those employees who possess at least 5% of
the voting power of the Company's Common Stock are entitled, through payroll
deductions of amounts up to 10% of his or her salary, to purchase shares of
the Company's Common Stock at the lesser of 85% of the market price at the
offering date or the offering termination date. During the years 2000 and
1999, 9,737 and 7,053 shares were issued, respectively and no shares were
issued in 1998, leaving 63,210 shares available for future issuance.
16. RESTRUCTURING CHARGE:
During 1999, the Company recorded a charge of $259,000 in connection with
the restructuring program at Wells-CTI. During the year, the Pennsylvania
stamping facility was closed with operations transferred to Peabody, MA and
the Japan subsidiary of Wells-CTI was downsized. The expenses incurred were
for severance payments of $177,000, write-off of fixed assets of $42,000,
remodeling of Japanese office of $32,000 and other miscellaneous expenses of
$8,000. At December 31, 1999, the only accrued expenses for these
restructuring costs were for severance payments in the amount of $48,000 and
there was no accrued expense at December 31, 2000.
17. SIGNIFICANT CUSTOMERS AND EXPORT SALES:
One customer accounted for approximately 20.8% and 17.6% of the Company's
net sales in 2000 and 1999, respectively. A second customer accounted for
approximately 12.7% of the Company's net sales in 1998. The Company had
export sales of approximately $13.1 million, $13.2 million and $13.7 million
in 2000, 1999 and 1998, respectively. All export sales are in U.S. dollars.
No one country or region (other than the United States) accounted for greater
than 10% of net sales.
46
18. SEGMENT INFORMATION:
The Company designs, manufactures and markets electronic connectors for use in
Semiconductor burn-in applications, industrial equipment and avionics. The
Company has two principal businesses: Semiconductor burn-in segment and
industrial and avionics segment. Each of these is a business segment with its
respective financial performance detailed in this report. Net income of the
two principal businesses excludes the effects of special charges and gains.
The results for Semiconductor burn-in include the effects of royalty revenues
from IC package-related cross-license agreements. Business assets are the
owned or allocated assets used by each business. Included in corporate
activities are general corporate expenses, net of elimination of inter-segment
transactions, which are generally intended to approximate market prices.
Assets of corporate activities include cash, corporate equipment and
improvements, net, and Company tax assets.
2000 1999 1998
-------- -------- --------
(In thousands)
Sales:
Industrial/Avionics..................... $ 19,516 $ 18,385 $ 18,214
Semiconductor burn-in................... 42,441 33,453 46,177
-------- -------- --------
Totals................................ $ 61,957 $ 51,838 $ 64,391
======== ======== ========
Net income(loss):
Industrial/Avionics..................... $ 2,477 $ 2,528 $ 2,426
Semiconductor burn-in................... 1,336 (1,832) 2,866
Corporate activities.................... (30) (17) (101)
Special charges - Semiconductor burn-in. - - (888)
-------- -------- --------
Totals................................ $ 3,783 $ 679 $ 4,303
======== ======== ========
Special charges:
Acquired research & development......... $ - $ - $ -
Extraordinary item...................... - - 888
-------- -------- --------
Totals................................ $ - $ - $ 888
======== ======== ========
Assets:
Industrial/Avionics..................... $ 9,255 $ 9,269 $ 8,960
Semiconductor burn-in................... 86,976 90,004 94,499
Corporate activities.................... 12,882 15,513 15,645
-------- -------- --------
Totals.................................. $109,113 $114,786 $119,104
======== ======== ========
47
2000 1999 1998
-------- -------- --------
(In thousands)
Equipment and improvements:
Industrial/Avionics..................... $ 8,588 $ 7,829 $ 7,042
Semiconductor burn-in................... 21,920 19,763 17,522
Corporate activities.................... 1,608 1,497 1,005
-------- -------- --------
Totals................................ $ 32,116 $ 29,089 $ 25,569
======== ======== ========
Additions:
Industrial/Avionics..................... $ 725 $ 603 $ 1,341
Semiconductor burn-in................... 2,208 2,547 3,550
Corporate activities.................... 104 553 885
-------- -------- --------
Totals................................ $ 3,037 $ 3,703 $ 5,776
======== ======== ========
Depreciation:
Industrial/Avionics..................... $ 1,031 $ 965 $ 843
Semiconductor burn-in................... 3,549 3,199 2,588
Corporate activities.................... 305 151 41
-------- -------- --------
Totals................................ $ 4,885 $ 4,315 $ 3,472
======== ======== ========
Intangible assets:
Industrial/Avionics..................... $ - $ - $ -
Semiconductor burn-in................... 75,167 75,167 75,167
Corporate activities.................... - - -
-------- -------- --------
Totals................................ $ 75,167 $ 75,167 $ 75,167
======== ======== ========
Amortization:
Industrial/Avionics..................... $ - $ - $ -
Semiconductor burn-in................... 4,190 4,190 4,209
Corporate activities.................... - - -
-------- -------- --------
Totals................................ $ 4,190 $ 4,190 $ 4,209
======== ======== ========
The following geographic area data include trade revenues based on product
shipment destination and royalty payor per location, and property, plant and
equipment based on physical location:
48
2000 1999 1998
-------- -------- --------
(In thousands)
Geographic area net trade revenue:
United States........................... $ 48,311 $ 38,650 $ 50,682
Japan................................... 9,838 8,501 1,131
Singapore............................... - - 3,573
Rest of world........................... 3,808 4,687 9,005
-------- -------- --------
Totals................................ $ 61,957 $ 51,838 $ 64,391
======== ======== ========
