<PAGE> 1
As filed with the Securities and Exchange Commission on October 27, 1995
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MICRODYNE CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-0856493
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
3601 Eisenhower Avenue
Alexandria, Virginia 22304
(703) 739-0500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------
William Marshall Ellison, II
Assistant Treasurer and Controller
Microdyne Corporation
3601 Eisenhower Avenue
Alexandria, Virginia 22304
(703) 739-0500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies to:
Curtis M. Coward, Esquire Howard L. Shecter, Esquire
McGuire, Woods, Battle & Boothe L.L.P. Morgan, Lewis & Bockius LLP
8280 Greensboro Drive 101 Park Avenue
McLean, Virginia 22102-3892 New York, New York 10178
(703) 712-5000 (212) 309-6030
---------------------------
Approximate date of commencement of proposed sale to the public:
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. / /
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate offering Amount of
securities to be registered registered share(1) price registration fee
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<S> <C> <C> <C> <C>
Common Stock, $0.10 par value 4,025,000 $24.50 $98,612,500 $34,004.31
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(1) Estimated solely for purposes of calculating the Registration fee
pursuant to Rule 457(c) and based on the average high and low prices of
the common stock as reported on October 26, 1995 on the Nasdaq.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1995
3,500,000 SHARES
MICRODYNE CORPORATION
COMMON STOCK
------------------
Of the 3,500,000 shares of Common Stock, offered hereby, 2,000,000 shares
are being offered by Microdyne Corporation ("Microdyne" or the "Company") and
1,500,000 shares are being offered by the Selling Stockholders. See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds
from the sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MCDY." On October 26, 1995, the last reported sales price of the
Company's Common Stock on the Nasdaq National Market was $24.50 per share.
See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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==============================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholders
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<S> <C> <C> <C> <<C>
Per Share . . . . . . $ $ $ $
Total (3) . . . . . . $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) A Selling Stockholder has granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to
525,000 additional shares of Common Stock for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total Price to Public, Underwriting Discount and Proceeds
to Selling Stockholders will be $ , $ , and $
, respectively. See "Underwriting."
------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to
withdraw, cancel, or reject orders in whole or in part and subject to certain
other conditions. It is expected that delivery of the certificates
representing the shares will be made against payment on or about , 1995
at the office of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, New York, 10281.
------------------
OPPENHEIMER & CO., INC.
SCHRODER WERTHEIM & CO.
TUCKER ANTHONY
INCORPORATED
The date of this Prospectus is , 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE> 3
[ARTWORK TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
the more detailed information and consolidated financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all financial and share information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Beginning with the fiscal
year ended October 1, 1995 ("fiscal 1995"), the Company's fiscal year is a
52/53 week year ending on the Sunday nearest the last day of September in each
year. References to fiscal years prior to fiscal 1995 mean the fiscal years
ended September 30 (e.g., "fiscal 1994" is the fiscal year ended September 30,
1994).
THE COMPANY
Microdyne Corporation ("Microdyne" or the "Company")
designs, manufactures, markets and supports a broad line of data communications
hardware products that enable local area network ("LAN") and remote network
access communications. The Company has established itself as a leading supplier
of LAN adapter cards which provide the essential connection between computers
(including personal computers, file servers, minicomputers and mainframe
computers) and the network. The Company's products support all established
computer bus structures, wiring systems, and network topologies, including
Ethernet, Fast Ethernet and Token Ring. The Company also sells a line of
products directed to the emerging remote access market permitting both dial-up
access to LANs and LAN access to remote data bases. The Company believes that
its products provide a combination of reliable, high performance, fully
featured solutions at attractive prices.
Networks began as a way to perform file and print
sharing functions among users on the LAN and have evolved to become an
essential element to organizational productivity, delivering critical
applications to network users. The networking of each personal computer ("PC")
requires the purchase of a LAN adapter card. There are numerous types of
adapter cards based on LAN topology, the PC's bus architecture and the physical
wiring scheme of the network. According to International Data Corporation
("IDC"), in 1995 there are an estimated 143 million PCs installed in businesses
worldwide and 88 million PCs, or 61%, are connected to LANs. By 1999, the
installed base of business PCs is expected to rise to 210 million, and 167
million of these PCs, or 79%, are expected to be connected to a network. As
user requirements for the network have increased -- including the need for
greater throughput speeds and bandwidth -- new bus architectures, network
topologies and transmission media have been developed. The resulting upgrade
and sale of new PCs, adapter cards and ancillary networking hardware to the
installed base have further stimulated growth in the LAN hardware market. The
improved price and performance of laptop and notebook PCs, combined with
falling telecommunications costs and growth in online services and the
Internet, have fueled demand for remote access to and from networks. In
response, Microdyne has developed both board- and system-level hardware that
facilitate remote connectivity.
The Company sells its products through a broad base of
leading domestic and international distributors as well as smaller regional
distributors. The Company has leveraged Novell Inc.'s ("Novell") position as
the dominant supplier of LAN operating system software by licensing the Novell
brand name and certain Novell technology for use on many of the Company's
networking hardware products. Further, Novell has authorized Microdyne as an
original equipment manufacturer ("OEM") supplier of NetWare bundled with
Microdyne products to selected distributors that are outside Novell's
traditional distribution channel.
Microdyne's strategy is to introduce new products and
enhance existing products that respond to established market demand, actively
manage its distribution channels and marketing programs and maintain a low-cost
infrastructure to enable competitive pricing. In addition, Microdyne has
enhanced its internal revenue growth with four product line acquisitions since
1994. These acquisitions have leveraged the Company's existing distribution
channels and marketing capabilities, created a broader selection of products
and facilitated customer transition to new network standards.
The Company also manufactures and markets a line of
advanced radio receivers for use in aerospace telemetry applications and
provides outsourced manufacturer support services. Those two businesses,
collectively, represented 17% of Microdyne's revenue for the fiscal year ended
October 1, 1995.
3
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THE OFFERING
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<S> <C>
Common Stock offered by the Company . . . . . . . . . . . . . . . . 2,000,000 shares
Common Stock offered by Selling Stockholders . . . . . . . . . . . 1,500,000 shares
Common Stock to be outstanding after the Offering . . . . . . . . . 14,789,666 shares(1)
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . For repayment of all outstanding bank debt,
working capital and other general corporate
purposes. A portion of the net proceeds
may be used for future acquisitions.
Nasdaq National Market Symbol . . . . . . . . . . . . . . . . . . . MCDY
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
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Years Ended
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1991(2) 1992 1993 1994 1995
----------------- --------------- --------------- ---------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue . . . . . . . . . . . . . . . . . $ 56,533 $ 72,693 $ 78,174 $ 101,294 $ 170,078
Gross profit . . . . . . . . . . . . . . 24,739 31,658 25,649 28,035 52,770
Restructuring charges . . . . . . . . . . -- 8,503 3,462 -- --
Earnings (loss) from operations . . . . . 11,268 (4,441)(3) (17) 7,799 23,204
Earnings (loss) from operations before
provision for income taxes . . . 10,918 (4,617) (485) 7,300 20,400
Cumulative effect of an accounting change -- -- 1,744 -- --
Net earnings (loss) . . . . . . . . . . . $ 8,824 $ (2,156)(3) $ 1,511(4) $ 4,599 $ 12,594(5)
=========== =========== ========= ======== =========
Net earnings (loss) per share . . . . . . $ 0.76 $ (0.15)(3) $ 0.10(4) $ 0.35 $ 0.96(5)
=========== =========== ========= ======== =========
Shares used in computing net earnings
(loss) per share .. . . . . . . . . . . 11,617 14,592 14,428 13,088 13,096
=========== ========== ======== ======== =========
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OCTOBER 1, 1995
------------------------------
AS
ACTUAL ADJUSTED(6)
------------ ------------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,015 $ 71,043
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,825 136,053
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,999 1,899
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,931 85,059
</TABLE>
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(1) Excludes, as of October 1, 1995, outstanding stock options to purchase
660,712 shares of Common Stock at a weighted average price of $5.36 per
share.
(2) Data for the period prior to June 21, 1991 are for Federal Technology
Corporation, a predecessor company. See "The Company."
(3) Includes a restructuring charge of $8,503 for the de-emphasis of certain
networking products and other Company operations. Excluding such
restructuring charge, Microdyne's earnings from operations would have
been $4,062, net earnings would have been $3,094 and net earnings per
share would have been $0.21.
(4) Includes a restructuring charge of $3,462 and applied to pre-tax income
and the benefit of an accounting change in the amount of $1,744.
Excluding this charge and benefit, Microdyne's net earnings would have
been $1,905 and net earnings per share would have been $0.13.
(5) Includes a litigation settlement of $875 applied to non-operating expense.
Excluding such settlement, net earnings would have been $13,202 and net
earnings per share would have been $1.01.
(6) Adjusted for the sale by the Company of 2,000,000 shares of Common Stock
offered hereby at the assumed public offering price of $24.50, less
underwriting discount and estimated offering expenses payable by the
Company, and the application of the estimated net proceeds as described in
"Use of Proceeds."
4
<PAGE> 6
RISK FACTORS
The Common Stock offered hereby involves a high degree
of risk. In evaluating an investment in the Common Stock, prospective investors
should consider carefully the following risk factors in addition to the other
information presented in the Prospectus.
New Product Development and Rapid Technological Change.
The market for Microdyne's products is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. As a result, Microdyne's future success will depend
in part on its ability to enhance existing products and to introduce new
products on a timely basis. The inability of the Company to develop new
products or enhance existing products in a timely manner in response to
changing technology, industry standards or customer requirements would have a
material adverse effect on the Company. The introduction of new or enhanced
products also requires the Company to manage the transition from older products
to minimize disruption in customer ordering patterns, avoid excessive levels of
older product inventories and ensure that adequate supplies of new products can
be delivered to meet customer demand. The failure to manage any such transition
successfully would have a material adverse effect on the Company.
Highly Competitive Environment. The market for
Microdyne's products is highly competitive. The Company believes that its
ability to compete successfully depends on a number of factors including price,
product features, performance and reliability, name recognition, international
certification, the retention of experienced sales, marketing and service
organizations, development of new products and enhancements, adherence to
rapidly changing industry standards and product introductions and announcements
by competitors. In the network products market, the Company competes with a
number of vendors, including 3Com Corporation, Standard Microsystems
Corporation and Intel Corporation, that have significantly greater financial,
marketing, technical and other resources as well as the capacity to obtain
components at lower cost either by purchasing large quantities of such
components or by fabricating such components in-house. These competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, devote greater resources to the development, promotion
and sale of their products or control the timing of, or respond more
effectively to, new product introductions. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to address the networking needs of the
Company's prospective customers. Increased competition from existing
competitors, competitive alliances or new entrants to the market could result
in price reductions and loss of market share to the Company, which would have a
material adverse effect on the Company. Because Microdyne sells through
distributors that also carry competing product lines, rather than directly to
end-user customers, the Company is more likely to find its products compared
with others on the basis of price, creating greater pressure to reduce prices.
There can be no assurance that Microdyne will be able to continue to compete
successfully with existing or new competitors or that competitive pressures
faced by the Company will not have a material adverse effect on the Company.
See "Business - Competition."
Dependence on Novell. Microdyne derives the majority of
its revenues from products sold under license from, or OEM agreements with
Novell. In fiscal years 1993, 1994 and 1995, Microdyne's Novell-related
revenue accounted for 57%, 47% and 73%, respectively, of total revenue. Most of
the Company's adapter cards are marketed under the Novell brand-name and "NE"
(for "Novell Ethernet") designation, for which Microdyne pays Novell (under a
non-exclusive license) a royalty based on sales into distribution. There can be
no assurance that Novell will not withdraw Microdyne's right to use the Novell
name and NE designation, change the terms of Microdyne's license in a manner
adverse to Microdyne or grant to companies other than Microdyne licenses to use
the Novell marks. Microdyne is also dependent upon Novell for the right to sell
Novell's NetWare network operating system as an OEM product. Under a 1993
agreement which is renewable annually and terminable at Novell's discretion,
Microdyne is authorized to produce and sell NetWare to certain Novell-approved
distributors that are permitted to sell NetWare only as a "bundled solution"
together with certain Microdyne products, principally adapter cards. There can
be no assurance that Novell will not change its distribution policies to permit
such distributors to sell NetWare as a stand-alone product, which would
adversely affect Microdyne's sales of bundled products. From time to time
Novell amends the discount
5
<PAGE> 7
structure granted to Microdyne. These amendments have had an impact on
profitability in the past and there can be no assurance that future amendments
will not render such sales by Microdyne uneconomic. The Company's business is
dependent to a substantial extent on the ability of Novell to maintain a
significant market share of the network operating systems software market.
Novell faces competition from several sources, including Microsoft
Corporation's Windows NT network operating system. The loss by the Company of
the right to sell products under the Novell brand-name, the loss of the right
to sell NetWare under OEM license, or a substantial decline in Novell's share
of the network operating system market would have a material adverse effect on
the Company.
Reliance on Distributors. Microdyne's networking
products ("Networking Products") are sold primarily through distributors, the
four largest of which accounted for $52.2 million, or 37% of Microdyne's
Networking Products revenue in fiscal 1995. Distributors sell Microdyne's
products primarily to Value Added Resellers ("VARs") that, in turn, sell to or
install networks for end-user customers. Generally, the Company must
manufacture products in advance of orders from distributors and must,
therefore, estimate demand as accurately as possible. Accordingly, information
regarding VAR and end user demand is very important to the Company because
distributors' orders can be expected to largely reflect such demand. However,
as a general practice, distributors do not reveal the names of their customers
to manufacturers. As a result, Microdyne learns the name of end-user customers
only if such customers contact the Company for warranty service, technical
support, or of their own volition. Distributors provide certain information
regarding their levels of sales to VARs and other customers, called Point of
Sale ("POS") data, but such POS information cannot be assured to be either
timely or accurate. In this regard, some of the Company's distributors provide
only cursory information. In addition, distributors maintain target stocking
levels of products, and such targeted levels may change without notice, which
could decrease Microdyne's sales in a given period. Moreover, distributors
characteristically sell products at a small mark-up to the price from which
they are obtained from manufacturers, and terms of sale may influence a
distributor's decision to carry certain products. If, based on inadequate POS
and end user information, unanticipated distributor targeted stocking levels,
unanticipated price competition, or otherwise, the Company is unable to
estimate production requirements of its distributors and future sales levels
generally, the Company's quarterly results of operations may fluctuate due to
production in excess of demand. Moreover, the inability of the Company to
timely market such excess inventory on economically viable terms could have a
material adverse effect on the Company. On the other hand, if the Company's
production is insufficient to satisfy demand, the Company could be adversely
affected.
Fluctuation in Quarterly Results and Timing of Orders.
Microdyne's quarterly operating results depend upon a variety of factors
including the timing of significant orders, the timing of product enhancements
and new product introductions by Microdyne and its competitors, the pricing of
the Company's products, changes in product mix, competitive conditions and
general economic conditions. The Company has historically operated with
limited backlog because its products are shipped shortly after orders are
received, and frequently realizes a substantial portion of its net revenues in
the last month of the quarter. As a result, revenue in any period is
substantially dependent on orders booked and shipped in the last month of that
period. Delays in receipt of end-of-quarter orders in a given quarter may
adversely affect the Company's results of operations for that quarter, as the
Company's expense levels are based primarily on full-quarter revenue estimates
and only a small portion of the Company's operating expenses vary with its
revenue. Moreover, Microdyne's revenue may fluctuate based on the level of
inventories of the Company's products maintained by the Company's distributors
in any particular quarter. Accordingly, the Company may be subject to
significant and unanticipated quarter-to-quarter fluctuations.
Declining Average Selling Prices. The selling price
of computer networking hardware products, including LAN adapter cards, has
consistently declined in recent years. To remain profitable, the Company must
continually reduce the manufacturing cost of its products, and there can be no
assurance that such reductions can be achieved on a regular basis. Even if
Microdyne is able to achieve these reductions, gross margins will be subject to
pressure should another manufacturer reduce the price of a competing product.
When announcements of price reductions are made, Microdyne must choose whether
to meet the competitor's new, lower price. If the price is not met, the
Company risks losing customers who purchase networking products
6
<PAGE> 8
principally on the basis of price. If the price is met, Microdyne must provide
price protection for all unsold inventory, subject to certain limitations, in
the hands of distributors and reprice such existing inventory. While the
Company maintains financial reserves for price protection that it believes are
adequate, there can be no assurance that these reserves will be sufficient.
Moreover, there can be no assurance that the Company can reduce manufacturing
costs of the affected product line to offset lower selling prices.
Dependence on Subcontractors and Suppliers. The Company
is dependent on a small number of third-party subcontractors for the
manufacture and assembly of substantially all of its networking products. In
the event that any of these subcontractors were to become unable or unwilling
to manufacture Microdyne's products in required volumes, Microdyne would have
to identify and qualify additional subcontractors. The identification and
qualification process could be lengthy, and no assurance can be given that any
replacement subcontractors will be available to the Company on a timely basis.
The failure to identify and qualify replacement subcontractors on a timely
basis would have a material adverse effect on the Company. Certain components
used in the Company's products are only available from a single supplier or a
limited number of suppliers. Each of the Token Ring chip sets used by Microdyne
for its IRMAtrac LAN adapter card and the 10/100 ISA chip set used on
Microdyne's 10/100 ISA adapter card is available only from a single source.
Moreover, Microdyne is subject to long lead times or allocations for certain
semiconductor products, including random access memory chips. If Microdyne is
unable to obtain sufficient supply of components from its traditional
suppliers, it will be required to purchase such components in the open market,
typically at a premium to the price normally paid. While the Company believes
that it will be able to obtain from its suppliers sufficient quantities of the
components the Company requires to satisfy its anticipated needs, there can be
no assurance that such supplies will be available at satisfactory prices. The
Company generally purchases components pursuant to purchase orders and has no
guaranteed supply arrangements with its suppliers. Further, the availability
of many of these components is dependent in part on the Company's ability to
provide its suppliers with accurate forecasts of its future requirements, which
is largely dependent upon the Company's ability to obtain accurate POS data. A
reduction or interruption in supply of these components or increases in
component costs would have a material adverse effect on the Company.
Dependence Upon a Single Customer at Manufacturer
Support Services. The Company's Manufacturer Support Services operation, which
provides outsourced telephone technical support, warranty administration and
whole unit repair services, has only one customer; a large, multinational
electronics manufacturer. The Company's contract with this customer expires at
the end of 1995 and is currently being negotiated for an additional five year
term. Should that customer terminate its relationship with the Company, the
resulting loss of business would have a material adverse effect on the Company.
