<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date JANUARY 26, 1995
of earliest event reported)
MICRODYNE CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 0-4384 52-0856493
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
3601 EISENHOWER AVENUE
ALEXANDRIA, VIRGINIA 22304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 739-0500
==============================================================================
<PAGE> 2
The undersigned registrant hereby amends its Form 8-K dated January 26, 1995
and filed on February 7, 1995, by adding Items 7(a), 7(b) and 7(c).
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Eagle Technology ("Eagle") (a business
unit of Artisoft, Inc.)
(i) Financial statements of Eagle, together with the
related Independent Auditors' Report, for the six months ended
December 31, 1994 and the six months ended June 30, 1994 (pages 2
through 13)
(b) Financial Statements of Eagle Technology ("Eagle Tech") (a
business unit of Anthem Electronics, Inc.)
(i) Financial Statements of Eagle Tech, together with the
related Independent Auditors' Report, for the year ended December 31,
1993 (pages 14 through 22)
(c) Pro Forma Financial Information
(i) Unaudited Pro Forma Consolidated Balance Sheet of
Microdyne Corporation as of December 31, 1994 (page 24)
(ii) Unaudited Pro Forma Consolidated Statement of
Operations of Microdyne Corporation for the three months ended
December 31, 1994 (page 25)
(iii) Unaudited Pro Forma Consolidated Statement of
Operations of Microdyne Corporation for the year ended December 31,
1994 (page 26)
(iv) Notes to Pro Forma Financial Statements (pages 27
through 28)
(1)
<PAGE> 3
EAGLE TECHNOLOGY
(A Business Unit of Artisoft, Inc.)
FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JUNE 30, 1994
(2)
<PAGE> 4
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Artisoft, Inc.:
We have audited the accompanying balance sheets of Eagle Technology (a business
unit of Artisoft, Inc.) as of June 30, 1994 and December 31, 1994 and the
related statements of operations and business unit equity and cash flows for
the six-month periods ended June 30, 1994 and December 31, 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 financial statements referred to above present fairly, in
all material respects, the financial position of Eagle Technology (a business
unit of Artisoft, Inc.) as of June 30, 1994 and December 31, 1994 and the
results of its operations and its cash flows for the six-month periods ended
June 30, 1994 and December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
April 3, 1995
(3)
<PAGE> 5
EAGLE TECHNOLOGY
(A Business Unit of Artisoft, Inc.)
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ 830
Accounts receivable, net of allowance
for doubtful accounts of $690 and $687 13,236 9,715
Inventories - 8,710
Prepaid expenses 153 47
Other current assets - 853
Deferred tax assets 844 673
Assets held for sale 8,608 -
------------ ----------
Total current assets 22,841 20,828
------------ ----------
Property and equipment, net 246 683
------------ ----------
Goodwill, net 1,600 1,800
------------ ----------
Other assets 144 139
------------ ----------
$ 24,831 $ 23,450
============ ==========
Liabilities and Business Unit Equity
Current liabilities:
Advances under line of credit $ 4,000 $ -
Accounts payable 2,828 3,666
Accrued liabilities 1,168 2,132
Current portion of long-term debt - 2,626
------------ ----------
Total current liabilities 7,996 8,424
------------ ----------
Long-term debt, less current portion - 3,950
------------ ----------
Business unit equity 16,835 11,076
------------ ----------
$ 24,831 $ 23,450
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(4)
<PAGE> 6
EAGLE TECHNOLOGY
(A Business Unit of Artisoft, Inc.)
