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 of earliest event reported): December 31, 1996
MILLIPORE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 0-1052 04-2170233
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation or No.)
organization)
80 Ashby Road, Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 275-9200
INDEX
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Amicon
Report of Independent Accountants
Combined Balance Sheet at December 31,1996
Combined Statement Of Operations for the
year ended December 31, 1996
Combined Statement of Cash Flows for the
year ended December 31, 1996
Notes to the Combined Financial
Statements
Financial Statements of Tylan General,
Inc.
Report of Independent Auditors
Consolidated Statements of Income for
the years ended October 31, 1994, 1995 and
1996
Consolidated Balance Sheets at October
31, 1995 and 1996
Consolidated Statements of Stockholders'
Equity for the years ended October 31, 1994,
1995 and 1996
Consolidated Statements of Cash Flows
for the years ended October 31, 1994, 1995
and 1996
Notes to Consolidated Financial
Statements
(b) Pro Forma Financial Information
Introductory Information
Unaudited Pro Forma Statement of Income
for the year ended December 31, 1996
Unaudited Pro Forma Balance Sheet at
December 31, 1996
Notes to Unaudited Pro Forma Financial
Information
(b) Pro Forma Financial Information
Introduction
(in thousands)
Acquisition of Amicon
On December 31, 1996, Millipore acquired the net assets of
the Amicon Separation Science Business of W.R. Grace & Co.
(Amicon) for approximately $129,265 in cash, including
transaction costs. This acquisition was accounted for as a
purchase, and accordingly, the purchase price was
preliminarily allocated to the identifiable tangible and
intangible assets based on the estimated fair market values
of those assets. The Company also accrued $27,000 for
additional costs associated with the acquisition. The
purchase price was allocated to the net assets acquired as
follows:
Current assets $ 30,328
Property, plant and equipment 15,474
Intangible assets 50,753
Purchased Research & 68,311
Development
Other assets 596
Current liabilities (9,197)
$ 156,265
Identifiable intangible assets included trade names and
patented and unpatented complete technology. These
intangible assets will be amortized over their estimated
useful lives ranging from five to thirty years. The value
assigned to purchased research and development, for which
technical feasibility had not been achieved, was charged to
earnings in the fourth quarter of 1996 and is included in
the historical Millipore statement of income for the year
ended December 31, 1996.
Millipore financed the acquisition of Amicon by drawing down
funds on a 90 day $250,000 bridge loan which was made
available to the Company as temporary financing pending
finalization in January, 1997 of a long-term $450,000
revolving credit facility. Borrowings required to complete
the acquisition of $124,397 are included in Millipore's
historical balance sheet at December 31, 1996.
As this acquisition was completed on the last business day
of 1996, the assets acquired and liabilities assumed are
included in Millipore's historical balance sheet at December
31, 1996. Amicon had a December 31 year end, which is the
same year end as Millipore. The unaudited pro forma
statement of income for the year ended December 31, 1996 was
prepared as if the acquisition had occurred on January 1,
1996.
Acquisition of Tylan General, Inc.
On January 22, 1997, Millipore successfully completed a cash
tender offer for all of the outstanding common stock of
Tylan General, Inc. (Tylan) for $16.00 per share. Tylan
became a wholly owned subsidiary of Millipore on January 27,
1997. The purchase price was $133,000 and was funded
through the Company's $450,000 revolving credit facility
discussed above. In addition, Millipore assumed all of
Tylan's outstanding debt, net of cash. This acquisition
will be accounted for as a purchase by Millipore in the
first quarter of 1997.
As part of the purchase accounting to be recorded in the
first quarter of 1997, Millipore expects to record a non-tax
deductible charge in the range of $50,000 to $100,000 for
purchased research and development for which technical
feasibility has not yet been achieved. Millipore also
expects to record an accrual in the range of $35,000 in the
first quarter of 1997 for transaction and other costs
directly associated with the acquisition. No purchased
research and development expense relating to the Tylan
acquisition has been included in the pro forma statement of
income for the year ended December 31, 1996.
Millipore has reflected the high end of its estimate for
purchased research and development expense, $100,000, as
well as its estimate for costs associated with this
acquisition of $35,000 as pro forma adjustments to retained
earnings and accrued expenses, respectively, in the pro
forma balance sheet at December 31, 1996. In addition,
Millipore has assumed intangible assets acquired are $18,646
and has reflected this amount as a pro forma adjustment in
the pro forma balance sheet at December 31, 1996.
The unaudited pro forma balance sheet at December 31, 1996
was prepared as if the acquisition of Tylan had occurred on
December 31, 1996. The unaudited pro forma statement of
income for the year ended December 31, 1996 was prepared as
if the acquisition of Tylan had occurred on January 1, 1996.
Tylan had an October 31 year end. For purposes of
presenting an unaudited pro forma statement of income for
the year ended December 31, 1996, the historical results of
Tylan's operations for the year ended October 31, 1996 have
been included with Millipore's results of operations for the
year ended December 31, 1996. For purposes of presenting
the pro forma balance sheet at December 31, 1996, the
historical accounts of Tylan at October 31, 1996 have been
included with Millipore's balance sheet accounts at December
31, 1996. The impact resulting from these differences in
periods is not material.
The unaudited pro forma financial statements are intended
for informational purposes and are not necessarily
indicative of the future financial position or future
results of operations of the combined entity. These
condensed pro forma financial statements should be read in
conjunction with the Annual Report on Form 10-K for the year
ended December 31, 1996, and the historical financial
statements of Amicon and Tylan filed as part of this report
on Form 8-K.
Millipore Corporation
Unaudited Pro Forma Statement of Income
For the year ended December 31, 1996
(in thousands, except per share data)
Historical Pro Forma
Millipore Amicon Tylan Adjustments Results
Amicon Tylan
Net Sales $618,735 $ 57,481 $148,339 $824,555
Cost of Sales 249,443 25,491 88,938 2,500(A) 5,000(E) 371,372
Gross Profit 369,292 31,990 59,401 453,183
Selling,
general and 202,140 20,748 43,512 2,537(B) 1,240(F) 270,177
administrative
expenses
Research and
Development 38,429 5,252 11,807 55,488
Expenses
Purchased
Research and 68,311 - - - - 68,311
Development
Expense
Operating 60,412 5,990 4,082 (5,037) (6,240) 59,207
Income
Gain on sale of
equity 5,329 - - 5,329
securities
Interest (8,718) (378) (1,811) (8,708) (9,310) (28,925)
Expense, net (C) (G)
Other expense - (1,010) (993) 728(H) (1,275)
Income before
income taxes 57,023 4,602 1,278 (13,745) (14,822) 34,336
Provision for 13,401 1,868 483 (4,811) (3,004) 7,937
income taxes (D) (I)
Extraordinary
Item, net of - - (224) (224)
income tax
benefit
Net Income $43,622 $2,734 $571 $(8,934) $(11,818) $26,175
Net Income per
common share $1.00 $0.60
Weighted
average common
shares 43,602 43,602
outstanding
Millipore Corporation
Unaudited Pro Forma Balance Sheet
December 31, 1996
(in thousands)
Historical Pro Forma
Millipore Tylan Adjustments Results
Assets
Current assets:
Cash $4,010 $2,664 $6,674
Short-term investments 42,860 - 42,860
Accounts receivable 151,653 21,642 173,295
Inventories 106,410 28,899 5,000(A) 140,309
Other current assets 6,979 5,549 12,528
Total current assets 311,912 58,754 375,666
Property, plant and equipment, 203,017 27,185 230,202
net
Intangible assets 58,866 2,784 15,862(B) 77,512
Deferred income taxes 69,086 866 69,952
Other assets 40,011 1,756 41,767
Total assets $682,892 $91,345 $20,862 $795,099
Liabilities and Shareholders'
Equity
Current liabilities:
Notes payable $101,546 $8,411 $109,957
Accounts payable 34,404 14,204 48,608
Accrued expenses 57,011 6,470 35,000(C) 98,481
Accrued divestiture costs 3,604 - 3,604
Dividends payable 3,899 - 3,899
Accrued retirement plan 4,705 - 4,705
contributions
Accrued income taxes payable 11,231 412 11,643
Total current liabilities 216,400 29,497 35,000 280,897
Long-term debt 224,359 14,193 133,000(D) 371,552
Other liabilities 24,528 517 25,045
Shareholders' equity:
Common stock 56,988 8 (8)(E) 56,988
Additional paid-in capital 8,800 37,544 (37,544)(E) 8,800
Unrealized gain on securities 9,536 - 9,536
available for sale
Retained earnings 548,598 10,053 (110,053)(F)448,598
Notes receivable - stock - (333) 333(E) -
purchases
Translation adjustments (8,280) (134) 134(E) (8,280)
615,642 47,138 (147,138) 515,642
Less: Treasury stock at cost(398,037) - (398,037)
Total shareholders' equity 217,605 47,138 (147,138) 117,605
Total liabilities and $682,892 $91,345 $20,862 $795,099
shareholders' equity
Millipore Corporation
Notes to Unaudited Pro Forma Financial Statements
(in thousands)
I.) Pro Forma Adjustments to Millipore Corporation's 1996
Statement of Income:
Related to Amicon Acquisition:
(A)Record write-off of acquired inventory written
up from Amicon's historical cost to net realizable
value on the date of acquisition.
(B)Record twelve months amortization expense on
$50,753 of intangible assets being amortized over
their average estimated useful lives of 20 years.