Limited Product Line. Microdyne's product line is
focused on hardware products that facilitate local area networking. During the
past few years, several companies, including 3Com Corporation, Cisco Systems,
Inc., Bay Networks, Inc. and Cabletron Corporation have positioned themselves
as providers of complete solutions for the LAN, wide-area network, remote
access, and internetwork (the "enterprise-wide" network). These companies
market their product families as being optimized to work together, and
encourage customers to purchase a single brand of products, including local
area networking hardware. Because Microdyne products address only local and
remote network functions, an acceleration in the trend toward "enterprise-wide"
product purchases may have the effect of curtailing Microdyne's growth.
Acquisition Risk. The Company's future success is
dependent in part on its ability to acquire technology or products that expand
its product lines or that can be used in future product developments or
enhancements. Since July 1994, the Company has acquired four product lines.
Because these acquisitions have been made only recently, there can be no
assurance that the acquired products or technologies will achieve commercial
success or be successfully assimilated by the Company. No assurance can be
given that past or future acquisitions will produce the anticipated
technological enhancements, products or results. In addition, there can be no
assurance that acquisition opportunities will be available at prices that are
acceptable to the Company.
7
<PAGE> 9
Lack of Proprietary Technology. The Company's success
and ability to compete is dependent in part upon its ability to differentiate
its products from those of its competitors. The Company does not possess any
meaningful combination of patent, copyright or trade secrets that would allow
Microdyne to distinguish its products as materially superior to competing
products. While the Company does not believe its competitors possess such
intellectual property rights, there can be no assurance that the Company's
competitors will not independently develop technologies that are substantially
superior to the ones used by Microdyne. The Company is also subject to the risk
of adverse claims and litigation alleging infringement of the proprietary
rights of others. From time to time, the Company has received claims of
infringement of other parties' proprietary rights. While the Company is not
aware that any of its products infringe any patents, there can be no assurance
that third parties will not assert infringement claims in the future with
respect to the Company's current or future products or that any pending or
future claims will not require the Company to enter into license arrangements
or result in protracted and costly litigation, regardless of the merits of such
claims. No assurance can be given that any necessary licenses will be
available or that, if available, such licenses can be obtained on commercially
reasonable terms. The failure to obtain such royalty or licensing agreements on
a timely basis, or the Company's involvement in patent or related litigation,
could have a material adverse effect on the Company. See "Business - Patents
and Proprietary Rights."
Risks Associated with International Operations. The
Company expects that revenue outside the United States, which accounted for
approximately 35%, 29% and 25%, of net revenue in fiscal 1993, 1994 and 1995,
respectively, will continue to represent a significant portion of its total
revenue. In addition, the Company purchases components manufactured in China,
Malaysia, Singapore and Hong Kong. Sales to customers outside the United States
and reliance on foreign suppliers involve a number of risks, including
unexpected changes in regulatory requirements and tariffs, possible
difficulties in enforcing agreements and intellectual property rights, longer
payment cycles, exchange rate fluctuations, difficulties obtaining export
licenses, the imposition of withholding or other taxes, embargoes or exchange
controls or the adoption of other restrictions on foreign trade. One or more of
the foregoing factors could have a material adverse effect on the Company.
Dependence on Personnel. Microdyne believes that its
future success will depend in large part upon its ability to attract and retain
highly skilled engineering, managerial, sales, marketing and operations
personnel. Except with regard to the Chief Executive Officer, who entered into
a four year employment agreement as of October 24, 1995, the Company does not
have employment contracts with its key personnel. Competition for such
personnel is intense, especially in the areas of engineering, sales and
marketing. The loss of key management or technical personnel would have a
material adverse effect on the Company.
Management of Growth. Microdyne has recently experienced
rapid growth which has placed, and could continue to place, a significant
strain on the Company's management, operations and internal systems. The
failure of management to effectively manage future growth could have a material
adverse effect on the Company.
Potential Volatility of Stock Price. The market price of
the Company's Common Stock has been, and could be, subject to wide fluctuations
in response to, among other things, quarterly fluctuations in operating
results, adverse circumstances affecting the introduction or market acceptance
of new products or enhancements offered by the Company, failure to meet
published estimates of, or changes in earnings estimates by, securities
analysts, announcements of new products or enhancements by competitors, sales
of Common Stock by existing holders, loss of key personnel, market conditions
in the industry, shortages of key components and general economic conditions.
In addition, stock prices for many technology companies, including the Company,
have experienced significant volatility for reasons unrelated to operating
results. These fluctuations could adversely affect the market price of the
Company's Common Stock.
8
<PAGE> 10
THE COMPANY
Microdyne was incorporated in Maryland in 1967. On
June 21, 1991 Microdyne acquired all of the outstanding common stock of Federal
Technology Corporation ("FTC") in a transaction accounted for as a reverse
acquisition in which FTC's sole stockholder acquired voting control of
Microdyne (the "FTC Transaction"). Since the FTC Transaction, the Company has
operated under the Microdyne name with corporate headquarters in Alexandria,
Virginia.
FTC was incorporated in Virginia in 1984. Prior to the
acquisition of Microdyne, FTC designed and engineered networking systems,
provided third-party maintenance of data communications systems, manufactured
and distributed hardware- and software-based communications networking
products, and performed outsourced technical services. Beginning in 1990, FTC
de-emphasized most aspects of its professional services business to concentrate
its resources on networking products. Prior to its acquisition, Microdyne
designed, manufactured and marketed aerospace telemetry receivers and ancillary
equipment; produced earth-station components for satellite communications;
manufactured industrial telemetry products; and provided system integration
services for satellite-based wide-area networks. All of Microdyne's
pre-acquisition activities except those associated with aerospace telemetry
were sold or discontinued between 1991 and 1994. Microdyne operates in a single
industry segment encompassing three broad areas of technology having data
communications as a common element: Networking Products, Aerospace Telemetry
and Manufacturer Support Services. Microdyne's corporate headquarters is
located at 3601 Eisenhower Avenue, Alexandria, Virginia 22304. The Company's
telephone number is (703) 329-3700.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
2,000,000 shares of Common Stock offered by the Company are estimated to be
approximately $46.1 million, based on an assumed public offering price of
$24.50, after deducting the underwriting discounts and commissions and the
estimated offering expenses payable by the Company. The Company will not
receive any proceeds from the sale of Common Stock offered by the Selling
Stockholders.
The Company intends to use approximately $19.9 million
of the net proceeds to repay all outstanding bank debt. The outstanding balance
and interest rate of such indebtedness was $19.9 million and 7.75%,
respectively, at October 1, 1995. Of such indebtedness, $12.0 million was used
to acquire the Eagle Technology business from Artisoft, Inc. in January 1995.
The Company expects to use the balance of such net proceeds for general
corporate purposes, including working capital. A portion of the net proceeds
may also be used for the acquisition of businesses, products and technologies.
The Company is not currently engaged in active discussions with respect to any
significant acquisition and has no commitments or understandings for any such
acquisitions, and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the net proceeds to the Company of
this offering will be invested in short term, investment grade, interest
bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends and currently
intends to retain its earnings to finance future growth. Therefore, the Company
does not anticipate paying any cash dividends for the foreseeable future. Any
future determination relating to dividend policy will be made at the discretion
of the Board of Directors of the Company and will depend on a number of
factors, including the future earnings, capital requirements, financial
condition and future prospects of the Company and such other factors as the
Board of Directors may deem relevant.
9
<PAGE> 11
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq
National Market under the symbol MCDY. The following table sets forth for the
fiscal periods indicated the high and low sales prices of the Common Stock, as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended September 30, 1994:
First Quarter ended December 31, 1993 . . . . . . . . . . . . . . . . $ 6.500 $ 4.000
Second Quarter ended March 31, 1994 . . . . . . . . . . . . . . . . . 6.250 4.000
Third Quarter ended June 30, 1994 . . . . . . . . . . . . . . . . . . 5.000 3.375
Fourth Quarter ended September 30, 1994 . . . . . . . . . . . . . . . 5.500 3.750
Fiscal Year Ending October 1, 1995:
First Quarter ended December 31, 1994 . . . . . . . . . . . . . . . . 10.625 4.500
Second Quarter ended March 31, 1995 . . . . . . . . . . . . . . . . . 15.500 10.125
Third Quarter ended June 30, 1995 . . . . . . . . . . . . . . . . . . 21.625 13.875
Fourth Quarter ended October l, 1995 . . . . . . . . . . . . . . . . 26.375 18.875
Fiscal Year Ending September 29, 1996:
First Quarter (through October 26, 1995) . . . . . . . . . . . . . . 31.250 22.250
</TABLE>
On October 26, 1995, the last reported sales price of
the Common Stock on the Nasdaq National Market was $24.50. As of October 1,
1995, there were an estimated 1,600 holders of record of the Common Stock and
another 5,300 beneficial holders.
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of October 1, 1995, and as adjusted to reflect the sale by the
Company of 2,000,000 shares of Common Stock hereby, based on an assumed public
offering price of $24.50, after deducting the underwriting discounts and
commissions and the estimated offering expenses payable by the Company and the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
OCTOBER 1, 1995
------------------------------
(UNAUDITED)
ACTUAL AS ADJUSTED
------------ --------------
(in thousands)
<S> <C> <C>
Short-term borrowings and current maturities of long-term obligations . . $ 5,483 $ 683
========= =======
Long-term obligations, net of current maturities . . . . . . . . . . . . $ 16,999 1,899
Stockholders' equity:
Common stock, $.10 par value, authorized 50,000,000 shares,
12,789,666 issued and outstanding actual;
14,789,666 issued and outstanding, as adjusted . . . . . . . . . . 1,279 1,479
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . 9,483 55,411
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,169 28,169
--------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 38,931 $ 85,059
--------- ---------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . $ 55,930 $ 86,958
========= =========
</TABLE>
10
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of
operations data for each of the two years in the period ended September 30,
1994 and the consolidated balance sheet data at September 30, 1994 are derived
from consolidated financial statements of the Company contained elsewhere
herein, which have been audited by Grant Thornton LLP. The consolidated
statement of operations data for the years ended September 30, 1991 and 1992
and the consolidated balance sheet data at September 30, 1991, 1992 and 1993
have been derived from consolidated financial statements audited by Grant
Thornton LLP that are not included herein. The statement of operations data
for the year ended October 1, 1995 and the selected balance sheet data at
October 1, 1995 are derived from unaudited financial statements contained
elsewhere herein. The unaudited financial statements include all adjustments,
consisting of only normal recurring accruals, which the Company considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
consolidated financial statements, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, OCT. 1,
1991(1) 1992 1993 1994 1995
------------- ------------- ------------- ------------- --------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . $ 56,533 $ 72,693 $ 78,174 $101,294 $170,078
Cost of goods sold . . . . . . 31,794 41,035 52,525 73,259 117,308
------ ------ ------ ------ -------
Gross profit . . . . . . . . . 24,739 31,658 25,649 28,035 52,770
Operating expenses:
Selling, general and
administrative . . . . . . . 12,705 23,710 18,032 16,650 24,369
Research and development . . 766 3,886 4,172 3,586 5,197
Restructuring charges . . . - 8,503 3,462 - -
------ ------ ------ ------- ------
Total operating expenses . 13,471 36,099 25,666 20,236 29,566
------ ------ ------ ------ ------
Earnings (loss) from operations 11,268 (4,441) (17) 7,799 23,204
Other income (expense) . . . . (350) (176) (468) (499) (2,804)
----- ----- ----- ----- -------
Earnings (loss) before income
taxes . . . . . . . . . . . . 10,918 (4,617) (485) 7,300 20,400
Provision (benefit) for
income taxes . . . . . . . . 2,094 (2,461) (252) 2,701 7,806
----- ------- ----- ----- -----
Net earnings before cumulatiave
effect of accounting change . 8,824 (2,156) (233) 4,599 12,594
Cumulative effect of accounting
change . . . . . . . . . . . - - 1,744 -
---------- ---------- ------- --------- -------
Net earnings (loss) . . . . . . $ 8,824 $(2,156) $ 1,511 $ 4,599 $ 12,594
======= ======== ======= ======= ========
Net earnings (loss) per share . $ 0.76 $ (0.15) $ 0.10 $ 0.35 $ 0.96
======== ======== ====== ====== ======
Shares used in computing net
earnings (loss) per share . . 11,617 14,592 14,428 13,088 13,096
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, OCT. 1,
1991 1992 1993 1994 1995
------------- ------------- ------------- ------------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and
short-term investments . . . . $ 2,142 $ 1,602 $ 2,135 $ 2,628 $ 5,618
Working capital . . . . . . . . 19,444 17,711 19,965 22,744 40,015
Total assets . . . . . . . . . 41,622 45,226 48,174 55,840 109,825
Long-term obligations . . . . . 1,126 425 817 11,675 16,999
Total stockholders' equity . . 24,067 24,119 26,094 18,290 38,931
</TABLE>
- ----------------
(1) Data for the period prior to June 21, 1991 are for Federal Technology
Corporation only.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Microdyne operates in a single industry segment
encompassing three broad areas of technology having data communications as a
common element. These operations include Networking Products, Aerospace
Telemetry, and Manufacturer Support Services. The following table sets forth
revenue from each of Microdyne's operations for fiscal years 1993, 1994 and
1995:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
(IN THOUSANDS)
SEPT. 30, SEPT. 30, OCT. 1,
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
Networking Products . . . . . . . . . $ 52,269(2) $ 80,546(2) $ 141,300(2)
Aerospace Telemetry . . . . . . . . . 13,358 12,255 17,358
Manufacturer Support Services . . . . 5,250 8,021 12,100
Other operations(1) . . . . . . . . . 7,601 738 --
------- ------- ---------
Total Revenue . . . . . . . . . . $ 78,478 $ 101,560 $ 170,758
========= ========= =========
</TABLE>
- --------------------------
(1) Other operations consist of Systems Integration Services, which was
discontinued in September 1993, and Industrial Telemetry, which was sold
in December 1993.
(2) Before deducting early payment discounts of $304, $265 and $789 in
fiscal years 1993, 1994 and 1995 respectively.
Microdyne has sought to increase its revenue through the
development of new products and the acquisition of new product lines. In
fiscal 1995, the Company introduced internally developed "Plug and Play" ISA-
and PCI-bus LAN adapter cards and two- and four-port remote access LAN
Expanders. Microdyne also introduced the ACS 4400, a new remote access
communications server that combines industry-standard software with advanced
user features, and the NMSLplus, a new generation adapter card that allows file
servers on networks to back up data more quickly. Since the end of fiscal
1995, the Company has introduced a lower cost ISA-bus Token Ring LAN adapter
card, a PCI-bus Token Ring LAN adapter card, and a family of Fast Ethernet
products. Since July 1994, the Company has made the following four
acquisitions to diversify and enhance its technology and product mix. Revenue
from those products are included in Networking Products as of the date of each
acquisition.
In July 1994, Microdyne acquired the IRMAtrac product
line from Digital Communications Associates ("DCA," which has since merged with
Attachmate Corp. ("Attachmate")). That acquisition brought Microdyne an
established line of Token Ring adapter cards that had been developed and
marketed by DCA beginning in 1991. Microdyne purchased DCA's inventory for
approximately $4.0 million, agreed to pay a minimum royalty of $3.0 million
over five years and hired certain DCA engineers to support Token Ring software
and hardware. DCA also agreed to continue to sell the Token Ring product line
through its direct sales force.
In September 1994, Microdyne acquired the assets of
Gateway Communications, Inc. ("Gateway"), rights to remote access products and
certain other products and technology. Microdyne purchased Gateway's assets,
consisting principally of inventory, for $2.0 million. Gateway's remote access
product line is now marketed as Microdyne's WNIM family wide-area adapter
boards and the LAN Expander family of remote access solutions.
In January 1995, Microdyne acquired from Artisoft, Inc.
("Artisoft") the Eagle Technology ("Eagle") business consisting of a family of
Ethernet adapter cards, file server adapter cards, hubs and print server cards.
Microdyne purchased the Eagle business for $16.5 million, including inventory
of $8.3 million, fixed assets of $700,000 and all rights to all Eagle
technology for $7.5 million. Artisoft, through its Eagle business,
12
<PAGE> 14
was one of two companies (the other was National Semiconductor) that, along
with Microdyne, were licensed by Novell to market adapter cards using the
Novell name and "NE" designation. The Company has begun to consolidate its
adapter card business with that of Eagle to provide both a Novell-label and
Eagle-brand line of products.
In September 1995, Microdyne acquired the Ethernet
adapter card product line of National Semiconductor ("National") which had been
introduced by National in 1993. Microdyne agreed to pay a total of $5.3
million, including $3.5 million for National's 10Mbps and 10/100Mbps ("10/100")
Ethernet adapter card inventory, and $1.8 million for rights to National's
10/100 technology, including a period of exclusivity ending in June 1996 on the
purchase of National's 10/100 ISA chip set, and certain intangibles. As a
result of the National acquisition, in September 1995, Microdyne introduced a
10/100 ISA adapter card as part of its Fast Ethernet family of products.
The average selling price of LAN adapter cards, which
accounted for 45% of total fiscal 1995 revenue, continued to decline in fiscal
1995. To remain profitable, the Company must continually reduce its
manufacturing and operating costs. As a result, the Company must maintain low
operating costs to remain competitive in the market, and there can be no
assurance that cost reductions can be achieved on a regular basis. Any
inability to respond to increased price competition for the Company's products
would have a material adverse effect on the Company. See "Risk Factors -
Declining Average Selling Prices."
The majority of the Company's Networking Products
revenue is derived from licenses from, or OEM agreements with, Novell. The
Eagle and National acquisitions in fiscal 1995 further increased the Company's
reliance upon the Novell brand name. The loss by the Company of the right to
sell products under the Novell brand name, the loss of the right to sell Novell
software under OEM license, or a substantial decline in Novell's share of the
network operating system market would have a material adverse effect on the
Company. See "Risk Factors - Dependence on Novell."
13
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
selected information from the Company's Consolidated Statements of Operations,
expressed as a percentage of revenue:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
SEPT. 30, SEPT. 30, OCT. 1,
1993 1994 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . 67.2 72.3 69.0
---- ---- ----
Gross profit . . . . . . . . . . . . . . 32.8 27.7 31.0
Operating expenses:
Selling, general and administrative . 23.1 16.4 14.3
Research and development . . . . . . . 5.3 3.5 3.1
Restructuring charges . . . . . . . . 4.4 -- --
---- ------ ----
Total operating expenses . . . . . 32.8 20.0 17.4
---- ---- ----
Earnings (loss) for operations . . . . . (0.0) 7.7 13.6
Other income (expense) . . . . . . . . . (0.6) (0.5) (1.6)
----- ----- ------
Earnings (loss) before income taxes . . . (0.6) 7.2 12.0
Provision (benefit) for income taxes . . (0.3) 2.7 4.6
----- ---- -----
Net earnings before cumulative effect of
accounting change . . . . . . . . . . . (0.3) 4.5 7.4
Cumulative effect of accounting change . 2.2 --- ---
---- ---- ------
Net earnings (loss) . . . . . . . . . . . 1.9% 4.5% 7.4%
===== ===== =======
</TABLE>
FISCAL YEARS ENDED OCTOBER 1, 1995 AND SEPTEMBER 30, 1994
Revenue. Revenue for fiscal 1995 increased to $170.1
million from $101.3 million in fiscal 1994, an increase of 67.9%. This
increase was a result of internal growth in each of the Company's three
operations and Networking Products acquisitions.
