SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: February 25, 1999
(Date of earliest event reported)
Aeroflex Incorporated
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-8037 11-1974412
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
35 South Service Road, Plainview, New York 11803
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code (516) 694-6700
--------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. Financial Statements, Pro Forma Financial
Information and Exhibits
-----------------------------------------
(a) Financial Statements of Business Acquired
-----------------------------------------
Audited financial statements of the Integrated Circuits Business unit of
UTMC Microelectronic Systems, Inc. (a wholly-owned subsidiary of United
Technologies Corporation ("UTC")) as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998. Prior to the
acquisition, UTMC distributed by dividend to UTC the assets and UTC assumed
the liabilities of the Circuit Card Assembly ("CCA") portion of UTMC's
business. UTMC, at acquisition, consisted of only the Integrated Circuits
Business. The audited financial statements do not include the assets
distributed to UTC, the liabilities assumed by UTC or the results of
operations or cash flows of the CCA Business.
(b) Pro Forma Financial Information (Unaudited)
-------------------------------------------
Pro Forma Balance Sheet
- Aeroflex Incorporated and Subsidiaries as of December 31, 1998
Pro Forma Statements of Operations
- Aeroflex Incorporated and Subsidiaries for the year ended
June 30, 1998
- Aeroflex Incorporated and Subsidiaries for the six months
ended December 31, 1998
Notes to Pro Forma Financial Statements
(c) Exhibits
--------
None
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Aeroflex Incorporated
By: /s/ Michael Gorin
-------------------------------------
Michael Gorin
President and Chief Financial Officer
Date: May 5, 1999
<PAGE>
Integrated Circuits Business unit of
UTMC Microelectronic Systems, Inc.
(A wholly-owned subsidiary of
United Technologies Corporation)
Financial Statements
December 31, 1998 and 1997
<PAGE>
Report of Independent Accountants
February 25, 1999
To the Board of Directors and Shareowner
of UTMC Microelectronic Systems, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income and of cash flows present fairly, in all material respects, the financial
position of the Integrated Circuits Business unit of UTMC Microelectronic
Systems, Inc. (a wholly-owned subsidiary of United Technologies Corporation) at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the management of UTMC Microelectronic Systems, Inc.; our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements relate to the operations of Integrated
Circuits Business unit of UTMC Microelectronic Systems, Inc. Therefore, such
financial statements are not necessarily indicative of the financial position,
results of operations and cash flows of the Integrated Circuits Business unit of
UTMC Microelectronic Systems, Inc. in the future or indicative of the results
that would have been reported if the Integrated Circuits Business unit of UTMC
Microelectronic Systems, Inc had operated as a separate entity.
/s/ PricewaterhouseCoopers LLP
<PAGE>
Balance Sheets
(Dollar amounts in thousands)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C> <C>
Assets
Current Assets:
Cash $ 39 $ 34
Accounts receivable 5,184 3,455
Inventories, net 7,135 9,228
Deferred income taxes 3,189 2,731
Prepaid expenses 111 86
---------- ----------
Total current assets 15,658 15,534
---------- ----------
Property, plant and equipment, net 15,305 15,023
Deferred income taxes 610 922
---------- ----------
Total Assets $ 31,573 $ 31,479
========== ==========
Liabilities and Parent Company Investment:
Current Liabilities:
Accounts payable $ 1,054 $ 1,415
Accrued expenses 1,634 1,169
---------- ----------
Total current liabilities 2,688 2,584
Other liabilities 68 -
---------- ----------
Total Liabilities 2,756 2,584
---------- ----------
Commitments and
contingencies (Note 10)
Parent company investment 28,817 28,895
---------- ----------
Total Liabilities and Parent
Company Investment $ 31,573 $ 31,479
========== ==========
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
Statements of Income
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the years ended