Geographic area equipment and improvements:
United States........................... $ 27,373 $ 24,975 $ 22,594
Japan................................... 4,743 4,114 2,975
Singapore............................... - - -
-------- -------- --------
Totals................................ $ 32,116 $ 29,089 $ 25,569
======== ======== ========
19. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED):
For the Three Months Ended
------------------------------------
Apr 1, Jul 1, Sep 30, Dec 31,
------- ------- ------- -------
(In thousands, except per share data)
2000
Net sales................. $13,905 $14,330 $16,130 $17,592
Gross profit.............. 6,183 6,757 7,369 8,158
Net income................ 322 735 1,179 1,547
Earnings per share:
Basic................... $ 0.04 $ 0.09 $ 0.14 $ 0.18
Diluted................. $ 0.04 $ 0.08 $ 0.13 $ 0.17
For the Three Months Ended
------------------------------------
Apr 3, Jul 3, Oct 2, Dec 31,
------- ------- ------- -------
(In thousands, except per share data)
1999
Net sales................. $12,633 $13,210 $13,489 $12,506
Gross profit.............. 6,254 6,593 6,305 4,703
Net income (loss) ........ 365 524 282 (492)
Earnings (loss) per share:
Basic................... $ 0.04 $ 0.06 $ 0.03 $ (0.06)
Diluted................. $ 0.04 $ 0.06 $ 0.03 $ (0.06)
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
Set forth below are the executive officers of the Company and their ages
as of December 31, 2000 and positions held with the Company, as follows:
Name Age Position
John L. Dwight, Jr. 56 Chairman of the Board, Chief Executive
Officer, President and Director
John T. Doyle 40 Vice President and General Manager,
PCD Industrial/Avionics Division
Jeffrey A. Farnsworth 54 Vice President and General Manager,
Wells-CTI - USA
Roddy J. Powers 57 Vice President, Operations
John J. Sheehan III 44 Vice President, Finance and
Administration, Chief Financial
Officer, and Treasurer
Mr. Dwight has served as Chairman of the Board, Chief Executive Officer,
President and a director of the Company since November 1980, when he purchased
a controlling interest in PCD. Mr. Dwight was previously Vice President -
International of Burndy Corporation, an electronic connector manufacturer. Mr.
Dwight has 29 years of management and operating experience in the connector
industry.
Mr. Doyle rejoined PCD as Vice President and General Manager,
Industrial/Avionics Division in August 1999. From January 1996 to July 1999,
Mr. Doyle held various positions with Thomas & Betts including Vice President
- - Worldwide Engineering, VP/GM - Communications Division and VP/GM -
Automotive Division. From August 1992 to January 1996, he held positions at
Amphenol Corp., RF/Microwave Division as Director of Engineering and Director
of Operations. Prior to August 1992, he was VP - Engineering & Quality
Assurance at PCD. Mr. Doyle has 19 years of experience in the connector
industry.
Mr. Farnsworth has served as Vice President and General Manager, Wells-CTI
- - USA since July 2000. From August 1999 to July 2000, he served as Vice
President - Sales and Marketing, Wells-CTI. From December 1997 to August 1999,
he was Vice President and General Manager - CTI. From October 1993 to December
1997, he was Vice President and General Manager - CTI. Mr. Farnsworth was a
founder of Component Technologies, Inc. in 1983, and remained with the
50
Company, in various positions in sales and marketing, following the
acquisition of Component Technologies, Inc. by the Company in 1988. Mr.
Farnsworth has 24 years of experience in the connector industry.
Mr. Powers has served as Vice President, Operations since he joined the
Company in 1983. Previously, he was the General Manager of the Incon Division
of Transitron, which was acquired by PCD.
Mr. Sheehan joined PCD as Vice President Finance and Administration, Chief
Financial Officer and Treasurer in August 1999. From 1997 to 1999 he was
Corporate Controller of Sappi Fine Paper North America, a manufacturer and
distributor of coated paper for the printing and publishing industry. From
1991 to 1997 he was Corporate Controller of Value Health, Inc. a NYSE - listed
specialty health care services company. Mr. Sheehan is a certified public
accountant with previous experience as an auditor for PricewaterhouseCoopers
LLP.
DIRECTORS
For information with respect to the Directors of the Company, see "Election
of Directors" in the Proxy Statement (the "2001 Proxy Statement") for the PCD
Inc. 2001 Annual Meeting of Stockholders, which portion of the Proxy Statement
is incorporated herein by reference.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors, and persons owning ten percent or
more of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership of all equity and derivative securities
of the Company with the Securities and Exchange Commission ("SEC"). SEC
regulations also require that a copy of all such Section 16(a) forms filed
must be furnished to the Company by such officers, directors and shareholders.
Based solely on a review of the copies of such forms and amendments thereto
received by the Company, or written representations from the Company's
officers and directors that no Forms 5 were required to be filed, the Company
believes that during 2000 all Section 16(a) filing requirements applicable to
its officers, directors and shareholders were met.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption Executive Compensation in the
2001 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption Security Ownership Of
Management and Principal Stockholders in the 2001 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and
Related Transactions" in the 2001 Proxy Statement is incorporated herein by
reference.
51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as a part of the Form 10-K Report
1) Financial Statements
PCD INC.
DECEMBER 31, 2000 and 1999
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2) The Report of Independent Accountants on the Financial Statement
Schedule and the schedule listed below are filed as part of this
annual report on Form 10-K.