Networking Products revenue increased to $141.3 million in
1995 from $80.5 million in 1994, an increase of 75.5%. The growth reflects
acquisitions by Microdyne, the continued growth of the LAN products industry
and the Company's increased market share. PC Connectivity products, which
include the Company's Ethernet and Token Ring adapter cards, increased to $76.5
million in 1995 from $31.6 million in 1994, an increase of 142.0%. The
increase reflects recent acquisitions, particularly the Eagle acquisition in
January 1995. Total Ethernet revenue increased to $60.6 million in 1995 from
$27.3 million in 1994. Token Ring revenue increased to $15.9 million in 1995
from $4.4 million in 1994. Token Ring revenue in 1994 represented sales made
between the date of the DCA acquisition (July 1994) through September 1994.
Reflecting an increased number of participating distributors and higher sales
at certain of those distributors, revenue from sales of Microdyne hardware
bundled with Novell software ("Bundled Products") increased to $51.5 million in
1995 from $28.8 million in 1994. Reflecting industry trends, Minicomputer
Connectivity and Mainframe Connectivity product revenue declined $4.1 million
in 1995 from 1994.
Aerospace Telemetry revenue increased to $17.4 million in
1995 from $12.3 million in 1994, largely as a result of demand for the
Company's new telemetry products and U.S. Government ("Government") contracts
received late in 1994. Manufacturer Support Services revenue increased to
$12.1 million from $8.0 million
14
<PAGE> 16
in fiscal 1994, reflecting continued growth in support activities for the
Company's customer. The Industrial Telemetry operations, which contributed
$738,000 in 1994, was sold in December 1993.
Gross Profit. Gross profit increased to $52.8 million in
1995 from $28.0 million in 1994, and as a percentage of revenue increased to
31.0% from 27.7%. The increase in gross margin is attributable to higher gross
margins in the Company's Networking Products activity. Within Networking
Products, the gross margins improved in the Company's Ethernet product line due
to declining manufacturing costs which more than offset declining sales prices.
Gross margins increased in Bundled Products due to changes in product mix.
Gross margins also increased in the Aerospace Telemetry and Manufacturer
Support Services.
Selling, General and Administrative. Selling, general and
administrative expense grew to $24.4 million in 1995 from $16.7 million in
1994, but decreased as a percentage of revenue to 14.3% from 16.4%. Management
believes that further reductions as a percentage of revenue will be more
difficult to achieve than in the past due, in part, to increased amortization
of product line acquisition cost. Amortization of product line acquisition
cost from acquisitions made to date will result in an annual expense of
approximately $1.3 million for the next four fiscal years and approximately
$1.0 million in the succeeding two fiscal years.
Research and Development. Research and development
expense increased to $5.2 million in 1995 from $3.6 million in 1994 but
decreased as a percentage of revenue to 3.1% from 3.5%. The dollar increase is
attributable to the addition of former DCA Token Ring engineers in the fourth
quarter of 1994 as well as the development of new products introduced in 1995.
Other Income (Expense). Other expense in both 1995 and
1994 includes interest expense associated with outstanding borrowings against
the Company's line of credit. The higher interest expense in 1995 was due to
larger outstanding borrowings which financed the Eagle acquisition. Also
included in 1995 are one-time charges totaling $875,000, in connection with the
settlement of a stockholder class action lawsuit filed against the Company in
1992.
Provision for Income Taxes. Provision for income taxes
was $7.8 million (38.3% of pre-tax earnings) and $2.7 million (37.0% of pre-tax
earnings) in 1995 and 1994, respectively. The increase in the effective tax
rate resulted in part from reduced tax credits, the impact of which was
partially offset by lower state income taxes and benefits from the Company's
foreign sales corporation.
FISCAL YEARS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993
Revenue. Revenue for fiscal 1994 increased to $101.3
million from $78.2 million in fiscal 1993, an increase of 29.6%. This growth
was attributable to an increase in Networking Products revenue to $80.5 million
in fiscal 1994 from $52.3 million in fiscal 1993. Bundled Product revenue
increased to $28.8 million in 1994 from $3.4 million in 1993, reflecting a full
year of Bundled Product sales as opposed to three months of sales for such
products in fiscal 1993. Token Ring and Gateway product revenue of $4.3
million and $1.1 million, respectively, represented new sales in the fourth
quarter of fiscal 1994 resulting from the DCA and Gateway acquisitions.
Reflecting industry trends, Minicomputer Connectivity product revenue declined
to $5.6 million in 1994 from $7.9 million in 1993. Aerospace Telemetry revenue
decreased to $12.3 million in 1994 from $13.4 million in 1993, largely due to
Government procurement orders which were delayed until late in the fourth
quarter of fiscal 1994. Manufacturer Support Services revenue increased to
$8.0 million in 1994 from $5.2 million in 1993, reflecting continued growth in
support activities for the Company's customer. Industrial Telemetry
contributed revenues of $738,000 in sales in fiscal 1994 and $3.4 million in
fiscal 1993. The assets of the Industrial Telemetry operation were sold in the
first quarter of fiscal 1994.
15
<PAGE> 17
Gross Profit. Gross profit increased to $28.0 million in
fiscal 1994 from $25.6 million in 1993, but as a percentage of sales decreased
to 27.7% from 32.8% in 1993. The percentage decrease reflects a rising
percentage of Networking Products revenue, which carries a lower gross margin
than the Company's other two operations.
Selling, General and Administrative. Selling, general and
administrative expenses decreased to $16.5 million in 1994 from $18.0 million
in 1993 and decreased as a percentage of sales to 16.4% from 23.1%,
respectively. The reduction in 1994 was the result of continued cost controls
combined with savings realized from discontinued and sold businesses.
Research and Development. Research and development
expense decreased to $3.6 million in 1994 from $4.2 million in 1993. As a
percent of revenue, research and development decreased to 3.5% in 1994 from
5.3% in 1993. The decline in 1994 is attributed to the savings realized from
consolidating the Company's engineering facilities in the first quarter in
1994.
Restructuring Charges. In the fourth quarter of fiscal
1993, the Company recognized approximately $3.5 million in restructuring
charges which represented adjustments to certain inventories and costs
associated with a planned fiscal 1994 facilities consolidation.
Other Expense. Other expense primarily consists of
interest expense associated with borrowings against the Company's line of
credit. Other expense increased to $499,000 in 1994 from $468,000 in 1993.
The increase was attributable to a higher level of average borrowings in fiscal
1994 arising from the Company's Dutch Auction tender offer in February 1994.
Provision (Benefit) for Income Taxes. In 1994, the
Company's provision for income taxes was $2.7 million, representing 37.0% of
pre-tax earnings. The Company received an income tax benefit of $252,000 in
1993, representing 52.0% of the 1993 pre-tax loss. The tax benefit resulted
primarily from the recognition of net operating losses and certain tax credits.
Change in Accounting Principle. In 1993, Microdyne
adopted SFAS 109, reflecting the tax benefit to be derived from future net
operating loss carryforwards. This accounting change resulted in a $1.7 million
benefit to pre-tax income.
16
<PAGE> 18
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly
financial information for each of the Company's last eight quarters. The data
have been prepared on a basis consistent with the Company's audited
consolidated financial statements included elsewhere in this Prospectus and
include all necessary adjustments, consisting only of normal recurring accruals
that the Company considers necessary for a fair presentation. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31. JUNE 30, SEPT. 30, DEC. 31, MAR. 31 JUNE 30, OCT. 1,
1993 1994 1994 1994 1994 1995 1995 1995
------------- ------------ ------------ ------------- ------------- ----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . $ 21,835 $ 23,568 $ 24,261 $ 31,630 $ 31,819 $40,577 $47,663 $50,019
Cost of goods sold . . . 15,601 17,448 17,792 22,417 22,029 27,922 32,827 34,530
------ ------ ------ ------ ------ ------ ------ ------
Gross profit . . . . . . 6,234 6,120 6,469 9,213 9,790 12,655 14,836 15,489
Operating expenses:
Selling, general and
administrative . . . 3,854 3,719 3,950 5,127 4,735 5,819 6,687 7,128
Research and
development . . . . . 952 796 717 1,121 1,162 1,344 1,426 1,265
------ --------- -------- -------- -------- ------- ------- -------
Total operating
expenses . . . . 4,806 4,515 4,667 6,248 5,897 7,163 8,113 8,393
------- -------- -------- -------- -------- -------- -------- -------
Earnings (loss) from
operations . . . . . . 1,428 1,605 1,802 2,965 3,893 5,492 6,723 7,096
Other income (expense) . (27) (118) (158) (198) (1,055) (555) (537) (657)
------- ---------- --------- --------- ----------- -------- -------- -------
Earnings before income
taxes . . . . . . . . . 1,401 1,487 1,644 2,767 2,838 4,937 6,186 6,439
Provision (benefit) for
income taxes . . . . . 546 580 641 933 1,107 1,925 2,413 2,361
------ --------- -------- -------- -------- ------- ------- -------
Net earnings (loss) . . . $ 855 $ 907 $ 1,003 $ 1,834 $ 1,731 $ 3,012 $ 3,773 $ 4,078
======= ========= ======= ======== ======== ======= ======= ========
Net earnings (loss) per
share . . . . . . . . . $ 0.06 $ 0.07 $ 0.08 $ 0.15 $ 0.14 $ 0.24 $ 0.29 $ 0.31
======= ========= ======= ========= ========= ======== ========= =========
Shares used in computing
netearnings (loss)
per share . . . . . . . 14,413 13,497 12,231 12,210 12,431 12,669 13,149 13,250
======= ========= ======== ======== ======== ======= ======= =======
</TABLE>
The following table sets forth the above unaudited quarterly financial
information as a percentage of net revenue:
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, OCT. 1,
1993 1994 1994 1994 1994 1995 1995 1995
------------ ---------- ---------- ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . 71.4 74.0 73.3 70.9 69.2 68.8 68.9 69.0
----- ----- ----- ----- ----- ----- ----- -----
Gross profit . . . . . . . . 28.6 26.0 26.7 29.1 30.8 31.2 31.1 31.0
Operating expenses:
Selling, general and
administrative . . . . 17.7 15.8 16.3 16.2 14.9 14.3 14.0 14.3
Research and development . 4.4 3.4 3.0 3.5 3.7 3.3 3.0 2.5
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses . . . . . 22.0 19.2 19.2 19.8 18.5 17.7 17.0 16.8
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) from
operations . . . . . . . . 6.5 6.8 7.4 9.4 12.2 13.5 14.1 14.2
Other income (expense) . . . (0.1) (0.5) (0.7) (0.6) (3.3) (1.4) (1.1) (1.3)
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) before income
taxes . . . . . . . . . . 6.4 6.3 6.8 8.7 8.9 12.2 13.0 12.9
Provision (benefit) for
income taxes . . . . . . . 2.5 2.5 2.6 2.9 3.5 4.7 5.1 4.7
----- ----- ----- ----- ----- ----- ----- -----
Net earnings (loss) . . . . . 3.9% 3.8% 4.1% 5.8% 5.4% 7.4% 7.9% 8.2%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company has historically operated with limited backlog
because its products are shipped shortly after orders are received, and
frequently realizes a substantial portion of its net revenues in the last month
of the quarter. As a result, revenue in any period is substantially dependent
on orders booked and shipped in the last month of that period. Delays in
receipt of end-of-quarter orders in a given quarter may adversely affect
17
<PAGE> 19
the Company's results of operations for that quarter, as the Company's expense
levels are based primarily on full-quarter revenue estimates and only a small
portion of the Company's operating expenses vary with its revenue. Moreover,
Microdyne's revenue may fluctuate based on the level of inventories of the
Company's products maintained by the Company's distributors in any particular
quarter. Accordingly, the Company may be subject to significant and
unanticipated quarter-to-quarter fluctuations. See "Risk Factors -- Reliance
on Distributors" and "-- Fluctuations in Quarterly Results and Timing of
Orders."
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has financed its
operations principally through internally generated funds. However, the
Company has sought external financing in connection with acquisitions and the
repurchase of its common stock.
External financing has been provided through bank
borrowings. As of October 1, 1995, the Company had $19.9 million of bank debt,
consisting of a $7.9 million term note due in May 1997 and $12.0 million in
outstanding borrowings under a $22.5 million revolving line of credit facility
that expires in January 1998. The term note bears an interest rate of prime or
a variable rate from 1.5% to 1.9% over the London Interbank Offer Rate
("LIBOR") and requires a monthly repayment of $400,000. The revolving credit
facility note bears an interest rate of prime or a variable rate from 1.4% to
1.8% over LIBOR. Both notes are secured by accounts receivable, equipment and
inventories. On October 1, 1995, the Company had $5.6 million of cash and $5.5
million available for borrowing under the revolving credit facility.
During fiscal 1995, net cash provided by operating
activities was $9.3 million, primarily due to net earnings and increases in
accounts payable, accrued liabilities and depreciation, offset principally by
increases in accounts receivable and inventories. The increases in accounts
payable, accrued liabilities, accounts receivable and inventories principally
reflect the Company's increased business activity and longer trade cycles.
Cash used in investing activities during fiscal 1995 was $21.9 million, $20.9
million of which was related to product line acquisitions. Cash provided by
financing activities was $15.6 million, consisting of $8.0 million of net new
borrowing, $3.3 million from the exercise of stock options and a $4.3 million
tax benefit related to the exercise of those options. Capital expenditures in
fiscal 1995 were $887,000. The Company has no material commitments for future
capital expenditures.
Microdyne believes its available cash, funds generated
from operations and funds available under its credit facilities should be
sufficient to finance its continuing operations for the foreseeable future.
The Company may also, from time to time, consider the acquisition of
businesses, products or technologies that may require additional funds. A
portion of the net proceeds of this offering may be used for such acquisitions.
However, the Company is not currently engaged in active discussions with
respect to any significant acquisitions and has no commitments or
understandings for any such acquisitions.
INFLATION AND CHANGING PRICES
For the past three years, inflation has not had a
significant impact on the Company's operations.
18
<PAGE> 20
BUSINESS
INTRODUCTION
Microdyne designs, manufactures, markets and supports a broad
line of data communications hardware products that enable local area and remote
network access communications. The Company has established itself as a leading
supplier of LAN adapter cards which provide the essential connection between
computers (including personal computers, file servers, minicomputers and
mainframe computers) and the network. The Company's products support all
established computer bus structures, wiring systems and network topologies,
including Ethernet, Fast Ethernet and Token Ring. The Company also sells a line
of products directed to the emerging remote access market permitting both
dial-up access to LANs and LAN access to remote databases. The Company
believes that its products provide a combination of reliable, high performance,
fully featured solutions at attractive prices.
Microdyne offers a broad product mix covering a variety of
networking standards and computer platforms. Microdyne's product family
consists of more than 100 individual products grouped into five principal
categories: PC Connectivity, Remote Access, IBM Connectivity, Minicomputer
Connectivity and Bundled Products consisting of Microdyne hardware packaged
with Novell NetWare or other Novell software.
The Company sells its products through a broad base of
leading domestic and international distributors as well as smaller regional
distributors. The Company has leveraged Novell's position as the dominant
supplier of LAN operating system software by licensing the Novell brand name
and certain Novell technology for use on many of the Company's networking
hardware products. Further, Novell has authorized Microdyne as an OEM supplier
of NetWare bundled with Microdyne products to selected distributors outside of
Novell's traditional distribution channel.
BACKGROUND
The computer networking industry represents one of the
fastest growing segments of the technology industry. Industry growth has been
a product of a rising number of personal computers in use within organizations,
generational upgrades of computers, standardization of network operating system
software (led by Novell's NetWare), the rising importance of network
communications as an organizational productivity tool and the increasing speed
and flexibility of networks. According to IDC, in 1995 there are an estimated
143 million PCs installed in businesses worldwide and 88 million PCs, or 61%,
are connected to LANs. By 1999, the installed base of business PCs is projected
to rise to 210 million, of which 167 million, or 79%, are expected to be
connected to a network.
Local area networks connect groups of personal computers,
file servers, printers and other devices, thereby facilitating communications
among those devices. Most LANs utilize one of two generally accepted networking
topologies: Ethernet (approximately 80% of networks, according to IDC) or Token
Ring (approximately 20%). Generally, Ethernet LANs transmit data over a network
at 10 megabits per second ("Mb" or "Mbps"); Token Ring LANs generally operate
at 4 or 16Mbps. A new standard called Fast Ethernet (also called 10/100
Ethernet or 100BaseT) transmits data at 100Mbps. For any PC connected to a
network there is a need for a LAN adapter card, which translates data to and
from the computer in a format understandable to the network. The adapter card
must conform to the LAN topology (Ethernet or Token Ring), to the internal
architecture of the PC (the 16-bit ISA bus or newer 32-bit PCI bus used in
Pentium-class PCs) and to the physical wiring scheme of the network (there are
three commonly used wiring systems, the most popular one of which is called
10BaseT). As such, there are numerous permutations of adapter cards required
to meet the needs of network users. In addition, small groups of networked PCs
are linked by devices
19
<PAGE> 21
called concentrators or unmanaged hubs, which in turn are connected to file
servers and printers, each of which also requires a specialized adapter card
linking the device to the network. File servers may also have links to
redundant storage devices to insure against loss of data in the event of a
catastrophic failure of the file server; such links require specialized adapter
cards at each device. Minicomputers and mainframe computers may also reside on
a LAN and such connections require adapter cards specific to the operating
system of each larger computer. In each of the preceding descriptions,
Microdyne manufactures, markets and sells the card required for connections to
the network.
Networks have become an essential element of organizational
productivity. Initially, LANs performed simple file and print sharing tasks
among a group of PC users. As a result of faster processing capabilities of
PCs, inexpensive, more powerful mass storage file and application servers,
generally falling hardware prices and faster network speeds, LANs are now used
to also deliver critical applications among network users. These new
applications include fax origination and delivery, e-mail access, document
imaging, storage and manipulation, desktop conferencing, real-time workgroup
use of common images and other CPU-intensive networking activities. The growth
in client/server computing has also raised the importance of the LAN as a
communication medium. As user requirements for the network have increased --
including the need for greater throughput speeds and bandwidth -- new bus
architectures, network topologies and transmission media have been developed.
The resulting upgrade and sale of new PCs, adapter cards and ancillary
networking hardware to the installed base have further stimulated market
growth.
