PCD INC - 10-K Annual Report

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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, 2001

[ ] 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< /font>
(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 March 11, 2002 the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $7,749,853, based upon the closing sales price on the Nasdaq Stock Market for that date. As of March 11, 2002, the number of issued and outstanding shares of the registrant's Common Stock, par value $0.01 per share, was 8,944,905.

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 26, 2002. 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, 2001

TABLE OF CONTENTS

PART I	Page
Item 1. Business	1
Item 2. Properties	13
Item 3. Legal Proceedings	13
Item 4. Submission of Matters to a Vote of Security Holders	13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters	14
Item 6. Selected Financial Data	15
Item 7. Management's Discussion and Analysis of Financial Condition and Results Of Operations	16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	22
Item 8. Financial Statements and Supplementary Data	23
Item 9. Changes in and Disagreements with Accountants on Auditing and Financial Disclosure	41
PART III
Item 10. Directors and Executive Officers of the Registrant	42
Item 11. Executive Compensation	43
Item 12. Security Ownership of Certain Beneficial Owners and Management	43
Item 13. Certain Relationships and Related Transactions	43
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K	44
Signatures	48

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 interconnect and avionics industries. 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 2001 worldwide market at $25.6 billion with more than 1,200 manufacturers. This represents a 19% drop in market volume from the previous year. Bishop indicates the North American market segment as $9.7 billion, which is a 27% decline from the year 2000. These changes are discussed in greater detail in the Market Overview section below.

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 has identified three long term trends affecting the electronics industry: (i) the increasing complexity of ICs and corresponding evolution of IC package designs, which lead to growth possibilities 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, creating opportunities in PCD's industrial equipment and avionics markets.

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.

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, over the long run, 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 lea ding to new connector requirements and market opportunities.

Bishop & Associates estimates the total 2001 worldwide market at $25.6 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.

Although large and broad, the electronic connector market experienced - as did most of electronic industry - the worst downturn in its history during 2001. According to Bishop and Associates, the market declined 19%, from $31.6 billion in 2000 to $25.6 billion in 2001. The North American market decline of 27% from $13.3 billion to $9.7 billion was even steeper. This was the first down year for the market since a 2% drop in 1992, and follows a 20% increase in market size in the year 2000. Underlining the global situation, IC Insights Inc., a research firm specializing in the electronics and semiconductor markets, has indicated that the much larger and broader world-wide electronic systems market declined for the first time in history in 2001, by 10%.

The connector market drop was a direct reflection of the worldwide global recession - further worsened by the events of September 11th - which occurred in 2001 and led to the first negative growth year ever for electronics systems sales. IC Insights indicates 2001 declines of 32% in the semiconductor market and 41% in the semiconductor equipment market. These markets relate closely to the semiconductor burn-in test market which accounted for 69% of PCD's 2000 volume. The abrupt and largely unexpected electronic market reversal in 2001 is attributed to downturns in the telecommunications and computer market segments, compounded by excess inventory and capacity, and strongly affected at the end of the year by fallout from September 11. A number of analysts project a modest semiconductor recovery in the first half of 2002, strengthening during the second half of the year and in 2003.

PCD sales and profits during 2001, as presented elsewhere in the report, were very significantly impacted by market conditions, and 2002 performance will be likewise related to the rate and nature of market recovery.

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(degrees)C (257(degrees)F) to 150(degrees)C (302(degrees)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)C (14(degrees)F) to 150(degrees)C (302(degrees)F) during the burn-in process. 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 worldwide semiconductor market expanded at a compound annual growth rate of 17% during the period 1978-2000, before decreasing by 33% in 2001. IC Insights, Inc., projects an average annual increase for the next five years in the 8% to 12% range. The market has clearly become more volatile, as evidenced by declines in three of the past six years interspersed with growth rates of 19% and 37% in 1999 and 2000 respectively, and it has been necessary for PCD to adjust its business strategies to deal with this volatility.

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.

According to the ARC Advisory Group, a consultant serving the manufacturing and industrial markets, the world-wide market for industrial automation products and services is expected to grow at a compounded annual growth rate of 8% over the next five years. ARC indicates this market was in decline through most of 2001 and is expected to struggle through the first half of 2002 before turning upwards.

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.

Market behavior and projections in the aftermath of September 11th are uncertain. The Aerospace Industries Association, an industry trade organization, has projected a 20% decline in the civil aircraft segment, but increases in military and missile spending, resulting in an overall market decline in 2002 of less than 5%. The Company will be monitoring the market situation very closely, but believes it is too early at this time to obtain meaningful long term projections.