STATEMENTS OF OPERATIONS AND BUSINESS UNIT EQUITY
(in thousands)
<TABLE>
<CAPTION>
For the six months ended
----------------------------------------------------
December 31, 1994 June 30, 1994
----------------- -------------
<S> <C> <C>
Net sales $ 24,397 $ 26,667
Cost of sales 19,139 19,047
------------- -------------
Gross margin 5,258 7,620
------------- -------------
Operating expenses:
Selling and marketing 2,859 3,035
General and administrative 1,165 983
Product development 1,202 154
------------- -------------
Total operating expenses 5,226 4,172
------------- -------------
Income before income taxes 32 3,448
Income taxes 19 1,372
------------- -------------
Net income 13 2,076
Business unit equity, beginning of period 11,076 -
Net cash advances from Artisoft, Inc. 5,746 9,000
------------- -------------
Business unit equity, end of period $ 16,835 $ 11,076
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
(5)
<PAGE> 7
EAGLE TECHNOLOGY
(A Business Unit of Artisoft, Inc.)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the six months ended
----------------------------------------------
December 31, 1994 June 30, 1994
----------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13 $ 2,076
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 293 253
Loss on disposition of equipment 198 -
Allowance for doubtful accounts 3 687
Allowance for inventory obsolescence 267 277
Changes in operating assets and liabilities:
Accounts receivable (3,524) (10,402)
Inventories 427 (1,610)
Prepaid expenses (106) (47)
Deferred tax assets (171) (673)
Other assets 848 (992)
Accounts payable and accrued liabilities (1,802) 5,798
---------- ----------
Net cash used in operating activities (3,554) (4,633)
---------- ----------
Cash flows from investing activities:
Purchase of equipment (446) (236)
Purchase of assets by Artisoft, Inc. - (2,000)
---------- ----------
Net cash used in investing activities (446) (2,236)
---------- ----------
Cash flows from financing activities:
Advances under line of credit 4,000 -
Principal payments on long-term debt (6,576) (1,301)
Net cash advances from Artisoft, Inc. 5,746 9,000
---------- ----------
Net cash provided by financing activities 3,170 7,699
---------- ----------
Net change in cash and cash equivalents (830) 830
Cash and cash equivalents, beginning of period 830 -
---------- ----------
Cash and cash equivalents, end of period $ - $ 830
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(6)
<PAGE> 8
EAGLE TECHNOLOGY
(A Business Unit of Artisoft, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JUNE 30, 1994
NOTE 1 - BASIS OF PRESENTATION
The financial statements include the assets, liabilities, revenues and expenses
of Eagle Technology ("Eagle"), a business unit of Artisoft, Inc ("Artisoft").
On January 6, 1995, Artisoft entered into an asset purchase agreement whereby
Microdyne Corporation ("Microdyne") agreed to purchase certain assets and
rights and assume certain liabilities and other obligations of Eagle. Eagle,
which operates from a separate facility in San Jose, California, develops and
markets computer connectivity products which are sold primarily through a
worldwide network of commercial distributors.
The accompanying financial statements reflect the "carved-out" financial
position and results of operations of Eagle as if Eagle had been operating as a
separate company. Certain corporate, general and administrative expenses of
Artisoft have been allocated to Eagle (discussed in Note 3) on various bases
which, in the opinion of management, are reasonable. However, such expenses
are not necessarily indicative of, and it is not practicable for management to
estimate the level of expenses which might have been incurred had Eagle been
operating as a separate company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
All highly liquid securities with original maturities of three months or less
are considered to be cash equivalents.
Artisoft utilizes a centralized cash management system to provide financing for
its operations, including those of Eagle. Eagle's cash requirements are
satisfied by transactions with Artisoft. These transactions are included in
business unit equity in the financial statements. Artisoft does not charge
Eagle interest on this account. At December 31, 1994, there is no cash balance
specifically attributable to Eagle.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment, net
of allowances for future returns and price protection.
(7)
<PAGE> 9
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Eagle to concentrations of
credit risk consist principally of trade receivables. Eagle products are sold
primarily to domestic and international distributors. Eagle performs ongoing
credit evaluations of its customers and maintains allowances for credit losses.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined using the first-in, first-out method.
ASSETS HELD FOR SALE
Assets held for sale are stated at the lower of cost or estimated net
realizable value (see Note 5).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives of
the respective assets. Leasehold improvements are amortized using the
straight-line method over the lesser of the lease terms or the estimated useful
lives of the related assets.
GOODWILL
The excess of the purchase price over the fair value of the net assets acquired
when Artisoft acquired Eagle of $2,000,000 is being amortized by the
straight-line method over five years.
WARRANTY
Eagle provides for the estimated costs of fulfilling its warranty obligations
at the time the related products are sold.
INCOME TAXES
Effective July 1, 1993, Artisoft adopted the asset and liability method of
accounting for income taxes prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The results of Eagle's operations are included in Artisoft's consolidated U.S.
federal and applicable state income tax returns. Income taxes recorded in the
accompanying financial statements are attributable to the income taxes that
Eagle would have incurred on a standalone basis calculated on a basis
consistent with SFAS No. 109.
(8)
<PAGE> 10
EARNINGS PER SHARE
Since there is no separate capitalization, nor are any shares of stock
specifically attributable to Eagle upon which a per share calculation can be
based, earnings per share data is not presented in the accompanying financial
statements.
NOTE 3 - RELATIONSHIP AND TRANSACTIONS WITH ARTISOFT, INC.