LAN usage has expanded from a group of physically proximate
users connected by wires to include remote users requiring periodic access to
certain computers and file servers. The lower price and improved performance
and versatility of laptop and notebook PCs, combined with improved modem
technology, higher transmission speeds, falling telecommunications costs and
growth in online services and the Internet, have fueled demand for remote
access to and from networks. Remote access allows users to dial-in to LANs from
remote sites and to access dial-up networks (e.g., Compuserve, Lexis/Nexis, the
Internet) via their office PC without the requirement of a dedicated telephone
line or modem. Remote access requires specialized software and board- or
system-level hardware. Microdyne manufactures, markets and sells board- and
system-level remote access hardware.
The Company believes that as LANs have evolved, many segments
of local area networking have become non-proprietary, price sensitivity has
increased and buyers have come to favor multi-product vendors. In addition,
buyers have become more cautious about embracing new technology if adopting it
renders a large part of an existing networking investment obsolete. As a
result, the Company believes that an ability to differentiate products through
enhancements and added features, the timing of product introductions, effective
distribution and marketing, efficient manufacturing and a low-cost
infrastructure are critical elements for success.
STRATEGY
Microdyne attempts to anticipate changes in the networking
market and to develop a strategy for continued growth and profitability. This
strategy consists, in part, of the following:
- - Focus on LAN Products. Microdyne focuses its core business
around the development and marketing of board-level LAN hardware products. The
Company's strategy is to expand its presence in this market by continuing to
add features and functionality to existing products and to develop and acquire
new products to broaden its product portfolio. The Company believes it can
successfully compete in this market because of its broad distribution
capabilities, focused sales and marketing activities, competitive pricing
strategy and use of the Novell brand name.
20
<PAGE> 22
- - Maintain Low Cost Structure. The market for LAN products is
characterized by declining average selling prices. Microdyne's strategy to
improve earnings in this environment includes constraining the growth of its
operating expenses while focusing on maintaining or improving gross margins on
its products. The Company attempts to constrain general and administrative
expenses by maintaining a small headquarters staff. The Company focuses its
engineering resources on cost reduction and manufacturing efficiency programs.
Microdyne attempts to maintain or improve gross margins by outsourcing
manufacturing, aggressively negotiating component part prices and continually
reviewing vendor costs.
- - Optimize Market Entry Timing. The market for LAN products is
characterized by evolving standards. The adoption of a new standard is related
to the evolution of PC hardware (e.g., the PCI bus) and networking topology
(e.g., Fast Ethernet). Microdyne seeks to introduce new products in response
to these technological changes at a point in time when unit volume shipments
out of distribution make entering the market economically attractive. By
seeking to optimize market entry timing, the Company believes it is able to
better judge market nuances, such as customer-demanded changes in driver sets
or features, while avoiding the cost of developing and introducing
first-generation products for which demand may be limited.
- - Actively Manage Distribution Channels. Microdyne seeks to
actively manage and maximize the use of the computer products industry's
established distribution system. The Company sells its products through the
largest, best-known national and international distributors such as Ingram
Micro, Inc., Tech Data, Inc. and C2000 GmbH and also through a second tier of
smaller, regional distributors. Microdyne develops and tailors marketing and
training programs for each tier of distributors, and develops and maintains
programs that seek to convince resellers to buy and specify Microdyne products.
- - Use Acquisitions to Expand Sales and Product Lines. The
Company seeks to capitalize on the consolidation currently taking place in the
networking industry by acquiring complementary product lines or technologies.
Through acquisitions, Microdyne attempts to leverage its core competencies in
sales, marketing, distribution and product development and to enhance its
market position. Microdyne selectively pursues acquisitions at prices
advantageous to the Company.
- - Selectively Expand Other Areas of Microdyne's Business. While
Networking Products accounted for 83% of Microdyne's fiscal 1995 revenue, the
Company's two other operations -- Aerospace Telemetry and Manufacturer Support
Services -- contributed to growth in revenue and income without requiring
substantial capital investment, thereby helping to finance growth of Networking
Products. As such, the Company seeks to expand these operations.
NETWORKING PRODUCTS
Microdyne offers a broad product family consisting of more
than 100 individual products. The Company's products are grouped into five
principal categories: PC Connectivity, Remote Access, IBM Connectivity,
Minicomputer Connectivity and Bundled Products.
- - PC Connectivity Products are the essential devices that
connect personal computers, printers and file servers to LANs. Microdyne
markets a wide range of such products, primarily LAN adapter cards, which shape
the output of PCs into formats understandable by the network, and which
originate, monitor and terminate LAN sessions. Microdyne's PC adapter cards
address the myriad combinations of PC bus structure (ISA, EISA, MCA, or PCI),
network topology (Ethernet or Token Ring) and network wiring scheme (coaxial
cable, 10BaseT, among others) used by customers. Microdyne's LAN adapter cards
also support all major network operating systems (NetWare, OS/2, Windows NT,
Vines, Lantastic). Microdyne also markets laptop
21
<PAGE> 23
and notebook computer LAN adapter cards that conform to the PCMCIA standard. In
response to the progression from today's widely applicable 10Mbps standard to
the evolving 100Mbps Ethernet standard, Microdyne markets several LAN adapter
cards that support both speeds and which automatically adjust to the applicable
network speed. Microdyne's broad, flexible product capability allows customers
to upgrade to new network standards without the cost of replacing the existing
network infrastructure. Microdyne also strives to support all current and
prospective networking standards and innovations, including those dealing with
ease of installation ("plug and play ready") or conformation to PC operating
system management tools (Desktop Management Interface or DMI). Further,
Microdyne differentiates its products by its readiness and ability to quickly
incorporate third party innovations such as virus protection ROM chips.
Microdyne's PC connectivity product line also includes LAN
adapter cards for file servers and printers. Microdyne products include: the
SYNC+ router controller card, which allows a file server to perform the
functions of a router; the NetWare Mirrored Server Link ("NMSL") card, a
high-speed bi-directional serial link between servers running Novell's SFT
software that allows one file server to backup another as a "hot standby" in
the event of catastrophic failure; and a variety of hubs and concentrators,
which link together clusters of PCs.
- - Remote Access Products enable LAN users to connect to
external databases (e.g., Compuserve, Lexis/Nexis, the Internet) without the
use of dedicated external phone lines or modems. Microdyne markets both board-
and system-level products that provide for cost-effective connections by LAN
users to such databases. Microdyne also markets a family of remote access
products that permit persons at remote sites who are not physically connected
to a LAN to access or dial into the LAN over telephone lines and gain access to
files and applications as if physically connected. Microdyne's products also
permit groups of users to share a small number of modems and direct lines
connected to a network. Microdyne's remote access products support assorted
applications involving varying numbers of simultaneous in-bound or out-bound
sessions handled ("ports"), differing technology used to support those sessions
("remote node" or "remote control") and various software packages which provide
network connections and security. Microdyne's remote access solutions are
fully featured products with high levels of network security, protocol support
and scalability. Microdyne also markets a set of system-level solutions (e.g.
LAN Expander) and a wide-area networking board (the "WNIM series") that permits
value added resellers ("VAR") or end users to build customized solutions for an
organization.
- - IBM Connectivity Products are adapter cards that enable a PC
to operate in an environment in which there is a direct connection to an IBM
mainframe. In such cases, the PC must emulate an IBM 3270-series terminal in
order to communicate with the mainframe. Microdyne's products support IBM's
Systems Network Architecture ("SNA") and Systems Application Architecture
("SAA"), the specialized network protocols used in IBM mainframe environments.
- - Minicomputer Connectivity Products are specialized adapter
cards that permit minicomputers to be connected to LANs. Although demand for
minicomputers has fallen from peak 1980s levels, many organizations continue to
run critical applications on minicomputers, generating modest demand for
adapter cards which facilitate such connectivity. Microdyne's products allow
DEC, Prime, Data General, NCR and other minicomputer platforms to be connected
to LANs.
- - Bundled Products are pre-packaged combinations of one or more
of the Company's networking products packaged with OEM versions of Novell
software. These bundled products are sold to selected distributors that would
otherwise not have access to these Novell products. Bundled products include
Novell's NetWare network operating system software or LAN Workplace for DOS
combined with the Company's Ethernet adapter cards, Novell's SFT software
combined with NMSL boards, Novell's Multiprotocol Router software
22
<PAGE> 24
combined with the SYNC+ board, Novell's SAA for Windows combined with the SAA
adapter card, and NetWare Connect software combined with WNIM wide-area adapter
cards.
23
<PAGE> 25
The table below lists Microdyne's principal products and
provides a brief description and list of key product features for each group.
<TABLE>
<CAPTION>
PRODUCT CATEGORY OR NAME DESCRIPTION KEY PRODUCT FEATURES
PC CONNECTIVITY PRODUCTS
<S> <C> <C>
ETHERNET ADAPTER CARDS
Novell NE2000plus series 16-bit ISA adapters the industry-standard PC adapter, lifetime
warranty
Novell NE2500 series 16-bit ISA adapters plug and play ready, fast frame exchange
technology, virus protection, DMI interface
Novell NE5500 32-bit PCI adapter plug and play ready, easy installation, fast
frame exchange technology, DMI interface
Novell NE3200 series 32-bit EISA adapters bus master technology, low CPU utilization,
designed for multi-vendor environment
Novell NE4200 PCMCIA adapter dual media, switchless automatic
configuration, 4 diagnostic LEDs
Novell NE/2 series MCA 16- and 32-bit full driver support for Micro Channel
adapters Architecture-bus PCs and workstations
EP-series 16- and 32-bit value-priced, fully featured adapters
adapters
FAST ETHERNET PRODUCTS
Novell NE10/100 ISA 16-bit Fast Ethernet auto-sensing for 10 or 100Mb networks, plug
adapter for ISA bus and play ready, half- or full duplex modes
Novell NE10/100 PCI 32-bit Fast Ethernet auto-sensing for 10 or 100Mb networks, plug
adapter for PCI bus and play ready, half- or full duplex modes
Eagle Switch 4+100 switch with 4 10Mb and enhanced store-and-forward, dynamic buffer
1 100Mb ports allocation, SNMP management, serial port
Eagle Switch 4x4 switch with 4 10Mb and enhanced store-and-forward, dynamic buffer
4 100Mb ports allocation, SNMP management, serial port
Eagle Century hub 12-port 100Mb hub preamble regeneration, retiming, collision
detection
TOKEN RING ADAPTER CARDS
IRMAtrac Hardtop 16-bit ISA adapter 4/16Mb selectable, ROMShield virus
protection
IRMAtrac Convertible 16-bit ISA or MCA 4/16Mb selectable, bus master technology,
adapter remote program load support
IRMAtrac PNP 4/16 16-bit ISA adapter bus master technology, 512K, on-board
memory, plug and play ready
IRMAtrac PCI 4/16 32-bit PCI adapter bursting bus master data transfer, 128K
on-board memory
</TABLE>
<TABLE>
<S> <C> <C>
OTHER PC CONNECTIVITY PRODUCTS
Novell NetWare Mirrored Server Link bi-directional serial fiber or coaxial connectors, 32-bit data
(NMSL) link between servers transfers, fastest throughput
Novell NPE400 print server high-speed print pocket-sized adapter connecting directly to
server printer parallel port
Novell SYNC+ series WAN adapters router controller card optimized for Novell's Multiprotocol Router
software, intelligent, high speed
EH-series hubs 8- or 12- port expandable, advanced monitoring, diagnostics
concentrator
5000plus-series concentrators 8- or 16-port 10BaseT small size, low power consumption, can be
concentrator cascaded, extensive network management
IRMAtrac Token Ring MAUs media access unit lobe-port status lights, automatic loop back
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
PRODUCT CATEGORY OR NAME DESCRIPTION KEY PRODUCT FEATURES
REMOTE ACCESS PRODUCTS
<S> <C> <C>
LAN Expander LX-RC 2-port dial-in, dial- remote control technology, management
out
LAN Expander LX-2 and LX-4 2- or 4-port dial-in, remote-node technology, dial-out modem
dial-out sharing, easy installation, entry-level
price
Novell WNIM+ and WNIM 3000 asynchronous adapters supports 4 or 8 ports for user-designed
remote access solutions, optimized for
NetWare
ACS 4400 4-port dial-in, dial- based on Novell's NetWare Connect software,
out integrated, ready-to-use, network security
Novell NW2000 WAN adapter communications adapter optimized for Novell's Multiprotocol Router
software, useful for branch-office solutions
<CAPTION>
IBM CONNECTIVITY PRODUCTS
<S> <C> <C>
SAA Synchronous Adapter for PC and 3270 serial adapters RS232C and V.35 connectivity, operates with
PS/2 Novell's NetWare for SAA
Synchronous and V.35 Synchronous 3270 serial adapter connects a PC to IBM 37XX communications
Adapter for PC processor at speeds up to 19.2Kbps
Coax Adapter for PC 3270 adapter supports 3270 CUT Workstation and
Workstation for Windows, SNA Gateway
Coax/Mux Adapter coaxial interface emulates 3299 mux, supports up to 40
adapter concurrent DFT-mode 3270 sessions from LAN
SNA Gateway LAN-to-mainframe enables up to 97 LAN workstations to access
software IBM SNA host computers
3270 LAN Workstation for SNA Gateway workstation-to-SNA provides LAN client workstations with access
software to IBM SNA host computers
<CAPTION>
MINICOMPUTER CONNECTIVITY
<S> <C> <C>
EXOS 201 and 301 MULTIBUS adapter supports NCR Tower, Concurrent, Prime,
Intel, and UNISYS system connections to LANs
EXOS 203 Q-BUS adapter supports DEC MicroVAX connection to LANs
EXOS 204 and 304 UNIBUS adapters on-board LAN co-processor, providing
efficient CPU utilization
<CAPTION>
BUNDLED PRODUCTS
<S> <C> <C>
NetWare 3.x/4.x bundles hardware/software Novell NetWare with Novell NE2000plus series
adapter cards
LAN Workplace for DOS bundles hardware/software Novell LAN Workplace for DOS with NE2000+3
adapters
SAA NetWork Select hardware/software Novell SAA for Windows with Novell SAA
synchronous adapters
MPR+ NetWork Select hardware/software Novell Multiprotocol Router software with
Microdyne's SYNC+ adapter
Remote Network Select hardware/software Novell NetWare Connect software with
Microdyne WNIM adapter
</TABLE>
25
<PAGE> 27
Acquisitions
Microdyne seeks to expand its product and technology base by
selectively acquiring companies or product lines that complement the Company's
technologies, expand the Company's markets and leverage the Company's channels
of distribution. Microdyne evaluates each potential acquisition independently
and the decision process includes factors related to the acquisition's
long-term potential for contribution to sales, earnings or technology.
Evaluation criteria may change from time to time. Among the criteria the
Company currently uses are the following:
- - The extent to which the acquisition could be immediately
accretive to revenue and earnings;
- - The extent to which the products purchased could be
marketable through Microdyne's existing distribution channel;
- - The extent to which the acquisition would fit with the
Company's LAN products strategy;
- - The extent to which the acquisition would be for specific
technology or product lines, rather than organizations; and
- - The extent to which the technology purchased is fully
developed and immediately marketable.
Since 1989, Microdyne has attempted to enhance its revenue
growth and technology base by either licensing products or by acquiring
businesses or product lines. The following table provides a chronology of
certain of those transactions:
<TABLE>
<CAPTION>
PRODUCT LINE LICENSED/
YEAR LICENSED OR ACQUIRED ACQUIRED FROM NATURE OF PRODUCT LINE OR BUSINESS
<S> <C> <C> <C>
1989 Excelan Novell Minicomputer connectivity products
1991 CXI Novell IBM connectivity products
1992 NE-series adapter cards Novell Ethernet adapter cards
1992 SAA adapter cards Novell Serial adapter cards for IBM hardware
1992 NetWare Access Server Novell Co-developed and marketed remote access solution
1993 SYNC+ Novell Router adapter card
1993 NMSL Novell Mirrored Server Link hardware
1994 IRMAtrac product line DCA Token Ring adapter cards
1994 Gateway Communications Gateway Communications Remote access products, WNIM wide-area network
adapter
1995 Eagle Technology Artisoft Ethernet adapter cards, print server, hubs, wide-
area networking adapters
1995 InfoMover National Semiconductor Ethernet adapter cards, Fast Ethernet technology
and adapter cards
</TABLE>
Since July 1994, the Company has made the following
acquisitions to diversify and enhance its technology and product mix:
26
<PAGE> 28
In July 1994, Microdyne acquired the IRMAtrac product line
from Attachmate. That acquisition brought Microdyne an established line of
Token Ring adapter cards that had been developed and marketed by DCA beginning
in 1991. Microdyne purchased DCA's inventory for approximately $4.0 million,
agreed to pay a minimum royalty of $3.0 million over five years, and hired
certain DCA engineers to support Token Ring software and hardware. DCA also
agreed to continue to sell the Token Ring product line through its direct sales
force. See "-- Marketing, Sales and Customer Support."
In September 1994, Microdyne acquired Gateway's rights to
remote access products and certain other products and technology and certain
assets, consisting principally of inventory, for $2.0 million. Gateway's
remote access product line is now marketed as Microdyne's WNIM family wide-area
adapter boards and the LAN Expander family of remote access solutions.
In January 1995, Microdyne acquired from Artisoft the Eagle
Technology business consisting of a family of Ethernet adapter cards, file
server adapter cards, hubs and print server cards. Microdyne purchased the
Eagle business for $16.5 million, including inventory of $8.3 million, fixed
assets of $700,000 and all rights to all Eagle technology for $7.5 million.
Artisoft, through its Eagle business, was one of two companies (the other was
National Semiconductor) that, along with Microdyne, was licensed by Novell to
market adapter cards using the Novell name and "NE" designation. The Company
has begun to consolidate its adapter card business with that of Eagle to
provide both a Novell-label and Eagle-brand line of products.
In September 1995, Microdyne acquired National's Ethernet
adapter card product line, which had been introduced in 1993. Microdyne agreed
to pay a total of $5.3 million, including $3.5 million for National's 10Mb and
10/100 Ethernet adapter card inventory, and $1.8 million for rights to
National's 10/100 technology, including a period of exclusivity ending in June
1996 on the purchase of National's 10/100 ISA chip set, and certain
intangibles. As a result of the National acquisition, in September 1995,
Microdyne introduced a 10/100 ISA adapter card as part of its Fast Ethernet
family of products.
Distribution
The Company's Networking Products are principally sold to end
users through a two-step distribution process consisting of distributors and
resellers. Electronics distributors stock products from hundreds of
manufacturers. The industry includes several hundred distributors specializing
in computer products and these firms serve regional, national or international
markets. Microdyne's largest distributors include Ingram Micro Corporation,
DistribuPro, Inc., Southern Electronics Corporation, Tech Data, Inc., Merisel
Inc. and C2000 GmbH. The customers of those distributors are, in turn, the more
than 50,000 worldwide computer products resellers (including retail stores that
sell to end users), VARs (which sell to systems integrators that specify,
assemble and install networks for end user customers) and integrators (which
install components and systems as a service to customers). The Company believes
that selling through distributors carries specific benefits, including limiting
the Company's customers to a finite number of generally well-financed entities,
limiting the amount of finished-goods inventory which the Company must carry
and lessening the need for a direct sales force. According to IDC, distributors
accounted for more than 75% of all networking products sold in the United
States in 1994.