(C)Record twelve months interest expense assuming
borrowings of $124,397 and an annual interest rate
of 7 percent.
(D)Record income tax benefit of pro forma
adjustments using an effective income tax rate of
35 percent, which is Millipore's marginal tax
rate.
Related to Tylan Acquisition:
(E)Record estimated write-off of acquired
inventory written up from Tylan's historical cost
to net realizable value on the date of
acquisition.
(F)Record twelve months amortization expense on an
estimated $18,646 of intangible assets being
amortized over their average estimated useful
lives of 15 years.
(G)Record twelve months interest expense assuming
borrowings of $133,000 and an annual interest rate
of 7 percent.
(H)Eliminate $728 of historical Tylan expenses for
costs to defer potential unsolicited attempt to
acquire Tylan. These costs were included in other
expense in the 1996 historical Tylan Statement of
Income.
(I)Record income tax benefit of pro forma
adjustments G and H using an effective income tax
rate of 35 percent, which is Millipore's marginal
tax rate. Pro forma adjustments E and F are not
tax effected as neither item is tax deductible.
II.) Pro Forma Adjustments to Millipore Corporation Balance
Sheet at December 31, 1996:
(A)Record estimated write-up of inventory in Tylan
acquisition from Tylan's historical cost to net
realizable value on the date of acquisition.
(B)Intangible Assets - adjustments consist of the
following:
- Recording of estimated Intangible Assets in
Tylan Acquisition $18,646
- Eliminate existing Tylan Intangible
Assets (2,784)
Total Pro Forma Adjustment $15,862
(C) Record accrual for estimated
transaction costs to be incurred in the
acquisition of Tylan as well as estimated
additional costs associated with the acquisition.
(D) Record borrowings for $133,000 to
acquire all of the outstanding shares of common
stock of Tylan
(E) Eliminate historical shareholders'
equity accounts of Tylan
(F) Retained Earnings - adjustment consists
of the following:
- Elimination of Tylan's historical
Retained Earnings $(10,053)
- Estimated Purchased Research and
Development expense arising from Tylan
acquisition (100,000)
($110,053)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
MILLIPORE CORPORATION
(Registrant)
Date: March 17, 1997 /s/ Geoffrey Nunes
Geoffrey Nunes
Senior Vice President
W.R. Grace & Co.-Conn.
Amicon Product Line
Combined Financial Statements
December 31, 1996
Report of Independent Accountants
To the Board of Directors of
W.R. Grace & Co.-Conn.
In our opinion, the accompanying combined balance sheet
and the related combined statements of operations and of
cash flows present fairly, in all material respects, the
financial position of the Amicon Product line ("the
Business") of W.R. Grace & Co.-Conn. ("Grace") and
subsidiaries at December 31, 1996, 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
management of W.R. Grace and the Business; 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.
The Business was a separate product line of Grace and, as
disclosed in Note 1 to the accompanying financial
statements, has engaged in various transactions and
relationships with other Grace entities. However, the
terms of these transactions may differ from those that
would result from transactions among unrelated parties.
Price Waterhouse LLP
Boston, Massachusetts
March 12, 1997
December 31,
1996
Assets
Cash $1,885
Accounts receivable , net of allowance for
returns and doubtful accounts of $540 12,689
Inventories 12,962
Other current assets 481
Total current assets 28,017
Properties and equipment 25,705
Accumulated depreciation (16,191)
9,514
Goodwill, net of accumulated amortization of
$6,985 20,377
Other noncurrent assets 740
Deferred taxes 30
Total assets $58,678
Liabilities and Parent Company Investment
Current portion of long term debt $ 19
Notes payable 3,738
Accounts payable 5,162
Accrued salaries and employee benefits 1,311
Other accrued liabilities 1,007
Intercompany accounts payable 1,090
Deferred taxes 372
Total current liabilities 12,699
Long-term debt 21
Other noncurrent liabilities 673
Total liabilities 13,393
Commitments and contingencies (Note 13)
Parent company investment 45,285
Total liabilities
and parent company investment $ 58,678
Year ended
December 31,
1996
Net sales $57,481
Cost of goods sold 25,491
Gross Profit 31,990
Selling expenses 15,352
General and administrative expenses 5,396
Research and development expenses 5,252
Total operating expenses 26,000
Income from operations 5,990
Other expense, net 5,990
Other expense, net 599
Interest expense, net 378
Foreign exchange loss 411
Income before income taxes 4,602
Provision for income taxes 1,868
Net income $2,734
Year ended
December 31,
1996
Operating Activities:
Net income $2,734
Reconciliation to cash provided by operating activities:
Depreciation and amortization 2,077
Deferred tax provision 701
Changes in operating assets and liabilities:
Accounts receivable (60)
Inventories (1,554)
Other current assets (173)
Other assets 124
Accounts payable, accrued salaries and employee
benefits and other accrued liabilities 213
Intercompany accounts payable 733
Net cash provided by operating activities 4,795
Investing Activities
Purchase of property and equipment, net (1,180)
Net cash used in investing activities (1,180)
Financing Activities
Repayment of debt, net (4,960)
Change in amount due to parent, net 764
Net cash used in finacing activities (4,196)
Net effect of exchange reate changes on cash (112)
Net decrease in cash (693)
Cash, beginning of year 2,578
Cash, end of year $1,885
1. Summary of Significant Accounting Policies
The Business
Effective December 31, 1996, Millipore Corporation and its
subsidiaries ("Millipore") purchased the Grace Amicon product
line (the "Business") of W.R. Grace & Co.-Conn. ("Grace") and
subsidiaries (the "Grace Group"), a wholly owned subsidiary of
W.R. Grace & Co. ("W.R. Grace"), by acquiring certain assets and
assuming certain liabilities of the Business worldwide from the
Grace Group as provided in the Amicon Worldwide Purchase and Sale
Agreement dated November 18, 1996, as amended December 31, 1996
(the "Agreement").
The Business develops, manufactures and distributes molecular
separation and purification products and systems to the life
science research, biotechnology and pharmaceutical industries in
both foreign and domestic markets. The Business has
manufacturing facilities in Danvers, Massachusetts; Stonehouse,
England; Limerick, Ireland; and Lyon, France. The Business also
maintains thirteen sales offices in Europe, the United States and
the Far East, of which seven offices are shared sales and
administrative facilities with the Grace Group.
Basis of Presentation
Under the terms of the Agreement, Millipore acquired from the
Grace Group (1) the capital stock of Prochrom S.A., a French
corporation; the capital stock of Amicon Limited, a United
Kingdom corporation; the capital stock of Amicon G.m.b.H., a
German corporation; and the capital stock of Amicon Canada
Limited, a Canadian corporation (collectively the
"Subsidiaries"); and (2) other worldwide operating assets and
liabilities of the Business in the following countries:
United States Japan
Ireland The Netherlands
France Sweden
Italy Switzerland
These financial statements present the historical financial
position, results of operations, and cash flows of the
Business previously included in the W.R. Grace's
consolidated financial statements. The Securities and
Exchange Commission, in Staff Accounting Bulletin Number 55,
requires that historical financial statements of a
subsidiary, division, or lesser business component of
another entity include certain expenses incurred by the
parent on its behalf. Accordingly, included in the
accompanying financial statements are costs allocated to the
Business by the Grace Group (See Note 11).
All transactions between the Business' locations included in
these financial statements are referred to herein as
"intracompany" transactions whereas transactions between the
Business and the Grace Group are referred to herein as
"intercompany" transactions. Account balances of the
Business with Grace or the Grace Group have been reported as
part of parent company
investment, except those related to the sale of product
which have been included in intercompany accounts payable,
as well as the payable from the German sales office to the
Grace Group.
Basis of Combination
These combined statements have been prepared by combining
the assets and liabilities of the Business. All
intracompany balances and intracompany profit relating to
the Business have been eliminated in preparing the financial
statements, except as noted above.
Financial Instruments
At December 31, 1996, the carrying value of financial
instruments, such as trade accounts receivable, accounts
payable and accrued liabilities, approximate fair value,
based on the short term maturities of these instruments. At
December 31, 1996, the fair value of notes payable and long-
term debt also approximated book value as such indebtedness
is based on current interest rates.
Cash and Cash Equivalents
The Business considers all highly liquid investments
purchased with an original maturity of three months or less
to be cash equivalents.
Accounts Receivable and Concentrations of Credit Risk
Financial instruments which potentially expose the Business
to concentrations of credit risk consist primarily of trade
accounts receivable. Ongoing credit evaluations of
customers' financial condition are performed, and collateral
is not required. The Business maintains allowances for
potential credit losses and such losses, in the aggregate,
have not exceeded management's expectations.
Revenue Recognition
The Business generally recognizes revenue upon shipment of
product. The Business offers limited duration warranties
for certain of its products and, at the time of sale,
provides liabilities for all estimated warranty costs.
The Business also recognizes revenue utilizing the
percentage of completion method for sales of certain
products which meet specific sales criteria. Earned revenue
is based on the percentage that incurred costs to date bear
to total estimated costs after giving effect to the most
recent estimates of total costs. Revisions in total
estimated costs and anticipated losses are charged to income
when identified.
Inventories
Finished goods and work-in-process inventories are valued at
the lower of full absorption cost or market. Cost flow is
based on the first-in, first-out (FIFO) method. Raw
materials are valued at the lower of FIFO cost or realizable
value.