December 31,
1998 1997 1996
<S> <C> <C> <C>
Sales $ 28,966 $ 37,359 $ 35,675
Sales to affiliates 4,447 4,190 3,296
---------- ---------- ----------
Total sales 33,413 41,549 38,971
Cost of goods sold 12,498 16,371 19,427
---------- ---------- ----------
Gross profit 20,915 25,178 19,544
Research and development expenses 8,218 6,859 7,634
Selling and marketing expenses 4,840 4,940 4,943
General and administrative expenses 2,254 2,204 3,509
---------- ---------- ----------
Operating income 5,603 11,175 3,458
Other income (expense)
Other income (expense), net (14) 4 71
Loss on sale/disposal of fixed
assets (65) (1,705) (126)
---------- ---------- ----------
Income before provision for income
taxes 5,524 9,474 3,403
Provision for income taxes 2,166 3,682 1,357
---------- ---------- ----------
Net Income $ 3,358 $ 5,792 $ 2,046
========== ========== ==========
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
Statements of Cash Flows
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
For the years ended
December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,358 $ 5,792 $ 2,046
Adjustments to reconcile net income
to net cash provided by operating activities
Deferred income tax provision (146) 243 1,383
Depreciation 1,575 1,407 1,152
Provision for obsolescence 1,126 974 2,784
Loss on disposal of property, plant and
equipment 65 1,705 126
Changes in operating assets and liabilities
Accounts receivable (1,729) 963 (643)
Inventories 967 2,930 (6,802)
Prepaid expenses (25) 227 144
Accounts payable (361) (1,079) 2,011
Accrued expenses 465 (1,073) (1,771)
Other liabilities 68 (3,802) 49
--------- ---------- ----------
Net cash provided by operating activities 5,363 8,287 479
--------- ---------- ----------
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 1 4,275 -
Purchase of property, plant and equipment (1,923) (16,888) (3,542)
--------- ---------- ----------
Net cash used for investing activities (1,922) (12,613) (3,542)
--------- ---------- ----------
Cash flows from financing activities
Change in Parent company investment (3,436) 4,327 3,068
--------- ---------- ----------
Net increase in cash 5 1 5
Cash, at beginning of period 34 33 28
--------- ---------- ----------
Cash, at end of period $ 39 $ 34 $ 33
========= ========== ==========
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
1. Basis of Presentation and Organization
Pursuant to a Stock Purchase Agreement dated February 25, 1999 (Agreement)
between United Technologies Corporation (UTC) and Aeroflex, Inc.
(Aeroflex), the operations comprising the Integrated Circuits Business unit
(the IC Business) of UTMC Microelectronic Systems, Inc. (UTMC), a
wholly-owned subsidiary of UTC, were sold to Aeroflex effective February
25, 1999.
Under the terms of the Agreement, substantially all of the assets and
liabilities of the IC Business were sold with the exception of the
following:
- Inventories of silicon wafers that are identified for, and uniquely
suitable for, manufacture and incorporation into the products of
Hamilton Standard (HS), a division of UTC, and all intellectual
property or other data necessary for the design and manufacture and
incorporation thereof;
- All related party receivables and payables between the IC Business and
its affiliates; and
- Certain liabilities related to retirement benefits, welfare, workers
compensation and other employee benefits.
Prior to 1997, UTMC was comprised of one business unit, the IC Business. In
1997 and subsequently, UTMC was comprised of two business units, the IC
Business and the Circuit Card Assembly Business (the CCA Business).
Throughout the period covered by the financial statements, UTMC was
conducted and accounted for as an operating unit of HS. Historically,
separate financial statements were not prepared for UTMC or the IC
Business. These financial statements were derived from the historical
accounting records of UTMC, and do not reflect the impact of the Agreement,
with the exception of excluding the assets and liabilities discussed above.
The excluded assets and liabilities were eliminated by a corresponding
adjustment to the Parent company investment account. Changes in
indebtedness between UTC and the IC Business are also reflected in the
Parent company investment account in the accompanying Balance Sheets.