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 over 5% of net sales on new product tooling. For 2001, 39% of sales were generated from products that were introduced in the last five years, including semiconductor burn-in sockets, specialty aircraft modules and interface modules and custom I/O terminal blocks for industrial applications. 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.

Implement Reorganization and Cost Reductions: The Company took significant steps during 2001 to restructure the organization and reduce its cost base in view of the drop in shipments and incoming orders precipitated by the world-wide slump in electrical and electronic markets. Production at the Wells-CTI Division manufacturing facility in South Bend, IN, was halted in October, and stamping and molding operations for both Wells-CTI and the Industrial-Avionics Divisions have been consolidated at one location to reduce effects of market volatility and maximize resources. Additional cost reductions have been made in both Divisions, with a total Company-wide annualized cost reduction in excess of $4.0 million. The Company will continue to monitor and refine this cost reduction and restructuring program, with the aim of creating a more flexible manufacturing and overhead cost structure which will enable PCD to react more quickly to future market s wings.

Balance Sheet Management: Following the December 1997, acquisition of Wells Electronics, Inc., the Company reduced debt to $36.1 million, at December 31, 2000. In 2001, net sales declined 41%. As a result, the Company needed to borrow $3.7 million increasing the debt to $39.8 million at December 31, 2001. The Company also amended its Senior Credit Facility in February 2002. The new agreement increases borrowing capacity from $41.5 million to $44.0 million, delays principal payments until 2003, and extends the maturity date one year until December 31, 2004. It is the Company's strategy to improve profitability and cash flow during 2002 through a combination of increased volume, reduced costs and strong asset management, so that it can begin to reduce the outstanding debt during the second half of the year.

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 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 between 125(degrees)C (257(degrees)F) to 150(degrees)C (302(degrees)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)C (14(degrees)F) to 150(degrees)C (302(degrees)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 several hundred 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 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 40 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 micro pin grid array ("uPGA") 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 BGA 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 39% from 2000 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.

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

The Company concentrates on three major product lines in the avionics market:

Junction Modules: Junction modules are environmentally sealed, airborne terminal blocks. 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.

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, Japan, and the United States, augmented with sales representatives in smaller markets. For the industrial 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 w ith its customers early in the design phase of the customer's own product development cycle.

Customers

In 2001, the Company sold its products to over 600 customers in a wide range of industries and applications. The top five customers of the Company in 2001, 2000, and 1999 accounted for 39%, 47% and 40% of net sales, respectively. Among customers that exceeded 10% of the Company's net sales, Micron Technology, Inc. accounted for 18%, 21% and 18% of net sales of the Company in 2001, 2000 and 1999, respectively. Sales to customers located outside the United States, either directly or through U.S. and foreign distributors, accounted for approximately 20%, 21%, and 25% of the net sales of the Company in the years ended 2001, 2000, and 1999, 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.) Empresa Brasileira de Aeronautica S/A (Embraer) Smiths Industries

7

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.

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, the Company's Japanese subsidiary, subcontracts all of its product manufacturing and assembly operations to Asian vendors. The Company is not contractually obligated to do business with any subcontractor. The Company 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 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 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 $7.5 million at December 31, 2001 and $13.5 million at December 31, 2000. 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, 2001, the Company had 218 employees and 54 contract workers. The Company's 272 employees and contract workers include 225 in manufacturing and engineering, 26 in sales and marketing and 21 in administration. Prior to the closing of the plant in South Bend, Indiana, some of the Company's U.S. employees were represented by the International Brotherhood of Electrical Workers, Local 1392. This collective bargaining agreement was terminated in September 2001.

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, 2001, 2000 and 1999, the Company derived 48%, 69% and 65% 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. The Semiconductor industry experienced a severe downturn in 2001.

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 the years 2001, 2000 and 1999. Micron accounted for 18%, 21% and 18% of the net sales of the Company for the years ended December 31, 2001, 2000, and 1999, respectively. The Company does not have written agreements with any of its customers, including 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 Micron, for any reason, could have a material adverse effect on the financial condition, results of operations and business of the Company.

Senior Credit Facility Obligations. The agreement governing the Company's credit facility with Fleet Bank (the "Senior Credit Facility") contains a Material Adverse Effects clause and 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 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 th e 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 and in 2001 experienced difficulty meeting its principal repayment obligations. As more fully discussed in the "Liquidity and Capital Resources" section, the Company has re-negotiated and amended the Senior Facility on several occasions since December 1997, most recently in February 2002. In connection with the February 2002 agreement, among other things, borrowing availability under the Revolving Credit Facility was increased from $16.0 million to $20.0 million and operating and financial covenants were modified.