The Company provides terms of net 30 days for most of its
products. Microdyne periodically offers rebates to distributors or permits
distributors to extend payment terms to gain favored attention for the
Company's products. Microdyne's agreements with distributors allow defective
products to be returned for credit and generally permit stock rotation, a
standard practice in the electronics industry. Stock rotation enables a
distributor to return a set percentage of slow-moving product for a like amount
of a comparable but
27
<PAGE> 29
faster-selling product. In order to minimize stock rotation, the Company
attempts to balance distributor inventory with perceived customer demand and
from time to time sells products on a non-cancellation, no-return basis.
Distributor agreements also provide distributors with protection against price
decreases which are applicable to products in the distributors' inventory at
the time of the decrease. The Company has established reserves for defective
product returns, stock rotations and price decreases, which reserves management
believes to be adequate.
Microdyne treats sales to distributors outside the United
States (or U.S.-based distributors with a majority of their sales in
international markets) in a manner substantially similar to U.S.-based
accounts. All products are priced to distributors in dollars and distributors
assume any risk of currency fluctuation.
Extended Distribution Program
Microdyne has broadened its customer reach by adding a second
group of distributors for which Microdyne is a source of networking hardware
products and Novell NetWare network operating system software and other
Novell-label software. Microdyne combines its networking hardware products
with appropriate Novell software in one package. The resulting combinations, or
Bundled Products, are sold under the Extended Distribution Program.
The Extended Distribution Program was introduced in 1993 with
the cooperation of Novell. Pursuant to an agreement with Novell, Microdyne is
authorized to seek out distributors that are not otherwise authorized by Novell
to sell NetWare and other Novell software products. Distribution terms and
discount policies are set by Novell. The Company believes that by participating
in the Extended Distribution Program, Microdyne enhances its position as a
supplier of networking hardware products and increases the likelihood that its
products will be recommended by these distributors.
Marketing, Sales and Customer Support
Because there are several levels of intermediaries between
the Company and its end-user customer, Microdyne devotes its sales resources to
working with distributors ("push" programs) and must rely upon marketing
efforts to reach resellers and end user customers ("pull" programs). It is
critical to the Company's success that distributors' telemarketing
representatives are familiar with Microdyne's products and can explain to their
customers how Microdyne products are differentiated from those of its
competitors. To that end, the Company conducts periodic training programs for
its distributors' telemarketing representatives. The Company may also
periodically run push programs including promotions and rebates aimed at
distributors' telemarketing representatives.
The Company's pull programs are aimed at resellers and end
users. These programs take the form of print advertising in computer industry
trade publications that reach resellers and corporate information systems
managers, direct mail to resellers, trade press publicity about new products
and product features, participation in the networking industry's trade shows,
promotions designed to increase sales in a specific period and rebates.
The Company uses its Novell and Eagle brand names to
establish and retain customer loyalty to Microdyne's products. Microdyne
believes the Novell name connotes quality and reliability in the minds of
customers, and that the Eagle name is well established in the minds of many
customers as a reliable, price-competitive brand.
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<PAGE> 30
As part of the Company's acquisition of the IRMAtrac product
line, Attachmate assumed certain obligations for the continued sale of those
products for a period of five years commencing July 19, 1994. Microdyne is
dependent upon Attachmate's efforts for the sale of Token Ring products.
Microdyne maintains a toll-free telephone technical support
center in Alexandria, Virginia and San Jose, California where help is available
12 hours a day, five days a week. Networking products have a lifetime warranty
against failure or defective workmanship. The Company replaces its products
upon submission of the failed product together with purchase documentation.
Research and Development
Research and development expense increased to $5.2 million in
fiscal 1995 from $3.6 million in fiscal 1994. This increase is attributable to
the addition of former DCA Token Ring engineers in the fourth quarter of fiscal
1994 as well as the development of new products introduced in fiscal 1995.
Microdyne's expenditures for research and development in its Networking
Products business was $3.8 million in 1995, $2.3 million in 1994 and $2.9
million in 1993. Research and development activities are carried out at the
Company's facility in San Jose, California by a staff of approximately 30
engineers.
The Company focuses its engineering efforts on product cost
reduction, extension of existing product lines and enrichment of features on
existing products. The Company has historically obtained new technologies or
new products primarily through OEM relationships or the purchase of technology
as part of larger business acquisitions. Each of the four acquisitions
completed between July 1994 and September 1995 has contributed specific new
products and/or technologies to Microdyne.
Manufacturing and Supply
Because of variable demand for its products and the
availability of low-cost contract production capabilities, Microdyne outsources
virtually all of its board-level Networking Products manufacturing to contract
manufacturers, which are primarily established, U.S.-based corporations. The
Company believes it can maintain a high level of quality while reducing its
cost of goods sold below that which the Company would incur if it manufactured
products in-house. The Company believes there are a sufficient number of
contract manufacturers to ensure adequacy of supply for the foreseeable future.
Microdyne has experienced no substantial difficulty purchasing components and
raw materials in the open market from multiple suppliers; however, certain
integrated circuits are available from a single vendor and can require long
lead times to obtain in quantity.
Competition
The networking products market is very competitive. The
Company believes its ability to compete successfully depends on a number of
factors, including: price; product features; product quality; performance and
reliability; name recognition; international certification; retention of
experienced sales, marketing and service personnel; development of new products
and enhancements; and adherence to rapidly changing industry standards.
Microdyne competes with a number of vendors, including 3Com
Corporation, Standard Microsystems Corporation and Intel Corporation, that have
significantly greater financial, marketing, technical and other resources as
well as the capacity to obtain components at lower cost either by purchasing
large quantities of such components or by fabricating such components in-house.
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, devote greater resources to
29
<PAGE> 31
the development, promotion and sale of their products or control the timing of,
or respond more effectively to, new product introductions.
AEROSPACE TELEMETRY
Overview
Data gathering and analysis is a basic requirement in the
testing and analysis of any process or operation. When the process or device
being measured is close at hand, it is a relatively simple task to attach
probes, sensors or other measuring devices to the object. These devices convert
physical measurements (e.g., temperature, rotation, pressure) into a variable
stream of electrical current. The current flows over wires and is either shown
on an analog display (a thermometer or voltmeter, for example) or converted
into digital form and fed into a computer file. This well-established practice
works well so long as the object or process to be measured is sufficiently
close to permit wires to connect those probes and sensors with the computer
logging the resulting output.
Telemetry is the technology of measuring various equipment
performance parameters at a distance, and is required when the object under
test is moving too quickly or is at too great a distance to use wires. In
telemetry, a highly selective radio receiver is needed to gather information
which is sent, usually in a rapid burst form, from, for example, a transmitter
on board an aircraft or space vehicle. The information will consist of readings
from hundreds of sensors recording such things as heat, vibration, stress and
operational performance. Each sensor will produce its own data stream which
must be transmitted and captured. In other applications such as weather
satellites or space vehicles, the information will consist of data and video
transmissions.
Since 1968, Microdyne has manufactured telemetry receivers,
the sophisticated radio receivers that can accurately tune in and hold the
telemetry signals from aircraft and space vehicles. During the past three
years, Microdyne has expanded and updated its telemetry product line, including
the addition of card-level products that perform essentially the same functions
as the Company's traditional rack-mounted devices. Two trends are pushing
telemetry receivers toward becoming board-level systems with computer control.
First, very powerful personal computers can process telemetry data at rates
previously unattainable. Second, telemetry receivers are increasingly being
used in mobile environments such as aircraft and on board ships where the
receivers' light weight and compactness are an advantage over larger rack
mounted devices. The Company's new telemetry products include:
- - A single-card telemetry receiver designed to plug into a VME,
VXI or PC/AT ISA bus which contains much of the functionality
of one of Microdyne's traditional rack-mounted receivers; and
- - A board-level diversity combiner which is a special device to
take the input of two telemetry receivers, each of which has
been tuned to the same sets of frequencies, but at different
polarity, and combine those two signal streams into one
continuously readable data stream. This type of product is
required whenever the telemetry stream comes from a vehicle
that is maneuvering or rotating.
Other Aerospace Telemetry products include compact telemetry
receivers and a sophisticated signal simulation source for use in calibrating
telemetry equipment and systems, to ensure that a system is set up correctly
and fully operational prior to a mission; and diversity combiners that allow
data loggers to record an uninterrupted stream of data from two receivers,
regardless of the polarity of the signal from the telemetry source.
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<PAGE> 32
Marketing and Sales
Telemetry systems are used in a variety of applications
involving missiles, aircraft, satellites and other space vehicles. The four
major user groups include Government testing ranges, aerospace companies
engaged in the development and manufacture of missiles and satellites,
companies that design and manufacture antennae used in tracking and receiving
signals being sent from missiles and satellites and meteorological systems used
to gather weather data.
Microdyne markets its products directly to these user groups
through a sales and marketing department located at the Company's Ocala,
Florida facility. Because most telemetry products are purchased directly or
indirectly with Government funding, much of Microdyne's marketing effort is
channeled into establishing and maintaining name and product recognition for
the Company with Government agencies and aerospace and defense contractors.
Beginning in 1993, Microdyne began undertaking projects combining the Company's
telemetry components and subsystems with those of other manufacturers for
international customers.
Government agency and Government prime contractor revenue in
fiscal 1995 was $9.6 million, or 55.3% of total Aerospace Telemetry revenue,
compared to $5.4 million, or 44.1% in 1994. Some of the Company's telemetry
Government contracts contain price re-determination clauses. Through the end of
fiscal 1995, Microdyne has received no claims based on such clauses. The
Aerospace Telemetry business can be adversely affected by any substantial
decreases in Government procurement of the Company's products and services.
Microdyne's dependence upon such procurement has lessened significantly as the
Company has shifted its emphasis to the commercial sale of Networking Products,
although the telemetry industry remains dependent upon Government procurement.
The Company believes there is growth potential in international markets, and
has established a sales office in London. Microdyne also uses international
manufacturers' representatives.
Research and Development and Manufacturing
Expenditures for Aerospace Telemetry research and development
totaled $1.4 million, or 8.0% of telemetry revenue in 1995. This compared to
$1.2 million, or 9.7% of telemetry revenue in 1994 and $1.1 million, or 8.3% of
revenue in 1993. Microdyne maintains customer support operations in several
cities and a volume manufacturing facility in Ocala, Florida.
Competition
The Company believes the domestic market for telemetry
products is mature, with total revenue relatively stable from year to year.
Microdyne believes it has the largest market share for telemetry receivers sold
in the world. However, the market for defense electronics is very competitive
and marked by a shift toward fewer, but much larger vendors. Microdyne believes
that the relative maturity of the overall defense electronics market could
attract competition from vendors in related fields of defense electronics that
are seeking to expand total corporate sales by leveraging relationships with
existing customers to include additional product lines in ancillary fields.
MANUFACTURER SUPPORT SERVICES
Overview
Large electronics manufacturers with established markets and
sizable installed bases typically have an in-house technical support, warranty
repair and after-warranty service capability. However, organizations new to the
U.S. market or without large installed bases may determine that the cost of
creating and maintaining
31
<PAGE> 33
such an activity is prohibitive. Further, manufacturers with in-house
capabilities may require peak-demand assistance in these areas; such demand
being created by the introduction of a new product or by seasonal sales. In
such cases, manufacturers may turn to third-party organizations to staff and
operate telephone technical support, warranty repair and after-warranty service
centers.
Since 1989, the Company has provided outsourced services to
one computer electronics manufacturer. These activities include telephone
technical support, component and board repair and warranty administration.
Microdyne provides its customer with trained personnel, including a staff of
252 full-time and 85 part-time employees in the customer's facilities near Los
Angeles, California and in Indianapolis, Indiana. The Company's revenue is
based on the number of employees assigned to each aspect of the customer's
business, the number of hours worked by those employees and the rate at which
Microdyne is paid for such services.
The Company maintains a contract with its customer which is
currently set to expire in December 1995. Microdyne is optimistic that a new
contract will be in place at or before the expiration of the existing contract,
although no assurance can be given in this regard.
Marketing
Microdyne seeks to expand its manufacturer support services
business. While the Company's primary focus is maintaining and expanding its
relationship with its current customer, Microdyne believes it has the resources
and expertise to serve other customers. Microdyne solicits contracts for this
activity directly from such manufacturers.
Competition
The principal competition for manufacturer support services
is in-house sourcing. Microdyne's customer may, upon notice, sever its contract
with the Company and elect to perform these tasks using its own employees.
Also, other third-party support vendors could win the customer's business by
offering better terms. While the Company believes that its relationship with
the customer is generally good, and the level of work performed for the
customer has expanded significantly during the past two years, Microdyne seeks
to reduce the risk of being displaced by either in-house staff or another
third-party provider. The Company continually recruits highly skilled staff to
meet the customer's growing requirements, upgrades the work skills of its staff
through training, provides its staff with a career path to reduce turnover and
increases efficiency so as to lower costs to the customer.
PATENTS AND PROPRIETARY RIGHTS
The Company does not consider that its business is dependent
upon patent protection. Nevertheless, the Company is subject to the risk of
adverse claims and litigation alleging infringement of the proprietary rights
of others. From time to time the Company has received claims of infringement of
other parties' proprietary rights. Although the Company believes that it does
not infringe the valid patents of others, there can be no assurance that third
parties will not assert infringement claims in the future with respect to the
Company's current or future products or that any such claims will not require
the Company to enter into license arrangements or result in protracted and
costly litigation, regardless of the merits of such claims. No assurance can be
given that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms.
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<PAGE> 34
EMPLOYEES
As of October 1, 1995, Microdyne had 588 full-time and 85
part-time employees. None of Microdyne's employees is covered by a collective
bargaining agreement. The Company believes its labor relations to be generally
good. Employment by operation is as follows:
<TABLE>
<CAPTION>
FULL-TIME PART-TIME
------------- --------------
<S> <C> <C>
Networking Products . . . . . . . . . . . . . . . . . . . . . . 182 0
Aerospace Telemetry . . . . . . . . . . . . . . . . . . . . . . 138 0
Manufacturer Support Services . . . . . . . . . . . . . . . . . 252 85
Corporate Headquarters . . . . . . . . . . . . . . . . . . . . 16 0
-------------- --------------
Total . . . . . . . . . . . . . . . . . . . . . . . 588 85
============== ==============
</TABLE>
Networking Products employees are located in Alexandria,
Virginia and San Jose, California; Aerospace Telemetry employees are located in
Ocala, Florida; Manufacturer Support Services employees are located at
customer-owned facilities near Los Angeles, California and in Indianapolis,
Indiana. Corporate headquarters employees are located in Alexandria, Virginia.
PROPERTIES
At October 1, 1995, the Company's principal facilities
consist of the following:
<TABLE>
<CAPTION>
LOCATION FACILITY SIZE OWN/LEASE FUNCTION
------------------ --------------- -------------- --------------------------------
<S> <C> <C> <C>
Alexandria, VA 36,000 sq. ft. Leased Headquarters, marketing, sales
Ocala, FL 112,000 sq. ft. Owned Aerospace Telemetry
San Jose, CA 80,000 sq. ft. Leased Manufacturing, engineering,
warehouse
</TABLE>
A portion of the Ocala facility was financed by and stands as
collateral for industrial revenue bonds, of which $304,000 was outstanding at
October 1, 1995. The Ocala facility includes 5.5 acres of land.
BACKLOG
The Company does not believe backlog is a meaningful
indicator of future business trends. Microdyne's Networking Products operation
is not based upon either long lead times for delivery or contract delivery
schedules. Rather, with the exception of out of stock products, Networking
Products are generally shipped upon receipt of order. Aerospace Telemetry
backlog is dependent upon the receipt or renewal of Government contracts, the
timing over which the Company has no control. Company backlog amounted to $2.7
million at October 1, 1995 and $5.9 million at September 30, 1994.
33
<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table lists the names of and position held by
each executive officer and director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- ------ --------------------------------------------------------
<S> <C> <C>
Philip T. Cunningham 58 Chairman of the Board, President and Chief Executive
Officer
Christopher M. Maginniss 58 Treasurer, Executive Vice President, Chief Financial
Officer and Director
R. Dale D'Alessio 41 Senior Vice President - Sales and Marketing
A. Ralph Mason 52 Senior Vice President - Business Development
David G. Laposata 31 Vice President - Operations
Neal H. Sanders 46 Vice President and Corporate Secretary
Christian J. Spitz 44 Vice President - Aerospace Telemetry
William Marshall Ellison II 40 Controller and Assistant Treasurer
Curtis M. Coward 49 Director
Gregory W. Fazakerley(1)(2) 47 Director
H. Brian Thompson(1)(2) 56 Director
</TABLE>
- ----------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
PHILIP T. CUNNINGHAM has served as the Chairman of the Board,
President and Chief Executive Officer of the Company since the FTC Transaction
in June 1991. Mr. Cunningham served as President and Chairman of the Board of
FTC from its inception in 1984 through the date of the merger. Mr. Cunningham
served as a career naval officer from 1959 to 1979. He holds a BS from Holy
Cross and an MBA from Harvard Business School.
CHRISTOPHER M. MAGINNISS has served as Treasurer, Executive
Vice President, Chief Financial Officer and Director of the Company since the
FTC Transaction in 1991. Mr. Maginniss served as Executive Vice President of
FTC from June 1987 through the date of the FTC Transaction. Mr. Maginniss
served as a career naval officer from 1959 to 1982. Subsequently, he was
President of the Community Service Credit Union, in Groton, Connecticut.
R. DALE D'ALESSIO has served as Senior Vice President - Sales
and Marketing of the Company since 1992 and as General Counsel of the Company
since the FTC Transaction in 1991. Mr. D'Alessio also served as Secretary of
the Company from 1991 until November 1994. Mr. D'Alessio joined FTC in 1985
serving as FTC's Director of Corporate Planning and Development until 1987,
when he was promoted to Vice President and General Counsel, which positions he
held until the FTC Transaction.
A. RALPH MASON has served as Senior Vice President - Business
Development of the Company since the FTC Transaction in 1991. Mr. Mason joined
FTC in 1986, serving as Director of Sales until 1988, when he
34
<PAGE> 36
was promoted to Vice President of Sales, which position he held until his 1991
promotion to Senior Vice President of FTC.
DAVID G. LAPOSATA has served as Vice President - Operations
of the Company since 1992. Mr. Laposata joined FTC in 1987 serving as a pricing
analyst until his 1991 promotion to Assistant Vice President of Systems
Integration and Services, which position he held until the FTC Transaction.