The preparation of these financial statements required certain carve-out
adjustments to derive the total revenues, expenses, assets and liabilities
of the IC Business. Such adjustments have not been reflected in the books
and accounting records of UTMC but are necessary to fairly reflect the
actual historical results of the IC Business. The IC Business financial
statements include all costs directly associated with the IC Business
operations such as cost of goods sold, research and development, and sales
and marketing. Additionally, certain costs have been incurred by UTMC that
have been allocated among its two business units, one of which is the IC
Business. These costs relate to support and administrative functions and
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
1. Basis of Presentation and Organization (Continued)
are allocated to the IC Business based on the ratio of the IC Business'
total directly identified costs as compared to the total directly
identified costs of UTMC.
Certain costs related to employee benefit programs, including employee
insurance programs, are incurred by UTC and allocated to UTMC. These
allocated costs are charged to UTMC and recorded as an offsetting credit in
the Parent company investment account. The costs related to employee
benefit programs are allocated to UTMC on an actuarial basis utilizing
participant and plan design data. Furthermore, HS provides certain services
related to information systems support, centralized accounting functions,
legal and quality control as well as administrative management. The cost of
these services are allocated based on the ratio of the sum of a) net assets
of UTMC as of the beginning of the year; b) projected sales of UTMC for the
year; and c) projected payroll of UTMC for the year to the sum of the same
factors for all HS divisions.
All of the allocations and estimates in the IC Division financial
statements are based on assumptions that UTC, HS and UTMC management
believes are reasonable under the circumstances. The IC Business' financial
statements are not necessarily indicative of the financial position,
results of operations and cash flows of the IC Business in the future or
indicative of the results that would have been reported.
The IC Business is engaged in developing, manufacturing, marketing and
distributing integrated circuits for the aerospace and defense industry in
the United States and Canada.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
Risks and Uncertainties
The business environment in which the IC Business operates is subject to
rapidly changing conditions. Certain assets include estimates that are
particularly sensitive to changes in the near term. Inventories and related
specialized manufacturing equipment may be subject to such rapid
technological change.
Revenue Recognition
Revenue from product sales is recorded at shipment. Revenue from
non-recurring engineering contracts is recorded using the completed
contract method. Such contracts are considered completed when the prototype
is shipped. Prospective losses, if any, on these contracts are provided for
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (Continued)
when losses are anticipated. Subject to certain restrictions, the IC
Business warrants its products for defects in materials and workmanship for
a period of one year. Accruals for estimated future product warranty costs
are provided at the time sales are recognized based upon the IC Business
historical claim experience.
Inventories
Inventories include direct material, direct labor and manufacturing
overhead and are accounted for at the lower-of-cost or market using the
standard cost method, which approximated actual. The IC Business evaluates
the need for reserves associated with obsolete, slow-moving and
non-saleable inventory by estimating net realizable values. Inventoried
costs in excess of requirements for contracts and current or anticipated
orders have been reserved and written-off in the periods that such
inventory was considered obsolete based on projected usage during the
foreseeable future.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements 20 to 40 years
Furniture and fixtures 10 years
Office equipment 3 to 5 years
Machinery and equipment 5 years
</TABLE>
Maintenance and repairs are expensed as incurred. Depreciation expense was
$1,575, $1,407 and $1,152 for the year ended December 31, 1998, 1997 and
1996, respectively. When property and equipment are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from
the accounts and the net gain or loss is included in the determination of
net income.
Research and Development
Research and development costs not specifically covered by contracts are
charged to expense as incurred.
