<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment to Current Report
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Date of Report (date of earliest event reported) March 18, 1999
TSI INTERNATIONAL SOFTWARE LTD.
Delaware 0-22667 06-1132150
- ------------------------------ ------- ------------------
(State or other jurisdication (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
45 Danbury Road
Wilton, Connecticut 06897
- ------------------------------ -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code 203-761-8600
------------------
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits, or other portions of its current report on Form 8-K,
originally filed with Securities and Exchange Commission on April 1, 1999 (the
"Form 8-K") as set forth in the pages attached.
ITEM 2.
As previously disclosed in a Current Report of Form 8K, filed on April 1,
1999, TSI International Software Ltd, a Delaware corporation ("TSI" or the
"Company") agreed to acquire all the issued and outstanding share capital of
Braid Group Limited ("Braid"), a privately held Bermuda Corporation, pursuant to
a Stock Purchase Agreement, effective March 1, 1999 (the "Purchase Agreement"),
by and among the Company and each of the stockholders of Braid (the "Braid
Stockholders"). Braid is headquartered in London, England and is a leading
provider of EAI software products to financial services institutions.
The financial statements of Braid and the pro forma financial information
relating to the acquisition, required to be filed in connection with the
acquisition pursuant to Item's 7 (a) & (b) of the Form 8-K, are included
herewith.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) The financial statements of the business acquired.
Braid Group Ltd.:
Financial Statements for the years ended July 31, 1997 and 1998
and Report of Independent Auditors
(B) Pro Forma Financial Information
TSI International Software Ltd.:
Unaudited Pro Forma Condensed Consolidated Statement of
Operations
Three months ended March 31, 1999
Unaudited Pro Forma Condensed Consolidated Statement of
Operations
Year ended December 31, 1998
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
<PAGE>
Item 7(A)
(A) Braid Group Limited, Braid Systems Limited and Braid Limited
Combined Financial Statements
For The Two Years Ended 31 July 1998
1
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Statement Of Directors' Responsibilities
The directors of Braid Group Limited, Braid Systems Limited and of Braid Limited
are required to maintain adequate accounting records and to prepare combined
financial statements which give a true and fair view of the state of affairs of
Braid Group Limited, Braid Systems Limited and Braid Limited and their
subsidiaries at the end of each financial year and of the combined profit and
cash flows for each of the two years in the period ended 31 July 1998. In
preparing combined financial statements, the directors ensure that appropriate
accounting policies have been adopted and applied consistently, that applicable
accounting standards have been followed and that reasonable and prudent
judgements have been made.
The directors are responsible for ensuring that appropriate systems of internal
control are in operation to provide reasonable assurance that the assets of
Braid Group Limited, Braid Systems Limited and Braid Limited and their
subsidiaries are properly safeguarded and that fraud and other irregularities
will be prevented and detected.
Report Of Independent Auditors
To The Board of Directors and Shareholders of Braid Group Limited, Braid Systems
Limited and Braid Limited.
We have audited the Combined Financial Statements as of 31 July 1998 and 1997
and for the two years then ended of Braid Group Limited, Braid Systems Limited
and its subsidiary undertakings and Braid Limited and its subsidiary
undertakings contained on pages 4 to 23, which are expressed in pounds sterling.
These financial statements are the responsibility of the management of Braid
Group Limited, Braid Systems Limited and Braid Limited. Our responsibility is
to express an opinion on these Combined Financial Statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which do not differ in any material respects from auditing
standards in the United States. Those standards 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 principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the Combined Financial Statements referred to above present
fairly, in all material respects, the combined financial position of Braid Group
Limited, Braid Systems Limited and its subsidiary undertakings and Braid Limited
and its subsidiary undertakings at 31 July 1998 and 1997 and the combined
results of their operations, and of their cash flows for each of the two years
in the period ended 31 July 1998, in conformity with generally accepted
accounting principles in the United Kingdom.
2
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
the combined profit expressed in pounds sterling for each of the two years in
the period ended 31 July 1998 and the determination of combined shareholders'
funds also expressed in pounds sterling at 31 July 1998 and 1997 to the extent
summarised in Note 22 to the Combined Financial Statements.