Properties and Equipment
Properties and equipment are stated at cost. Major renewals
and improvements that extend the lives of the respective
assets are capitalized. Maintenance, repairs and renewals
that do not extend the lives of the respective assets are
charged to income as incurred. Fully depreciated assets are
retained in properties and equipment and related accumulated
depreciation accounts until they are removed from service.
For financial reporting purposes, depreciation is computed
using the straight-line method over the estimated useful
lives of the assets.
Intangible Assets
Included in other noncurrent assets are intangible assets
(primarily drawings, patents and trademarks) of $150, net of
accumulated amortization of $2,213. These intangible assets
are being amortized on a straight-line basis over 1 to
15 years.
Demonstration Equipment
Included in other noncurrent assets is demonstration
equipment of $586, net of accumulated amortization of
$1,131. Demonstration equipment represents equipment which
is used by sales employees to demonstrate product during
sales presentations to potential customers. Demonstration
equipment is being amortized on a straight line basis over
two years. Gains and losses on sales of demonstration
equipment is included in gross profit.
Goodwill
Goodwill represents the excess of the purchase price over
the fair value of the net assets of businesses acquired,
which is being amortized on a straight line basis over forty
years. Goodwill amounted to $20,377, net of accumulated
amortization of $6,985.
Impairment
The Business has adopted statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." In accordance with SFAS 121, the Business
reviews long-lived assets and related goodwill for
impairment whenever events or changes in circumstances
indicate that the carrying amounts of such assets may not be
fully recoverable. The adoption of SFAS 121 did not have a
material effect on the Business financial position or result
of operations.
Income Taxes
Historically, the results of certain of the Business'
operations have been included in either the consolidated
income tax returns of W.R. Grace or the income tax returns
of other members of the Grace Group. As such, W.R. Grace or
the Grace Group paid income taxes attributable to the
Business; this has been reflected in parent company
investment. The income tax expense and other tax related
information included in these financial statements have been
calculated as if the operations of the Business were not
eligible to be included in the consolidated tax returns of
W.R. Grace or other members of the Grace Group but rather
were stand-alone taxpayers.
The provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes"
("SFAS 109"), have been retroactively applied to these
financial statements. SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax
consequences of events that have been recognized in the
financial statements or tax returns. Deferred tax expense
(benefit), represents the change in the net deferred tax
asset or liability balance. In estimating future tax
consequences, SFAS 109 generally considers all expected
future events other than anticipated changes in the tax law
or rates.
Foreign Currency Translation
Results of foreign operations are translated using average
exchange rates during the year, while assets and liabilities
are translated using exchange rates in effect at year end.
Exchange gains and losses resulting from foreign currency
transactions denominated in currencies other than the
respective functional currencies are recorded based on the
difference in exchange rates from the date the transaction
is initially recorded to the date it is settled, or the
exchange rate in effect at December 31, 1996, if it was not
settled.
Sale of Investment in Separex S.A.
During 1996, the Business sold its 12% equity interest in
Separex S.A., a research and development company, for
approximately $273. The resulting gain on the transaction
of $211 has been included in other income and expense in the
combined statement of operations.
Advertising Expense
The Business records advertising expense when incurred.
Advertising expense was $1,312 for the year and is included
in selling expenses.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses for the year then ended. Actual results could
differ from those estimates.
2. Accounts Receivable
Accounts receivable include:
Trade accounts receivable - gross $12,659
Allowance for returns and doubtful accounts (540)
Trade accounts receivable, net 12,119
Other accounts receivable 570
$12,689
3. Inventories
Inventories include:
Raw and packaging materials $ 6,456
Work-in-process 2,267
Finished goods 4,239
$12,962
4. Other Current Assets
Other current assets principally include prepaid expenses.
5. Properties and Equipment
Useful lives
(years)
Properties and equipment include:
Land and land improvements 10 $ 176
Buildings and building improvements 10 to 50 6,836
Machinery and equipment 3 to 12 12,812
Motor vehicles 5 30
Furniture and fixtures 5 to 12 2,643
Computer equipment 3 to 5 2,538
Construction in progress 3 to 12 670
25,705
Less: Accumulated depreciation (16,191)
$ 9,514
Commitments under construction in progress projects were not
significant. The Business' minimum future payments under
non-cancelable operating leases as of December 31, 1996 are
as follows:
1997 $ 598
1998 446
1999 174
2000 59
2001 42
Thereafter 148
$1,467
6. Other Accrued Liabilities
Other accrued liabilities include:
Warranty $ 328
Customer deposits 264
Professional fees 81
Sales and related taxes 80
Other 254
$1,007
7. Borrowings
Borrowings consist of the following:
Revolving credit loan $ 3,738
Term loan 40
Total borrowings $ 3,778
In October 1996, the Business French subsidiary entered into
a FF 35,000 ($6,700 at December 31, 1996) annual revolving
credit facility agreement with a bank. Advances on the
revolving credit facility bear interest at the Paris
Interbank rate plus .25% (3.44% at December 31, 1996). Cash
overdrafts funded by the revolving facility bear interest at
4.33%. The revolving credit facility is payable on demand
and is guaranteed by Grace Group.
The term loan represents amounts borrowed under a long-term
note with a bank. The note requires monthly principal
payments of FF 8 ($1.5 at December 31, 1996) through 1999
and bears interest at a variable rate (10.9% at December 31,
1996).
8. Income Taxes
The components of the provision for income taxes consist of:
Income before income taxes
Domestic $ 2,209
Foreign 2,393
Total $ 4,602
Current provision
Federal 481
State 85
Foreign 601
Total current provision 1,167
Deferred provision
Federal 478
State 82
Foreign 141
Total deferred provision 701
Total provision for income taxes $ 1,868
Deferred tax assets (liabilities) of the Subsidiaries are
comprised of the following:
Net operating losses $ 1,511
Credit carryforwards 208
Inventories 115
Other 30
1,864
Valuation allowance (1,382)
Total deferred tax assets 482
Properties and equipment (350)
Other (474)
Total deferred tax liabilities (824)
Net deferred tax liability $ (342)
Deferred tax assets (liabilities) which are included in
parent company investment are comprised of the following:
Research and development 2,547
Inventories 1,336
Net operating losses 253
Other 331
4,467
Valuation allowance (253)
Total deferred tax assets 4,214
Other (170)
Properties and equipment (91)
Total deferred tax liabilities (261)
Net deferred tax assets $ 3,953
The U.S. federal corporate tax rate reconciles to the total
provision for income taxes as follows:
Taxes computed at federal statutory rate $ 1,611
State income tax, net of federal benefit 167
Non-deductible goodwill 157
Foreign rates lower than federal statutory rates (1,094)
Valuation allowance 1,004
Meals and entertainment 23
Total provision for income taxes $ 1,868
U.S. and foreign taxes have not been provided on foreign
undistributed earnings of approximately $19,702, as such
earnings are being retained indefinitely for reinvestment.
The distribution of these earnings would result in
additional foreign withholding taxes and additional U.S.
federal income taxes to the extent they are not offset by
foreign tax credits, but it is not practicable to estimate
the total tax liability that would be incurred upon such a
distribution.
At December 31, 1996, the Business has foreign net operating
loss carryforwards of $1,900 which expire in various amounts
through the year 2002, and foreign net operating loss
carryforwards of approximately $1,700 which do not expire.
A full evaluation allowance has been provided on all foreign
net operating losses and credit carryforwards.
9. Pension Plans
The Grace Group maintains defined benefit pension plans
covering employees of certain units including the Business,
who meet age and service requirements. Benefits are
generally based on final average salary and years of
service. The Grace Group funds its pension plans in
accordance with statutory laws and regulations. Plan assets
are invested primarily in common stock and fixed income
securities.
For purposes of these financial statements, all employees,
except those of the subsidiary in Germany, are considered to
have participated in a multiemployer pension plan as defined
in Statement of Financial Accounting Standards No. 87,
"Employers Accounting for Pensions," ("SFAS 87"). For
multiemployer plans, employers are required to recognize as
net pension expense total contributions for the period.
With respect to these plans, the Business recorded expense
of $606 in 1996. No contributions are due or unpaid at
December 31, 1996.
10. Parent Company Investment
As the majority of the Business' operations are conducted as
divisions of Grace Group, not as distinct legal entities,
there are no customary equity and capital accounts.
Instead, parent company investment (i.e., of the Grace
Group) is maintained by the Business and the Grace Group to
account for intercompany transactions and the net assets of
the Business, as more fully described in Note 11. No
interest has been charged on the parent company investment.
A summary of changes in parent company investment is as
follows:
Parent company investment at December 31, 1995 $ 41,791
Net income 2,734
Net change in amount due to parent 764
Parent company investment at December 31, 1996 $ 45,289
11. Related Party Transactions
Intercompany Purchases
The Business purchases silica media from the Grace Group
under agreed upon pricing structure agreements.
Corporate and Divisional Services
The Grace Group allocates or charges a portion of its
domestic and foreign corporate expenses to respective
Business units. These include Grace executive management
and corporate overhead; postretirement benefit and pension
costs; benefit administration; risk management/insurance
administration; tax and treasury/cash management services;
environmental services including costs of remediation;
litigation administration services; and other support and
executive functions.
All of the allocations and charges described above, are
included in general and administrative expenses in the
combined statement of operations. Such allocations and
charges are based on either a direct cost pass through or a
percentage of total costs for the services provided based on
factors such as net sales, management time or headcount.