The financial statements include allocations to Eagle of certain administrative
costs incurred by Artisoft related to management information systems,
accounting, credit, human resources and certain other corporate expenses. For
the six months ended December 31, 1994, these allocated costs were $2,600,000
and are included in selling and marketing expenses. There were no allocated
costs for the six months ended June 30, 1994 since Eagle operated autonomously
from Artisoft during the period and recorded costs and expenses incurred in
their separate accounting records.
In the opinion of management, these allocations of expenses were made on a
reasonable basis. However, they are not necessarily indicative of the level of
expenses which may have been experienced on a standalone basis. The amounts
that would have or will be incurred on a separate company basis could differ
significantly from the allocated amounts due to economies of scale, differences
in management and operational practices or other factors.
NOTE 4 - INVENTORIES
A summary of inventories at June 30, 1994 follows: (in thousands)
<TABLE>
<CAPTION>
June 30,
1994
--------
<S> <C>
Raw materials $6,613
Work-in-process 1,700
Finished goods 674
------
8,987
Less allowance for obsolescence 277
------
$8,710
======
</TABLE>
NOTE 5 - ASSETS HELD FOR SALE:
In January 1995, Artisoft entered into an agreement with Microdyne, whereby
Microdyne agreed to purchase certain assets and rights and assume certain
liabilities and other obligations of Eagle for approximately $17,500,000.
Artisoft received $12,000,000 in cash on January 27, 1995, and letters of
credit for $5,500,000. Under certain conditions the letters of credit may be
drawn on in two installments, the first draw not to exceed $3,000,000 in July
1995 and the second draw in October 1995
(9)
<PAGE> 11
not to exceed $2,500,000. The following summarizes, as of December 31, 1994,
the net assets of Eagle sold to Microdyne in January 1995: (in thousands)
<TABLE>
<S> <C>
Inventories $8,016
Property and equipment 592
------
Total assets held for sale $8,608
======
</TABLE>
Management estimates that the sale of Eagle assets and cessation of Eagle
operations will result in a gain which will be essentially offset by charges
for the disposition of inventory not purchased by Microdyne, writedown of fixed
assets, severance costs, and other expenses.
NOTE 6 - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1994 and June 30, 1994
follows: (in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
-------------- ----------
<S> <C> <C>
Furniture $ 27 $ 291
Equipment 303 436
Leasehold improvements - 9
-------- ------
330 736
Accumulated depreciation and amortization 84 53
-------- ------
Property and equipment, net $ 246 $ 683
======== ======
</TABLE>
NOTE 7 - LONG-TERM DEBT
In connection with the acquisition of assets of Eagle Technology, Artisoft
executed a $7,877,000 note to Anthem Electronics, Inc. Principal payments in
the amount of $656,417 plus interest (at the prime rate) were due quarterly
through January 1997. The note was secured by accounts receivable. The note
balance was paid in full on December 31, 1994. Cash paid for interest,
included in general and administrative expenses, approximated $235,000 and
$221,000 for the six months ended December 31, 1994 and June 30, 1994,
respectively.
NOTE 8 - LINE OF CREDIT
During 1994, Artisoft obtained a $15,000,000 unsecured revolving line of credit
with a bank. The interest rate on borrowings under the agreement fluctuates
based upon market rates (8 1/2% at December 31, 1994). Artisoft borrowed
against this line of credit to pay off notes payable relating to the
acquisition of Eagle. The outstanding balance of the line of credit at
December 31, 1994 was $4,000,000. There were no advances under the line at
June 30, 1994.
(10)
<PAGE> 12
NOTE 9 - INCOME TAXES
As discussed in Note 1, the results of Eagle's operations are included in
Artisoft's consolidated U.S. federal and applicable state income tax returns.
Income tax expense is attributable to the income taxes that Eagle would have
incurred on a standalone basis. Income tax expense differed from the amount
computed by applying the federal income tax rate of 34% to income before income
taxes for the six months ended December 31, 1994 and June 30, 1994 as a result
of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
--------------- ----------
<S> <C> <C>
Computed "expected" tax expense 34% 34%
State income taxes (net of federal benefit) 8 6
Other nondeductible expenses 17 -
--- ---
59% 40%
=== ===
</TABLE>
Components of income tax expense for the six months ended December 31, 1994 and
June 30, 1994, are as follows: (in thousands)
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
December 31, 1994
Federal $191 $(176) $15
State 52 (48) 4
---- ------ ---
$243 $(224) $19
==== ====== ===
June 30, 1994
Federal $1,647 $(570) $1,077
State 451 (156) 295
------ ------ ------
$2,098 $(726) $1,372
====== ====== ======
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of deferred tax assets and liabilities at December 31, 1994 and June 30, 1994
are as follows: (in thousands)
(11)
<PAGE> 13
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
--------------- ----------
<S> <C> <C>
Deferred tax assets:
Allowances for doubtful accounts and returns $273 $272
Inventory reserves and overhead capitalization 539 394
Goodwill and other 164 60
---- ----
Total gross deferred tax assets 976 726
Deferred tax liabilities:
Prepaid expenses 26 -
---- ----
Net deferred tax assets 950 726
Less noncurrent portion included in other assets 106 53
---- ----
$844 $673
==== ====
</TABLE>
A valuation allowance has not been provided because realization of the deferred
tax assets by Artisoft is considered more likely than not. Included in
business unit equity is income taxes payable to Artisoft of $2,341,000 and
$2,098,000 at December 31, 1994 and June 30, 1994, respectively.