PricewaterhouseCoopers
Chartered Accountants
and Registered Auditors 28 May 1999
3
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Combined Profit And Loss Accounts For The Two Years Ended 31 July 1998
<TABLE>
<CAPTION>
1998 1997
Note (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Turnover 2 11,532 9,250
Cost of sales (1,144) (981)
- --------------------------------------------------------------------------------------------------
Gross profit 10,388 8,269
Operating expenses (9,660) (7,611)
- --------------------------------------------------------------------------------------------------
Operating profit 728 658
Loss on sale of fixed assets (2) (6)
Interest receivable 22 22
Interest payable (8) (5)
- --------------------------------------------------------------------------------------------------
Profit on ordinary activities before taxation 2 740 669
Taxation on profit on ordinary activities 7 (227) (198)
- --------------------------------------------------------------------------------------------------
Profit for the financial year 513 471
Dividends (91) (314)
- --------------------------------------------------------------------------------------------------
Retained profit for the financial year 422 157
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Combined Statements Of Total Recognized Gains And Losses
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Profit for the financial year 513 471
Currency translation differences arising on
preparation of combined accounts 29 7
- ------------------------------------------------------------------------------------------
Total recognised gains relating to the year 542 478
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Combined Balance Sheets As At 31 July 1998 and 31 July 1997
<TABLE>
<CAPTION>
1998 1997
Note (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Fixed assets
Tangible assets 9 658 675
- ----------------------------------------------------------------------------------------------------------
Current assets
Stocks 11 75 103
Debtors 12 2,962 3,543
Cash at bank and in hand 1,904 494
- ----------------------------------------------------------------------------------------------------------
Creditors - amounts falling due within one year 13 (4,340) (4,205)
- ----------------------------------------------------------------------------------------------------------
Net current assets/(liabilities) 601 (65)
- ----------------------------------------------------------------------------------------------------------
Total assets less current liabilities 1,259 610
- ----------------------------------------------------------------------------------------------------------
Creditors: amounts falling due after more than one year 14 (64) (48)
Provisions for liabilities and charges 8 (141) -
Net assets 1,054 562
- ----------------------------------------------------------------------------------------------------------
Capital and reserves
Share capital 18 14 13
Share premium account 17 286 246
Profit and loss account 17 754 303
- ----------------------------------------------------------------------------------------------------------
Equity shareholders' funds 16 1,054 562
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Combined Cash Flow Statements
For The Two Years Ended 31 July 1998
<TABLE>
<CAPTION>
1998 1997
Note (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Reconciliation of operating profit to net cash inflow from
operating activities
Operating profit 728 658
Depreciation charges and amortisation of goodwill 321 359
Decrease in stocks 28 92
Decrease/(Increase) in debtors 418 (1,532)
Increase in creditors 327 1,482
- -------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 1,822 1,059
- -------------------------------------------------------------------------------------------------------------
Returns on investment and servicing of finance 15 14 17
Taxation (93) (62)
Capital expenditure 15 (301) (545)
Acquisitions 15 - (125)
Equity dividends paid (91) (314)
Financing 15 11 (27)
- -------------------------------------------------------------------------------------------------------------
Increase in cash 1,362 3
- -------------------------------------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 1,362 3
Finance lease payments 30 27
Less new finance leases undertaken (51) (85)
Translation differences 48 7
- -------------------------------------------------------------------------------------------------------------
Change in net cash/(debt) 1,389 (48)
Net cash at beginning of year 423 471
- -------------------------------------------------------------------------------------------------------------
Net cash (including debt) at end of year 15 1,812 423
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Braid Group Limited, Braid Systems Limited and Braid Limited
Notes To The Combined Financial Statements
For the Two Years Ended 31 July 1998
Accounting Policies
(1) Basis Of Accounting
The Combined Financial Statements have been prepared under the historical cost
convention and in accordance with applicable UK accounting standards.
(2) Basis Of Presentation
The combined profit and loss accounts combine the consolidated results of Braid
Systems Limited and its subsidiary undertakings and of Braid Limited and its
subsidiary undertakings for the years ended 31 July 1998 and 31 July 1997. The
combined balance sheets as at 31 July 1998 combine the balance sheets of Braid
Group Limited, Braid Systems Limited and its subsidiary undertakings and Braid
Limited and its subsidiary undertakings. (See discussion of Braid Group Limited
at note 23.) The combined balance sheets as at 31 July 1997 combine the
consolidated balance sheets of Braid Systems Limited and its subsidiary
undertakings and of Braid Limited and its subsidiary undertakings as at those
dates.
The combined financial statements do not constitute "statutory accounts" within
the meaning of the Companies Act 1985 of Great Britain for any of the periods
presented. Statutory accounts of Braid Systems Limited for the years ended 31
July 1988 and 1997 have been filed with the Registrar of Companies in the United
Kingdom. The auditors have reported on the accounts of Braid Limited and Braid
Systems Limited. Their reports were unqualified and did not contain statements
under Section 237 (2) or (3) of the Companies Act 1985.
These combined financial statements include all material disclosures required by
generally accepted accounting principles in the United Kingdom.
(3) Research And Development
Developing core software code is the main area of research and development for
Braid Systems Limited and Braid Limited, forming the basis for future product
versions. Software development costs subsequent to achieving technological
feasibility and prior to products being available to customers are considered by
management to be insignificant. All research and development costs are charged
to the profit and loss account as they arise.
(4) Tangible Fixed Assets & Depreciation
Fixed assets are included at cost and are written down over their estimated
useful lives using the straight line and reducing balance method.
Furniture & equipment 5 years (20% per annum)
Motor vehicles 4 years (25% per annum)
Computer equipment 3 years (33.3% per annum)
(5) Goodwill
Purchased goodwill is capitalised and amortised through the profit and loss
account over its estimated useful economic life. Goodwill is written down
immediately when, and to the extent that, its value has been impaired.
8
<PAGE>
1 Accounting Policies (Continued)
(6) Stocks
Stocks are valued at the lower of cost and net realisable value on a first-in,
first-out basis.
(7) Revenue Recognition
Maintenance
Revenue on software maintenance contracts, whether for new or renewal business
is recognised rateably over the relevant period of the maintenance agreement.