NEAL H. SANDERS has served as the Company's Vice President
since joining the Company in 1992 and as the Company's Corporate Secretary
since November 1994. Mr. Sanders served as Director of Investor Relations for
Occidental Petroleum from 1990 to 1991 and Director of Corporate Communications
for Bolt Beranek and Newman, Inc. from 1982 to 1990.
CHRISTIAN H. SPITZ has served as Vice President - Aerospace
Telemetry of the Company since 1993. Prior to 1993, Mr. Spitz was Vice
President for Finance at Development Resources, Inc.
WILLIAM MARSHALL ELLISON II has served as the Company's
Controller and Assistant Treasurer since the FTC Transaction in 1991. Mr.
Ellison served as FTC's controller from 1990 to 1991. Mr. Ellison is a
Certified Public Accountant.
CURTIS M. COWARD was appointed to the Board in September 1995
to fill a vacancy that arose following the death of a board member. He has
been a Partner in the law firm of McGuire Woods Battle & Boothe, L.L.P.,
McLean, Virginia since 1986. He is also special counsel to the Republic of
Kazakstan. Previously, Mr. Coward was President and Chief Executive Officer of
Air Virginia/AVAIR from 1982 to 1986 and was Chairman of the Board of Directors
of the Regional Airline Association in 1985. He is a Director of the Atlantic
Council of the United States and a trustee of the U.S. Naval Academy
Foundation.
GREGORY W. FAZAKERLEY has served as a member of the Board of
Directors of the Company since 1991. Mr. Fazakerley has served as Chairman and
Chief Executive Officer of Development Resources, Inc., a Washington,
D.C.-based real estate development firm since 1983. Mr. Fazakerley is also the
Managing General Partner of C/G Investments, a real estate partnership;
President of the District of Columbia Building Industry Association; and a
member of the Board of Directors of the YMCA of the Greater Metropolitan
Washington area.
H. BRIAN THOMPSON has served as a member of the Board of
Directors of the Company since 1991. Mr. Thompson has served as Chairman of the
Board and Chief Executive Officer of LCI International, a world-wide long
distance telecommunications company based in McLean, Virginia since 1991. From
1981 to 1990, Mr. Thompson served as Executive Vice President of MCI
Communications Corporation. Mr. Thompson also served as the President of
Subscription Television of America from 1979 to 1981. Beginning in 1968, Mr.
Thompson spent nine years with McKinsey & Company, an international management
consulting firm. Mr. Thompson is also a director of Comcast UK Cable Partners
and a trustee of Capitol College.
DIRECTOR COMPENSATION
Directors of the Company who are not also officers receive
$1,000 per meeting, whether regularly scheduled or special; $500 for telephone
meetings; and reimbursement of reasonable expenses incurred in attending
meetings. Directors who are not also executive officers receive, in addition
to the foregoing fees and expense reimbursements, a quarterly fee of $4,000.
Non-employee directors may, at their option, elect payment in the form of the
Company's stock.
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<PAGE> 37
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth individual compensation
information for the Chief Executive Officer and the four other most highly paid
executive officers for services rendered in all capacities during the fiscal
years ended October 1, 1995, September 30, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- -------------
Other Annual Options
Compensation Awarded
Name and Principal Position Year Salary($) Bonus($) ($) (1) (in shares)
------------------------------------- ----- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Philip T. Cunningham . . . . . . . 1995 251,250 230,000 200,000(2) --
Chairman of the Board 1994 222,500 75,000 200,000(2) --
President and Chief 1993 200,000 -- 200,000(2) --
Executive Officer
Christopher M. Maginniss . . . . . 1995 209,625 165,000 -- 25,000
Treasurer, Executive 1994 186,438 40,625 -- 46,000
Vice President, 1993 162,000 -- -- --
Chief Financial
Officer and Director
R. Dale D'Alessio . . . . . . . . . 1995 185,000 95,723 -- 30,000
Senior Vice 1994 175,625 13,535 -- 30,000
President - Sales and 1993 147,500 -- -- --
Marketing
A. Ralph Mason . . . . . . . . . . 1995 175,000 99,206 -- 10,000
Senior Vice 1994 175,000 71,862 -- --
President - Business 1993 150,000 43,116 -- --
Development
David G. Laposata . . . . . . . . . 1995 150,000 27,459 -- --
Vice President - 1994 130,000 15,652 -- 75,000
Operations 1993 110,000 -- -- 25,000
</TABLE>
---------------------
(1) Does not include compensation associated with perquisites because such
amounts do not exceed the lesser of either $50,000 or 10% of total
salary and bonus disclosed.
(2) Compensation pursuant to Mr. Cunningham's Noncompetition Agreement.
Option Grants
The following table sets forth certain information with
respect to stock options granted during fiscal year 1995 to the executive
officers named in the Summary Compensation Table above. Also shown below is the
potential realizable value over the term of the option (the period from the
grant date to the expiration date) based on assumed rates of stock appreciation
of 5% and 10%, compounded annually. These amounts are based on certain assumed
rates of appreciation and do not represent the Company's estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of the common stock.
36
<PAGE> 38
<TABLE>
<CAPTION>
OPTION GRANTS IN YEAR ENDING OCTOBER 1, 1995
---------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OPTIONS FOR OPTION TERM
ACQUIRED IN PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
------- ------------ ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip T. Cunningham -- -- -- -- -- --
Christopher M. Maginniss 25,000(1) 9.3% $4.25 10/01/04 $ 66,750 $169,335
R. Dale D'Alessio 30,000(2) 11.2% 8.69 11/22/04 164,100 415,000
A. Ralph Mason -- -- -- -- -- --
David G. Laposata -- -- -- -- -- --
</TABLE>
--------------------
(1) All are exercisable from the date of grant as follows: one-third after
one year; two-thirds after two years; and 100% after three years.
(2) All are exercisable as of May 22, 1995.
Option Exercises
The following table sets forth information with respect to
option exercises and the aggregate value of unexercised options for the year
ended October 1, 1995, held by each of the executive officers named in the
Summary Compensation Table above. The value of unexercised in-the-money
options at October 1, 1995 equals the market value of the underlying common
stock at October 1, 1995 minus the exercise price.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED OCTOBER 1, 1995
AND OCTOBER 1, 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT OCTOBER 1, 1995 OCTOBER 1, 1995
ACQUIRED VALUE ----------------------------- -------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
-------- -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Philip T. Cunningham -- -- -- -- -- --
Christopher M. Maginniss 75,000 $1,268,498 140,368 47,334 $3,146,454 $1,005,140
R. Dale D'Alessio 128,999 2,241,580 30,203 20,000 504,990 423,750
A. Ralph Mason 120,000 1,737,976 45 6,667 925 137,090
David G. Laposata 36,000 468,272 9,647 58,333 197,657 1,074,791
</TABLE>
37
<PAGE> 39
EMPLOYMENT AGREEMENTS
Effective June 21, 1991, the date of the FTC Transaction,
the Company entered into an Executive Employment Agreement with Mr. Cunningham.
Under the terms of the Executive Employment Agreement, Mr. Cunningham became
the Company's Chairman of the Board, President and Chief Executive Officer. The
employment agreement had a term of three years with an initial base annual
salary of $200,000. On October 24, 1995, the Company entered into a new
Executive Employment Agreement with Mr. Cunningham with respect to the same
positions at an initial base annual salary of $275,000, which can be adjusted
upward by the Board of Directors. The agreement also provides, among other
things, that Mr. Cunningham is eligible to participate in discretionary bonuses
authorized and declared by the Board of Directors and that Mr. Cunningham's
employment can be terminable (i) upon his death or (ii) by the Company in the
event he became permanently disabled, in which case Mr. Cunningham would be
entitled to certain salary continuation rights. The agreement expires in 1999.
NONCOMPETITION AGREEMENTS
On June 21, 1991, Mr. Cunningham entered into a
Noncompetition Agreement with the Company pursuant to which he agreed that,
during the term set forth within the agreement, he would not, among other
things, participate in any manner described in the agreement in any business
which competes with the Company's. This Noncompetition Agreement was extended
on June 21, 1995 for an additional term of four years. The Noncompetition
Agreement also generally prohibits Mr. Cunningham from soliciting business from
certain customers and suppliers of the Company and from disclosing certain
information about the Company. The Noncompetition Agreement initially provides
for the payment to Mr. Cunningham of $200,000 per year commencing June 21, 1995
and continuing for four years thereafter, unless Mr. Cunningham fails to comply
with certain of the covenants set forth in the agreement. Mr. Cunningham is
entitled to continue to receive the payments under the Noncompetition Agreement
notwithstanding termination of his employment for any reason.
38
<PAGE> 40
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth (i) certain information
regarding beneficial ownership of the Company's Common Stock as of October 1,
1995 by (1) each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (2) each director and
executive officer of the Company and (3) all directors and executive officers
of the Company as a group and (ii) the information set forth in (i) as adjusted
to reflect the sale of the shares offered hereby Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING (2)
--------------------------- SHARES TO BE -----------------------------
SOLD IN
NAME NUMBER (1) PERCENT (1) OFFERING NUMBER (1) PERCENT (1)
- ------ ----------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Philip T. Cunningham 6,299,946(2) 49.3% 1,369,797 4,930,149(3) 33.3%(3)
Christopher M. Maginniss 140,368 1.1% 100,000 40,368 *
Gregory W. Fazakerley 33,000(4) * --- 33,000 *
H. Brian Thompson 39,000(5) * --- 39,000 *
Curtis M. Coward 10,000 * --- 10,000 *
R. Dale D'Alessio 30,203 * 30,203 --- *
A. Ralph Mason 45 * --- 45 *
David G. Laposata 10,647 * --- 10,647 *
Neal H. Sanders 1,234 * --- 1,234 *
Wm. Marshall Ellison, II 3,333 * --- 3,333 *
Christian J. Spitz --- * --- --- *
All Directors and
Executive Officers as a
Group (11 Persons) 6,566,576 51.3% 1,500,000 5,066,576 34.3%
</TABLE>
- --------------------------------
*Less than 1%
(1) Number of shares of Common Stock and percentage amounts
include shares issuable pursuant to stock options that are
exercisable within 60 days after October 1, 1995.
(2) Includes 894,763 shares held in a trust of which Mr.
Cunningham is trustee.
(3) Does not reflect the potential sale of 525,000 shares of
Common Stock to the Underwriters pursuant to their
exercise of an option, exercisable within 30 days of the
date of this Prospectus for the purpose of covering
over-allotments, if any. See "Underwriting." Assuming
the complete exercise of such over-allotment option, Mr.
Cunningham would own 4,405,149 shares, or 29.8%, of the
outstanding Common Stock.
(4) Includes 3,000 shares beneficially owned by a trust for
Mr. Fazakerley's son of which Mr. Fazakerley is a co-
trustee (Mr. Fazakerley shares voting and dispositive
power with respect to such shares).
(5) Includes 5,000 shares directly owned by Mr. Thompson,
2,000 shares beneficially owned by Mr. Thompson's spouse
as trustee for Mr. Thompson's son, and 2,000 shares
beneficially owned by Mr. Thompson's spouse as trustee for
Mr. Thompson's daughter. Mr. Thompson disclaims beneficial
ownership of the shares held in trust for his son and
daughter.
39
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $0.10 par value per share. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to
a vote of shareholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the Common Stock entitled to vote in any election of
directors may elect all the directors standing for election. Holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors at its discretion from funds legally
available therefore. See "Dividend Policy." Upon the liquidation, dissolution
or winding up of the Company, the holders of the Common Stock are entitled to
receive ratably the net assets of the Company available after the payment of
debts and other liabilities. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding Common Stock
are, and the Common Stock offered hereby when issued and paid for will be,
fully paid and non-assessable. As of October 1, 1995, there were 12,789,666
shares of Common Stock outstanding held by approximately 1,600 holders of
record.
40
<PAGE> 42
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement among the Company, the Selling Stockholders and
Oppenheimer & Co., Inc., Schroder Wertheim & Co., Incorporated and Tucker
Anthony Incorporated as representatives (the "Representatives") of the
Underwriters (the "Underwriting Agreement"), the Underwriters named below have
severally agreed to purchase from the Company and the Selling Stockholders, and
the Company and the Selling Stockholders have agreed to sell to the several
Underwriters, the number of shares of Common Stock set forth opposite their
names below:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
- ---------------- ----------
<S> <C>
Oppenheimer & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schroder Wertheim & Co., Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . .
Tucker Anthony Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations
of the Underwriters thereunder are subject to approval of certain legal matters
by counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the above shares
offered hereby if any are purchased.
The Underwriters propose to offer the Common Stock
directly to the public at the offering price set forth on the cover page of
this Prospectus and at such price less a concession of not in excess of $
per share to certain securities dealers, of which a concession of not in excess
of $ per share may be reallowed to certain other securities dealers. After
this offering, the public offering price, allowances, concessions and other
selling terms may be changed by the Representatives.
A Selling Stockholder has granted the Underwriters an
option, exercisable within 30 days after the date of this Prospectus, to
purchase from such Selling Stockholder up to an aggregate of 525,000 additional
shares of Common Stock to cover over-allotments, if any, at the pubic offering
price less the underwriting discount set forth on the cover page of this
Prospectus. See "Principal and Selling Stockholders." If the Underwriters
exercise their over-allotment option to purchase any of the 525,000 additional
shares of Common Stock, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof as
the number of shares to be purchased by each of them bears to the 3,500,000
shares of Common Stock offered hereby. Such Selling Stockholder will be
obligated, pursuant to the over-allotment option, to sell shares to the
Underwriters to the extent such over-allotment option is exercised.
Certain stockholders of the Company holding 6,299,946
shares in the aggregate have agreed, pursuant to lock-up agreements, not to
sell, make any short sale of, loan, grant any option for the purchase of or
otherwise dispose of any shares or any securities convertible into or
exchangeable or exercisable for shares without the consent of Oppenheimer &
Co., Inc. for 180 days after the date of the Prospectus. Certain other
41
<PAGE> 43
stockholders of the Company which beneficially own 266,630 shares in the
aggregate have agreed, pursuant to lock-up agreements, not to sell, make any
short sale of, loan, grant any option for the purchase of or otherwise dispose
of any shares or any securities convertible into or exchangeable or exercisable
for shares without the consent of Oppenheimer & Co., Inc. for 90 days after the
date of the Prospectus. The Company has agreed that it will not, without the
consent of Oppenheimer & Co., Inc., offer, sell, or dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock until
180 days after the date of this Prospectus (except for (i) shares issued
pursuant to stock options outstanding on the date hereof and (ii) stock options
issued pursuant to employee benefit or incentive compensation plans in effect
on the date hereof).
The Company and the Selling Shareholders have agreed to
indemnify the Representatives of the Underwriters against certain liabilities,
including without limitation, liabilities under the Securities Act.
In connection with this offering, the Underwriters and
selling group members (if any) or their respective affiliates intend to engage
in passive market making transactions in the Common Stock of the Company on the
Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") during the two business
day period before commencement of offers or sales of the shares of Common Stock
offered hereby. The passive market making transactions must be identified as
such and comply with applicable volume and price limits. In general, a passive
market maker may display its bid at a price not in excess of the highest
independent bid for the security; if all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
42
<PAGE> 44
LEGAL MATTERS
Certain legal matters in connection with the shares of
Common Stock offered hereby will be passed upon for the Company by McGuire,
Woods, Battle & Boothe, L.L.P., McLean, Virginia, of which Curtis M. Coward, a
director of the Company, is a partner. Certain legal matters will be passed
upon for the Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedules
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1994 are incorporated herein by reference in reliance on the
report of Grant Thornton LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of Eagle Technology (A Business
Unit of Artisoft, Inc.) for the six months ended December 31, 1994 and for the
six months ended June 30, 1994 included in the Company's Current Report on Form
8-K/A filed on April 11, 1995 are incorporated herein by reference in reliance
on the report of KPMG Peat Marwick L.L.P., independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements incorporated in this Prospectus
by reference to the financial statements of Eagle Technology for the year ended
December 31, 1993 included on pages 14 to 22 of Microdyne Corporation's Form
8-K/A dated April 11, 1995 have been so incorporated in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
TRADEMARKS
The Company sells products under various trademarks and
trade names to which reference is made in this Prospectus that are the property
of owners other the Company. Such owners have reserved all rights with respect
to their respective trademarks and trade names.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). These reports,
proxy statements, and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 75 Park Place, 14th Floor, New York, NY 10007. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The common stock is listed for trading on the NASDAQ National Market.
Reports, proxy and information statements, and other information concerning the
Company can be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration
Statement (which term shall include all amendments, exhibits and schedules
thereto) on Form S-3 under the Securities Act of 1933, as amended, with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration
43
<PAGE> 45
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or obtained from the Commission at the same
address at prescribed rates.
INCORPORATION BY REFERENCE
The following documents of the Company, which have been
filed with the Commission, are hereby incorporated by reference in this
Prospectus and made a part hereof:
(a) the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994;
(b) the Company's Current Report on Form 8-K dated
January 6, 1995 as amended by Form 8-K/A dated April
11, 1995;
(c) the Company's Current Report on Form 8-K dated
January 26, 1995;
(d) the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994;
(e) the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995;
(f) the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995;
(g) all other reports filed by the Company pursuant to
Section 13(a) or 15(d) of the Exchange Act since the
end of the fiscal year covered by the Annual Report
referred to in (a) above; and
(h) the response to Item 1 in the Form 8-A Registration
Statement which the Company filed with the
Commission in 1970 pursuant to Section 12(b) of the
Exchange Act (File No. 0-4384); and the information
set forth under "Description of Microdyne's
Securities" in the Company's Registration Statement
on Form S-4 filed on May 31, 1991, under the
Securities Act of 1933.
All reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of this offering
(the "Offering") shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of the filing of such
documents. Any statement contained herein or in a document incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein or in any accompanying prospectus supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to
whom this Prospectus is delivered, upon oral or written request, a copy of any
or all of the foregoing documents incorporated herein by reference other than
exhibits to such documents (unless the exhibits are specifically incorporated
by reference into such
44
<PAGE> 46
documents). Requests should be directed to William Marshall Ellison, II,
Assistant Treasurer and Controller, Microdyne Corporation, 3601 Eisenhower
Avenue, Alexandria, Virginia 22304, telephone number (703) 739-0500.
45
<PAGE> 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
</TABLE>
F-1
<PAGE> 48
[Grant Thornton LLP Letterhead]
Report of Independent Certified Public Accountants
Board of Directors
Microdyne Corporation
We have audited the accompanying consolidated balance sheets of Microdyne
Corporation (the Company) as of September 30, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended September 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting 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 consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Microdyne
Corporation as of September 30, 1994, and results of its operations and its
cash flows for each of the two years in the period ended September 30, 1994 in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Washington, D.C.