NOTE 10 - EMPLOYEE BENEFIT PLANS
Eagle employees participate in an Artisoft sponsored 401(k) profit-sharing plan
(defined contribution plan). The plan covers substantially all employees
having no less than six months of service. Participants may voluntarily
contribute to the plan up to the maximum limits imposed by Internal Revenue
Service regulations. Artisoft will annually match up to 50% of the
participants' contributions up to 3% of the participants' compensation.
Participants are immediately vested in the amount of their direct contributions
and vest over a five-year period, as defined by the plan, with respect to
Artisoft's contribution.
NOTE 11 - COMMITMENTS
Artisoft leases certain of its facilities under noncancelable operating leases
expiring in 1995. During the six months ended December 31, 1994 and June 30,
1994, rent expense relating to Eagle totaled approximately $65,800 for each
period.
Pursuant to the asset purchase agreement, Artisoft will assign to Microdyne
certain of the leases for the facilities used by Eagle. Under the terms of the
assignment Artisoft remains obligated under the terms of the initial lease
agreement. Future minimum payments under the leases to be assigned are
$130,000, and expire in 1995.
(12)
<PAGE> 14
NOTE 12 - SIGNIFICANT CUSTOMERS
Eagle's customers are located primarily in North America and Europe and are not
concentrated in any one geographic area. Sales to two principal customers
accounted for approximately 17% and 10% of net sales for the six months ended
December 31, 1994 and 24% and 16% for the six months ended June 30, 1994.
Eagle's trade accounts receivable from two principal customers totaled
approximately 29% and 20% of total trade accounts receivable at December 31,
1994 and 29% and 12% of total trade accounts receivable at June 30, 1994.
NOTE 13 - DOMESTIC AND INTERNATIONAL SALES
A summary of domestic and international net sales for the six months ended
December 31, 1994 and June 30, 1994 follows: (in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
----------- ----------
<S> <C> <C>
Domestic $12,077 $13,251
International 12,320 13,416
-------- -------
Net sales $24,397 $26,667
======= =======
</TABLE>
(13)
<PAGE> 15
EAGLE TECHNOLOGY
(A Business Unit of Anthem Electronics, Inc.)
FINANCIAL STATEMENTS
DECEMBER 31, 1993
(14)
<PAGE> 16
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
January 27, 1994
To the Board of Directors of
Anthem Electronics. Inc.
In our opinion the accompanying balance sheet and the related statements of
operations, of changes in business unit equity and of cash flows present
fairly, in all material respects, the financial position of Eagle Technology
(Eagle), a business unit of Anthem Electronics, Inc. (the Company), at December
31, 1993 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the financial statements of Eagle
for any period subsequent to December 31, 1993.
As discussed in Notes 1 and 3 to the financial statements, Eagle has had
extensive transactions and relationships with its parent, Anthem Electronics
Inc. It is possible that the terms of these transactions are not the same as
those which would result from transactions among wholly unrelated parties.
/s/ PRICE WATERHOUSE
(15)
<PAGE> 17
EAGLE TECHNOLOGY
(A Business Unit of Anthem Electronics, Inc.)
BALANCE SHEET
(Dollars In Thousands)
<TABLE>
<CAPTION>
December 31,
ASSETS 1993
- ------ -----------
<S> <C>
Accounts receivable, net of allowance
for doubtful accounts of $1,500 $10,118
Inventory 1,073
Prepaid assets 36
Assets held for sale 7,877
-------
Total current assets 19,104
-------
Total assets $19,104
=======
LIABILITIES AND BUSINESS UNIT EQUITY
- ------------------------------------
Accounts payable $ 1,160
Accrued royalty 1,312
Accrued warranty costs 1,800
Other accrued liabilities 387
Restructuring accrual 5,643
-------
Total current liabilities 10,302
Commitments - Note 7
Business unit equity 8,802
-------
Total liabilities and business unit equity $19,104
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
(16)
<PAGE> 18
EAGLE TECHNOLOGY
(A Business Unit of Anthem Electronics, Inc.)