PAGE
Report of Independent Accountants
of Financial Statement Schedule......................... S-1
Schedule II - Valuation and Qualifying Accounts.......... S-2
3) Listing of Exhibits
Copies of all exhibits to this Form 10-K (including exhibits
incorporated by reference) are available without charge upon the request
of any stockholder addressed to John J. Sheehan III, PCD Inc., 2
Technology Drive, Centennial Park, Peabody, MA 01960.
3) Listing of Exhibits
2.1(1) Share Purchase Agreement among UL America, Inc., Wells Electronics, Inc. and PCD Inc.
dated as of November 17, 1997.
2.2(1) Undertaking to Furnish Copies of Omitted Schedules to Share Purchase Agreement dated
as of November 17, 1997
3.1(2) Restated Articles of Organization of Registrant effective March 22, 1996.
3.2(2) By-Laws of Registrant, as amended, effective April 1, 1996.
4.1(2) Articles 3, 4, 5 and 6 of the Restated Articles of Organization of Registrant
(included in Exhibit 3.1).
4.2(2) Specimen Stock Certificate.
10.1(1) Loan Agreement between PCD Inc. and Fleet National Bank dated as of December 26, 1997.
52
10.2(1) Unlimited Guaranty from Wells Electronics, Inc. to Fleet National Bank dated as of
December 26, 1997.
10.3(1) Security Agreement between PCD Inc. and Fleet National Bank dated as of December 26,
1997.
10.4 Amended and Restated Security Agreement between Wells-CTI, Inc. and Fleet National
Bank dated as of July 31, 1998.
10.5(1) Stock Pledge Agreement between PCD Inc. and Fleet National Bank dated as of
December 26, 1997.
10.6(1) Stock Pledge Agreement between Wells Electronics, Inc. and Fleet National Bank dated
as of December 26, 1997.
10.7(1) Conditional Patent Assignment from PCD Inc. to Fleet National Bank dated as of
December 26, 1997.
10.8(1) Conditional Patent Assignment from Wells Electronics, Inc. to Fleet National Bank
dated as of December 26, 1997.
10.9(1) Conditional Patent Assignment from Wells Japan Kabushiki Kaisha to Fleet National Bank
dated as of December 26, 1997.
10.10(1) Conditional Trademark Collateral Assignment from PCD Inc. to Fleet National Bank dated
as of December 26, 1997.
10.11(1) Conditional Trademark Collateral Assignment from Wells Electronics, Inc. to Fleet
National Bank dated as of December 26, 1997.
10.12(1) Collateral Assignment of Contracts, Leases, Licenses and Permits from PCD Inc. to
Fleet National Bank dated as of December 26, 1997.
10.13(1) Collateral Assignment of Contracts, Leases, Licenses and Permits from Wells
Electronics, Inc. to Fleet National Bank dated as of December 26, 1997.
10.14(1) Undertaking to Furnish Copies of Omitted Exhibits and Schedules to Loan Agreement and
Related Documents dated as of December 26, 1997.
10.15(1) Subordinated Debenture and Warrant Purchase Agreement between PCD Inc. and Emerson
Electric Co. dated as of December 26, 1997.
10.16(1) Subordinated Debenture issued to Emerson Electric Co. dated December 26, 1997.
10.17(1) Common Stock Purchase Warrant issued to Emerson Electric Co. dated December 26, 1997.
10.18(1) Registration Rights Agreement between PCD Inc. and Emerson Electric Co. dated as of
December 26, 1997.
10.19(1) Subordination Agreement among PCD Inc., Emerson Electric Co. and Fleet National Bank
dated as of December 26, 1997.
10.20(1) Undertaking to Furnish Copies of Omitted Exhibits to Subordinated Debenture and
Warrant Purchase Agreement dated as of December 26, 1997.
10.21(2) Lease dated June 29, 1987, between Centennial Park Associates Realty Trust II and the
Company, for premises located at Two Technology Drive, Centennial Park, Peabody,
Massachusetts.
10.22(3) Second Amendment to lease agreement dated July 15, 1993, between Centennial Park
Associates Limited Partnership III and the Company.
10.23(4) Third Amendment to lease agreement dated as of June 25, 1996, between the Company and
Centennial Park Associates Limited Partnership III.
53
10.24(2) Lease dated May 1995, between CMD Southwest Four and CTi Technologies, Inc., for
premises located at 2102 W. Quail Avenue, Phoenix, Arizona.
10.25(3) Lease dated September 21, 1995, between Blackthorn Area Partners and Wells
Electronics, Inc., for premises located at 52940 Olive Road, South Bend, Indiana.
10.26(3) Amendment dated May 16, 1997 to Lease dated September 21, 1995, between Blackthorn
Area Partners and Wells Electronics, Inc., for premises located at 52940 Olive Road,
South Bend, Indiana.
10.27(3) Sublease dated October 10, 1992, between Daiwa House Kogyo Co., Ltd. and Wells Japan,
Ltd. For premises located at Paleana Building 2-2-15, Shin-Yokahama, Kohuku-Ku,
Yokohama, Japan (English translation).
10.28(3) Lease dated September 25, 1997, between United Building and Leasing Corporation and
Well Electronics, Inc. for premises located at 421 Amity Road, Swatara, Pennsylvania.
10.29(2) Registrant's 1992 Stock Option Plan and related forms of stock option agreement.
10.30(2) Registrant's 1996 Stock Plan and superceded forms of stock option agreement.
10.31(2) Registrant's 1996 Eligible Directors Stock Plan and superceded form of stock option
agreement.
10.32(5) Form of option agreements for the 1996 Stock Plan.
10.33(5) Form of option agreement for the 1996 Eligible Directors Stock Plan.
10.34(2) April 2, 1985 Stock Purchase Agreement and Amendment to Stock Purchase Agreement dated
March 31, 1983.