Services
Revenue arising from time and material service agreements is recognised as
services are delivered.
Revenue arising from fixed price service agreements is recognised on a
percentage complete basis.
Licenses
License revenues arising from agreements involving the sale of licences and
services that are essential to the functionality of the software being delivered
are recognised using percentage complete accounting, license revenues being
recognised in direct proportion to the services delivered and to be delivered
under the agreement.
License revenues arising from agreements involving the sale of licences only or
the sale of licences and insignificant services are recognised when the software
is delivered and collectibility is probable.
Other Revenues
Other revenues including expense recharges and minor hardware sales are
recognised as they are invoiced.
(8) Foreign Currency
Within Braid Systems Limited and Braid Limited the results and net assets of
foreign subsidiary undertakings have been translated into their respective
functional currencies (sterling and United States dollars) using the closing
rate method of translation.
For the purposes of preparing combined financial statements, the net assets of
Braid Group Limited and the results and net assets of Braid Limited have been
translated into sterling at year end exchange rates. The exchange differences
have been taken to reserves and reported in the statement of total recognised
gains and losses.
9
<PAGE>
1 Accounting Policies (Continued)
(9) Deferred Taxation
Tax deferred or accelerated by the effect of timing differences is accounted for
to the extent that is considered probable that a liability or asset will
crystallise in the foreseeable future.
(10) Leased Assets
Assets acquired under finance leases are treated as if they had been purchased
and an amount equivalent to their cost is included under tangible fixed assets
and depreciation provided accordingly. The deemed capital element of future
lease payments is included under other creditors; interest calculated on the
straight-line basis is included in interest payable.
Rental costs arising from operating leases are charged against profit on a
straight-line basis over the lease term.
(11) Pensions
Contributions payable to defined contribution pension schemes are charged to the
profit and loss account.
10
<PAGE>
2 Segmental Information
<TABLE>
<CAPTION>
Analysis of turnover by destination: 1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
UK and Continental Europe 7,675 6,364
North America 1,388 1,228
Asia 1,857 1,030
Middle East & Africa 612 628
- -------------------------------------------------------------------------------------------------------------
11,532 9,250
- -------------------------------------------------------------------------------------------------------------
Analysis of turnover by origin:
UK 8,162 6,363
North America 1,242 1,228
Asia 2,128 1,659
- -------------------------------------------------------------------------------------------------------------
11,532 9,250
- -------------------------------------------------------------------------------------------------------------
Analysis of profit on ordinary activities before taxation by origin:
UK 93 129
North America 118 10
Asia 529 530
- -------------------------------------------------------------------------------------------------------------
740 669
- -------------------------------------------------------------------------------------------------------------
Analysis of net assets by location:
UK 1,257 929
North America 122 10
Asia (325) (377)
- -------------------------------------------------------------------------------------------------------------
1,054 562
- -------------------------------------------------------------------------------------------------------------
</TABLE>
3 Foreign Exchange
Exchange losses charged to the profit and loss account on foreign exchange
transactions completed during the year amount to (Pounds)42,000 (1997:
(Pounds)43,000).
11
<PAGE>
4 Operating Lease Commitments
Operating lease payments payable within one year of the balance sheet date, are
in respect of leases expiring:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------ --------------------------------------------
Land & Motor Computer Land & Motor Computer
Buildings Vehicles Equipment Buildings Vehicles Equipment
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C>
Within the next year 6 9 - 17 7 -
Within 2-5 years 130 9 9 221 36 9
Over 5 years 100 13 - 100 - -
- ----------------------------------------------------------------------------------------------------------------
236 31 9 338 43 9
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
5 Finance Lease Commitments
The future committed payments are as follows:
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Within the next year 28 23
Within 2-5 years 64 48
Over 5 years - -
- -----------------------------------------------------------------------------------
92 71
Interest due 19 15
- -----------------------------------------------------------------------------------
111 86
- -----------------------------------------------------------------------------------
</TABLE>
6 Staff Costs
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Employee costs during the year were:
Wages and salaries 4,825 4,052
Social security costs 394 312
Defined contribution pension costs 114 -
- ------------------------------------------------------------------------------------------
5,333 4,364
- ------------------------------------------------------------------------------------------
</TABLE>
As of the 1st August 1997, Braid Systems Limited set up a money purchase pension
scheme with defined contribution levels covering the majority of its employees,
including directors. Contributions to the scheme are independently administered
by insurance companies.
The pension cost represents contributions payable by Braid Systems Limited to
the scheme and amounted to (Pounds)114,000 (1997:(Pounds)Nil). Contributions of
(Pounds)10,990 (1997:(Pounds)Nil) were payable to the scheme at the year end.
12
<PAGE>
7 Taxation
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
UK Corporation tax on current year profit at a rate of 31% (1997: 32 1/2%) 66 216
UK adjustment in respect of previous years - (18)
Deferred tax 141 -
Overseas taxes 20 -
- --------------------------------------------------------------------------------------------------------------------------
227 198
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 Provisions For Liabilities And Charges
<TABLE>
<CAPTION>
(Pounds)'000
Deferred tax
<S> <C>
At 1 August 1997 -
Provided in the year 141
- ------------------------------------------------------------------------------
At 31 July 1998 141
- ------------------------------------------------------------------------------
</TABLE>
Deferred taxation provided in the accounts relates to provisions.