November 8, 1994
F-2
<PAGE> 49
MICRODYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, October 1, 1995
1994 (unaudited)
---------- --------------
(in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,628 $ 5,618
Accounts receivable, net (note C) 30,249 58,649
Inventories (notes A2 and D) 11,725 25,917
Loan receivable - officers (note L) 28 193
Income tax receivable (note I) 140 750
Prepaid expenses and deposits 1,791 1,240
Deferred income tax asset (note I) 1,698 1,243
---------- ----------
Total current assets 48,259 93,610
PROPERTY AND EQUIPMENT, net (notes A3 and E) 4,086 4,749
PRODUCT LINE ACQUISITION COST (note B) 2,057 10,333
OTHER ASSETS (note A4) 1,438 1,133
---------- -----------
$ 55,840 $ 109,825
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations (note H) $3,195 $5,483
Accounts payable - trade 12,286 26,509
Accrued liabilities (note G) 9,608 21,603
Income tax payable (note I) 426 -
-------- --------
Total current liabilities 25,515 53,595
LONG-TERM OBLIGATIONS, net of current maturities (note H)
11,675 16,999
DEFERRED INCOME TAX PAYABLE (note I)
360 300
COMMITMENTS AND CONTINGENCIES (note J)
- -
STOCKHOLDERS' EQUITY (note K)
Common stock, $.10 par value, authorized 50,000,000 shares, 12,789,666
shares, issued and outstanding at October 1, 1995 and 11,814,697 shares
issued and outstanding at September 30, 1994 1,181 1,279
Additional paid-in capital 1,534 9,483
Retained earnings 15,575 28,169
---------- -----------
Total Stockholders' Equity 18,290 38,931
---------- -----------
$ 55,840 $ 109,825
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 50
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, October 1, 1995
1993 1994 (unaudited)
------------ ------------ ---------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenue (note A1) $ 78,174 $ 101,294 $ 170,078
Cost of goods sold 52,525 73,259 117,308
----------- ----------- ------------
Gross profit 25,649 28,035 52,770
Selling, general and administrative expense 18,032 16,650 24,369
Research and development 4,172 3,586 5,197
Restructuring charges (note O) 3,462 - -
----------- ----------- ------------
Earnings (loss) from operations (17) 7,799 23,204
Other (expense) income
Interest expense (542) (554) (1,820)
Other 74 55 (984)
------- ------- ----------
Earnings (loss) before income taxes (485) 7,300 20,400
Provision (benefit) for income taxes (note I)
Current (2,638) 644 7,410
Deferred 2,386 2,057 396
---------- ---------- --------
(252) 2,701 7,806
---------- ---------- --------
Earnings (loss) before cumulative effect of
change in accounting principle (233) 4,599 12,594
Cumulative effect of change in accounting
principle for income taxes (note I) 1,744 - -
---------- ---------- -----------
NET EARNINGS $ 1,511 $ 4,599 $ 12,594
========== ========== ===========
Earnings per share $ 0.10 $ 0.35 $ 0.96
========== ========== ==========
Weighted average shares outstanding (note A5) 14,428 13,088 13,096
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 51
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1993, September 30, 1994 and October 1, 1995
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------
Additional
Number of paid-in Retained
shares Par Value capital earnings
------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
13,929 $1,393 $13,261 $9,465
Balance, September 30, 1992
Issuance of stock associated with stock options 104 11 324 -
Issuance of stock associated with stock purchase plan 13 1 55 -
Tax benefit from option exercises - - 127 -
Compensation from issuance of stock options - - (54) -
Net earnings - - - 1,511
-------- -------- -------- --------
Balance, September 30, 1993 14,046 1,405 13,713 10,976
Issuance of stock associated with stock options 50 5 256 -
Issuance of stock associated with stock purchase plan 10 1 39 -
Unrealized loss on marketable equity security - - (33) -
Purchase and cancellation of common stock (2,291) (230) (12,441) -
Net earnings - - - 4,599
-------- -------- -------- ----------
Balance, September 30, 1994 11,815 1,181 1,534 15,575
Issuance of stock associated with stock options 965 97 3,526 -
Issuance of stock associated with stock purchase plan 10 1 112 -
Tax benefit from option exercises - - 4,311 -
Net earnings - - - 12,594
-------- -------- -------- -----------
Balance, October 1, 1995 12,790 $ 1,279 $ 9,843 $ 28,169
====== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 52
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, October 1, 1995
1993 1994 (unaudited)
------------ -------------- -----------
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings $ 1,511 $ 4,599 $ 12,594
Adjustments to reconcile net earnings to net cash
from operating activities, exclusive of effect of
acquisitions and dispositions:
Depreciation and amortization 1,737 1,771 2,094
Provision for doubtful accounts receivable
and inventory obsolesence 619 1,316 1,734
Gain on disposal of property and equipment (11) (1) -
Changes in assets and liabilities:
Increase in accounts receivables (5,031) (10,939) (29,672)
(Increase) decrease in inventories 3,153 3,585 (3,865)
Decrease (increase) in prepaid expenses 318 (557) 159
Decrease (increase) in other assets (435) 198 392
(Increase) decrease in income tax receivable (2,461) 3,091 (610)
Decrease in deferred assets 642 2,057 456
Increase in accounts payable and other 3,850 6,883 26,051
accruals ---------- ---------- -----------
Net cash provided by operating activities 3,892 12,003 9,333
Cash flows from investing activities
Product line acquisitions - (4,750) (20,962)
Additions to property and equipment (465) (826) (887)
Cash from sale of subsidiary - 1,000 -
(Loans to) payments from stockholder/officer (70) 103 (165)
--------- -------- ----------
Net cash used in investing activities (535) (4,473) (21,914)
Cash flows from financing activities
Net payments borrowings on notes payable (3,260) (5,990) -
Net borrowings (payments) on long-term debt (81) 11,323 7,981
Issuance of common stock 517 300 3,279
Tax benefit from exercise of stock options - - 4,311
Redemption of common stock - (12,670) -
--------- -------- --------
Net cash provided by (used in) financing
activities (2,824) (7,037) 15,571
----------- ------------ -----------
Net increase in cash 533 493 2,990
Cash at beginning of year 1,602 2,135 2,628
---------- ---------- ----------
Cash at end of year $ 2,135 $ 2,628 $ 5,618
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 53
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements as of October 1,
1995 are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of the consolidated financial statements for
the year have been included.
A summary of the significant accounting policies applied in
the preparation of the accompanying consolidated financial
statements follows.
1. Revenue Recognition
Revenue from the sale of computer hardware, peripheral
equipment and computer networking products, including
software, is recognized when the products are shipped.
Outside repair and telephone technical support revenue is
recognized as service is provided. Revenue from the
manufacture of aerospace telemetry products and systems is
recognized using the percentage-of- completion method where
progress is measured based on costs incurred to date as
compared to total expected costs. Estimated losses on
aerospace telemetry contracts, if any, are recognized when
they are identified.
The Company provides terms of net 30 days for most products
its sells. On certain products, these terms may be extended
at the discretion of management.
The Company's agreements with distributors allow defective
products to be returned for credit. Distributor terms also
permit stock rotation of products, a standard practice in
the electronics industry. The Company from time to time
sells products on a non-cancellation, no-return basis. In
such cases, pricing will reflect the non-cancelable nature
of the order. Distributor agreements also provide
distributors with protection against price decreases
applicable to products in distributors' inventories at the
time of the decrease. Provision has been made in the
accompanying financial statements for the estimated
liability associated with defective product returns, stock
rotations and price decreases.
The Company makes every effort to balance distributor
inventory so as to minimize product returns. However,
distributors maintain stocking levels of products, and such
targeted levels may change without notice, which could
decrease the Company's revenue in a given period. Moreover,
distributors characteristically sell products at a small
mark-up to the price from which they are obtained from
manufacturers, and terms of sale may influence a
distributor's decision to carry certain products. If, based
on unanticipated distributor stocking levels, unanticipated
price competition, or otherwise, the Company is unable to
estimate production requirements of its distributors and
future sales levels generally, the Company's revenue may
fluctuate due to production in excess of demand. Moreover,
the inability of the Company to timely market such excess
inventory on economically viable terms could have a
material adverse effect on the Company. Conversely, if the
Company's production is insufficient to satisfy demand, the
Company could be adversely affected.
F-7
<PAGE> 54
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The Company's business activity is geographically diverse, with sales within
the United States as well as in foreign countries. The majority of the
Company's customers are in the communications networking industry. The Company
derived approximately 11%, 7% and 8% of its revenue for the years ended
September 30, 1993, September 30, 1994, and October 1, 1995, respectively, from
product sales to and maintenance contracts with various agencies of or prime
contractors to the U.S. Government. The Company's exposure to credit risk
associated with nonperformance of its customers in fulfilling its contractual
commitment is limited to the contractual amount of the receivable.
Approximately 57%, 47%, and 73% of the Company's revenue in the years ended
September 30, 1993, September 30, 1994, and October 1, 1995, respectively, was
generated pursuant to a number of manufacturing and technology agreements and
licenses with Novell, Inc. In return for royalties, the Company is granted the
non-exclusive, worldwide right to manufacture and distribute various networking
products utilizing the licensed technology. These agreements have different
termination dates and provide for renewal for additional one-year periods with
the consent of both parties. Each party has the right to terminate the
agreement at any time upon 90 days prior written notice.
The Company's revenue is dependent to a substantial extent on the ability of
Novell to maintain a significant market share of the network operating systems
software market. Novell faces competition from several sources, including
Microsoft Corporation's Windows NT network operating system. The loss of the
right to sell NetWare under OEM license, or a substantial decline in Novell's
share of the network operating system market would have a material adverse
effect on the Company.
The Company is also required to pay royalties to Attachmate (formerly DCA)
pursuant to that product line acquisition in July 1994 (see Note B).
Total royalty expense was $4,810,000, $4,560,000 and $6,374,000 for the years
ended September 30, 1993, September 30, 1994, and October 1, 1995 respectively.
2. Inventories
Inventories are stated at the lower of cost or market. Inventories are
standard-cost based, with such standards reviewed periodically against purchase
prices and adjusted as appropriate.
3. Property and Equipment
Property and equipment are stated at cost and are depreciated or amortized
using the straight-line method over the following estimated useful lives:
Machinery and equipment 3-10 years
Buildings 20 years
Furniture and fixtures 3 - 5 years
Rental equipment 5 years
Automobiles 3-5 years
Leasehold improvements Shorter of term of lease or
life of asset
F-8
<PAGE> 55
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
a. Capitalized Software Costs
Included in other assets as of October 1, 1995 is
$671,000 in net capitalized software costs. The Company's
policy is to expense the costs incurred prior to
establishment of technological feasibility. The
establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software
development costs require considerable judgment by
management with respect to certain external factors,
including anticipated future gross revenue, estimated
economic life and changes in technologies. Development
costs beyond the point of technological feasibility are
capitalized. Amortization, which begins when the product
is available for general release, occurs over the
estimated economic life which is typically between one and
two years. Amortization expense associated with
capitalized software costs for the years ended September
30, 1993, September 30, 1994 and October 1, 1995 was
$196,000, $473,000 and $494,000, respectively.
b. Earnings Per Share
Earnings per common and common equivalent share is
computed by dividing the earnings or loss by the weighted
average number of common and common equivalent shares
outstanding during the respective years.
The weighted average number of shares outstanding with
the number of shares used in the computation of earnings
per share is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Common shares 14,022 12,715 12,224
Common equivalent shares from stock options 406 373 872
-------- -------- --------
14,428 13,088 13,096
======== ======== ========
</TABLE>
c. Fiscal Year
During fiscal year 1995, the Company changed its fiscal
year from September 30 each year to a 52 or 53 week year
ending on the Sunday nearest the last day of September in
each year. Therefore, fiscal year 1995 ended on October
1, whereas the previous two years were under the fiscal
calendar which ended on September 30 in 1993 and 1994. All
references to years relate to fiscal years rather than
calendar years.
F-9
<PAGE> 56
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE B - ACQUISITIONS AND DISPOSITIONS
In July 1994, Digital Communications Associates ("DCA") sold to the Company
certain fixed assets, property, rights, and inventory related to DCA's Token
Ring product line. The purchase price was approximately seven million dollars,
representing the net book value of the assets sold and guaranteed minimum
royalties of three million dollars. This minimum royalty commitment covers five
years and the long-term portion is presented as both a product line acquisition
cost and a long-term obligation in the consolidated balance sheets. Such
deferred minimum royalties will be amortized over five years as payments are
made.
Selected unaudited proforma information (in thousands, except earnings per
share) which reflects the impact the Token Ring acquisition would have made on
the Company's statements of operations had it occurred at the beginning of each
of the years presented is as follows:
<TABLE>
<CAPTION>
Combined Combined
Year Year
Ended Ended
9/30/93 9/30/94
------- -------
<S> <C> <C>
Revenue $103,572 $121,959
Net earnings 3,515 6,142
Earnings per share $0.24 $0.47
</TABLE>
The Company also acquired certain product lines, inventory, fixed assets and
intellectual property from Gateway Communications, Inc. for two million
dollars in a purchase transaction initiated in June 1994 and completed in
September 1994. Proforma information for this acquisition is not presented due
to immateriality.
In January 1995, the Company acquired the Eagle Technology ("Eagle") business
from Artisoft, Inc. Eagle provided the Company with a family of Ethernet
adapter cards, file server cards, hubs, and print server cards. The purchase
price was $16.5 million, representing $8.3 million in inventory, $7.5 million
in goodwill and other intangibles, and $700,000 in fixed assets. The
amortization period for the intangibles, based on management's estimate of the
useful life of the acquired technology, is seven years.
Selected unaudited proforma information (in thousands, except earnings per
share) which reflects the impact the Eagle acquisition would have made on the
Company's statements of operations had it occurred at the beginning of each of
the years presented is as follows:
<TABLE>
<CAPTION>
Combined Combined
Year Year
Ended Ended
10/1/93 10/1/93
------- -------
<S> <C> <C>
Revenue $152,358 $179,693
Net earnings 7,981 12,491
Earnings per share $0.61 $0.95
</TABLE>
F-10
<PAGE> 57
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE B - ACQUISITIONS AND DISPOSITIONS - Continued
In September 1995, the Company acquired the Ethernet
product line from National Semiconductor ("National").
This acquisition included certain intangibles of $1.8
million and National's 10Mb and 10/100Mb Ethernet adapter
card inventory of approximately $3.5 million. As of
October 1, 1995, the Company owed National approximately
$3.3 million related to this acquisition which is included
in accrued liabilities. Proforma information for this
acquisition is not presented due to immateriality. The
amortization period for the intangibles, based on
management's estimate of the useful life of the acquired
technology, is seven years.
In December 1993, the Company sold the net assets and
operations of Wireless Data Corporation, a subsidiary
which manufactured industrial telemetry products, for one
million dollars in cash and a $300,000 note which was
subsequently paid.
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
As of September 30, As of October 1,
1994 1995
-------------- ------------------
(in thousands)
<S> <C> <C>
Commercial $ 24,109 $ 52,883
Billed 2,584 2,618
----- -----
Unbilled 26,693 55,501
U.S. Government
Billed 2,249 3,774
Unbilled 2,123 1,064
---------- ----------
4,372 4,838
Other 107 89
----------- ---------
31,172 60,428
Allowance for doubtful accounts and other reserves (923) (1,779)
--------- -------------
$ 30,249 $ 58,649
========= ==========
</TABLE>
Management believes all unbilled accounts receivable will
become billable and collectable in the next year.
The following is a table depicting the activity in the
Company's allowance for doubtful accounts and other
related receivables reserves for the years ended:
<TABLE>
<CAPTION>
September 30, September 30, October 1,
1993 1994 1995
---------- ------------ --------------
(in thousands)
<S> <C> <C> <C>
Beginning balance $ 351 $ 362 $ 923
Provision charged to operations 318 954 1,271
Amounts written off (307) (393) (415)
----------- ---------- ----------
Ending balance $ 362 $ 923 $ 1,779
======= ======== ==========
</TABLE>
F-11
<PAGE> 58
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE D - INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
As of September 30, As of October 1,
1994 1995
-------------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $ 6,270 $ 6,122
Work-in-process 696 1,145
Finished goods 6,764 20,449
----------- -----------
13,730 25,716
Less reserve for obsolescence (2,005) (1,799)
------------ ------------
$ 11,725 $ 25,917
=========== ===========
</TABLE>
The inventory values above are net of restructuring
reserves of $1,438,000 and $74,000 as of September 30,
1994 and October 1, 1995, respectively. See note O.
The following is a table depicting the activity in the
Company's reserve for obsolescence for the years ended:
<TABLE>
<CAPTION>
September 30, September 30, October 1,
1993 1994 1995
---------- ---------------- --------------
(in thousands)
<S> <C> <C> <C>
Beginning balance $ 830 $ 796 $ 2,005
Increase in reserves
Provision charged to operations 301 321 463
Established upon acquisitions - 1,185 1,090
Amounts written off to reserve (336) (297) (1,759)
--------- ---------- ------------
Ending balance $ 796 $ 2,005 $ 1,779
======== ========= ==========
</TABLE>
F-12
<PAGE> 59
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
As of As of
September 30, October 1,
1994 1995
-------------- ------------------
(in thousands)
<S> <C> <C>
Machinery and equipment $ 5,851 $ 7,619
Buildings and land 1,859 1,859
Furniture and fixtures 1,131 1,411
Automobiles 190 91
Leasehold improvements 79 147
------- ---------
9,110 11,127
Accumulated depreciation and amortization (5,024) (6,378)
--------- ---------
$ 4,086 $ 4,749
========= =========
</TABLE>
NOTE F - SHORT-TERM BORROWINGS
The Company had a $5.0 million Revolving Line of Credit
which was payable upon demand. In January 1995 when the
Company restructured its bank debt pursuant to the Eagle
Acquisition, this demand line of credit was converted to a
$17.5 million Revolving Note (against which $12.0 million
was borrowed) due in January 1998.
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
As of As of As of
September 30, September 30, October 1,
1993 1994 1995
-------------- ------------ -------------
(in thousands)
<S> <C> <C> <C>
Average outstanding borrowings for the
period (1) $ 5,745 $ 333 $ 2,571
Maximum borrowing for the period 7,600 4,000 2,571
Amounts outstanding at end of year 5,990 - -
Weighted average interest rate for the
period (2) 5.61% 5.79% 6.875%
Weighted average interest rate 6.00% 5.75% 6.875%
</TABLE>
(1) Average borrowings for 1995 are computed for the one
month of the fiscal year when the line of credit existed.
(2) Interest charges divided by average outstanding balance.
F-13
<PAGE> 60
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE G - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
As of As of
September 30, October 1,
1994 1995
-------------------- ---------------------
(in thousands)
<S> <C> <C>
Inventory purchases, including $2,500 due National $ 6,441 $ 16,259
Commissions and royalties 1,188 798
Payroll and payroll taxes 1,117 928
Vacation 383 584
Amounts due Artisoft - 1,416
Amounts due National Semiconductor (non-inventory) - 839
Other 479 779
-------------- ------------
$ 9,608 $ 21,603
============== ============
</TABLE>
NOTE H - LONG-TERM OBLIGATIONS
Pursuant to financing the Eagle acquisition, the
Company restructured its bank debt in January 1995 (See
Note F). The Company's Term Note and Revolving Note
Agreements call for the Company to maintain compliance
with various financial covenants associated with the
Company's working capital and leverage. As of October 1,
1995, the Company was in compliance with the various
covenants. The Revolving Note limit was increased to
$22.5 million in October 1995.