10.35(3) Collective Bargaining Agreement between Wells Electronics, Inc. and Local Union 1392,
International Brotherhood of Electrical Workers, dated February 19, 1997.
10.36(2) Letter of Agreement dated September 18, 1995, between International Assemblers, Inc.
and Cti Technologies, Inc.
10.37(3) Letter Agreement with Richard J. Mullin, effective December 26, 1997.
10.38(3) Management Incentive Plan.
10.39(6) Registrant's Employee Stock Purchase Plan.
10.40(6) Form of option agreement for the 1998 Employee Stock Purchase Plan.
10.41(7) First Amendment to Loan Agreement between Fleet National Bank and other lenders dated
July 31, 1998.
10.42(7) Second Amendment to Loan Agreement between Fleet National Bank and other lenders dated
August 31, 1998.
10.43(8) Third Amendment to Loan Agreement between Fleet National Bank and other lenders dated
March 19, 1999.
10.44(8) Fourth Amendment to Loan Agreement between Fleet National Bank and other lenders dated
September 29, 1999.
10.45(8) Fifth Amendment to Loan Agreement between Fleet National Bank and other lenders dated
March 6, 2000.
10.46(8) Warrant issued to Fleet National Bank and other lenders under the Senior Credit Facility
dated March 6, 2000.
54
10.47(8) Registration Rights Agreement between Fleet National Bank and other lenders under the
Senior Credit Facility dated March 6, 2000.
10.48(8) Executive Separation Benefits Plan effective March 6, 2000.
10.49 Amended 1996 Eligible Directors Stock Plan.
10.50 Amended lease dated January 2000, between 779 Woodlake, LLC and CTI Technologies, Inc.
for premises located at 2102 W. Quail Avenue, Phoenix, Arizona.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers, LLP.
27.1 Financial Data Schedule.
- ----------
(1) A copy has been previously filed with the Company's
current report on Form 8-K, (Commission file no. 0-27744), as
filed on January 9, 1998, and as amended on March 11 and 24,
1998 and April 20, 1998 and is incorporated in this document
by reference.
(2) A copy has been previously filed with the Company's
registration statement on Form S-1 (Registration no. 333-
1266), as filed on February 12, 1996 and amended on March 15
and March 21, 1996, and is incorporated in this document by
reference.
(3) A copy has been previously filed with the Company's
registration statement on form S-1 (Registration no. 333-
46137), as filed on February 12, 1998 and as amended on March
20, 1998 and April 13, 1998 and is incorporated in this
document by reference.
(4) A copy has been previously filed with the Company's annual
report on Form 10-K (Commission file no. 0-27744), as filed
on March 28, 1997, and is incorporated in this document by
reference.
(5) A copy has been previously filed with the Company's
quarterly report on Form 10-Q, (Commission file no. 0-27744),
as filed on September 27, 1997, and is incorporated in this
document by reference.
(6) A copy has been previously filed with the Company's
registration statement on Form S-8 (Registration no. 333-
57805), as filed on June 26, 1998, and is incorporated in
this document by reference.
55
(7) A copy has been previously filed with the Company's
registration statement on Form 10-K (Commission file no.
0-27744), as filed on March 26, 1999, and is incorporated in
this document by reference.
(8) A copy has been previously filed with the Company's
registration statement on Form 10-K (Commission file no.
0-27744), as filed on March 17, 2000, and is incorporated in
this document by reference.
Management Contracts and Compensatory Plans
10.29(1) Registrant's 1992 Stock Option Plan and related forms of stock option agreement.
10.30(1) Registrant's 1996 Stock Plan and superceded forms of stock option agreement.
10.31(1) Registrant's 1996 Eligible Directors Stock Plan and superceded form of stock option
agreement.
10.32(2) Form of option agreements for the 1996 Stock Plan.
10.33(2) Form of option agreement for the 1996 Eligible Directors Stock Plan.
10.37(3) Letter Agreement with Richard J. Mullin, effective December 26, 1997.
10.38(3) Management Incentive Plan.
10.39(4) Registrant's Employee Stock Purchase Plan.
10.40(4) Form of option agreement for the 1998 Employee Stock Purchase Plan.
10.48(5) Executive Separation Benefits Plan effective March 6, 2000.
10.49 Amended 1996 Eligible Directors Stock Plan.
- ----------
(1) A copy has been previously filed with the Company's
registration statement on Form S-1 (Registration no. 333-
1266), as filed on February 12, 1996 and amended on March 15
and March 21, 1996, and is incorporated in this document by
reference.
(2) A copy has been previously filed with the Company's
quarterly report on Form 10-Q, (Commission file no. 0-27744),
as filed on September 27, 1997, and is incorporated in this
document by reference.
(3) A copy has been previously filed with the Company's
registration statement on form S-1 (Registration no. 333-
46137), as filed on February 12, 1998 and as amended on March
20, 1998 and April 13, 1998 and is incorporated in this
document by reference.
56
(4) A copy has been previously filed with the Company's
registration statement on Form S-8 (Registration no. 333-
57805), as filed on June 26, 1998, and is incorporated in
this document by reference.
(5) A copy has been previously filed with the Company's
registration statement on Form 10-K (Commission file no.
0-27744), as filed on March 17, 2000, and is incorporated in
this document by reference.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
fourth quarter of 2000.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PCD INC.
Dated: March 9, 2001 By: /s/ John L. Dwight, Jr.
------------------------------
John L. Dwight, Jr.
Chairman of the Board, President
and Chief Executive Officer.