13
<PAGE>
9 Tangible Fixed Assets
<TABLE>
<CAPTION>
Computer Fixtures & Motor
Equipment Fittings Vehicles Total
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Costs
At 1 August 1996 622 137 70 829
Additions in year 358 92 139 589
Disposals in year (19) - (18) (37)
- ----------------------------------------------------------------------------------------------------------------
At 31 July 1997 961 229 191 1,381
Exchange adjustment (8) (7) (13) (28)
Additions in year 275 17 64 356
Disposals in year - - (37) (37)
- ----------------------------------------------------------------------------------------------------------------
At 31 July 1998 1,228 239 205 1,672
- ----------------------------------------------------------------------------------------------------------------
Depreciation
At 1 August 1996 384 72 28 484
Charges in year 195 22 33 250
Disposals in year (10) - (18) (28)
- ----------------------------------------------------------------------------------------------------------------
At 31 July 1997 569 94 43 706
Exchange adjustment (3) - (2) (5)
Charges in year 239 32 50 321
Disposals in year - - (8) (8)
- ----------------------------------------------------------------------------------------------------------------
At 31 July 1998 805 126 83 1,014
- ----------------------------------------------------------------------------------------------------------------
Net book amount
At 31 July 1998 423 113 122 658
- ----------------------------------------------------------------------------------------------------------------
At 31 July 1997 392 135 148 675
- ----------------------------------------------------------------------------------------------------------------
At 31 July 1996 238 65 42 345
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The gross amount of fixed assets held under finance leases is as follows:
Motor vehicles: Cost (Pounds)179,000 (1997:(Pounds)115,000), Accumulated
depreciation (Pounds)73,000 (1997:(Pounds)30,000).
Depreciation charged in the year on fixed assets under finance leases is
(Pounds)43,000 (1997: (Pounds)20,000).
14
<PAGE>
10 Goodwill
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
At 1 August 1996 - -
On acquisition of Wate Scantlebury Overgage Limited - 109
Accelerated amortisation of goodwill impaired - (109)
- -------------------------------------------------------------------------------------------------------
At 31 July 1997 - -
- -------------------------------------------------------------------------------------------------------
</TABLE>
11 Stocks
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Finished goods held for resale 73 103
Stationery 2 -
- -------------------------------------------------------------------------------------------------------
75 103
- -------------------------------------------------------------------------------------------------------
</TABLE>
12 Debtors
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Trade debtors 2,701 3,090
Amounts recoverable on contracts 6 248
Other debtors 131 106
Prepayments and accrued income 124 99
- -------------------------------------------------------------------------------------------------------
2,962 3,543
- -------------------------------------------------------------------------------------------------------
</TABLE>
13 Creditors: Amounts Falling Due Within One Year
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Trade creditors 414 721
Other creditors 335 393
Accruals 479 16
Pensions 11 -
Deferred income 2,613 2,684
Taxation and social security 467 334
Corporation tax 21 57
- -------------------------------------------------------------------------------------------------------
4,340 4,205
- -------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
14 Creditors: Amounts Falling Due After More Than One Year
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Obligations under finance leases (Note 5) 64 48
- --------------------------------------------------------------------------------------------------------------
</TABLE>
15 Notes To Combined Cash Flow Statements
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Returns on investment and servicing of finance
Interest received 22 22
Interest paid (8) (5)
- -------------------------------------------------------------------------------------------------------------
14 17
Capital expenditure
Payments to acquire tangible fixed assets 328 548
Receipts from sales of tangible fixed assets (27) (3)
- -----------------------------------------------------------------------------------------------------------
301 545
Acquisition of WSO business (note 21)
Purchase of software and hardware - 16
Purchase of goodwill - 109
- -----------------------------------------------------------------------------------------------------------
- 125
Financing
Issue of ordinary share capital 41 -
Capital element of finance lease payments (30) (27)
- -----------------------------------------------------------------------------------------------------------
11 (27)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Analysis Of Changes In Net Debt
<TABLE>
<CAPTION>
At New At New At
1 August Cash Finance Exchange 31 July Cash Finance Exchange 31 July
1996 flows leases Movement 1997 Flows Leases Movement 1998
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
'000 '000 '000 '000 '000 '000 '000 '000 '000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash in hand and at 484 3 - 7 494 1,362 - 48 1,904
bank
- ------------------------------------------------------------------------------------------------------------------------------------
Finance leases (13) 27 (85) - (71) 30 (51) - (92)
Total 471 30 (85) 7 423 1,392 (51) 48 1,812
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
16 Reconciliation Of Movement In Combined Shareholders' Funds
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Profit for financial year 513 471
New ordinary shares issued 41 -
- ----------------------------------------------------------------------------------------------------------------------
554 471
Dividends paid (91) (314)
Currency translation differences on
preparation of combined accounts 29 7
Opening combined shareholders' funds 562 398
- ----------------------------------------------------------------------------------------------------------------------
Closing combined shareholders' funds 1,054 562
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17 Movement In Combined Reserves
<TABLE>
<CAPTION>
Share
premium Profit
account and loss Total
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
At 1 August 1996 246 139 385
Transfer to profit and loss account - 157 157
Currency translation differences on
preparation of combined accounts - 7 7
- -----------------------------------------------------------------------------------------------------------
At 31 July 1997 246 303 549
Transfer to profit and loss account - 422 422
Currency translation differences on
preparation of combined accounts - 29 29
Share premium arising on share issue (Note 18) 40 - 40
At 31 July 1998 286 754 1,040
- ----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
18 Combined Equity Share Capital
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Authorised:
Braid Limited - 10,000 ordinary shares of HK$1 each 1,292 1,292
Braid Systems Limited - 1,000,000 ordinary shares of (Pounds)0.10 each 100 100
Braid Group Limited 12,000 ordinary shares of US$1 each 7 -
- --------------------------------------------------------------------------------------------------------------
Allotted, issued & fully paid:
Braid Limited - 2 ordinary shares of HK$1 each - -
Braid Systems Limited 140,582 (1997: 135,536) ordinary shares (Pounds)0.10 each 14 13
- --------------------------------------------------------------------------------------------------------------
14 13
Allotted & issued:
Braid Group Limited - 12,000 ordinary shares of US$1 each - -
- --------------------------------------------------------------------------------------------------------------
</TABLE>
An additional 5,046 shares were issued by Braid Systems Limited in 1998 in
accordance with the approved employee share option scheme as detailed in note
19.