Such allocations and charges totaled $711 for 1996.
Domestically, the Business was charged, based on the
Business' experience, for its share of workers'
compensation, employee life, medical and dental, and other
general business liability insurance premiums and claims
handled on a corporate-wide basis. These charges are based
upon a combination of experience and payroll dollars and
totaled $746 in 1996, and are included in either cost of
goods sold, selling expenses or general and administrative
expenses, depending upon the nature of the function.
Domestic corporate research and development expenses and
overheads directly related to the Business of $55 have been
charged or allocated to the Business and are included in
research and development expenses.
Foreign
Sales operations of the Business which are operated within
wholly owned subsidiaries of Grace are allocated central
administrative service costs from the Grace Group related to
personnel, information systems, space and warehousing,
employee benefits, general liability insurance, engineering,
financial reporting, general management and other staff
services. In addition, the Business' European and
Asia/Pacific operations were allocated or charged similar
costs by the Grace Group's regional headquarters in
Lausanne, Switzerland and Hong Kong. Such amounts totaled
$651, all of which is included in selling or general and
administrative expenses.
Management believes that the bases used for allocating
corporate and divisional services and common sales
facilities costs are reasonable. However, the terms of
these transactions may differ from those that would result
from transactions among unrelated parties.
12. Geographic Segment and Major Customer Information
The Business operates solely in the market segment described
in Note 1, within the following geographic segments:
North Asia/
America Europe Pacific Eliminating Total
Sales:
Unaffiliated customers $28,290 $18,571 $6,154 $ $ 53,015
Unaffiliated export 3,481 985 4,466
Intercompany 7,335 19,195 (26,530)
Net sales 39,106 38,751 6,154 (26,530) 57,481
Income (loss) before
income taxes 2,561 1,363 (33) 711 4,602
Identifiable assets 27,509 29,586 3,070 (1,487) 58,678
13. Commitments and Contingencies
The Business is subject to certain lawsuits and claims
arising out of the conduct of its business. Management
believes that these matters are without merit or will not
have a material impact on the financial position or results
of operations of the Business.
14. Sale of Business
Effective December 31, 1996, the Grace Group sold the
Business to Millipore for $125,000, subject to further
adjustment pursuant to the terms of the Agreement.
Tylan General, Inc.
Consolidated Financial Statements
Years ended October 31, 1994, 1995 and 1996
Report of Independent Auditors
Board of Directors and Stockholders
Tylan General, Inc.
We have audited the accompanying consolidated balance sheet
of Tylan General, Inc. as of October 31, 1996, and the
related consolidated statements of income, stockholders'
equity and cash flows for the year then ended. 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 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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Tylan General, Inc. at October 31,
1996, and the consolidated results of their operations and
their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The financial statements of Tylan General, Inc. for the
years ending October 31, 1994 and 1995, prior to their
restatement for the 1996 pooling of interests as described
in Note 1, were audited by other auditors whose report dated
December 13, 1995 expressed an unqualified opinion on those
statements. We audited the October 31, 1995 consolidated
balance sheet of Span Instruments, Inc. and Subsidiary
("Span"), and the consolidated statements of income,
stockholders' equity and cash flows of Span for the year
ended August 31, 1995. The contribution of Span to the
total assets and revenues of the recast pooled 1995
consolidated financial statements represented 33% and 36% of
the respective totals. The financial statements of Span for
the year ended August 31, 1994 were audited by other
auditors whose report dated November 24, 1994 expressed an
unqualified opinion on those statements.
We have audited, as to combination only, the accompanying
consolidated balance sheet as of October 31, 1995 and the
consolidated statements of income, stockholders' equity and
cash flows of Tylan General, Inc. for the years ended
October 31, 1994 and 1995. As described in Note 1, these
financial statements have been combined from the
consolidated statements of Tylan General, Inc. for the years
ended October 31, 1994 and 1995 and Span for the years ended
August 31, 1994 and 1995. In our opinion, the accompanying
consolidated financial statements for 1994 and 1995 have
been properly combined on the basis described in Note 1.
December 13, 1996
Year Ended
October
31,
1994 1995 1996
Net sales $ 75,373 $118,268 $ 148,339
Cost of sales 45,950 69,490 88,938
Gross profit 29,423 48,778 59,401
Operating
expenses:
Sales and marketing 9,825 14,717 21,098
General and administrative 9,077 14,212 18,223
Research and 4,189 7,526 11,807
development
Business combination and 3,740
integration costs
Amortization, 427 522 451
primarily goodwill
Income from 5,905 11,801 4,082
operations
Other income (expense):
Interest (2,082) (1,807) (1,811)
expense-net
Foreign 110 (59) (146)
currency
exchange
gain (loss)
Costs to deter
potential unsolicited
attempt to acquire
the Company (728)
Minority (60) (253) (119)
interest and other expense
Total other expense (2,032) (2,119) (2,804)
Income before taxes
and extraordinary item 3,873 9,682 1,278
Provision for (923) (3,754) (483)
income tax
Income before 2,950 5,928 795
extraordinary item
Extraordinary item,
net of income tax benefit (695) (224)
Net income $ 2,950 $ 5,233 $ 571
Income per
share data:
Income per share $ 0.56 $ 0.91 $ 0.10
before
extraordinary item
Extraordinary item per share $ (0.11) $ (0.03)
Income per share $ 0.56 $ 0.80 $ 0.07
Weighted 5,300 6,506 8,048
average shares outstanding
October
31,
Assets 1995 1996
Current
assets:
Cash and cash $15,328 $ 2,664
equivalents
Accounts receivable 21,370 21,642
Inventories 19,875 28,899
Prepaid expenses 1,466 2,383
and other
Deferred income taxes 2,130 3,166
Total current assets 60,169 58,754
Property-net 21,187 27,185
Goodwill-net 3,100 2,784
Deferred income taxes 99 866
Other assets 2,496 1,756
Total $87,051 $91,345
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable $13,872 $14,204
Accrued expenses 6,901 6,470
Short-term 5,627
borrowings
Current portion of 2,393 2,784
long-term debt
and capital lease
Income taxes payable 1,991 412
Total current liabilities 25,157 29,497
Long-term debt 15,270 14,193
and capital leases
Total liabilities 40,427 43,690
Minority 400 517
interest
Commitments and
contingencies
Stockholders' equity:
Common stock, 8 8
(.001 par value,
50,000,000 shares authorized,
7,762,228 and 7,868,691 shares
issued and outstanding in 1995 and 1996,
respectively)
Paid-in 36,817 37,544
capital
Retained 9,482 10,053
earnings
Notes receivable- (317) (333)
stock purchases
Cumulative 234 (134)
translation adjustment
Total 46,224 47,138
stockholders' equity
Total $87,051 $91,345
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes
receivable Cumulative
Common Paid-In Retained -stock translation
Preferred stock
stock
Shares Amount Shares Amount capital earnings purchases adjustment Total
Balances at October 31, 1,208 $ 8,235 2,566 $1,045 $ $ 2,125 $(150) $ (218) $ 11,037
1993, as restated
Issuance of common stock 55 157 (77) 80
Purchase of stock (14) (42) (42)
Net income 2,950 2,950
Translation adjustment 487 487
Balances at October 31, 1,208 8,235 2,607 1,160 5,075 (227) 269 14,512
1994, as restated
Reincorporation in Delaware (1,158) 1,158
Conversion of preferred (1,208) (8,235) 1,550 2 8,233
stock
Exercise of warrant 888 1 716 717
Public stock offering 2,550 3 25,849 25,852
Employee stock purchases 114 468 (250) 218
Option exercises 117 632 632
Purchase of stock (64) (239) 122 (117)
Repayments of notes 38 38
receivable
Net income 5,233 5,233
Translation adjustment (35) (35)
Adjustment for change in
Span
Instruments Inc.'s year end (826) (826)
Balances at October 31, 7,762 8 36,817 9,482 (317) 234 46,224
1995, as restated
Employee stock purchases 60 466 (41) 425
Option exercises 47 261 261
Net income 571 571
Translation adjustment (368) (368)
Repayments of notes 25 25
receivable
Balances at October 31, 7,869 $ 8 $37,544 $10,053 $ (333) $ (134) $ 47,138
1996
</TABLE>
Year
Ended
October
31,
1994 1995 1996
Operating
activities:
Net $2,950 $5,233 $571
income
Adjustments to
reconcile net
income to net
cash provided
by (used in)
operating activities:
Net change in cash
for Span during two month
period ended October 31, 1995 (300)
Write-down of assets to net 2,000
realizable value
Write-off of 949
unamortized
deferred
issuance cost
Depreciation and 3,269 3,681 4,921
amortization
Deferred income (212) 266 (1,801)
taxes
Minority 124 483
interest and other
Changes in
assets and
liabilities:
Accounts (2,309) (9,260) (866)
receivabl
Inventories (718) (6,969) (9,434)
Prepaid (525) (558) (936)
expenses and other
Accounts payable and 2,015 9,151 (1,474)
other liabilities
Net cash 4,470 2,317 (6,536)
provided
by (used in)
operating activities
Investing
activities:
Capital (3,909) (10,476) (10,852)
expenditures
Investment in (497)
subsidiary
Capitalized (557) (693) (674)
software and other
Net cash (4,466) (11,666) (11,526)
used in
investing
activities
Financing Activities:
Net proceeds under line of credit 573 1,694 6,035
Proceeds from 1,650 4,049 8,377
issuance of debt
Repayments of (1,467) (8,495) (9,856)
debt and capital leases
Net 25,852
proceeds from public offerings
Proceeds from
exercise
of stock
options and
employee
stock purchases 32 394 727
Translation (85) (486) 115
adjustments and other
Net cash 703 23,008 5,398
provided by financing activities
Increase (decrease) in cash 707 13,659 (12,664)
Cash at 962 1,669 15,328
beginning of year
Cash at end of year $ 1,669 $ 15,328 $ 2,664
Supplemental
disclosure of
cash flow information:
Cash paid during the period for:
Interest $ 1,784 $ 2,126 $ 2,045
Income taxes, net of refunds $ 1,204 $ 2,695 $ 6,552
Supplemental information of non-cash
investing and financing activities:
Capital
lease
obligations
incurred
for various
machinery and
equipment
purchases $ 1,928 $ 2,019 $ 753
Common stock issued in the $ 48
acquisition of technology rights
03/17/97 12:37 PM
Consolidated Financial Statements
Tylan General, Inc.