The Company's ability to meet its debt covenants and to fund its working capital, capital expenditure and debt payment obligations depends on its success in achieving levels of net sales, operating income and cash flows substantially in excess of the levels achieved during the third and fourth quarters of 2001.

At December 31, 2001, the Company was in compliance with or had obtained waivers for 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, amend the Senior Credit Facility or secure alternative financing. If financing were not available there would be a material adverse effect on the Company and the Company would be forced to consider other alternatives. 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 20%, 21% and 25% of the net sales of the Company in the years ended December 31, 2001, 2000 and 1999, 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 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, evolution s 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 produc t transitions would have a material adverse effect on the financial condition, results of operations and business of the Company.

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 e xisting 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 33% 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, 2001. 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, 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%, 29%, and 19% of the net sales of the Company for the years ended December 31, 2001, 2000, and 1999, 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 incl ude 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. There can be no assurance that the Company will not be subject to product liability claims. 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.

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.

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 "c ause," 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.

Failure to Meet Nasdaq National Market System Listing Requirements Could Adversely Affect the Market for the Company's Common Stock. Although the Company's common stock is listed on the Nasdaq National Market System, continued listing on the National Market System is subject to the Company's ability to maintain a $5 million public float, a minimum bid price per share of $1.00, and to satisfy other Nasdaq criteria. If the Company is unable to satisfy this criteria in the future, the Company could be required to apply for a listing on the Nasdaq Smallcap Market, which may result in less market visibility and thus adversely affect the price of the Company's common stock.

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), Yokohama, Japan (3,600 square feet) and South Bend, Indiana (50,000 square feet). The Peabody facility is responsible for molding for all Company operations, and 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 Yokohama facilities are responsible for design, assembly, manufacturing automation development and quality assurance for burn-in sockets. Production at the Wells-CTI Division manufacturing facility in South Bend, Indiana, was halted in October, and stamping and molding operations for both Wells-CTI and t he Industrial-Avionics Divisions have been consolidated at one location. 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.

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 2001.

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
2001 First Quarter Second Quarter Third Quarter Fourth Quarter	$ 8.69 7.44 5.44 3.00		$ 6.00 3.78 2.38 0.84
2000 First Quarter Second Quarter Third Quarter Fourth Quarter	$ 7 ^1/29 ^1/811 ^1/211		$ 4 ^3/163 6 ^1/25 ^5/8

On March 11, 2002, the last reported sale price for the Common Stock on the Nasdaq National Market was $1.30 per share. As of January 31, 2002, 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. It is the Company's intention to use any excess cash for debt retirement. Once this debt is extinguished, 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.

ITEM 6. SELECTED FINANCIAL DATA

The statement of operations data for the years ended 2001, 2000, and 1999 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 1998 and 1997 are derived from audited consolidated financial statements on file with the Securities and Exchange Commission. The balance sheet data as of December 31, 2001, and 2000 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, 1999, 1998 and 1997 are derived from audited consolidated financial statements on file with the Securities and Exchange Commission.

	Year Ended December 31,
	2001(1)	2000	1999	1998(2)	1997(3)
	(in thousands, except per share amounts)
Consolidated Statement of Operations Data:
Net sales Gross profit Write-off of acquired in-process research and development Income (loss) from operations Interest income (expense), net Net income (loss) before extraordinary item Extraordinary item, net of income tax benefit of $567 Net income (loss)	$ 36,615 11,328 (6,293) (3,417) (21,583) - (21,583)	$ 61,957 28,467 - 11,067 (4,630) 3,783 - 3,783	$ 51,838 23,855 - 5,636 (4,558) 679 - 679	$ 64,391 37,060 - 17,679 (8,813) 5,191 (888) 4,303	$ 29,796 14,676 (44,438) (35,578) 940 (22,836) - (22,836)
Net income (loss) per share before extraordinary item: Basic Diluted	$ (2.43) $ (2.43)	$ 0.44 $ 0.42	$ 0.08 $ 0.08	$ 0.69 $ 0.57	$ (3.83) $ (3.83)
Net income (loss) per share: Basic Diluted	$ (2.43) $ (2.43)	$ 0.44 $ 0.42	$ 0.08 $ 0.08	$ 0.64 $ 0.53	$ (3.83) $ (3.83)
Weighted Average Shares: Basic Diluted	8,890 8,890	8,624 9,088	8,521 9,049	7,487 8,168	5,955 5,955