19 Share Option Schemes
Braid Systems Limited granted options to employees, including directors over the
shares described below under an employee share option scheme approved by the
Inland Revenue. These options were exercised during 1998.
<TABLE>
<CAPTION>
Number of shares Expiry date Price per Exercised during Balance of
subject to options of option share 1998 options remaining
at 31 July 1998
<S> <C> <C> <C> <C> <C>
Ordinary shares 681 October 1997 (Pounds)7.50 681 -
of 10p each 909 November 1998 (Pounds)7.50 909 -
2,031 March 2000 (Pounds)8.50 2,031 -
259 April 2001 (Pounds)9.10 259 -
1,166 May 2005 (Pounds)7.50 1,166 -
- ------------------------------------------------------------------------------------------------------------------------------
5,046 5,046 -
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Braid Systems Limited granted options to employees, including directors over the
shares described below under an unapproved employee share option scheme.
<TABLE>
<CAPTION>
Number of shares Expiry date Price per Exercised during Balance of
subject to options of option share 1998 options remaining
at 31 July 1998
<S> <C> <C> <C> <C> <C>
Ordinary shares of 6,400 July 2007 (Pounds)19.00 - 6,400
10p each
</TABLE>
In November 1998, 700 of the unapproved scheme options were exercised.
18
<PAGE>
20 Subsidiary Undertakings
<TABLE>
<CAPTION>
Parent Subsidiary Country of Shares held Nature of business
company undertaking registration Class
<S> <C> <C> <C> <C> <C>
Braid Limited Braid PTE Singapore Ordinary 100% Development and marketing of
Limited messaging and application
software products to
international banking and
securities industries
Braid Systems Australia Ordinary 100% Development and marketing of
PTY Limited messaging and application
software products to
international banking and
securities industries
Braid Systems Braid Inc USA Ordinary 100% Development and marketing of
Limited messaging and application
software products to
international banking and
securities industries
Braid Systems USA Ordinary 100% Dormant
Inc.
Braid Limited UK Ordinary 100% Dormant
</TABLE>
See note 23 for discussion of Braid Group Limited.
21 Acquisition
On 1 April 1997 Braid Systems Limited purchased the business and business assets
of Wate Scantlebury Overgage Limited. This has been accounted for as an
acquisition by Braid Systems Limited. The initial consideration for this
acquisition was the payment of (Pounds)125,000.
Due to the departure of key personnel, management determined that the original
intention of building on the acquired consulting business was no longer
feasible. Accordingly, the purchased goodwill was written off through the profit
and loss account as at 31 July 1997.
Further deferred consideration in the form of Braid Systems Limited shares would
have been payable, contingent on the meeting of product and service criteria.
The company does not consider that payment of this contingent consideration is
likely.
19
<PAGE>
22 Summary Of Differences Between United Kingdom And United States Generally
Accepted Accounting Principles
The accompanying Combined Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK GAAP"),
which differ in certain material respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
The following is a summary of the material adjustments to the combined net
profit and combined shareholders' funds that would have been required in
applying the significant differences between UK and US GAAP.
Reconciliation Of Combined Profit And Loss Accounts
<TABLE>
<CAPTION>
1998 1997
Note (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Net profit under UK GAAP 513 471
US Adjustment:
- - Holiday pay (i) 3 (29)
- ------------------------------------------------------------------------------
Tax effect of US GAAP adjustment (1) 9
Total US GAAP adjustment 2 (20)
- ------------------------------------------------------------------------------
Net profit under US GAAP 515 451
- ------------------------------------------------------------------------------
</TABLE>
Reconciliation of Combined Shareholders' Funds
<TABLE>
<CAPTION>
1998 1997
Note (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Shareholders' funds under UK GAAP 1,054 562
US Adjustment:
- - Holiday pay (i) (66) (69)
- -----------------------------------------------------------------------------------------------
Tax effect of US GAAP adjustment 20 21
Total US GAAP adjustment (46) (48)
- -----------------------------------------------------------------------------------------------
Shareholders' funds under US GAAP 962 514
- -----------------------------------------------------------------------------------------------
</TABLE>
A summary of the principal differences and applicable additional disclosures is
set out below.