POWER OF ATTTORNEY AND SIGNATURES
Each person whose signature appears below hereby authorizes and appoints
John L. Dwight, Jr. and John J. Sheehan III, and each of them, with full power
of substitution and full power to act without the other, as his true and
lawful attorney-in-fact and agent to act in his name, place and stead and to
execute in the name and on behalf of each person, individually and in each
capacity stated below, and to file, any and all amendments to this Form 10-K
for the fiscal year ended December 31, 2000. Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the
dates, indicated.
Dated: March 9, 2001 By: /s/ John L. Dwight, Jr.
------------------------------
John L. Dwight, Jr.
Chairman of the Board, President
and Chief Executive Officer
(principal executive officer)
Dated: March 9, 2001 /s/ John J. Sheehan III
------------------------------
John J. Sheehan III
Vice President - Finance and
Administration, Chief Financial
Officer, and Treasurer
(principal financial and
accounting officer)
Dated: March 9, 2001 /s/ Jerome D. Brady
------------------------------
Jerome D. Brady
Director
Dated: March 9, 2001 /s/ John E. Stuart
------------------------------
John E. Stuart
Director
Dated: March 9, 2001 /s/ James D. Switzer
------------------------------
James D. Switzer
Director
Dated: March 9, 2001 /s/ Theodore C. York
------------------------------
Theodore C. York
Director
58
REPORT OF INDEPENDENT ACCOUNTANTS
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors and Shareholders of PCD Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 5, 2001, appearing in Item 8 in this Form 10-K also
included an audit of the financial statement schedule listed in Item 14
(a) (2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 2001
S-1
PCD INC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED 2000, 1999 AND 1998
(In Thousands)
Additions
Balance at Charged to Balance at
Beginning of Year Costs & Expenses Deductions End of Year
Year ended December 31, 2000,
Allowance for doubtful accounts $ 367 $ 33 $ 53(1) $ 347
======= ====== ======== =======
Year ended December 31, 1999,
Allowance for doubtful accounts $ 319 $ 51 $ 3 $ 367
======= ====== ======== =======
Year ended December 31, 1998,
Allowance for doubtful accounts $ 305 $ 14 $ - $ 319
======= ====== ======== =======
S-2
EXHIBIT 10.49
PCD INC.
PCD 1996 ELIGIBLE DIRECTORS STOCK PLAN
1. PURPOSE. The purpose of this plan (the "Plan") is to grant options to
purchase shares of the common stock, $0.01 par value (the "Common Stock"), of
PCD Inc., a Massachusetts corporation (the "Company") to Eligible Directors
(as defined in Section 5 of the Plan) of the Company at market value on the
date of grant. The Company believes that the granting of such options will
serve to enhance the Company's ability to attract and retain the services of
such persons, to provide additional incentives to them and to encourage the
highest level of performance by them by offering them a proprietary interest
in the Company's success. The Company also believes that the Plan will
encourage directors to make greater equity investment in the Company, more
closely aligning the interests of the directors and the stockholders.
2. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of
the Company (the "Board") on January 30, 1996 (the "effective date" of the
Plan). Options granted under this Plan are subject to approval of such Plan
by the stockholders of the Company on or before January 29, 1997.
3. STOCK COVERED BY THE PLAN. Subject to the adjustment provided in
Section 8, the aggregate number of shares of Common Stock which may be issued
and sold pursuant to options granted under the Plan shall not exceed 36,000
shares (giving effect to the 12-for-1 stock split approved by the Board of
Directors on January 26, 1996), which may be either authorized but unissued
shares or treasury shares. If any option granted under the Plan shall
terminate or expire without being fully exercised, the shares which have not
been purchased thereunder will again become available for purposes of the
Plan.
4. ADMINISTRATION. The Plan is intended to meet the requirements of
Rule 16b-3(c)(2)(ii) adopted under the Securities Exchange Act of 1934 (the
"Act") with respect to the Regular Options (as defined in Section 5 of the
Plan) granted hereunder and accordingly is intended to be self-governing. To
this end the Plan requires no discretionary action by any administrative body
with regard to any transaction under the Plan. To the extent, if any, that
any questions of interpretation arise, these shall be resolved by the
compensation committee (the "Committee") consisting of at least two (2)
members of the Board, each of whom shall be, and shall have been at all times
within the one-year period ending on the date of his appointment to the
Committee, a person who in the opinion of counsel to the Company is a
"disinterested person" as such term is used in said Rule 16b-3. The
interpretation and administration by the Committee of any provisions of the
Plan and any option granted thereunder shall be final and conclusive on all
persons having any interest therein. No members of the Committee or the Board
shall be held liable for any action or determination under the Plan made in
good faith with respect to the Plan or any option granted thereunder.
5. OPTION GRANTS. "Eligible Directors" shall mean directors of the
Company who are directors on the date of grant, who are not employees of the
Company and who are not eligible to participate under any other Company stock
related plan unless in the opinion of counsel to the Company such
participation would not impair the status of such Eligible Director as a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Act. All options granted under the Plan shall be non-statutory stock options
which are not intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986 as amended (the "Code") and which are intended to be
taxed under Section 83 of the Code.
No options shall be granted under the Plan before the date which is 30
days following the first Annual Meeting of Stockholders of the Company
occurring after December 31, 1996. Thereafter, there shall be granted, on
such 30th day or, if an Eligible Director is not a director of the Company on
such 30th day, on the 30th day following an Eligible Director's initial
election as a director of the Company, and on the 30th day following each
subsequent Annual Meeting of Stockholders of the Company which occurs no
earlier than six months after such initial election: (i) to each Eligible
Director who has not theretofore been granted an option to purchase shares of
Common Stock, an option to purchase 3,000 shares of Common Stock; and (ii) to
each Eligible Director not described in (i), an option to purchase 1,500
shares of Common Stock. Each such option is referred to herein as a "Regular
Option."