	December 31,
	2001	2000	1999	1998	1997
	(in thousands)
Consolidated Balance Sheet Data: Working capital (deficit) Total assets Total debt Stockholders' equity	$ 5,187 86,837 39,612 41,143	$ (10,934) 109,113 35,873 62,547	$ (12,910) 114,786 49,600 58,024	$ (11,839) 119,104 55,700 57,277	$ (12,632) 126,592 105,903 8,995

________

Net loss for the year ended December 31, 2001 includes a non-cash deferred tax asset write-down of $14.1 million and $1.7 million in charges associated with closing the Company's South Bend, Indiana plant. The impact of these items was to reduce earnings per share by $1.73 (based on a weighted average number of common and common equivalent shares outstanding of 8,890,367).

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).

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 2001, net sales of the Company decreased to $36.6 million from $62.0 million in 2000. This decrease was due mainly to lower shipments of burn-in sockets resulting from the substantial reduction in demand from semiconductor manufacturers. The reduction in demand was caused by the severe downturn in the electronics industry. The Company realized approximately 39% of its net sales in 2001 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 18%, 21%, and 25% of the net sales of the Company in the years ended December 31, 2001, 2000 and 1999, 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	2001	2000	1999
Semiconductor burn-in sockets	48.0%	68.5%	64.5%
Industrial interconnects	18.3	14.2	14.1
Avionic terminal blocks and sockets	33.7	17.3	21.4
Total	100.0%	100.0%	100.0%

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 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
	2001	2000	1999	2001 vs. 2000	2000 vs. 1999
Net sales Gross profit Income (loss) from operations Non-operating expense, net Net income (loss)	100.0% 30.9 (17.2) (9.3) (58.9)	100.0% 45.9 17.9 (7.5) 6.1	100.0% 46.0 10.9 (8.8) 1.3	(40.9%) (60.2) (156.9) (26.2) (670.5)	19.5% 19.3 96.4 1.6 457.1

Years Ended December 31, 2001 and 2000

Net Sales. Net sales decreased 41% to $36.6 million for 2001, from $62.0 million in 2000. Net sales of $17.5 million in the semiconductor burn-in socket product lines were down $24.9 million or 59% from 2000. The net sales decrease in this business can be attributed largely to the weakest market conditions in the history of the semiconductor industry during 2001. Incoming orders for burn-in sockets declined $32.6 million or 73% to $11.9 million in 2001. Industrial/Avionics division net sales of $19.1 million were down $400,000 or 2% from 2000 as a result of the significant reduction in net sales during the fourth quarter. Net sales of $3.8 million during the fourth quarter of 2001 were down $1.5 million or 29% from the fourth quarter of 2000 and were down $800,000 from the third quarter of 2001. The reduction in net sales can be attributed in part to the impact of the events of September 11, particularly as they relate to the Company's Avionics business.

Gross profit. Gross profit decreased by $17.1 million or 60% in 2001 from $28.5 million in 2000. As a percentage of net sales, gross profit was 30.9% in 2001 and 45.9% in 2000. The lower gross profit percentage in 2001 resulted in large part from the significant reduction in the Company's consolidated sales volume. The drop in sales volume occurred mainly in the (higher-margin) burn-in socket product lines, which caused an unfavorable product mix shift that also contributed to the lower gross profit percentage. 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 and these changes cannot always be predicted with certainty. The negative factors impacting gross profit percentage in 2001 were partly offset by the positive impact of a $1.5 million reduction in manufacturing overhead expense, due primarily to cost reductions implemented at the Wells-CTI division during 2001. These reductions included layoffs, attrition, salary and hiring freezes, and the closing of the South Bend, Indiana plant during the fourth quarter.

Operating expenses. Operating expenses include selling, general and administrative expenses and costs of product development. Operating expenses decreased by $1.3 million to $11.9 million in 2001. Of this decrease, approximately $400,000 was due to lower selling expenses directly attributed to lower sales volume. The remaining decrease was due primarily to cost reductions implemented at the Wells-CTI division in 2001.

Restructuring Costs and Impairment of Long Lived Assets. During the third quarter of 2001 the Company's senior management approved plans to close the South Bend, Indiana manufacturing plant. The plant closure resulted in the Company's eliminating 39 positions from all levels and vacating approximately 50,000 square feet of space. Management has estimated the plant closure will result in annualized savings of $1.7 million. The Company recorded a restructuring charge of $773,000 for employee-related costs of $134,000 and vacation of leased space of $639,000. The Company also wrote off $235,000 of obsolete South Bend inventory through cost of sales. In addition, the Company wrote off $727,000 of equipment and improvements that were abandoned. The plant closure is substantially complete and as of December 31, 2001 the balance of accrued restructuring charges is $556,000. Amounts accrued in this balance are primarily re nt and other facility - - related costs and are expected to be paid during the nine month period ended September 30, 2002.