20
<PAGE>
22 Summary Of Differences Between United Kingdom And United States Generally
Accepted Accounting Principles (Continued)
(i) Holiday Pay
US GAAP requires that provision for employee's future absences (ie holiday pay)
shall be made on an accrual basis if (i) the employees' right to receive
compensation for future absence is due to past service; (ii) the obligation
accumulates; (iii) the payment is probable and (iv) the amount can be reasonably
estimated. There are no formal rules under UK GAAP and either the accrual or
cash method is used in practice.
(ii) Other Disclosures Required By US GAAP
Deferred Taxation
Under UK GAAP, no provision is made for deferred taxation if there is reasonable
evidence that such deferred taxation will not be payable in the foreseeable
future. Deferred tax assets are generally not recognised under UK GAAP unless
they are expected to be recovered in the foreseeable future or, if relating to
losses, where recovery can be assumed beyond reasonable doubt (usually one year
from the balance sheet date). Under US GAAP, deferred tax assets and
liabilities are recognised in full and any net deferred tax assets are then
assessed for probable recoverability. As long as it is more likely than not
that sufficient future taxable income will not be available to utilise the
deferred tax assets, no valuation allowance is provided.
For the two years ended 31 July 1998, management has evaluated both historical
and projected evidence to determine that it is more likely than not that
sufficient future taxable income will not be available to fully utilise deferred
tax assets generated. Therefore a valuation allowance has been fully provided
for all deferred tax assets.
Deferred tax assets primarily due to net operating loss carryforwards amounted
to (pounds) 271,000 and (pounds) 254,000 at 31 July 1998 and 1997, respectively.
These deferred tax assets have been offset by valuation allowances of (pounds)
271,000 and (pounds) 254,000 at 31 July 1998 and 1997, respectively.
Goodwill and US Purchase Accounting
Under US GAAP and UK GAAP, purchase consideration in respect of subsidiaries
acquired is allocated on the basis of appraised values to the various net assets
of the subsidiaries at the dates of acquisition and any net balance is treated
as goodwill. However, US GAAP also requires value to be assigned to any
separately identifiable intangible assets which would be amortised over their
estimated useful lives not to exceed 40 years. If part of the purchase
consideration is contingent on a future event, then under UK GAAP an estimate of
the amount is included as part of the cost at the date of acquisition. This
estimate is revised each year until the eventual outcome is certain. US GAAP
requires goodwill not to be recognised until the contingency is resolved or the
amount is determinable. US GAAP requires goodwill to be recognised as an asset
and amortised over its estimated useful life not to exceed 40 years. For the
years ended through to 31 July 1998 UK GAAP permitted goodwill and any
separately unidentifiable intangible assets to be recognised as an asset and
amortised over its estimated useful life.
21
<PAGE>
22 Summary Of Differences Between United Kingdom And
United States Generally Accepted Accounting Principles (Continued)
Impairment of Long-Lived Assets
For US GAAP purposes companies evaluate the carrying value of long-lived assets
to be held and used, including goodwill and intangible assets, when events and
circumstances warrant such a review. The ongoing value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow before interest
charges from such an asset is less than the carrying value. In that event a
loss is recognised based on the amount by which the carrying value exceeds the
fair market value of the asset. Long-lived assets which are held for disposal
are carried at the lower of cost or fair market value reduced for the costs of
disposal.
Due to the events and circumstances described in Note 21, management evaluated
the carrying value of goodwill associated with the WSO acquisition. The
carrying value of goodwill was considered impaired and, as a result, written
down to a nil fair market value.
Cash Flow Statements
The definition of "cash flow" differs between UK and US GAAP. Cash flow under
UK GAAP represents increases or decreases in "cash" which is comprised of cash
in hand and repayable on demand and overdrafts. Under US GAAP, cash flow
represents increases or decreases in "cash and cash equivalents," which include
short term highly liquid investments with original maturities of less than 90
days, and exclude overdrafts.
There are also certain differences in classification of items within the cash
flow statement between UK and US GAAP. Under UK GAAP, cash flows are presented
in the following categories: (i) operating activities; (ii) returns on
investments and servicing of finance; (iii) taxation; (iv) capital expenditure
and financial investment; (v) acquisitions and disposals; (vi) equity dividends
paid; (vii) management of liquid resources; and (viii) financing. Under US
GAAP, cash flows are segregated into operating, investing and financing
activities.
Cash flows from taxation, returns on investments and servicing of finance would
be, with the exception of any interest paid but capitalised, included as
operating activities under US GAAP. The payment of any dividends would be
included under financing activities and any capitalised interest would be
included under investing activities for US GAAP purposes. Additionally, under
US GAAP cash flows from the purchase and sale of tangible fixed assets and the
sale of debt and equity investments would be shown within investing activities.