Income Taxes
UTMC was included in the consolidated U.S. federal income tax return of
UTC. Under an agreement with UTC, income taxes are allocated to members of
the consolidated group based upon amounts they would pay or receive as if
they filed a separate income tax return. The provision for income taxes of
the IC Business has been prepared as if a separate U.S. federal income tax
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (Continued)
return had been prepared for such business on a stand-alone basis. Deferred
income taxes are provided on the differences in the book and tax bases of
assets and liabilities at the statutory tax rates expected to be in effect
when such differences are reversed. A valuation allowance is provided on
the tax benefits otherwise associated with certain tax attributes unless it
is considered more likely than not that the benefits will be realized. UTC
incurs federal and certain state taxes on behalf of UTMC with an allocation
of such taxes to the IC Business. The financial statements of the IC
Business reflect the charge or benefit related to the income taxes in the
Parent company investment account. UTC prepares a combined state income tax
return in unitary states. State taxes were allocated to UTMC with an
allocation to the IC Business based on this unitary filing. UTMC files a
stand-alone return in Colorado where it has accumulated significant net
operating loss carryforwards. See further discussion of the state net
operating loss carryforwards in Note 8.
Fair Value of Financial Instruments
The carrying amounts of the IC Business financial instruments, including
cash, accounts receivable, accounts payable and accrued expenses,
approximate fair value.
Long-Lived Assets
The IC Business evaluates the carrying value of its long-lived assets under
the provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of (SFAS 121). In accordance with SFAS 121, when
appropriate, the IC Business estimates the future undiscounted cash flows
of the operations to which the long-lived assets relate to ensure that the
carrying value has not been impaired. Management believes no such
impairment exists at December 31, 1998 or 1997.
Significant Customers
The IC Business had direct sales to a customer that accounted for $8,288
and $4,989 of total sales for the years ended December 31, 1997 and 1996.
No other customers accounted for more than 10% of total sales for any
periods presented.
3. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash paid for income taxes $ 2,312 $ 3,439 $ (26)
========= ========== ========
</TABLE>
The amounts shown above represent those amounts charged to the IC Business
through the Parent company investment account.
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
4. Related Party Transactions
Corporate Services
The financial statements include significant transactions with HS involving
functions and services that were provided to UTMC and allocated to the IC
Business. These services include information systems support, certain
centralized accounting functions, legal services and quality control. The
costs of these functions and services allocated to the IC Business was
approximately $716, $665 and $677 for the years ended December 31, 1998,
1997 and 1996, respectively.
Centralized Treasury Functions and Financing
UTC provides centralized treasury functions and financing, including all
investing and borrowing activities for UTMC. As part of this practice,
surplus cash is remitted to UTC and UTC advances cash, as necessary, to
UTMC. No interest is charged or paid on the net Parent company investment
amount. A reconciliation of the Parent company investment account activity
for the IC Business for the period is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $ 28,895 $ 18,776 $ 13,662
Net income 3,358 5,792 2,046
Net inter-company transactions (3,436) 4,327 3,068
----------- ----------- -----------
Balance, end of year $ 28,817 $ 28,895 $ 18,776
=========== =========== ===========
</TABLE>
Tax Arrangement
See discussion in Note 2 under Income Taxes.
Insurance Programs
UTMC participates in UTC developed and administered employee insurance
programs, including group medical, workers compensation, property, general
and product liability coverage. Costs allocated to the IC Business relating
to these programs was approximately $841, $955 and $907 for the years ended
December 31, 1998, 1997 and 1996, respectively. Under these insurance
programs, any group company submitting a claim would be liable to pay any
deductible amount required under the policy coverage, depending upon type.
It is likely that as a separate company, the IC Business would be subject
to differing levels of insurance premiums, coverages and deductibles.
However, management is not able to estimate what the expense would have
been if the IC Business had operated as an unaffiliated entity.
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
4. Related Party Transactions (Continued)
Employee pension plans
The IC Business participates in two defined benefit pension plans covering
substantially all employees. For salaried employees, plan benefits are
generally based on years of service and the employees compensation during
the last several years of employment. For hourly employees, plan benefits
are generally based on years of service and the benefit level established
by UTC. For purposes of the financial statements, the IC Business is
considered to be a participant in multi-employer plans. Such costs and plan
administrative costs allocated to the IC Business, approximated $339, $422
and $778 for the years ended December 31, 1998, 1997 and 1996,
respectively. These balances are considered settled as accrued through the
Parent company investment account. As discussed in Note 1, the liability as
of December 31, 1998 is excluded from the sale of the IC Business.