Long-term obligations consists of the following as of:
<TABLE>
<CAPTION>
September 30, October 1,
1994 1995
-------------------- ---------------------
(in thousands)
<S> <C> <C>
Amounts outstanding on a $22,500,000 Revolving
Note. This note is collateralized by a security
interest in the Company's receivables, equipment,
and inventories, and is payable in January 1998.
Interest is payable monthly and is at prime or the
London Interbank Offer Rate (LIBOR) plus a premium
that is 0.1% lower than that for the Revolving Note. - $ 12,000
</TABLE>
F-14
<PAGE> 61
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE H - LONG-TERM OBLIGATIONS - Continued
<TABLE>
<S> <C> <C>
Amounts outstanding on a $12,000,000 Term Note.
The principal balance is payable in installments of
$600,000 each on July 1, 1994, October 1, 1994, Janaury
1, 1995 and April 1, 1995, an additional $500,000
payment in Janaury, 22 equal consecutive monthly
installments of $400,000 each (beginning on July 1,
1995) and a final installment of $300,000 due on May 1,
1997. This note is collateralized by a security
interest in the Company's receivables, equipment, and
inventories. Interest is payable monthly at either: 1)
the prime rate (which was 8.75% on October 1, 1995); or
2) LIBOR plus a premium that ranges from 1.5% to 1.9%,
depending on the Company's leverage ratio. On October
1, 1995, the LIBOR was 5.875%. 11,400 7,900
Commitment for minimum royalties due under
product line acquisition agreement (see note B);
payable over five years, expiring in fiscal year 1999 2,657 2,219
Industrial revenue bond payable monthly at $4,167
plus interest at 85.5% of prime, (prime at October 1,
1995 was 8.75%) due in 2001, collateralized by land 353 304
Liability under consulting and non-compete
agreements with and stock option appreciation
guarantees to a former employee 460 59
---------- ------------
Less current portion 14,870 22,482
(3,195) (5,483)
------------ ------------
$ (11,675) $ (16,999)
============ ============
Long-term debt is due as follows:
Year ending
-----------
September 29, 1996 $ 5,483
September 28, 1997 3,776
September 27, 1998 12,650
October 3, 1999 469
October 1, 2000 50
Thereafter 54
-------------
$ 22,482
=============
</TABLE>
F-15
<PAGE> 62
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 1, 1995 (unaudited), September 30, 1994, and September 30, 1993
NOTE I - INCOME TAXES
The Company provides for income taxes using the liability method. Deferred
income taxes are classified as current or noncurrent, based on the
classification of the related assets and liabilities giving rise to the
temporary difference.
Following are the components of the deferred taxes recognized on the
accompanying balance sheet:
<TABLE>
<CAPTION>
As of As of
September 30, October 1,
1994 1995
--------------- -----------------
<S> <C> <C>
Current $ 1,336 $ 799
Inventory 349 435
Accounts receivable
Financial statement income not taxable
until following year 13 9
------------- ---------------
$ 1,698 $ 1,243
------------- --------------
Non-current
Capitalized software costs (185) (263)
Intangibles amortization -- 154
State income taxes 127 92
Depreciation (302) (266)
Capital loss carryforward - 78
Other - (95)
-------------- --------------
(360) (300)
-------------- ---------------
Net deferred income tax assets $ 1,338 $ 943
------------- --------------
</TABLE>
F-16
<PAGE> 63
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE I - INCOME TAXES - Continued
A valuation allowance against deferred tax assets has not been established as
management believes that any net deductible temporary differences will be
utilized with the generation of future earnings.
Following is a reconciliation of the statutory federal income tax rate to the
effective rates reflected in the statement of earnings:
<TABLE>
<CAPTION>
1993 1994 1995
------------------------ ------------------------ ------------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Earnings Amount Earnings Amount Loss
------ -------- ------ -------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Federal tax (benefit) at
statutory rate $ (165) (34.0%) $ 2,482 34.0% $ 6,936 34.0%
State income taxes, net
of federal benefit 9 1.7 572 7.9 931 4.6
Benefit from foreign sales
corporation - - - - (380) (1.9)
Benefits from research
and development credits (106) (21.8) (90) (1.2) - -
Other items, net 10 2.1 (263) (3.7) 319 1.6
----------- --- ------------- ----- ----------- --------
Income tax expense
(benefit) $ (252) (52.0)% $ 2,701 37.0% $ 7,806 38.3%
========== ======= =========== ===== =========== =========
</TABLE>
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Operating Lease Commitments
The Company is committed under noncancelable operating
leases which expire over the next five years and include
purchase and renewal options, primarily for office space.
Rent expense under such leases was $1,698,000, $1,244,000
and $1,006,000 for the years ended September 30, 1993,
September 30, 1994 and October 1, 1995, respectively.
F-17
<PAGE> 64
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
Future minimum lease payments under such operating
leases as of October 1, 1995 (in thousands) are as
follows:
<TABLE>
<CAPTION>
Year ending
-----------
<S> <C>
September 29, 1996 $ 1,085
September 28, 1997 667
September 22, 1998 515
October 3, 1999 321
October 1, 2000 8
---------------
$ 2,596
=============
</TABLE>
2. Litigation
In the first quarter of fiscal 1995, the Company
settled (and reflected as an $875,000 charge against Other
Expense) a shareholder class action lawsuit.
This lawsuit had been filed in the federal district court
for the Eastern District of Virginia in October 1992
against the Company and certain executive officers of the
Company. The suit was dismissed by directed verdict
with prejudice in May 1993. In June 1994, the United
States Court of Appeals affirmed dismissal of certain
securities law claims against the Company, but determined
that the balance of the claims raised fact issues which
were to have been determined by a jury in a new trial in
late 1994.
In fiscal 1995, the Company had a judgment against it
relating to another litigation incident to the operation
of its business. The estimated liability associated with
this judgment was recorded as a $185,000 charge against
Other Expense in the fourth quarter of fiscal 1995.
3. Employment and Noncompete Agreements
The Company is committed under long-term employment and
noncompete agreements with an officer. Approximate future
minimum payments required under the agreements are
$475,000 and expire in fiscal 1999.
NOTE K - STOCK OPTION, STOCK PURCHASE, AND EMPLOYEE BENEFIT PLANS
1. Stock Option Plans
Under the terms of the Company's stock option plans,
options to purchase shares of the Company's common
stock have been granted at exercise prices equal to the
market price of the stock at the date of grants. One
individual stock option was granted in June 1993. Vesting
periods vary but are typically over three years. Following
is a summary of transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 991,675 1,043,300 1,343,050
Granted during the year 158,000 382,250 299,250
Canceled during the year (2,000) (35,000) (16,467)
Exercised during the year (at prices
ranging from $2.72 to $6.875 per share) (104,375) (47,500) (965,121)
--------- --------- ---------
Outstanding, end of year 1,043,300 1,343,050 660,712
========= ========= =========
Eligible, end of year for exercise currently
(at prices ranging from $2.72 to $6.875
per share) 895,800 902,800 253,349
======= ========== =========
</TABLE>
F-18
<PAGE> 65
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE K - STOCK OPTION, STOCK PURCHASE, AND EMPLOYEE BENEFIT PLANS - Continued
2. Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby
eligible employees may authorize payroll deductions up to
15% of their regular base salary to purchase shares at 85%
of fair market value at time of purchase. As of October 1,
1995, 36,325 shares had been purchased by employees.
3. Employee Benefit Plan
The Company has a 401(k) plan in effect as of October 1,
1995. This plan covers all employees over the age of 18
who have completed six consecutive months of service. The
Company's contributions to the plan are based on a certain
percentage of each dollar contributed by the employee. The
Company contributed approximately $40,000, $50,000 and
$58,000 in each of the years ended September 30, September
30, 1994 and October 1, 1995, respectively.
NOTE L - RELATED PARTY TRANSACTIONS
The following summarizes transactions with related parties:
1. The Company periodically advances amounts to
certain of its officers including the majority
stockholder. Amounts outstanding as of October 1,
1995 are repayable in fiscal 1996. These advances
bear interest at 8%.
Activity for the receivables from officers including the
majority stockholder is as follows (in thousands):
<TABLE>
<CAPTION>
As of As of As of
September 30, September 30, October 1,
1993 1994 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 61 $ 131 $ 28
Additions 99 60 224
Amounts collected (29) (163) (59)
------------------- ------------------- ----------------------
Ending balance $ 131 $ 28 $ 193
==================== ===================== =======================
</TABLE>
2. In September 1995, the Company appointed a
partner of a law firm as one of the Company's
outside directors. The Company incurred $271,000
in expense associated with the services of this
law firm in fiscal 1995.
NOTE M - INDUSTRY SEGMENTS AND EXPORT REVENUE
The Company operates in one business segment, data
communications. Within data communications, the Company's
dominant activity is the manufacture, sale and
distribution of networking products to commercial
customers. Export revenue accounted for approximately
35%, 29% and 25% of total sales in fiscal years 1993, 1994
and 1995, respectively.
F-19
<PAGE> 66
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE M - INDUSTRY SEGMENTS AND EXPORT REVENUE - Continued
Following is detail of export revenue by geographic region:
<TABLE>
<CAPTION>
(Percentage of total export revenue)
1993 1994 1995
------------------- ------------------- --------------------
(in thousands)
<S> <C> <C> <C>
Europe 87% 70% 60%
Pacific Rim 12% 13% 24%
South America and other 1% 17% 16%
</TABLE>
NOTE N - SUPPLEMENTAL CASH FLOW AND INCOME STATEMENT INFORMATION
The Company paid the following amounts for interest and
income taxes as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, October 1,
1993 1994 1995
---------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Interest $ 524 $ 513 $ 1,524
=========== ============= ============
Income taxes $ 9 $ 256 $ 4,235
=========== ============= ============
</TABLE>
During fiscal years 1993 and 1995, the Company realized
tax benefits of $127,000 and $4,311,000, respectively,
from the exercise of stock options resulting in a
reduction (increase) in income taxes payable (receivable)
and an increase in additional paid-in capital.
NOTE O - RESTRUCTURING CHARGES
In the fourth quarter of the fiscal year ended September
30, 1993, management re-evaluated the performance of
certain lines of business against corporate objectives and
strategies. The purpose of this review was to identify
those businesses and products which met the Company
revenue, profitability, and market position goals.
As a result of this re-evaluation, the Company recognized
approximately $3,462,000 in restructuring charges in the
fourth quarter of fiscal 1993, representing adjustments to
certain networking products and contract maintenance
inventories, expenses associated with the restructuring of
those operations, and cost associated with a planned
fiscal 1994 facilities consolidation. The after- tax
effect of these charges was to reduce net income for the
year ended September 30, 1993 by approximately $2,137,000.
F-20
<PAGE> 67
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1993, September 30, 1994 and October 1, 1995 (unaudited)
NOTE P - QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last eight quarters.
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31. JUNE 30, SEPT. 30, DEC. 31, MAR. 31 JUNE 30, OCT. 1,
1993 1994 1994 1994 1994 1995 1995 1995
------------- ------------ ------------ ------------- ------------- ----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . $ 21,835 $ 23,568 $ 24,261 $ 31,630 $ 31,819 $40,577 $47,663 $50,019
Cost of goods sold . . . 15,601 17,448 17,792 22,417 22,029 27,922 32,827 34,530
------ ------ ------ ------ ------ ------ ------ ------
Gross profit . . . . . . 6,234 6,120 6,469 9,213 9,790 12,655 14,836 15,489
Operating expenses:
Selling, general and
administrative . . . 3,854 3,719 3,950 5,127 4,735 5,819 6,687 7,128
Research and
development . . . . 952 796 717 1,121 1,162 1,344 1,426 1,265
------ --------- -------- -------- -------- ------- ------- -------
Total operating
expenses . . . . 4,806 4,515 4,667 6,248 5,897 7,163 8,113 8,393
------- -------- -------- -------- -------- -------- -------- -------
Earnings (loss) from
operations . . . . . 1,428 1,605 1,802 2,965 3,893 5,492 6,723 7,096
Other income (expense) . (27) (118) (158) (198) (1,055) (555) (537) (657)
------- ---------- --------- --------- ----------- -------- -------- -------
Earnings before income
taxes . . . . . . . . . 1,401 1,487 1,644 2,767 2,838 4,937 6,186 6,439
Provision (benefit) for
income taxes . . . . . 546 580 641 933 1,107 1,925 2,413 2,361
------ --------- -------- -------- -------- ------- ------- -------
Net earnings (loss) . . . $ 855 $ 907 $ 1,003 $ 1,834 $ 1,731 $ 3,012 $ 3,773 $ 4,078
======= ========= ======= ======== ======== ======= ======= ========
Net earnings (loss) per
share . . . . . . . . . $ 0.06 $ 0.07 $ 0.08 $ 0.15 $ 0.14 $ 0.24 $ 0.29 $ 0.31
======= ========= ======= ========= ========= ======== ========= =========
Shares used in computing
net earnings (loss)
per share . . . . . . . 14,413 13,497 12,231 12,210 12,431 12,669 13,149 13,250
====== ========= ======== ======== ======== ======= ======= =======
</TABLE>
F-21
<PAGE> 68
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 69
<TABLE>
<S> <C>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY 3,500,000 SHARES
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS [MICRODYNE LOGO]
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS, OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A Common Stock
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------- ---------------------------
PROSPECTUS
TABLE OF CONTENTS
---------------------------
Page
----
Prospectus Summary . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . OPPENHEIMER & CO., INC.
Dividend Policy . . . . . . . . . . . . . . . . . .
Price Range of Common Stock . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . SCHRODER WERTHEIM & CO.
Selected Consolidated Combined
Financing Data . . . . . . . . . . . . . . . . .
Management Discussion and Analysis of TUCKER ANTHONY
Financial Condition and Results of INCORPORATED
Operations . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . .
Principal and Selling Stockholders . . . . . . . .
Description of Capital Stock . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . .
Incorporation by Reference . . . . . . . . . . . .
Consolidated Financial Statements . . . . . . . . .
, 1995
</TABLE>
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in
connection with the issuance and distribution of the shares of Common
Stock registered hereby, all of which will be borne by the Company.
<TABLE>
<S> <C>
SEC Registration fee $ 34,004.31
NASD Filing Fee 10,361.25
Blue Sky Fees and Expenses 15,000.00
Legal fees and expenses 50,000.00
Accounting fees and expenses 25,000.00
Printing 60,000.00
Miscellaneous 105,634.44
---------------
Total
$ 300,000.00
===============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the Maryland General Corporation Law
empowers a corporation to indemnify its directors and officers or
former directors or officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers.
Such law provides further that the indemnification permitted thereunder shall
not be deemed exclusive of any other rights to which the directors and officers
may be entitled under a corporation's certificate of incorporation, bylaws, any
agreement or otherwise.
The Company's Articles of Amendment and Restatement limits
the liability of directors and officers to the fullest extent permissible by
Maryland law, as amended from time to time. The Company's Bylaws
provide that the Company shall indemnify its officers, directors and employees
against liabilities and expenses resulting from their service as such.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
1 Form of Underwriting Agreement. (To be filed by amendment)
2 Merger Agreement between Federal Technology Corporation and Registrant, dated March 7, 1991
(Incorporated by reference to Exhibit 2.1 to the Registrant's 1991 Form S-4 Registration
Statement).
5.1 Opinion of McGuire, Woods, Battle & Boothe L.L.P. (To be filed by amendment).
23.1 Consent of McGuire, Woods, Battle & Boothe L.L.P. (included in Exhibit 5.1 above).
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
23.2 Consent of Grant Thornton LLP.
23.3 Consent of KPMG Peat Marwick L.L.P. (To be filed by amendment).
23.4 Consent of Price Waterhouse LLP. (To be filed by amendment).
24 Power of attorney (See page II-3 herein).
27 Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement, shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Alexandria, Commonwealth
of Virginia, on this 27th day of October 1995.
MICRODYNE CORPORATION
By:/s/ Philip T. Cunningham
----------------------------
Philip T. Cunningham
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Philip T. Cunningham
and Christopher M. Maginniss, or any one or more of them, his attorneys-in-fact
and agents, each with full power of substitution and resubstitution for him in
any and all capacities, to sign any and all amendments or post-effective
amendments to this Registration Statement and to file the same with exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission granting unto each of such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying
and confirming all that each of such attorneys-in-fact and agents or his
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Philip T. Cunningham President, Chief Executive October 27, 1995
- ---------------------------- Officer and Director
Philip T. Cunningham (Principal Executive Officer)
/s/ Christopher M. Maginniss Executive Vice President, October 27, 1995
- ----------------------------- Treasurer and Director
Christopher M. Maginniss (Principal Financial Officer)
/s/ William Marshall Ellison, II Assistant Treasurer and Controller October 27, 1995
- -------------------------------- (Principal Accounting Officer)
William Marshall Ellison, II
/s/ Curtis M. Coward Director October 27, 1995
- --------------------------------
Curtis M. Coward
/s/ Gregory W. Fazakerley Director October 27, 1995
- --------------------------------
Gregory W. Fazakerley
/s/ H. Brian Thompson Director October 26, 1995
- --------------------------------
H. Brian Thompson
</TABLE>
II-3
<PAGE> 1
[Grant Thornton LLP Letterhead]
We have issued our report dated November 8, 1994, accompanying the consolidated
financial statements of Microdyne Corporation contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned reports
in the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption, "Experts."
/S/ Grant Thornton LLP
Vienna, Virginia
October 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> OCT-01-1995
<CASH> 5618
<SECURITIES> 0
<RECEIVABLES> 60428
<ALLOWANCES> 1779
<INVENTORY> 25917
<CURRENT-ASSETS> 93610
<PP&E> 11127
<DEPRECIATION> 6378
<TOTAL-ASSETS> 109825
<CURRENT-LIABILITIES> 53595
<BONDS> 16999
<COMMON> 1279
0
0
<OTHER-SE> 37652
<TOTAL-LIABILITY-AND-EQUITY> 109825
<SALES> 170078
<TOTAL-REVENUES> 170078
<CGS> 117308
<TOTAL-COSTS> 117308
<OTHER-EXPENSES> 29659
<LOSS-PROVISION> 891
<INTEREST-EXPENSE> 1820
<INCOME-PRETAX> 20400
<INCOME-TAX> 7806
<INCOME-CONTINUING> 12594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12594
<EPS-PRIMARY> .96
<EPS-DILUTED> .95
</TABLE>