22
<PAGE>
22 Summary Of Differences Between United Kingdom And United States Generally
Accepted Accounting Principles
A summary of the companies' operating, investing and financing activities,
classified in accordance with US GAAP is as follows:
<TABLE>
<CAPTION>
1998 1997
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net cash provided by operating activities 1,743 1,014
Net cash used in investing activities (301) (670)
Net cash used in financing activities (80) (341)
Effect of exchange rate changes on cash 48 7
- ------------------------------------------------------------------------------------------------
Net increase in cash 1,410 10
Cash under US GAAP at the beginning of the year 494 484
Cash under US GAAP at the end of the year 1,904 494
- ------------------------------------------------------------------------------------------------
</TABLE>
Current Assets and Liabilities
Current assets under UK GAAP can include amounts which fall due after more than
one year. Under US GAAP such assets would be reclassified as non-current
assets. Provisions for liabilities and charges under UK GAAP include amounts
due within one year, which would be reclassified to current liabilities under US
GAAP.
23 Subsequent Events
The Braid Group Limited was incorporated in Bermuda on 5 December 1997. It
changed its name to Braid Group Limited on 29 October 1998. Up to 29 October
1998, its authorized share capital amounted to US$12,000, and it did not trade
or declare or pay any dividends or make any other distributions. On 4 November
1998, Braid Group Ltd increased its authorized share capital from US$12,000 to
US$12,000,000.
Effective from 17 November 1998, Braid Group Limited acquired 100% of the issued
share capital of Braid Systems Limited (which is incorporated in the United
Kingdom) and 100% of the issued share capital of Braid Limited which is
incorporated in Hong Kong.
For each share acquired of Braid Systems Limited, Braid Group Limited issued to
the former shareholders of Braid Systems Limited, twenty eight US$1 ordinary
shares in Braid Group Limited.
For each of the issued shares acquired of Braid Limited, Braid Group Limited
issued to the former Shareholders of Braid Limited the following consideration:
. 1,102,767.5 US$1 ordinary shares in Braid Group Limited
. Cash of HK$220.50
Braid Group Limited also purchased 9,998 newly allotted HK$1 ordinary shares of
Braid Limited for consideration of HK$9,998. The shares constituted the balance
of authorised but previously unissued share capital in Braid Limited at the date
of the transaction.
In October 1998, Braid Group Limited set up a share option plan for the benefit
of employees and consultants. A maximum of 1,000,000 shares have been
authorised for issuance under the plan. In November 1998, 649,250 options at an
exercise price of US$2 per share were granted to employees. In addition, the
5,700 remaining unexercised options under the unapproved Braid Systems Limited
share option scheme were converted to 159,600 option with a resulting exercise
price of US$1.10 per share under the Braid Group Limited share option plan.
In March 1999, Braid Group Limited was acquired by TSI International Software
Inc, a US based software company, for US$30 million in cash, approximately 1.1
million in TSI shares and an additional earn-out of up to US$20 million in cash
or shares.
23
<PAGE>
Item 7b. Pro Forma Condensed Consolidated Financial Information
In March 1999, the Company acquired Braid Group Ltd ("Braid") in a cash and
stock transaction for approximately $110.2 million, including acquisition costs.
This acquisition will be accounted for as a purchase business combination.
The unaudited pro forma condensed consolidated statements of operations have
been prepared by combining the historical consolidated financial statements of
TSI International Software Ltd. ("the Company") with the historical financial
information of Braid Group Ltd ("Braid"). The unaudited pro forma condensed
consolidated statement of operations for the three month period ended March 31,
1999 has been prepared by combining the results of the Company for the quarter
ended March 31, 1999, which results included Braid for the month of March, and
Braid historical information prepared in accordance with generally accepted
accounting principles in the United States for the two months ended February 28,
1999. The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1998 has been prepared by combining the audited
statement of operations of the Company for the year ended December 31, 1998 with
the unaudited statement of operations of Braid for the 12 month period ending
January 31, 1999.
A pro forma balance sheet has not been included as the assets and liabilities of
Braid were consolidated in the March 31, 1999 balance sheet of the Company
reported on the Registrant's quarterly report on Form 10-Q filed on May 14,
1999.
The pro forma financial information is intended for informational purposes only
and is not necessarily indicative of the future results of operations of the
consolidated company after the acquisition of Braid that would have actually
occurred had the acquisition of Braid been effected on January 1, 1998. The
pro forma statement of operations and the accompanying notes should be read in
connection with and are qualified by the historical financial statements of the
Company and notes thereto.