STATEMENT OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the year ended
December 31, 1993
------------------
<S> <C>
Net sales $ 58,310
Cost of sales 46,823
---------
Gross profit 11,487
---------
Operating expenses:
Selling and marketing 10,034
General and administrative 1,777
Restructuring charge 7,810
---------
19,621
---------
Loss before income taxes (8,134)
Income tax benefit 3,449
---------
Net loss $ (4,685)
=========
</TABLE>
STATEMENT OF CHANGES IN BUSINESS UNIT EQUITY
(Dollars in Thousands)
<TABLE>
<S> <C>
Beginning of period $ 21,383
Net loss (4,685)
Net transactions with Anthem Electronics, Inc. (7,896)
---------
End of period $ 8,802
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(17)
<PAGE> 19
EAGLE TECHNOLOGY
(A Business Unit of Anthem Electronics, Inc.)
STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the year ended
December 31, 1993
------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (4,685)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Restructuring charge 7,810
Depreciation and amortization 206
Allowance for doubtful accounts 449
Changes in operating assets and liabilities:
Accounts receivable 4,076
Inventory 5,666
Prepaid assets 64
Accrued royalty (3,057)
Accrued warranty costs (735)
Other accrued liabilities (1,206)
-------
Cash provided by operating activities 8,588
Cash flows from investing activities used for
capital expenditures (692)
Cash flows from financing activIties provided by
net transactions with Anthem Electronics, Inc. (7,896)
-------
Net change in cash and cash equivalents $ 0
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
(18)
<PAGE> 20
EAGLE TECHNOLOGY
(A Business Unit of Anthem Electronics, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1 - BASIS OF PRESENTATION:
The financial statements include the assets, liabilities, revenues and expenses
of Eagle Technology (Eagle), a business unit of Anthem Electronics, Inc.
(Anthem). On January 5, 1994, Anthem entered into an asset purchase agreement
whereby Artisoft, Inc. agreed to purchase certain assets and rights and assume
certain liabilities and other obligations of Eagle. Eagle, which operates from
a separate facility in San Jose, California, manufactures and markets computer
connectivity products which are sold primarily through a worldwide network of
commercial distributors.
The accompanying financial statements reflect the "carved-out" financial
position and results of operations of Eagle as if Eagle had been operating as a
separate company. Certain corporate, general and administrative expenses of
Anthem have been allocated to Eagle (discussed in Note 3) on various bases
which, in the opinion of management, are reasonable. However, such expenses
are not necessarily indicative of, and it is not practicable for management to
estimate the level of, expenses which might have been incurred had Eagle been
operating as a separate company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
Anthem utilizes a centralized cash management system to provide financing for
its operations, including those of Eagle. Eagle's cash requirements are
satisfied by transactions with Anthem. These transactions are included in
business unit equity in the financial statements. Anthem does not charge Eagle
interest on this account.
In addition to intercompany cash transactions, business unit equity includes
the sum of accumulated net earnings of Eagle.
The financial statements reflect the fact that there is no cash balance
specifically attributable to Eagle, and the Statement of Cash Flows, therefore,
reconciles to a zero net change in cash for the period presented.
REVENUE RECOGNITION
Eagle recognizes revenue and accrues related royalty costs upon shipment of
product. Eagle grants certain distributors limited rights to product exchange
and price protection on unsold merchandise. Eagle establishes an estimated
allowance for future product returns based on historical returns experience and
provides for appropriate price protection reserves.
(19)
<PAGE> 21
Two distributors, in the aggregate, accounted for 28.5% of total sales for the
year ended December 31, 1993. International sales, primarily to Europe,
approximated 41.6% of total sales for the year ended December 31, 1993.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Eagle to concentrations of
credit risk consist principally of trade receivables. Eagle's products are
primarily sold to domestic distributors. Eagle performs ongoing credit
evaluations of its customers and maintains reserves for credit losses. At
December 31, 1993, three customers accounted for 58% of the accounts receivable
balance.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out method) or
market. The cost of inventory includes material, labor and manufacturing
overhead.
ASSETS HELD FOR SALE
Assets held for sale are stated at the lower of cost or estimated net
realizable value. Refer to Note 5.
WARRANTY
Eagle provides for the estimated costs of fulfilling its warranty obligations
at the time the related products are sold.