The date of grant of an option to an Eligible Director under the Plan
shall be the applicable day referred to immediately above.
6. OPTION PRICE. The price per share at which each Regular Option
granted under the Plan to an Eligible Director may be exercised ("Regular
Option Price") shall be the Market Price of the Common Stock as determined by
the closing price of such Common Stock as reported on the Nasdaq National
Market for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market on the relevant date, then the Market Price as of such date
shall be determined by the Committee.
In no event shall the Option Price per share for any option under the
Plan be less than the par value per share.
7. TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan
shall be evidenced by and subject to the terms and conditions of an Option
Agreement attached hereto as EXHIBIT A. Each Option Agreement executed and
delivered to an Eligible Director shall contain the following terms and
conditions:
(a) EXERCISE OF OPTIONS. Each option shall expire 10 years from the
date of grant of such option, and shall in no event be
exercisable until on or after the date which is 6 months after
the date of grant thereof.
(b) PAYMENT. Each Eligible Director to whom an option is granted
may exercise such option from time to time, in whole or in part,
during the period that it is exercisable, by payment of the
Option Price of each share purchased, in cash, or by delivery to
the Company of a number of shares of Common Stock (provided that
such shares have been held by such Eligible Director for at least
6 months before such delivery) having an aggregate Market Price
of not less than the product of the Option Price multiplied by
the number of shares the participant intends to purchase upon
exercise of the option on the date of delivery. Notwithstanding
the foregoing, the exercise price of an option may not be paid
by delivery to the Company of shares of Common Stock to the
extent that such delivery would constitute a violation of the
provisions of any law (including without limitation Section 16
of the Act) or related regulation or rule.
(c) TRANSFER RESTRICTIONS. The shares of Common Stock issued upon
exercise of an option granted under this Plan will be acquired
for investment and not with a view to distribution thereof
unless there shall be an effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), with
respect thereto. In the event that the Company, upon the advice
of counsel, deems it necessary to list upon official notice of
issuance shares to be issued pursuant to the Plan on a national
securities exchange or to register under the 1933 Act or other
applicable federal or state statute any shares to be issued
pursuant to the Plan, or to qualify any such shares for
exemption from the registration requirements of the 1933 Act
under the Rules and Regulations of the Securities and Exchange
Commission or for similar exemption under state law, then the
Company shall notify each Eligible Director to that effect and
no shares of Common Stock subject to an option shall be issued
until such registration, listing or exemption has been obtained.
The Company shall make prompt application for any such
registration, listing or exemption pursuant to federal or state
law or rules of such securities exchange which it deems
necessary and shall make reasonable efforts to cause such
registration, listing or exemption to become and remain
effective. The shares of Common Stock issued on exercise of the
option shall be subject to any restrictions on transfer then in
effect pursuant to the Articles of Organization or By-laws of
the Company.
(d) NON-TRANSFERABILITY. No stock option may be transferred by the
optionee, other than by will or the laws of descent and
distribution. A stock option can be exercised during such
individual's lifetime only by him or her.
(e) TERMINATION OF DIRECTORSHIP. Nothing in this Plan or in any
Option Agreement shall confer upon any Eligible Director the
right to continue as a director of the Company. An Eligible
Director's right to participate in the Plan shall automatically
terminate if and when such Director becomes an employee of the
Company. Each Option shall terminate and may no longer be
exercised if the Eligible Director ceases to provide services to
the Company in accordance with the following provisions:
(i) Options granted to an Eligible Director shall cease
to be exercisable 12 months after the date such
Director ceases to be a director for any reason
other than death, but in no event after the
expiration of the option.
(ii) If an Eligible Director ceases to be a director on
account of his death, any option previously granted
to him, whether or not exercisable at the date of
death, may be exercised by his executor,
administrator or the person or persons to whom his
rights under the option shall pass by will or the
applicable laws of descent and distribution, at any
time within 12 months after the date of death, but
in no event after the expiration of the option.
8. ADJUSTMENTS. Upon the occurrence of any of the following events,
after the effective date of the 12-for-1 stock split referred to in Section 3,
an Eligible Director's rights with respect to options granted to such Eligible
Director hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the Eligible Director
and the Company relating to such option:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, the
number of shares of Common Stock deliverable upon the exercise
of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in
the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger or other
reorganization in which the holders of the outstanding voting
stock of the Company immediately preceding the consummation of
such event, shall, immediately following such event, hold, as a
group, less than a majority of the voting securities of the
surviving or successor entity, or in the event of a sale of all
or substantially all of the Company's assets or otherwise (each,
an "Acquisition"), the Committee or the board of directors of
any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding options,
either (i) make appropriate provision for the continuation of
such options by substituting on an equitable basis for the
shares then subject to such options either (a) the consideration
payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition, (b) shares of stock of the
surviving or successor corporation or (c) such other securities
as the Successor Board deems appropriate, the fair market value
of which shall not materially exceed the fair market value of
the shares of Common Stock subject to such options immediately
preceding the Acquisition; or (ii) upon written notice to the
Eligible Directors, provide that all options must be exercised,
to the extent then exercisable or to be exercisable as a result
of the Acquisition, within a specified number of days of the
date of such notice, at the end of which period the options
shall terminate; or (iii) terminate all options in exchange for
a cash payment equal to the excess of the fair market value of
the shares subject to such options (to the extent then
exercisable or to be exercisable as a result of the Acquisition)
over the exercise price thereof.