Non-operating Expense, net. Interest expense was $3.3 million in 2001 as compared with $4.4 million in 2000. Interest expense includes interest on the Senior Credit Facility of which the average outstanding balance was down $7.3 million from 2000. The lower average debt balances and lower interest rates in 2001 accounted for the decreased interest expense.

Provision for Income Taxes. In 2001 the Company wrote off its $14.1 million deferred tax asset in accordance with current tax accounting standards. Under these standards, the weight of available evidence emphasizing recent historical results and near - - term prospects, indicated it was more likely than not that the deferred tax asset would not be realized. Accordingly, a full valuation allowance has been provided (Note 8). The effective income tax rate for 2000 was 41%.

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% 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 $600,000 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.

Operating expenses. Operating expenses include selling, general and administrative expenses and costs of product development. Operating expenses decreased by $600,000 to $13.2 million or 21% of net sales in 2000 from $13.8 million or 27% 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 were no amounts accrued for restructuring at December 31, 2000. The annualized cost savings from the restructuring program approximate $1.0 million.

Non-operating 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% and 37%, 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.

Liquidity and Capital Resources

Cash used in operating activities in 2001 was $10,000, compared to cash provided by operating activities of $17.2 million in 2000. Net borrowings in 2001 were $3.7 million and were used to fund capital expenditures of approximately $3.2 million and a portion of loan financing and amendment fees. The Company currently anticipates that its capital expenditures for 2002 will be in the range of $2.4 million to $2.8 million and will consist primarily of purchased tooling and equipment required to support the Company's business. The amount of these capital expenditures will frequently change based on future changes in business plans and conditions of the Company and changes in economic conditions. At December 31, 2001 and 2000, borrowings of $39.8 million and $36.1 million were outstanding under the Senior Credit Facility at weighted average interest rates of 5.18% and 8.70%, respectively.

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. The agreement governing the Senior Credit Facility contains a Material Adverse Effects clause and 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 and in 2001 experienced difficulty meeting its principal repayment obligations. As a result, the Company has re-negotiated and amended the Senior Facility on several occasions since December 1997. In August 2001 certain covenants were amended by agreement between the Company and its lenders through June 2002. In conjunction with the August 2001 agreement, required principal payments for the year ending December 31, 2002 were reduced from $9.6 million to $5.3 million. In addition, borrowing availability under the Revolving Credit Facility ("the Revolver") was reduced from $20 million to $15 million and the maximum interest rate on the Facility was increased from 250 basis points to 350 basis points over LIBOR. The Company incurred fees of $500,000 in connection with this amendment. In November 2001 the Senior Credit Facility was am ended such that borrowing availability under the Revolver was increased to $16 million and the Company was required to obtain a commitment by January 31, 2002 to raise $7.0 million of Junior Capital by March 31, 2002. The Company and its lenders ultimately determined that raising Junior Capital was not a viable option under the existing market conditions at that time. Accordingly, in February 2002, the Senior Credit Facility was further amended and restated. In connection with the February 2002 agreement, certain covenant violations as of December 31, 2001 were waived and the lenders received warrants, exercisable immediately and for a period of ten years, to purchase 1,450,000 shares of common stock of the Company at $0.01 per share. In addition, lenders' existing warrants to purchase 203,949 shares of the Company's common stock at $4.90 per share were re-priced to $0.01 per share. The new and re-priced warrants were valued at $2.0 million utilizing the Black Scholes pricing method. The assumptions ut ilized under the Black Scholes method were 96% volatility, 1.82% riskless rate of return, no dividends and a term of six months. The key provisions of the February 2002 agreement are summarized in the table below.

		(Dollars in Thousands)
	Interest Rate	Loan Commitment	Loan Amount	Principal repayment schedule (5) 2002 2003 2004			Maturity Date
Revolving Credit Loan (A-1) (1) Revolving Credit Loan (A-2) (2)	Variable Variable	$ 2,500 17,500					12/31/04 12/31/04
Term Loan A (3)	Variable		$ 10,000		$3,000	$ 7,000	12/31/04
Term Loan B-1 (4) Term Loan B-2 (4)	Fixed - 8% Fixed - 10%		8,000 6,000			&