INCOME TAXES
The results of Eagle's operations are included in Anthem's consolidated U.S.
federal and applicable state income tax returns. The tax benefit of $3,449,000
recorded in the accompanying financial statements is attributable to the income
tax benefit that Eagle would have recognized on a standalone basis from the
carryback of the current year losses against Eagle's prior years income,
calculated on a basis consistent with FAS 109, Accounting for Income Taxes.
Deferred tax assets of approximately $5,000,000, primarily attributable to
Eagle reserves not currently deductible, are recorded as a component of Eagle's
business unit equity.
EARNINGS PER SHARE
Since there is no separate capitalization, nor are any shares of stock
specifically attributable to Eagle upon which a per share calculation can be
based, earnings per share data is not presented in the accompanying financial
statements.
(20)
<PAGE> 22
NOTE 3 - RELATIONSHIP AND TRANSACTIONS WITH ANTHEM ELECTRONICS, INC.:
The financial statements include allocations to Eagle of certain administrative
costs incurred by Anthem related to management information systems, accounting,
credit, and human resources and certain other corporate expenses. For the year
ended December 31, 1993, these allocated costs were $767,000, $447,000,
$180,000, $108,000, and $275,000, respectively.
In the opinion of management, these allocations of expenses were made on a
reasonable basis. However, they are not necessarily indicative of the level of
expenses which may have been experienced on a standalone basis. The amounts
that would have or will be incurred on a separate company basis could differ
significantly from the allocated amounts due to economies of scale, differences
in management and/or operational practices or other factors.
NOTE 4 - INVENTORY:
Eagle inventory, net of reserves, at December 31, 1993 consisted of $1,073,000
in raw material components.
NOTE 5 - ASSETS HELD FOR SALE:
In December 1993, Anthem decided to restructure the Eagle operations. In
January 1994, Anthem entered into an agreement with Artisoft, Inc., whereby
Artisoft, Inc. agreed to purchase certain assets and rights and assume certain
liabilities and other obligations of Eagle for approximately $9,900,000.
Anthem received $2,000,000 in cash on January 5, 1994, and a note for
approximately $7,900,000, bearing interest at prime. The note is due in 12
quarterly installments of principal and interest beginning March 31, 1994. The
following summarizes, as of December 31, 1993, the net assets of Eagle sold to
Artisoft, Inc. in January 1994.
<TABLE>
<S> <C>
Inventory:
Raw materials $4,156,000
Work in progress 800,000
Finished goods 2,421,000
----------
$7,377,000
Property, plant and equipment, net 500,000
----------
Total assets held for sale $7,877,000
==========
</TABLE>
Management estimates that the sale of the Eagle assets and cessation of Eagle
operations will result in a net loss of approximately $7,810,000. This
estimate includes charges for the disposition of inventory not purchased by
Artisoft, Inc., writedown of fixed assets, severance costs and other expenses
which are to be incurred as a result of the sale.
(21)
<PAGE> 23
NOTE 6 - SALARY SAVINGS PLAN:
Eagle employees participate in an Anthem sponsored Section 401(K) Savings Plan
(the "Plan") which provides participants an opportunity to accumulate funds for
retirement and hardship. Under the terms of the Plan, eligible participants
may contribute up to 12% of their eligible earnings to the Plan. Anthem will
contribute 50 cents for each dollar the employee contributes on the first 6% of
compensation. Anthem contributions related to Eagle employees were $26,000 for
the year ended December 31, 1993.
NOTE 7 - COMMITMENTS;
Anthem leases certain of its facilities under noncancelable operating leases
expiring in various years through 1997. During 1993, rent expense totaled
approximately $278,000.
Pursuant to the asset purchase agreement, Artisoft, Inc. will assume certain of
the leases for the facilities used by Eagle. Future minimum payments, in the
aggregate, under the leases to be assumed are $214,000 and $142,000 for the
years 1994 and 1995, respectively.
(22)
<PAGE> 24
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
MICRODYNE CORPORATION'S UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements
illustrate the effect of Microdyne Corporation's acquisition of Eagle
Technology (the "Acquisition"), accounted for as a purchase. The Unaudited
Pro Forma Consolidated Balance Sheet is prepared as of December 31, 1994 and
illustrates the effects of the Acquisition as if it had occurred on that date.
The Unaudited Pro Forma Consolidated Statements of Operations are prepared for
the three months ended December 31, 1994 and for the year ended September 30,
1994 and illustrate the effects of the Acquisition as if it had occurred at the
beginning of such periods.