Years ended October 31, 1994, 1995
and 1996
with Report of Independent Auditors
Tylan General, Inc.
Consolidated Financial Statements
Years ended October 31, 1994, 1995 and 1996
Contents
Report of Independent Auditors 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
1. Description of Business and Significant Accounting
Policies
Basis of Presentation
On July 3, 1996, Tylan General, Inc. completed a merger with
Span Instruments, Inc. ("Span"), and the combined entity
retained the name Tylan General, Inc. (the "Company").
Pursuant to the "Agreement and Plan of Reorganization",
Tylan General, Inc. issued 1,300,000 shares of its common
stock for all of the outstanding common stock of Span.
The accompanying consolidated financial statements of the
Company have been restated and reflect the merger, which has
been accounted for as a pooling of interest. Prior to the
combination, Span's fiscal year ended August, 31. In
restating the financial statements, Span's operating
activity for the year ended October 31, 1996 was combined
with that of Tylan General's for the same period. For the
fiscal 1994 and 1995 financial statements, Span's operating
activity for the year ended August 31 was combined with that
of Tylan General's for the year ended October 31. The two-
month period ended October 31, 1995 relating to Span's
operating activity, during which Span had net sales of
$4,900,000 and a net loss of $826,000, is not included in
the accompanying consolidated financial statements as it is
presented as an adjustment to retained earnings due to the
differing year ends of Span and Tylan General. The balance
sheets of Tylan General and Span have been combined as of
October 31, 1996 and 1995.
All significant transactions between Tylan General and Span
prior to the combination were eliminated. No adjustments
were required to conform accounting policies of Tylan
General and Span. However, certain reclassifications were
made to the 1994 and 1995 financial statements to conform to
the 1996 presentation.
The Company
The Company designs, manufactures and markets precision mass
flow controllers, gas panels, pressure measurement,
monitoring and control instrumentation. The Company's
products are used primarily in integrated circuit
fabrication and also in other manufacturing processes, such
as flat panel display and fiber optic cable fabrication.
The Company's customer base includes semiconductor capital
equipment suppliers, integrated circuit manufacturers,
emergency vehicle manufacturers and other industrial users
located primarily in North America, with additional sales
generated in Europe and Asia. Integrated manufacturers
purchase the Company's products either as part of processing
systems purchased from equipment suppliers or directly from
the Company for retrofit or replacement applications. Such
manufacturers often specify to equipment suppliers which
vendors' process instrumentation should be supplied on a
particular process tool.
A significant portion of the Company's revenues are derived
from semiconductor capital equipment suppliers. The amount
and timing of future revenue from these semiconductor
capital equipment suppliers is contingent upon continued
construction and/or expansion of semiconductor wafer
fabrication facilities. During fiscal 1996, the Company's
five largest customers were Lam Research Corporation,
Applied Materials, Inc., Semi Gas, Tokyo Electron Limited,
and Valin Corporation, Inc., all of which are equipment
suppliers. These customers accounted in the aggregate for
36.6% of net sales in fiscal 1996. One customer individually
accounted for 12.1%, 12.8% and 16.6% of sales for fiscal
1994, 1995 and 1996, respectively. International sales
accounted for 29.3%, 26.8% and 27.1% of sales for fiscal
1994, 1995 and 1996, respectively.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned
subsidiaries and its 75% owned subsidiary Ocala, Inc.
(d.b.a. Class 1), after elimination of all significant
intercompany accounts and transactions.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results
could differ from those estimates.
Fiscal Year
For ease of presentation, the Company has indicated its
fiscal year as ending on October 31. Whereas, in fact, the
Company reports on a 52-53 week fiscal year ending on the
Sunday closest to October 31. Fiscal 1994, 1995 and 1996
each included 52 weeks.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, demand
deposits, and highly liquid short-term investments with
insignificant interest rate risk and original maturities of
three months or less. The Company has not experienced any
losses on its cash accounts.
Concentration of Credit Risk
The Company sells its product to customers primarily in the
United States, Europe and Asia. The Company maintains a
reserve for potential credit losses and such losses have
been minimal.
Foreign Currency Translation
All assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at the rates of exchange in
effect at the close of the period. The aggregate effect of
translating the balance sheets is included as a separate
component of stockholders' equity entitled "Cumulative
translation adjustment." Revenues and expenses are
translated into U.S. dollars at the average rates of
exchange during the period. Gains and losses resulting from
foreign currency transactions are included in net income.
Financial Instruments
The Company periodically enters into foreign currency
futures contracts for the purpose of hedging foreign
exchange risk on certain transactions, primarily
intercompany receivables and payables with its foreign
subsidiaries. The primary exposures for the Company are
denominated in European currencies and the Japanese yen.
The Company does not engage in financial instrument
transactions for trading purposes. The counterparty to the
Company's contracts is a substantial and creditworthy
financial institution. The risk of counterparty default
associated with these contracts is not considered by the
Company to be material.
1. Description of Business and Significant Accounting
Policies (continued)
At October 31, 1995, the Company had foreign exchange
forward contracts to buy $1,200,000 of Japanese yen, that
matured in December 1995. As of October 31, 1995 these
contracts had a carrying value of $100,000 which
approximated their fair value. At October 31, 1996, the
Company had no foreign exchange forward contracts
outstanding.
Inventories
Inventories are stated at cost, which is less than market
value at October 31, 1995 and 1996, determined by the first-
in, first-out method.
Property
Property is stated at cost less accumulated depreciation and
amortization, which is computed using the straight-line
method. Machinery and equipment and furniture and fixtures
are depreciated generally over five years while equipment
under capital leases and leasehold improvements are
amortized over the shorter of the estimated life or related
lease term. Expenditures for replacements and betterments
are capitalized, while expenditures for repairs and
maintenance are charged to expense as incurred.
Evaluation of Intangible Assets
The Company's policy is to evaluate, at each balance sheet
date, the appropriateness of the carrying values of the
unamortized balances of intangible assets on the basis of
estimated future cash flows (undiscounted) and other
factors. If such evaluation were to indicate a material
impairment of these intangible assets, such impairment would
be recognized by a write-down of the applicable asset.
Capitalized Software
In accordance with Statement of Financial Accounting
Standards No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", costs
incurred in the research and development of new software
products and significant enhancements to existing software
products are charged against operations as incurred until
the technological feasibility of the product has been
established. After technological feasibility has been
established, direct production costs, including programming
and testing, are capitalized. Amortization of these costs
begin when the product becomes available for sale.
Amortization expense of capitalized software costs for the
years ended October 31, 1994, 1995 and 1996 was $275,000,
$307,000 and $228,000, respectively. Unamortized
capitalized software costs totaled $1,366,000 and $563,000
at October 31, 1995 and 1996, respectively.
1. Description of Business and Significant Accounting
Policies (continued)
Capitalized software costs are amortized using the greater
of the amount computed using the ratio of current product
revenues to estimated total product revenues or the straight-
line method over the estimated economic lives of the
products. It is possible that estimated total product
revenues, the estimated economic life of the product, or
both will be reduced in the future. As a result, the
carrying amount of capitalized software costs may be reduced
in the future, which could result in material charges to the
results of operations in future periods.
Revenue Recognition
Revenue from product sales is recognized upon shipment.
Research and Development
Research and development costs are expensed in the period
incurred.
Advertising Expenses
Advertising costs are expensed when incurred. Advertising
expenses incurred for the years ended October 31, 1994, 1995
and 1996 were $498,000, $926,000, and $976,000,
respectively.
Income Per Share
Income per share is computed based on the weighted average
number of common and common equivalent shares outstanding
during each period using the treasury stock method and it
assumes conversion of all outstanding convertible preferred
stock and the exercise of all outstanding warrants. Stock
options, convertible preferred stock and warrants are
considered to be common stock equivalents. All shares of
common stock and common stock equivalents issued within
twelve months of an initial public offering at a price per
share less than the offering price ($7.00) are considered to
be outstanding for all periods presented prior to the
initial public offering.
Accounting for Stock-based Compensation
In October, 1995, the Financial Accounting Standards Board
issued "Accounting for Stock-Based Compensation" ("Statement
No. 123"). The statement is effective for fiscal years
beginning after December 15, 1995. Under Statement No. 123,
stock-based
1. Description of Business and Significant Accounting
Policies (continued)
Accounting for Stock-based Compensation
compensation expense is measured using either the intrinsic-
value method as prescribed by Accounting Principle Board
Opinion No. 25 or the fair-value method described in
Statement No. 123. Should the Company not be acquired as
disclosed in Note 13, the Company intends to implement
Statement No. 123 in fiscal 1997 using the intrinsic-value
method. Accordingly, upon adopting Statement No. 123 there
will be no effect on the Company's financial position or
results or operations.