(c) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph (b) above) pursuant to
which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock,
an Eligible Director upon exercising an option shall be entitled
to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had
exercised such option prior to such recapitalization or
reorganization.
(d) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each option will
terminate immediately prior to the consummation of such proposed
action or at such other time and subject to such other
conditions as shall be determined by the Committee.
(e) ISSUANCES OF SECURITIES. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to options.
No adjustments shall be made for dividends paid in cash or in
property other than securities of the Company.
(f) FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the Eligible Director shall receive from the
Company cash in lieu of such fractional shares.
9. TERMINATION OR AMENDMENT OF PLAN. The Committee may amend, suspend,
or terminate the Plan, including the form of Option Agreement incorporated
herein by reference. No such action, however, may, without approval or
ratification by the stockholders, increase the maximum number of shares
reserved under the Plan except as provided in Section 8, alter the class or
classes or individuals eligible for options, change the number of shares of
Common Stock subject to options to be granted to Eligible Directors or the
exercise price thereof (other than pursuant to Section 8), or the date of
grant or the terms and conditions expressly set forth in Sections 5, 6, and 7
of this Plan, or make any other change which, pursuant to the Code or
regulations thereunder or Section 16(b) of the Act and the rules and
regulations promulgated thereunder, requires action by the stockholders. No
such action may, without the consent of the holder of the option, alter or
impair any option previously granted. No such action which would amend the
Plan to change the amount, timing or price of the Regular Option grant made to
Eligible Directors hereof may be made more often than once every six months
except to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the applicable rules and regulations
thereunder.
In any event, the Plan shall terminate 10 years from the date of
adoption by the Board of Directors, or if earlier, from the date of approval
by the stockholders. Any shares remaining under the Plan at the time of
termination which are not subject to outstanding options and any shares which
thereafter become available because of the expiration or termination of an
option shall cease to be reserved for purposes of the Plan.
EXHIBIT 10.50
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is made on this 9th day of
January, 2000 between the 799 Woodlake, LLC ("Landlord") and CTI Technologies,
Inc., an Arizona Corporation, ("Tenant").
A. Landlord and Tenant previously entered previously entered
into that certain Lease dated 18th day of May, 1995 ("LEASE"),
for the lease of certain premises ("DEMISED PREMISES") consisting
of approximately 24,158 square feet and commonly known as Suite I
within the building ("Building") located at 2102 West Quail Road,
Phoenix, Arizona 85027 according to the terms thereof Please note
the suite number listed in original lease is incorrect. THE
CORRECT SUITE NUMBER FOR THIS SUITE IS 2 AND IS REFERRED TO
CORRECTLY IN THIS DOCUMENT
B. Landlord and Tenant desire to modify the term of the Lease, and
the square footage, all subject to the terms and conditions set
forth herein.
In consideration of the mutual covenants herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. DEFINITIONS. All of the terms used in this Second Amendment shall
have the same meanings as set forth in the Lease, except to the
extent expressly set forth herein.
2. Sec. 201. TERM. SECTION 2.01 of the Lease is amended to extend the
term of the lease through December 31, 2010, which shall now be the
Termination Date thereunder.
3. RENT. Monthly Net Basic Rent pursuant to Section 301 of the Lease
shall be as follows for the balance of the Term as so extended.
MONTHLY NET BASIC RENT FOR ORIGINAL PREMISES 12/1/00 to 11/30/03
- Suite #2, approximately 24,158 sf
December 1, 2000 - November 30, 2001 $10,001.41 + CAM + Taxes
December 1, 2001 - November 30, 2002 $10,194.68 + CAM + Taxes
December 1, 2002 - November 30, 2003 $1O,194.68 + CAM + Taxes
MONTHLY NET BASIC RENT FOR ADDITIONAL SPACE 1/l/01 to 12/31/03
- Suite #2A, approximately 4,671 sf
January 1, 2001 - December 31, 2001 $3,033.96 + CAM + Taxes
January 1, 2002 - December 31, 2002 $3,073.19 + CAM + Taxes
January 1, 2003 - December 31, 2003 $3,113.36 + CAM + Taxes
MONTHY NET BASIC RENT FOR BOTH SPACES TOGETHER 1/1/04 to 12/21/10
- Suite 2 and 2a (approximately 28,829 sf)
January 1, 2004 - December 31, 2004 $18,446.65 + CAM + Taxes
January 1, 2005 - December 31, 2005 $18,936.74 + CAM + Taxes
January 1, 2006 - December 31, 2006 $19,464.31 + CAM + Taxes
January 1. 2007 - December 31, 2007 $19,994.77 + CAM + Taxes
January 1, 2008 - December 31, 2008 $20,542.52 + CAM + Taxes
January 1, 2009 - December 31, 2009 $21,107.57 + CAM + Taxes
January 1, 2010 - December 31, 2010 $21,689.91 + CAM + Taxes
Tenant's proportionate share-of operating and maintenance expenses
and taxes (the CAM + Taxes referred to above) shall continue to be
calculated in manner set forth in the Lease.
4. CURRENT DEMISED PREMISES. The Demised Premises originally and
currently covered by the Lease are confirmed to be those certain
premises in Building commonly referred to as Suite 2, consisting of
approximately 24,158 square feet.
5. ADDITIONAL SPACE. From and after January 1. 200l, the Demised
Premises shall be expanded to include as additional space those
certain premises in the Building commonly referred to as Suite 2a,
consisting of approximately 4,671 square feet.