Employee savings plan
The IC Business participates in UTCs Employee Stock Ownership Plan. The
amounts expensed relative to the IC Business employees participation in
that plan totaled $297, $288 and $305 for the years ended December 31,
1998, 1997 and 1996, respectively. These balances are considered settled as
accrued through the Parent company investment account. As discussed in Note
1, the liability as of December 31, 1998 is excluded from the sale of the
IC Business.
5. Inventories
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Raw materials $ 9,747 $ 12,049
Work-in-process 872 523
Contract costs 359 231
Finished goods 3,657 2,799
---------- ----------
14,635 15,602
Less: Inventory reserves 7,500 6,374
---------- ----------
$ 7,135 $ 9,228
========== ==========
</TABLE>
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
6. Property, Plant and Equipment
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Land $ 1,296 $ 1,296
Building and improvements 11,484 11,437
Machinery and equipment 24,787 23,061
Furniture and fixtures 1,796 1,754
Construction in-progress 372 357
---------- ----------
39,735 37,905
Less: Accumulated depreciation 24,430 22,882
---------- ----------
$ 15,305 $ 15,023
========== ==========
</TABLE>
7. Accrued Expenses
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Payroll and employee related $ 896 $ 785
Customer advances 406 -
Warranty 100 100
Property and other taxes 207 251
Other 25 33
---------- ----------
$ 1,634 $ 1,169
========== ==========
</TABLE>
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
8. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Current taxes
Federal $ 2,262 $ 3,390 $ (106)
State (unitary only) 50 49 80
---------- ---------- ---------
2,312 3,439 (26)
---------- ---------- ---------
Deferred taxes
Federal (428) (228) 1,206
State (non unitary) 282 471 177
---------- ---------- ---------
(146) 243 1,383
---------- ---------- ---------
Provision for income taxes $ 2,166 $ 3,682 $ 1,357
========== ========== =========
</TABLE>
A reconciliation of income taxes determined using the federal statutory
rate of 35% to actual income taxes provided is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Income before provision for
income taxes $ 5,524 $ 9,474 $ 3,403
Taxes at U.S. federal statutory rate 1,933 3,316 1,191
State income taxes, net of
federal benefit 219 338 165
Other, nondeductible items 14 28 1
---------- ---------- ---------
$ 2,166 $ 3,682 $ 1,357
=========== ========== =========
</TABLE>
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
8. Income Taxes (Continued)
Temporary differences and carryforwards that gave rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Inventory reserves $ 3,000 $ 2,550
Colorado state net operating loss carryforwards 8,872 9,106
Employee related liabilities 245 214
Warranty and other reserves 40 40
Other 57 53
--------- ---------
Gross deferred tax assets 12,214 11,963
Valuation allowance (8,053) (8,053)
--------- ---------
Deferred tax assets 4,161 3,910
Depreciation 360 254
Other 2 3
--------- ---------
Deferred tax liabilities 362 257
--------- ---------
Net deferred tax asset $ 3,799 $ 3,653
========= =========
</TABLE>
At December 31, 1998, the IC Business had Colorado state net operating loss
carryforwards of $190,301 which expire between 1999 and 2011.
Based on the earnings performance of the past three years and the projected
profitability in the future, management believes that it is more likely
than not that the IC Business will continue to generate taxable income
sufficient to realize a portion of the tax benefit associated with the
Colorado state net operating loss carryforwards prior to their expiration.