Accounting for Asset Impairment
The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, effective November 1, 1996. SFAS No. 121 required
impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount.
SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. There was no
effect on the financial statements from the adoption of SFAS
No. 121.
2. Merger and Acquisitions
Merger with Span Instruments, Inc.
As stated in Note 1 "Basis of Presentation," Span was merged
into the Company in July, 1996. Span, with principal
facilities in Texas and Florida, designs, manufacturers, and
markets a complete line of pressure monitoring instruments
and equipment.
Total revenues and net income (loss) of Tylan General and
Span for the periods preceding the acquisition were (in
thousands):
Tylan
General Span Combined
Year ended October 31, 1994:
Total revenues $ 48,079 $ 27,294 $ 75,373
Net income $ 2,449 $ 501 $ 2,950
Year ended October 31, 1995:
Total revenues $ 75,825 $ 42,443 $118,268
Net income $ 4,693 $ 540 $ 5,233
Period from November 1, 1995
to July 3, 1996 (Unaudited):
Total revenues $ 71,991 $ 31,819 $103,810
Net income $ 5,977 $ (2,288) $ 3,689
Included in the consolidated statements of operations for
the year ended October 31, 1996 were costs of $3,740,000
related to the combination and integration of Span into
Tylan General. These costs include professional fees of
$1,180,000 and integration costs of $2,560,000. Included in
the integration costs are accrued compensation relating to
employees which were terminated subsequent to the merger and
a $2,000,000 write down of certain assets, primarily
capitalized software costs and fixed assets, to the
estimated net realizable value, which management determined
would be sold after the merger. The net book value of the
division to be sold is $200,000 which is included in prepaid
expenses and other assets in the accompanying consolidated
balance sheet. The consolidated statements of operations
for the year ended October 31, 1996 also include costs
associated with the pre-payment of Span indebtedness which
are presented as an extraordinary loss (net of income tax
benefit) of $224,000.
Investment in Korean Joint Venture
In October, 1995, the Company purchased the remaining 50% of
the outstanding shares of stock of Hanyang General Co., LTD.
Prior to October, 1995, the Company was a 50% owner of
Hanyang General Co., LTD., a corporate joint venture with
Hanyang Engineering Co., LTD. Beginning in October 1995,
Hanyang General Co., LTD's financial statements were
consolidated with the Company's financial statements. Prior
to October 1995, the Company's investment in the corporate
joint venture was accounted for on the equity method.
Acquisition of Class 1, Inc.
On December 29, 1994, the Company acquired the assets,
liabilities, and business of Class 1, Inc. (Class 1), in
exchange for 25% of the stock of a previously wholly-owned
subsidiary of the Company. Class 1 specializes in the
manufacturing of pressure gauges for emergency vehicles.
The acquisition has been accounted for by the purchase
method of accounting and, accordingly, the purchase price
has been allocated to the assets acquired and the
liabilities assumed based on the estimated fair values at
the date of acquisition. The excess of purchase price over
the estimated fair values of the net assets acquired has
been recorded as goodwill. The operating results of this
acquisition are included in the Company's consolidated
statements of operations from the date of acquisition. In
connection with the acquisition, the Company and the
minority shareholders entered into a Shareholders' Agreement
under which the minority shareholders of Class 1 have the
option to acquire the Company's 75% interest in Class 1 if a
change in controlling interest of the Company occurs. The
revenues and net income of Class 1 were not material
compared to those of the Company prior to its acquisition.
3. Goodwill
In October, 1989, Tylan General, Inc., (formerly Vacuum
General, Inc.) purchased all of the outstanding shares of
common stock of Tylan. The purchase price exceeded the net
assets acquired by $6,592,000. This excess was recorded as
goodwill and is being amortized on a straight-line basis
over 15 years. Goodwill has been reduced for certain tax
benefits utilized in 1992 of $63,000 and deferred tax assets
recognized in 1993 of $1,469,000 (Note 8).
In October, 1995, the Company purchased the remaining 50% of
the outstanding shares of stock of Hanyang General Co.,
LTD., the Company's Korean joint venture. The purchase
price exceeded the net assets acquired by $140,000. This
excess was recorded as goodwill and is being amortized on a
straight-line basis over five years (Note 2).
In the Class 1, Inc. acquisition (Note 2), the purchase
price exceeded the net assets by $101,000. This excess was
recorded as goodwill and is being amortized over 10 years.
4. Balance Sheet Details
October 31,
1995 1996
(in thousands)
ACCOUNTS RECEIVABLE:
Accounts receivabletrade $21,699 $22,128
Less allowance for doubtful (329) (486)
accounts
Total $21,370 $21,642
INVENTORIES:
Raw materials $11,242 $15,746
Work in process 4,525 7,451
Finished goods 4,108 5,702
Total $19,875 $28,899
PROPERTY:
Machinery and equipment $18,036 $22,470
Furniture and fixtures 8,961 11,371
Leasehold improvements 7,290 10,601
34,287 44,442
Less accumulated depreciation (13,100) (17,257)
and amortization
Total $21,187 $27,185
GOODWILL:
Goodwill $5,447 $5,416
Less accumulated amortization (2,347) (2,632)
Total $3,100 $2,784
ACCRUED EXPENSES:
Compensation $3,183 $2,297
Other 3,718 4,173
Total $6,901 $6,470
5. Debt
At October 31, 1996, Tylan General, Inc. had $5,627,000
outstanding under an $11,000,000 revolving line of credit
with a bank (the "Tylan Credit Facility"). The Tylan Credit
Facility originated June 5, 1996 and matures on March 31,
1997. Interest is payable monthly at either prime or LIBOR
plus 1.75% at the election of the borrower. The Tylan
Credit Facility also provides for the issuance of standby
letters of credit denominated in Japanese yen and Korean won
in amounts of up to the yen and won equivalents of
$4,000,000 and $5,000,000, respectively. These standby
letters of credit are used to support borrowings by Tylan
General, K.K. and Tylan General Korea Ltd.. At October 31,
1996, standby letters of credit in the amounts of the yen
and won equivalents of approximately $4,000,000 and
$500,000, respectively were outstanding. These outstanding
standby letters of credit are in addition to the borrowings
set forth above. As collateral for the Tylan Credit
Facility, the Company has granted the bank a security
interest in all accounts receivable, inventories, machinery
and equipment and general intangibles. The Tylan Credit
Facility contains financial covenants relating to minimum
levels of net worth and profitability, minimum current,
quick and debt coverage ratios and maximum levels of balance
sheet leverage and capital expenditures. The Company was
not in compliance with certain of the financial covenants at
October 31, 1996; however, the Tylan Credit Facility has
been repaid and replaced with the new agreement effective
December 13, 1996 as described below.
At October 31, 1996, Span Instruments, Inc. and Ocala, Inc.
as Co-Borrowers had $9,997,000 outstanding under a
$12,000,000 revolving credit facility and had $1,708,000
outstanding under a term loan with a bank (together the
"Span Credit Facility") that originated on March 14, 1996.
Maximum borrowings under the revolving portion of the
facility are limited to the lesser of $12,000,000 or a
defined percentage of accounts receivable and inventories.
Both the revolving credit facility and the term loan bear
interest at prime plus 1.5% ( 9.75% at October 31, 1996) and
are collateralized by the Co-Borrowers' accounts receivable,
inventories and machinery and equipment not otherwise
pledged under capital lease obligations and by the partial
guarantee of Span's Chief Executive Officer. The revolving
credit facility requires payment of interest payments
monthly with principal due at maturity on January 1, 1998.
The term loan is due in equal monthly principal payments
plus interest over a four year period commencing April 1,
1996. Both the revolving credit facility and the term loan
require the Company to meet certain financial covenants on a
consolidated basis with Ocala, Inc. relating to minimum
levels of net worth, working capital, and interest and debt
coverage, and maximum levels of leverage and capital
expenditures. The Span Credit Facility also restricts the
incurrence of debt and prohibits the payment of dividends or
distribution of assets. The Span Credit Facility was repaid
and replaced with the new loan facility agreement entered
into on December 13, 1996 as described below.
Effective March 14, 1996, Span issued a $5,000,000 Senior
Subordinated Note (the "Note") at par with a detachable
Common Stock Purchase Warrant (the "Warrant"). The Note was
unsecured and accrued interest at 12.5% payable quarterly.
The agreement with the holder of the Warrant also contained
a provision that if the merger with Tylan General was
complete prior to the first anniversary of the issuance of
the Warrant, and the Senior Subordinated Note was paid in
full, the shares purchasable by the Warrant would be reduced
to zero. Following the consummation of the merger between
Tylan General and Span Instruments, the Note was repaid in
full and the shares purchasable by the Warrant were reduced
to zero.
Effective December 13, 1996, the Company entered into a new
loan facility agreement (the "Agreement") under which all of
the outstanding borrowings under the Tylan Credit Facility
and the Span Credit Facility were refinanced and the partial
guarantee of Span's Chief Executive Officer was released.