(23)
<PAGE> 25
MICRODYNE CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------ -----------------------------------
Microdyne Eagle Eagle Combined
as of as of Acquisition as of
Dec. 31, 1994 Dec. 31, 1994 Adjustments Dec. 31, 1994
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,111 $ (500) (1) $ 1,611
Accounts receivable, net 34,524 $ 13,236 (13,236) (2) 34,524
Inventories 13,516 8,016 (1) 21,532
Prepaid expenses and other 1,895 153 (153) (2) 1,895
Assets held for sale 8,608 (8,608) (1)
Deferred income taxes 1,672 844 (844) (2) 1,672
------------- ------------- -------------
Total current assets 53,718 22,841 61,234
PROPERTY AND EQUIPMENT, net 3,918 246 346 (1) 4,510
PRODUCT LINE ACQUISITION COST 1,806 1,806
EAGLE ACQUISITION INTANGIBLES 1,600 5,900 (1) 7,500
OTHER ASSETS 1,315 144 (144) (2) 1,315
------------- ------------- -------------
$ 60,757 $ 24,831 $ 76,365
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Advances under line of credit $ 4,000 (4,000) (2)
Current maturities of l-t obligations $ 3,082 (200) (1) 2,882
Amount due Artisoft under purchase
agreement 4,108 (1) 4,108
Accounts payable 13,630 2,828 (2,828) (2) 13,630
Accrued liabilities 11,710 1,168 (1,168) (2) 11,710
Income tax payable 971 971
------------- ------------- -------------
Total current liabilities 29,393 7,996 33,301
LONG TERM OBLIGATIONS 10,919 11,700 (1) 22,619
DEFERRED INCOME TAX PAYABLE 355 355
STOCKHOLDERS' EQUITY
Common stock, par 1,183 1,183
Additional paid-in capital 1,689 1,689
Retained earnings 17,305 17,305
Unrealized loss on marketable
equity security (87) (87)
------------- ------------- -------------
20,090 16,835 (16,835) (2) 20,090
------------- ------------- -------------
$ 60,757 $ 24,831 $ 76,365
============= ============= =============
</TABLE>
See accompanying notes
(24)
<PAGE> 26
MICRODYNE CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------ -------------------------------------
Microdyne Eagle Eagle Combined
October 1, 1994 October 1, 1994 Acquisition October 1, 1994
to Dec. 31, 1994 to Dec. 31, 1994 Adjustments to Dec. 31, 1994
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue $ 31,819 $ 9,615 $ 41,434
Cost of goods sold 22,029 9,148 (1,748) (3) 29,429
---------------- ---------------- ----------- ----------------
Gross Profit 9,790 467 1,748 12,005
Selling, general and
administrative expense 4,735 2,003 (76) (4) 6,662
Research and development 1,162 712 (673) (5) 1,201
---------------- ---------------- ----------- ----------------
Earnings from operations 3,893 (2,248) 2,497 4,142
Other income (expense):
Interest expense (220) (110) (308) (6) (638)
Other expense (835) (835)
---------------- ---------------- ----------- ----------------
Earnings before income taxes 2,838 (2,358) 2,189 2,669
Provision for income taxes 1,107 (943) 877 (7) 1,041
---------------- ---------------- ----------- ----------------
Net earnings $ 1,731 $ (1,415) $ 1,312 $ 1,628
================ ================ =========== ================
Net earnings per share $ 0.14 $ (0.11) $ 0.10 $ 0.13
================ ================ =========== ================
</TABLE>
(25)
<PAGE> 27
MICRODYNE CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------------- -------------------------------------
Microdyne Eagle Eagle Combined
October 1, 1993 to January 1, 1994 to Acquisition October 1, 1993 to
September 30, 1994 December 31, 1994 Adjustments September 30, 1994
------------------ ------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 101,294 $ 51,064 $ 152,358
Cost of goods sold 73,259 38,186 $ (1,748) (3) 109,697
------------------ ------------------ ----------- ------------------
Gross Profit 28,035 12,878 1,748 42,661
Selling, general and
administrative expense 16,650 7,586 (29) (4) 24,207
Research and development 3,586 1,356 (1,200) (5) 3,742
------------------ ------------------ ----------- ------------------
Earnings from operations 7,799 3,936 2,977 14,712
Other income (expense):
Interest expense (554) (456) (912) (6) (1,922)
Other income 55 55
------------------ ------------------ ----------- ------------------
Earnings before income taxes 7,300 3,480 2,065 12,845
Provision for income taxes 2,701 1,391 771 (7) 4,863
------------------ ------------------ ----------- ------------------
Net earnings $ 4,599 $ 2,089 $ 1,293 $ 7,981
================== ================== =========== ==================
Net earnings per share $ 0.35 $ 0.16 $ 0.10 $ 0.61
================== ================== =========== ==================
</TABLE>
(26)
<PAGE> 28
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Microdyne's purchase price for the Eagle business as presented in the
proforma balance sheet is $16.1 million which includes $8,016,000 million in
inventories, $592,000 in fixed assets, and $7.5 million in intangibles.