Management has placed a valuation allowance against the net operating loss
carryforwards due to certain limitations caused by the possible change in
ownership. Management did not include a valuation allowance against the
non-limited Colorado net operating losses or the deferred tax assets in any
prior periods. If the IC Business is unable to generate sufficient taxable
income in the future through operating results, increases in the valuation
allowance will be required through a charge to income. The Colorado state
net operating losses are shown as a deferred tax asset, net of federal
benefit.
<PAGE>
Notes to Financial Statements
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------
9. Loss on Sale of Building
During 1997, UTMC exercised its option to purchase a building subleased to
a third party. The total purchase price of the building was $4,316. The
agreement reached with the lessor also required UTMC to pay $3,807 to the
lessor representing the amount of rent accrued on a straight-line basis in
excess of the cash payments since the inception of the lease. The building
and related land were resold, during 1997, for $4,275, net of closing
costs, resulting in a loss of $1,705.
10. Commitments
UTMC has various lease agreements for office space and equipment. These
lease agreements expire at various dates through October 2000. Future
minimum rental payments allocated to the IC Business at December 31, 1998
are $54 and $23 in 1999 and 2000, respectively. Total rental expense
allocated to the IC Business for the years ended December 31, 1998, 1997
and 1996 was $182, $336 and $1,181, respectively.
In conjunction with the sale of the IC Business, a facilities lease and
services agreement has been executed between HS and Aeroflex. The agreement
provides HS with facilities space for a limited period of time. The
agreement also provides for certain transition services to be provided by
HS and provides for certain staff support for the CCA Business to be
provided by Aeroflex for a limited period of time. The total lease and net
services fee to be paid by HS is $6,000 payable in twenty-four equal
monthly installments. The agreement expires in February 2001.
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
--------------------------------------
PRO FORMA BALANCE SHEET (Unaudited)
-----------------------------------
The following pro forma balance sheet (unaudited) adjusts the historical
consolidated balance sheet of Aeroflex Incorporated and subsidiaries as of
December 31, 1998 for the effects of the acquisition of the Integrated Circuit
Business unit of UTMC Microelectronic Systems, Inc. The acquisition has been
accounted for under the purchase method of accounting.
The pro forma balance sheet gives effect to the acquisition described in
Item 2 of the Form 8-K filed on February 25, 1999, as if it had occurred on
December 31, 1998. The balance sheet should be read in conjunction with the
notes to the pro forma financial statements.
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
--------------------------------------
PRO FORMA BALANCE SHEET (UNAUDITED)
-----------------------------------
REFLECTING THE ACQUISITION OF THE INTEGRATED CIRCUIT BUSINESS
-------------------------------------------------------------
UNIT OF UTMC MICROELECTRONIC SYSTEMS, INC.
------------------------------------------
DECEMBER 31, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Acquisition Pro Forma Pro Forma
of UTMC(1) Adjustments(2) Results
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,402 $ 39 $ (21,100) $ 341
Accounts receivable, net 24,467 5,184 29,651
Inventories 29,359 7,135 36,494
Deferred income taxes 2,283 3,189 5,472
Prepaid expenses and other current assets 2,222 111 2,333
---------- ---------- ---------- ----------
Total current assets 79,733 15,658 (21,100) 74,291
Property, plant and equipment, net 29,111 15,305 5,386 49,802
Intangible assets acquired in connection with
the purchase of businesses, net 8,118 6,300 14,418
Costs in excess of fair value of net
assets of businesses acquired, net 9,862 2,316 12,178
Other assets 3,267 100 3,367
---------- ---------- ---------- ----------
Total assets $ 130,091 $ 30,963 $ (6,998) $ 154,056
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,777 $ $ 5,000 $ 6,777
Accounts payable 5,145 1,054 6,199
Accrued expenses and other current liabilities 10,627 1,634 12,261
Income taxes payable 2,108 2,108
---------- ---------- ---------- ----------
Total current liabilities 19,657 2,688 5,000 27,345
---------- ---------- ---------- ----------
Long-term debt 13,287 17,000 30,287
---------- ---------- ---------- ----------
Deferred income taxes 982 (610) 3,319 3,691
---------- ---------- ---------- ----------
Other long-term liabilities 2,513 68 2,581
---------- ---------- ---------- ----------
Stockholders' equity:
UTMC equity 28,817 (28,817) -
Common stock, par value $.10 per share;
authorized 25,000 shares; issued 17,706
shares 1,771 1,771
Additional paid-in capital 102,335 102,335
Accumulated deficit (10,110) (3,500) (13,610)
---------- ---------- ---------- ----------
93,996 28,817 (32,317) 90,496
Less: Treasury stock, at cost (39 shares) 344 344
---------- ---------- ---------- ----------
93,652 28,817 (32,317) 90,152
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 130,091 $ 30,963 $ (6,998) $ 154,056
========== ========== ========== ==========
<FN>
(1) (2) See notes to pro forma financial statements.