The Agreement provides for a $30,000,000 revolving credit
facility (the "Revolver"), a $1,666,664 term loan (the "Term
Loan") and a $4,000,000 equipment line of credit (the
"Equipment Line"). Outstanding borrowings under the
Revolver are limited to the lesser of $30,000,000 or a
percentage of accounts receivable and inventory, as defined
in the Agreement. The Revolver also provides for the
issuance of standby letters of credit denominated in
Japanese yen and Korean won in amounts of up to the yen and
won equivalents of $4,000,000 and $500,000 respectively
(combined not to exceed $4,000,000). These standby letters
of credit are used to support borrowings by Tylan General
K.K. and Tylan General Korea Ltd. The Revolver, Term Loan
and Equipment Line all bear interest at prime or LIBOR plus
2.25% at the election of the borrower. All three facilities
are collateralized by the Company's accounts receivable,
inventories, machinery, equipment and intangible assets. To
provide additional collateral, Tylan General has pledged 65%
of the shares owned by it in the following subsidiaries:
Tylan General UK Ltd., Tylan General TCA GmbH, Tylan General
SARL, Tylan General K.K., Tylan General Korea Ltd., and Span
has pledged 65% of the shares owned by it in Span
Instruments (Singapore) Pte. Ltd. Interest on the Revolver
is due monthly with principal due at maturity on March 1,
1999. The Term Loan is due in equal monthly principal
payments plus interest through maturity on March 1, 2000.
Advances under the Equipment Line are limited to 80% of the
purchase price of new equipment. Each draw amortizes over
48 months and draws must be made prior to March 1, 1999.
The Agreement requires the Company to meet certain financial
covenants relating to minimum levels of net worth, working
capital, debt coverage, profitability and maximum levels of
leverage and capital expenditures. The Agreement also
prohibits acquisitions where consideration exceeds
$5,000,000 and prohibits the payment of dividends or
distribution of assets. The Agreement has a $100,000
prepayment penalty in the event it is repaid or refinanced
for any reason prior to September 1, 1998.
Long-Term Debt Summary
Long-term debt is summarized as follows (in thousands):
October 31,
1995 1996
Bank revolving credit due January 1998, $ -
with interest payable monthly $9,997
Bank revolving credit which was repaid
in April 1996 9,790
Bank term loan (Tylan General K.K.)
payable in quarterly principal
installments of $18 plus interest at
3.75% per year through November, 1999 334 229
Bank term loan (Tylan General K.K.)
payable in monthly principal
installments of $26 plus interest at
2.7% per year with the balance due
June, 1997 865 459
Bank term loan (Tylan General K.K.)
payable in monthly principal
installments of $26 plus interest at
1.25% per year through October, 1997 - 317
Bank term loan (Tylan General K.K.)
payable at maturity for $300
plus interest at 1.54% per year
through October, 1997 principal
installments of $29 plus interest at
2.6% per year through June, 1997 - 300
Capital lease obligations with weighted
average yearly interest rates of
10.9% and 11.6% respectively (Note 9) 3,086 2,533
Notes payable to the CIT Group
collateralized by specific assets,
bearing interest at 9.25% to 10.625%,
with maturities ranging from
November, 1998 to November, 2001 921 1,080
Term notes to Fleet Credit Corporation
payable in monthly installments of
$52 plus interest at prime plus 2% 1,999 -
Term note to Comerica Bank, Texas - 1,708
Note payable to Sun Trust Bank -
Ocala, Florida 237
Subordinated notes payable to employees
bearing interest at 6.5% to 12%, with
maturities ranging from March, 1996
to September, 1999 514 -
Unsecured promissory notes bearing
interest at 6% to 9% maturing from
May, 1998 to February, 2000 154 117
Total 17,663 16,977
Less current portion (2,393) (2,784)
Long-term debt $15,270 $14,193
Long-term debt payments (excluding capital leases) as of
October 31, 1996 are summarized as follows (in thousands):
Year Ending October 31,
1997 $ 2,040
1998 10,998
1999 913
2000 451
2001 42
$14,444
6. Research and Development Agreements
In August 1996, the Company signed a five-year research and
development agreement with Innovative Lasers Corporation
("ILC"). Under terms of the agreement, ILC will undertake
research and development of certain products which may be
sold to the Company or incorporated into the Company's
products and the Company will make equal quarterly payments
of $400,000 to ILC through January 2001. Following the
first contract year the Company may terminate the agreement
prior to the expiration date, by providing advance notice of
six quarters. Work and quarterly payments would continue
during the six quarter period.
In April 1996, the Company signed a five-year research and
development agreement with Integrated Sensing Systems, Inc.
("ISSYS"). Under terms of the agreement, ISSYS will
undertake research and development of certain products which
may be sold to the Company or incorporated into the
Company's products and the Company will make equal quarterly
payments of $250,000 to ISSYS through January 2001. The
Company may terminate the agreement prior to the expiration
date, at which time the Company will be obligated to make
quarterly payment through the end of the current contract
year plus the next full contract year.
7. Extraordinary Items
During fiscal 1996, the Company prepaid $5,000,000 in Span
debt. With this prepayment, the Company paid and expensed
$150,000 in prepayment penalty and wrote-off unamortized
prepaid financing costs of $189,000. The total amount of
$339,000 was recorded, net of income tax benefit, as an
extraordinary item of $224,000.
During fiscal 1995, the Company repaid $5,400,000 in debt
and revolving credit with the proceeds from the Company's
Initial Public Offering. In connection with the repayment
of debt of $5,000,000, the Company wrote-off the unamortized
deferred issue costs of $949,000 and incurred a prepayment
penalty of $250,000. The total amount of $1,199,000 was
recorded, net of income tax benefit, as an extraordinary
item of $695,000.
8. Income Taxes
Effective November 1, 1992, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes" under which deferred tax assets and
liabilities are determined using presently enacted tax
rates, and net deferred tax assets are recognized to the
extent their realization is more likely than not.
The components of the provision for income taxes are
summarized as follows (in thousands):
Year Ended October 31,
1994 1995 1996
Current income taxes
Federal $ 648 $ 823 $ 571
Foreign 463 2,166 1,359
State 177 346 241
Total 1,288 3,335 2,171
Deferred income taxes
Federal 225 257 (1,316)
Foreign - (285) (114)
State 1 (57) (373)
Total 226 (85) (1,803)
Reduction in valuation
allowance (591) - -
Tax benefit of
extraordinary item - 504 115
Provision for income taxes $ 923 $3,754 $ 483
The provision for income taxes is different from that which
would be obtained by applying the statutory federal income
tax rate (34%) to income before income taxes. The items
causing this difference are as follows:
Year Ending October 31,
1994 1995 1996
Provision at statutory 34.0% 34.0% 34.0%
rate
Goodwill amortization 2.5 1.0 7.9
Foreign provision in excess
of (less than) federal
statutory rate (3.3) 4.8 13.4
State income taxes, net of
federal benefit 3.3 2.2 (8.5)
Nondeductible merger fees 17.3
Reduction in valuation
allowance, net of write- (15.3)
offs
Other 2.6 .2 1.7
Tax credits (3.4) (28.0)
23.8% 38.8% 37.8%
Deferred income taxes reflect the net effect of temporary
differences between the carrying amounts of assets and
liabilities for reporting and the amounts used for income
tax purposes. The tax effects of items comprising the
Company's net deferred tax assets are as follows at October
31, 1995 and 1996 (in thousands):
October 31,
1995 1996
Deferred Tax Assets:
Net operating loss carryforwards $ 589 $1,120
Tax credit carryforwards 270 127
Reserves currently not deductible 226 1,091
Accrued expenses 239 433
Differences between book and tax 1,067 1,732
basis of inventory
Differences between book and tax 37 26
basis of fixed assets
Other, net 83 86
Total deferred tax assets 2,511 4,615
Deferred Tax Liability:
Software development costs (282) (583)
Net deferred tax assets $2,229 $4,032
At October 31, 1996, the Company had available federal,
state and foreign net operating loss carryforwards of
approximately $1,921,000, $5,565,000, and $643,000,
respectively. The difference between federal and state tax
loss carryforwards is primarily attributable to a portion of
the federal losses being carried back to reduce taxable
income in prior years. The state losses are not allowed to
be carried back. The federal, state, and foreign tax loss
carryforwards will begin to expire in 2002, 2001 and 2001,
respectively, unless previously utilized. The tax credit
carryforwards will begin to expire in 2000, unless
previously utilized. Approximately $1,130,000 and
$4,190,000 of the federal and state tax loss carryforwards,
respectively, were generated by Span before the merger with
the Company. Accordingly, these losses will only be
available to offset the separate future taxable income of
Span.
Pursuant to Internal Revenue Code Sections 382 and 383,
annual use of the Company's federal and state net operating
loss and credit carryforwards are limited because of certain
greater than 50% cumulative changes in ownership. The tax
loss carryforwards that may be utilized to offset taxable
income for the year ended October 31, 1997 are approximately
$1,750,000. In subsequent years, approximately $950,000 of
taxable income per annum may be offset by the tax loss
carryforwards.
Undistributed earnings of the Company's foreign subsidiaries
(except earnings of the Company's German subsidiary which
are deemed distributed) amounted to approximately $4.5
million at October 31, 1996. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision
for U.S. federal income taxes has been provided thereon.
Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various
foreign countries, if applicable.
Income tax benefits resulting from the exercise of non-
qualified stock options are recorded directly to paid-in-
capital. Such benefits totaled $143,000 for the year ended
October 31, 1996.