24
<PAGE>
TSI International Software, Ltd. Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the Three Months Ended March 31, 1999:
<TABLE>
<CAPTION>
Three Months Ended Two Months Ended
March 31, 1999 February 28, 1999 Pro Forma Pro Forma
TSI Braid Adjustments as Adjusted
<S> <C> <C> <C> <C>
Revenues
Software Licensing $ 9,799,400 $ 2,154,900 - $11,954,300
Service, Maintenance and Other 7,436,600 2,301,400 - 9,738,000
---------- --------------- ---------- -----------
Total Revenues 17,236,000 4,456,300 - 21,692,300
Total Cost of Revenues 4,667,200 1,691,400 - 6,358,600
---------- --------------- ---------- -----------
Gross Profit 12,568,800 2,764,900 - 15,333,700
---------- --------------- ---------- -----------
Operating Expenses 10,905,700 3,601,500 (726,200) 13,781,000
Amortization of Intangibles 2,324,000 - 4,466,500 6,790,500
---------- --------------- ---------- -----------
Total Operating Expenses 13,229,700 3,601,500 3,740,300 20,571,500
---------- --------------- ---------- -----------
Operating Loss (660,900) (836,600) (3,740,300) (5,237,800)
Interest Income(Expense) 511,100 - (291,700) 219,400
---------- --------------- ---------- -----------
Loss Before Taxes (149,800) (836,600) (4,032,000) (5,018,400)
Provision For (Benefit From) Income Taxes 69,700 32,100 (621,600) (519,800)
---------- --------------- ---------- -----------
Net Loss $ (219,500) $ (868,700) (3,410,400) $(4,498,600)
========== =============== ========== ===========
Net Loss Per Share Basic (0.01) (0.18)
Diluted (0.01) (0.18)
Average Shares Outstanding Basic 22,838,864 24,727,296
Diluted 22,838,864 24,727,296
</TABLE>
25
<PAGE>
TSI International Software, Ltd. Unaudited Pro Forma Condensed
Consolidated Statement of Operations for the Year Ended December 31, 1998:
<TABLE>
<CAPTION>
Year Ended Year Ended Pro Forma Pro Forma
December 31, 1998 January 31, 1999 Adjustments As Adjusted
TSI Braid
<S> <C> <C> <C> <C>
Revenues
Software Licensing 29,104,700 7,945,100 - 37,049,800
Service, Maintenance and
Other 16,211,400 12,679,500 - 28,890,900
---------- ------------ ------------ ------------
Total Revenues 45,316,100 20,624,600 - 65,940,700
Total Cost of Revenues 6,889,100 7,474,300 - 14,363,400
---------- ------------ ------------ ------------
Gross Profit 38,427,000 13,150,300 - 51,577,300
---------- ------------ ------------ ------------
Operating Expenses 33,660,600 13,385,600 (837,300) 46,208,900
Amortization of Intangibles 303,000 - 25,318,000 25,621,000
---------- ------------ ------------ ------------
Total Operating Expenses 33,963,600 13,385,600 24,480,700 71,829,900
---------- ------------ ------------ ------------
Operating Income (Loss) 4,463,400 (235,300) (24,480,700) (20,252,600)
Interest Income (Expense) 2,014,500 - (1,750,000) 264,500
---------- ------------ ------------ ------------
Income (Loss) Before Taxes 6,477,900 (235,300) (26,230,700) (19,988,100)
---------- ------------ ------------ ------------
Provision For (Benefit From)
Income Taxes (678,900) 343,500 (3,064,700) (3,400,100)
---------- ------------ ------------ ------------
Net Income (Loss) 7,156,800 (578,800) (23,166,000) (16,588,000)
========== ============ ============ ============
Net Income (Loss) Basic 0.71 (0.74)
Per Share Diluted 0.60 (0.74)
Average Shares Outstanding Basic 20,299,006 22,506,264
Diluted 23,815,608 22,506,264
</TABLE>
26
<PAGE>
TSI International Software Ltd. and Braid Group Ltd. Notes to Unaudited Pro
Forma Condensed Consolidated Financial Information.
1. TSI International Software Ltd ("the Company") purchased all of the
outstanding share capital of Braid Group Ltd ("Braid") for approximately $110.2
million excluding approximately $20 million of contingent consideration to be
paid upon the achievement of certain performance criteria. This purchase price
included (i) $30 million in cash, (ii) 2,207,258 shares of TSI Common Stock
valued at approximately $63.7 million, (iii) the issuance of 434,622 TSI Stock
Options, with a fair value of approximately $12.0 million in exchange for all
outstanding Braid options, and (iv) approximately $4.5 million in fees and
acquisition related expenses.
The transaction was accounted for under the purchase method of accounting. The
excess of the purchase price, excluding the contingent consideration, over the
fair value of the assets is approximately $125.2 million including the effect of
recording $14.8 million of deferred tax liability, related to nondeductible
identifiable intangible assets. Of this amount, $39.0 million was allocated to
identifiable intangible assets which are amortized over periods of 3 to 5 years,
with the remainder allocated to goodwill which is amortized over 5 years.
2. The pro forma statements of operations include the following adjustments:
(a) To reflect the increase in amortization expense due to the amortization of
goodwill and other identifiable intangible assets, and the tax benefit
related to other identifiable assets.
(b) To reflect the decrease in interest income resulting from the payment to
Braid of $30.0 million and approximately $4.5 million in closing costs, and
the related tax benefit, where applicable.
(c) To eliminate the compensation costs related to options issued by Braid
which were exchanged for TSI options at the date of purchase, whose fair
value is included in the purchase price and therefore included in the
related goodwill amortization.
(d) Earnings per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. The calculation assumes that
the 2,207,258 shares of the Company's common stock issued in its
acquisition were outstanding for the entire period. Diluted earnings per
share is the same as basic earnings per share as the potential common stock
equivalents are anti-dilutive.
27
<PAGE>
Signature
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TSI International Software Ltd.
Ira Gerard
Vice President and Chief Financial Officer
28