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
--------------------------------------
PRO FORMA STATEMENTS OF OPERATIONS (Unaudited)
---------------------------------------------
The following pro forma statements of operations (unaudited) adjust the
historical consolidated statements of operations of Aeroflex Incorporated and
subsidiaries for the year ended June 30, 1998 and for the six months ended
December 31, 1998 for the effects of the acquisition of the Integrated Circuit
Business unit of UTMC Microelectronic Systems, Inc. ("UTMC") on February 25,
1999. The acquisition of UTMC was accounted for under the purchase method of
accounting. The pro forma statements of operations give effect to the
acquisition described in Item 2 of the Form 8-K filed on February 25, 1999, as
if it had occurred on July 1, 1997.
The pro forma statements of operations do not purport to be indicative of the
operating results that would have been achieved had the acquisition been
effected on the dates indicated, are not necessarily indicative of future
operating results and should not be used as a forecast of future operations.
These statements should be read in conjunction with the notes to the pro forma
financial statements.
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
--------------------------------------
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
---------------------------------------------
REFLECTING THE ACQUISITION OF THE INTEGRATED CIRCUIT BUSINESS
-------------------------------------------------------------
UNIT OF UTMC MICROELECTRONIC SYSTEMS, INC.
------------------------------------------
YEAR ENDED JUNE 30, 1998
------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Acquisition Pro Forma ProForma
of UTMC Adjustments(3) Results after
Acquisition
<S> <C> <C> <C> <C>
Sales $ 118,861 $ 36,510 $ $ 155,371
Cost of sales 77,286 10,477 (168) 87,595
--------- ---------- ---------- ----------
Gross profit 41,575 26,033 168 67,776
Selling, general and
administrative costs 21,545 6,671 987 29,203
Research and development costs 5,172 8,707 13,879
--------- ---------- ---------- ----------
Operating income 14,858 10,655 (819) 24,694
--------- ---------- ---------- ----------
Other expense (income)
Interest expense 2,011 2,608 4,619
Interest and other expense
(income) (309) 1,776 (4) 380 1,847
--------- ---------- ---------- ----------
Total other expense
(income) 1,702 1,776 2,988 6,466
--------- ---------- ---------- ----------
Income before income taxes 13,156 8,879 (3,807) 18,228
Provision for income taxes 4,750 3,451 (1,240) 6,961
--------- ---------- ---------- ----------
Net income $ 8,406 $ 5,428 $ (2,567) $ 11,267
========= ========== ========== ==========
Net income per common share
Basic $ .57 $ .76
===== =====
Diluted $ .51 $ .69
===== =====
Weighted average number of
common shares outstanding
Basic 14,802 14,802
========= ==========
Diluted 16,527 16,527
========= ==========
<FN>
(3) See notes to pro forma financial statements.
(4) Consists primarily of a loss on sale of land and building.
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
--------------------------------------
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------
REFLECTING THE ACQUISITION OF THE INTEGRATED CIRCUIT BUSINESS
-------------------------------------------------------------
UNIT OF UTMC MICROELECTRONIC SYSTEMS, INC.