9. Leases
The Company leases its facilities and certain equipment
under capital and operating leases that expire at various
dates through 2009. Certain facility leases include
provisions for inflation escalation adjustments,
requirements for the payment of property taxes, insurance
and maintenance expenses as well as 5-year renewal options.
Rent expense under operating leases for fiscal 1994, 1995
and 1996 was approximately $2,309,000, $2,459,000 and
$3,130,000, respectively.
The net book value of assets under capital leases at October
31, 1995 and 1996 was approximately $2,910,000 and
$2,425,000 net of accumulated amortization of approximately
$1,942,000 and $3,041,000, respectively. Future minimum
lease payments under capital and operating leases as of
October 31, 1996 are summarized as follows (in thousands):
Year Ending October 31, Capital Operating
1997 $ 973 $ 2,870
1998 865 2,613
1999 779 2,399
2000 306 2,194
2001 22 1,948
Thereafter 11,265
Total $ 2,945 $ 23,289
Less amount representing interest (412)
Present value of minimum lease
payments (Note 5) 2,533
Less current portion (744)
Long-term obligations under
capital leases $ 1,789
Recapitalization
In January 1995, the Company effected a recapitalization
whereby it reincorporated in the State of Delaware and the
number of common and preferred shares authorized was
increased to 50,000,000 and 10,000,000, respectively, at
$.001 par value per share. Immediately prior to such
recapitalization, a warrant to purchase 887,845 shares of
common stock was exercised.
On February 2, 1995, all outstanding preferred stock was
converted into an aggregate of 1,550,002 common shares and
the proceeds to the Company from the sale of 1,300,000 newly
issued shares, net of underwriting commissions and expenses,
of $7,400,000 were received.
The initial public offering consisted of 2,300,000 shares
(including the underwriters' over-allotment option of
300,000 shares which was exercised in March 1995) of common
stock which was sold at $7 per share. Of the 2,300,000
shares, 1,000,000 shares were sold by existing stockholders
and 1,300,000 shares were sold by the Company.
In October 1995, the Company received proceeds of
$18,500,000, net of underwriting commissions and expenses,
from a secondary offering consisting of 1,725,000 shares
(including the underwriters' over-allotment option of
225,000 shares) of common stock which was sold at $16 per
share. Of the 1,725,000 shares, 475,000 shares were sold by
existing stockholders and 1,250,000 shares were sold by the
Company.
Series B and D Convertible Preferred Stock
At October 31, 1994 there were 1,208,201 shares of Series B
and D preferred stock outstanding. Each share of Series B
and D preferred stock (i) was voting, (ii) was convertible
at the option of the holder into common stock, (iii) was
entitled to preference in liquidation equal to $5.04 per
share plus declared and unpaid dividends and then
participated equally with common stock, up to a maximum of
$20.16 per share for Series B preferred stock, (iv) would
automatically convert into common stock immediately upon
effectiveness of a registration statement under the
Securities Act of 1933 of common stock with a minimum per
share price of $10.08 and net proceeds of $22,400,000 and
(v) had certain anti-dilutive protections as defined. In
February 1994 immediately following the close of the
Company's initial public offering, all outstanding preferred
stock was converted into an aggregate of 1,550,002 common
shares.
Stockholders' Rights Plan
On July 2, 1996, the Board of Directors of the Company
declared a dividend distribution of one preferred share
purchase right for each outstanding share of common stock.
Each right, with certain exceptions, when it becomes
exercisable, entitles the registered holder to purchase one
one-hundredth of a share of Series A Junior Participating
Preferred Stock, without par value, at a price of $70.00 per
share. The rights become exercisable (except pursuant to a
"Permitted Offer") upon the earliest to occur of (i) a
person or group of affiliated or associated persons having
acquired a beneficial ownership of 15% or more of the
outstanding common shares or (ii) 10 days following the
commencement of or announcement of an intention to make a
tender offer. Until a right is exercised, the holder will
have no rights as a stockholder of the Company including the
right to vote or receive dividends
Stock Option Plans
The Company's 1989 Stock Option plan provided that non-
qualified options to purchase up to 380,500 shares of common
stock could be granted to employees and others purchase
common stock at a price per share determined by the Board of
Directors, which approximated market value. In June 1994,
the Company terminated the 1989 plan as to new issuances and
adopted the 1994 Stock Option Plan. Such plan, which was
amended on February 11, 1996, provides that incentive and
non-qualified options to purchase up to 639,000 shares of
common stock may be granted to certain employees, directors,
and consultants. Incentive stock options are to be granted
at prices not less than the fair market value at the date of
grant. Non-qualified stock options and options granted to
individuals possessing 10% or more of the total combined
voting power of all classes of stock are to be granted at
prices not less than 85% and 110%, respectively, of the fair
market value.
On July 11, 1996, the Company adopted the 1996 Stock Option
Plan which provides that incentive and non-qualified options
to purchase up to 295,000 shares of common stock may be
granted to employees and consultants other than officers and
directors. Options granted under this plan are to be
granted at prices not less than eighty five percent (85%) of
the fair market value of the stock at the date of grant.
Options issued under the 1994 and 1996 plans generally vest
over a period of five (5) years from date of grant and
expire ten (10) years from date of grant.
In December 1994, the 1994 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") was adopted by the Board
of Directors and approved by the stockholders. The
Directors' Plan provides for the automatic grant of options
to purchase shares of common stock to non-employee directors
of the Company. The maximum number of shares of common
stock that may be issued pursuant to options granted under
the Directors' Plan is 75,000.
The following is a summary of all stock options activity for
fiscal 1994, 1995 and 1996:
Number Price
of Per Share
Shares
October 31, 1993 310,321 $.90
Canceled or expired (600) $.90
Exercised (2,400) $.90
Granted 149,324 $3.50 - $5.04
October 31, 1994 456,645 $.90 - $5.04
Exercised (117,300) $.90 - $5.04
Granted 346,950 $5.04 - $15.75
October 31, 1995 686,295 $.90 - $15.75
Canceled or expired (74,022) $3.50 - $15.75
Exercised (47,134) $.90 - $10.25
Granted 532,734 $9.63 - $14.00
October 31, 1996 1,097,873 $.90 - $15.75
At October 31, 1996, 4,650 shares remained available for
grant under the 1994 Stock Option Plan, 41,888 shares
remained available under the 1994 Non-Employee Directors'
Stock Option Plan, and 21,000 shares remained available
under the 1996 Stock Option Plan. The total number of
shares exercisable under all stock option plans is 281,709.
11. Geographic Information
Sales and operating income (loss) for the years ended
October 31, 1994, 1995 and 1996, and identifiable assets at
October 31, 1995 and 1996, classified by geographic area,
were as follows (in thousands):
Year Ended October 31,
1994 1995 1996
Net sales:
United States $59,310 $ 93,742 $ 108,955
Europe 9,358 11,578 18,178
Asia 6,705 12,948 21,206
Total $75,373 $118,268 $ 148,339
Income from operations
United States $ 4,682 $ 7,705 $ 791
Europe 1,284 1,816 3,372
Asia (61) 2,280 (81)
Total $ 5,905 $ 11,801 $ 4,082
As of October 31,
Identifiable assets: 1995 1996
United States $ 70,605 $ 70,568
Europe 8,187 10,382
Asia 8,259 10,395
Total $ 87,051 $ 91,345
Intercompany sales between geographic areas totaled
$8,393,000, $11,794,000 and $22,388,000 for the years ended
October 31, 1994, 1995 and 1996, respectively. These sales
represent primarily export sales of U.S. produced goods and
are accounted for based on established sales prices between
the related companies.
12. Employee Retirement and Gain Sharing Plans
401(k)
The Company has adopted 401(k) plans for the benefit of all
qualifying employees, generally all US employees with more
than three months of service (one year of service for Span
employees). The plans allow participants to contribute up
to 15% of annual salary (20% for Span employees) (not to
exceed approximately $9,500 in 1996) which is
entirely tax deferred. The employee contributions are 100%
vested. The Company matches $.25 for each dollar of
qualifying employee contributions, up to 6% of such
employee's gross compensation with immediate 100% vesting
($1.00 for each dollar, up to 3% with vesting at 20% a year
for Span employees). During the years ended October 31,
1994, 1995 and 1996, the Company made contributions to the
plan of $113,000, $262,000 and $296,000, respectively.
Gain-sharing plan
In April 1995, the Company adopted a gain-sharing plan (the
"Gain-Sharing Plan") which allows eligible employees to earn
incentive compensation of up to 10% of their annual salary
based on the Company's performance against certain goals and
objectives. Eligible employees under the Gain-Sharing Plan
are regular or temporary employees who have been employed
for a full quarter in the United States and who are not
participants in any other Company bonus plan. The executive
officers of the Company are not currently eligible to
participate in the Gain-Sharing Plan. The Company is
considering including Span employees in this Plan. Payouts
under the Gain-Sharing Plan are made on a quarterly basis.
For the years ended October 31, 1995 and 1996, total
payments made under the Gain-Sharing Plan were $604,000 and
$362,000, respectively.
13. Subsequent Event (Unaudited)
On December 16, 1996, the Company and Millipore Corporation
announced that Millipore had entered into a definitive
agreement to acquire the Company for $16.00 per share, or
approximately $133 million. This transaction will result in
a greater than 50% ownership change for purposes of Internal
Revenue Code Sections 382 and 383. However, the Company
does not believe that this change will have a material
impact on the utilization of its tax loss and credit
carryforwards.