6. COMBINED PREMISES. With the expansion effected by the preceding
paragraph, from and after January 1, 2001 the Demised Premises under
the Lease shall be both Suite 2 and Suite 2A together, consisting of
approximately 28,829 square feet.
7. OPTION TO EXPAND INTO PRECISION ROLLER SPACE. Landlord hereby grants
Tenant the option to expand into an additional 13,876 square feet in
the Building, currently occupied by Precision Roller and commonly
known as Suite 1. Precision Roller's current lease expires on July
31, 2005. CTI must provide written notification to the Landlord of
CTI'S intention to lease Suite I no later 5:00 PM Mountain Standard
Time, January 31, 2005. Lease must be fully executed by both parties
by the later of (a) 30 days after Landlord delivers a proposed lease
document to Tenant or (b) 5:00 PM Mountain Standard Time February
28, 2005, or option to lease expires. Lease space will be rented at
then market rental rates + 3% CPI increase each year plus CAM and
Taxes as set forth above and will terminate concurrently with CTI
Technologies, Inc.'s existing Lease on December.30, 2010. The
parties shall each negotiate in good faith in attempting to conclude
such lease. In the event the parties disagree as to what the
prevailing market rental rates then are, such dispute shall be
resolved in the same manner as set forth in Schedule 4, Section
I.2(a)(iii) of the existing Lease (which sets forth a procedure for
a similar determination to be made with respect to the term
extension option thereunder).
8. OPTION TO EXPAND INTO DESERT X RAY SALES, INC. SPACE. Landlord hereby
grants Tenant the option to expand into an additional 7,266 square
feet, currently occupied by Desert X Ray Sales, Inc. and commonly
known as Suite 3. Desert X Ray's current lease expires on November
30, 2004. CTI must provide written notification to the Landlord of
CTI'S intention to lease Suite 3 no later than 5:00 PM Mountain
Standard Time, May 31, 2004. Lease must be fully executed by both
parties by the later of a) 30 days after Landlord delivers a
proposed lease document to Tenant or (b) 5:00 PM Mountain Standard
Time June 30, 2004, or option to lease expires. Lease space will be
rented at then market rental rates + 3% CPI increase each year plus
CAM and Taxes and will terminate concurrently with CTI Technologies,
Inc.'s existing lease on December 30, 2010. The parties shall each
Negotiate in good faith in attempting to conclude such Lease. In
the Event the parties disagree as to what the prevailing market
rental rates then are, such dispute will be resolved in the same
manner as Set forth in Schedule 4, Section I.2(a)(iii) of the
existing Lease (which sets forth a procedure for a similar
determination to be made with respect to the term extension option
thereunder).
9. ASSISTANCE IN EFFORTS TO BUY OUT DESERT X_RAY. Landlord shall
reasonably and diligently assist in a lease buyout of the current
tenant, Desert X Ray Sales, Inc. space. Landlord and CTI must agree
agree on buyout terms. Should a buyout occur, Landlord will require a
Letter of Credit from CTI Technologies, Inc. in an amount equal to
the cost of the buyout at the time the option is exercised for the
term of the lease. The cost of the buyout will be amortized over the
term of the lease with the termination date being December 30, 2010.
Amortization will be at the then current market interest rate, not
less than 10%, and the rental rate will be at the then current rental
rate plus a 3% CPI increase each year plus CAM and Taxes. Any dispute
as to the prevailing market rental rate shall be resolved in the same
manner set forth in the preceding paragraph.
10. DELIVERY OF SPACE. Landlord shall deliver all additional space to
Tenant provided forth in this Amendment free and clear of all other
tenants and occupants, and Tenant shall not be obligated to commence
paying rent for any such space until Landlord does so. Tenant shall
be entitled to inspect all such space before accepting and occupying
it, and may reject any space which is significantly damaged,
contains any hazardous materials, substances or other pollutants, or
has similar serious defects.
11. FULL FORCE AND EFFECT. All of the terms and conditions set forth in
the Lease shall remain in full force and effect, except to the
extent otherwise expressly set forth in this Second Amendment.
12. CONFLICTS. In the event that any of the provisions of the Lease
conflict with any of the terms and provisions of this Second
Amendment, the terms and conditions of this Second Amendment shall
prevail.
13. TIME IS ESSENCE. Time is of the essence of each and every term of
this Agreement.
IN WITNESS WHEREOF, said Landlord and Tenant have caused this instrument
to be executed by their respective duly authorized officers, all as of
the day and year first written above.
LANDLORD:
799 Woodlake, LLC
BY: Schirmer Management and Development, Inc.
Its: Agent
By: /s/ Charlie Nickelson 1/9/01
----------------------------- ------
Charlie Nickelson Date
TENANT:
CTI Technologies, Inc.
By: /s/ Jeffrey Farnsworth 1/9/01
----------------------------- ------
Jeffrey Farnsworth Date
EXHIBIT 21.1
SUBSIDIARIES OF PCD INC.
PCD Control Systems Interconnect, Inc., a Massachusetts corporation
PCD USVI, Inc., a United States Virgin Islands corporation
WELLS-CTI, Inc., an Indiana corporation
SUBSIDIARIES OF WELLS-CTI, INC.
Wells-CTI Kabushiki Kaisha, a Japanese corporation
Wells International Corporation, Inc., an Indiana corporation
SUBSIDIARIES OF WELLS INTERNATIONAL CORPORATION, INC.
Wells Electronics Asia Pte. Ltd., a Singapore limited liability company
EXHIBIT 23.1
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-07393, 333-07403, 333-07405 and 333-57805) of
our report dated February 5, 2001, relating to the financial statements and
consolidated financial statement schedule, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 28, 2001