------------------------------------------
SIX MONTHS ENDED DECEMBER 31, 1998
----------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Acquisition Pro Forma Pro Forma
of UTMC Adjustments(3) Results
<S> <C> <C> <C> <C>
Sales $ 67,826 $ 16,301 $ $ 84,127
Cost of sales 44,299 7,413 (84) 51,628
--------- --------- --------- ---------
Gross profit 23,527 8,888 84 32,499
Selling, general and
administrative costs 11,392 3,753 494 15,639
Research and development costs 4,294 3,371 7,665
--------- --------- --------- ---------
Operating income 7,841 1,764 (410) 9,195
--------- --------- --------- ---------
Other expense (income)
Interest expense 567 700 1,267
Interest and other expense
(income) (544) 7 540 3
--------- --------- --------- ---------
Total other expense
(income) 23 7 1,240 1,270
--------- --------- --------- ---------
Income before income taxes 7,818 1,757 (1,650) 7,925
Provision for income taxes 2,750 700 (531) 2,919
--------- --------- --------- ---------
Net income $ 5,068 $ 1,057 $ (1,119) $ 5,006
========= ========= ========= =========
Net income per common share
Basic $ .29 $ .29
===== =====
Diluted $ .27 $ .27
===== =====
Weighted average number of
common shares outstanding
Basic 17,523 17,523
========= =========
Diluted 18,751 18,751
========= =========
<FN>
(3) See notes to pro forma financial statements.
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
--------------------------------------
NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------
A. BASIS OF PRESENTATION
---------------------
The accompanying pro forma financial statements (unaudited) present the
financial position and results of operations of Aeroflex Incorporated and
subsidiaries ("ARX") giving effect to the acquisition of UTMC Microelectronic
Systems, Inc. ("UTMC"). Prior to the acquisition, UTMC distributed by dividend
to its parent, United Technologies Corporation ("UTC"), the assets and UTC
assumed the liabilities of the Circuit Card Assembly ("CCA") portion of UTMC's
business. UTMC, at acquisition, consisted of only the Integrated Circuit
Business. The pro forma financial statements do not include the assets
distributed to UTC, the liabilities assumed by UTC or the results of operations
of the CCA Business. The acquisition of UTMC by ARX was accounted for as a
purchase and accordingly, the purchase price was allocated to the assets and
liabilities of UTMC based on their fair values at February 25, 1999 (the date of
acquisition).
For the purpose of the pro forma balance sheet and the pro forma statements
of operations, it is assumed that the acquisition occurred on December 31, 1998
and July 1, 1997, respectively. The pro forma statements of operations for the
year ended June 30, 1998 and for the six months ended December 31, 1998 do not
include a one-time charge of $3,500,000 which was recorded upon acquisition to
reflect the write-off of the purchase price allocated to acquired in- process
research and development.
B. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
-------------------------------------
The pro forma financial statements of ARX give effect to the following pro
forma adjustments and assumptions:
1. To record the acquisition of UTMC stock by ARX as described in
Item 2 on Form 8-K filed on February 25, 1999.
2. To record the a) purchase price of $42,500,000 in cash, first
from available cash and the balance from borrowings under the
Registrant's term loan agreement, b) capitalized financing costs
c) elimination of UTMC's equity accounts, d) capitalized
acquisition costs, and e) allocation of the purchase price to the
fair value of the assets acquired and liabilities assumed,
including, for purposes of the pro forma balance sheet, the
aforementioned $3,500,000 write-off of the fair value of the
acquired in-process research and development.
3. To record a) depreciation and amortization based on estimated
remaining lives of assets (ranging from six to fifteen years for
intangibles) and adjustment to fair value of assets acquired, b)
interest expense on additional bank borrowings and interest
income forgone due to the use of cash for the acquisition, and c)
the tax benefit of a) and b).