Microdyne has agreed to pay for any additional inventories in an amount
not to exceed $1,392,000, resulting in a total purchase price not to exceed
$17.5 million. $1,392,000 is not reflected in the proforma balance sheet as an
asset due from Artisoft and a corresponding liability to Artisoft. Under the
purchase agreement, neither Artisoft nor Microdyne is obligated to provide or
purchase any minimum levels of inventories, respectively.
Microdyne paid Artisoft $12.0 million at closing which was financed out
of bank borrowings. Microdyne's lender also issued two letters of credit for
the account of Microdyne totalling $5.5 million, against which Artisoft can
draw with the mutual consent of Microdyne and Artisoft. (A detailed
description of Microdyne's new financing arrangement was provided in the
Current Report on Form 8-K dated January 6, 1995.) In return for its new
financing arrangement, Microdyne agreed to reduce its already-existing
outstanding borrowings by $500,000. This debt service is reflected as a
reduction in cash on the proforma balance sheet.
Microdyne's outstanding bank debt (in millions) is as follows:
<TABLE>
<CAPTION>
Combined
At 12/31/94 Proforma Adj. At 12/31/94
----------- ------------- -----------
<S> <C> <C> <C>
Current maturities of long-term
obligations $ 2.4 $ (.2) $ 2.2
Long-term obligations 8.4 11.7 20.1
--- ---- ----
Total $10.8 $11.5 $22.3
</TABLE>
Microdyne's remaining liability to Artisoft as reflected on the proforma
balance sheet is $4.1 million, reflecting the difference between $16.1 million
in assets recorded and $12.0 million paid to Artisoft.
(2) Eagle's other assets and liabilities which are not part of the purchase
agreement have been eliminated in the proforma balance sheet.
(3) $1,748,000 represents a one-time, non-recurring writedown of Eagle
inventories by Artisoft in the three months ended December 31, 1994. The
inventories purchased by Microdyne were carefully selected for short-term
useability and such inventories were specifically negotiated into the purchase
agreement. Accordingly, any incremental inventory obsolescence to Microdyne is
not expected to be material and is not reflected in the proforma income
statements.
(27)
<PAGE> 29
(4) Adjustments to selling, general and administrative expense (in
thousands) are as follows:
<TABLE>
<CAPTION>
Year ended 9/30/94 3 months ended 12/31/94
------------------ -----------------------
<S> <C> <C>
Amortization of intangibles
(5 years) $ 1,500 $ 375
Depreciation of fixed assets
(5 years) 118 30
Artisoft general and
administrative expense:
Bad debt expense - (375)
Corporate G&A (1,647) (106)
------- ------
Total $ (29) $ (76)
</TABLE>
Eagle included $501,000 in bad debt expense in the three months ended
December 31, 1994. The bad debt expense adjustment here levels this expense
over four quarters in order to more appropriately match bad debt expense with
revenue on a quarterly basis.
Microdyne believes that its existing corporate G&A structure is adequate
in absorbing any additional administrative requirements resulting from this
acquisition.
(5) Both Microdyne and Eagle are manufacturers of computer networking
products with many of the same products sold through similar channels.
Microdyne's engineering efforts were already focused on many of those projects
which would address the development needs of both Microdyne and Eagle products.
Accordingly, no Eagle engineering employees have been added and there is no
materially significant additional Microdyne engineering cost contemplated as a
result of the acquisition. Offsetting somewhat the proforma reduction due to
the elimination of Eagle's research and development cost is the additional cost
to Microdyne of subletting Eagle's engineering facility ($13,000 per month, or
$156,000 in the year and $39,000 in the quarter).
(6) Incremental interest expense includes ongoing interest charges and loan
origination fees associated with Microdyne's increased outstanding borrowings.
The assumed interest rate is 8.2%.
(7) Microdyne's marginal tax rate is 39%.
(28)
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned
hereunto duly authorized.
MICRODYNE CORPORATION
(Registrant)
By: /s/ William Marshall Ellison II
----------------------------------
William Marshall Ellison II
Assistant Treasurer and Controller
Date: April 11, 1995
(29)
