SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
_________________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 31, 1996
EXECUTONE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 0-11551 86-0449210
State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
478 Wheelers Farms Road, Milford, Connecticut 06460
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 876-7600
<PAGE>
Item 2. Disposition of Assets.
On May 31, 1996, the Company sold substantially all of the Direct
Sales and Services Group, including its long-distance reseller
business and National Service Center (the DSO Group) to Clarity
Telecom Holdings, Inc. (Clarity), an acquisition company led by
Bain Capital, Inc. The purchase price consisted of $61.5 million
in cash, a $5.9 million note and warrants to purchase 8% of the
common stock of the new company issued as of the closing, for
$1.1 million, exercisable for three years. The attached pro
forma condensed consolidated financial statements are based upon
a purchase price valuation of $64.7 million, which includes the
cash consideration and the fair value of the note and warrants.
In addition to the transaction with Clarity, the pro forma
condensed financial statements also reflect the disposition of
the Company's Pittsburgh direct sales office and the impact of
dispositions that the Company believes are probable of occurring,
including the inmate calling business and the videoconferencing
division, which are being sold separately to different
purchasers. None of such businesses constituted a material
portion of the Company's assets, revenues or income.
Forward-Looking Statements
In connection with initial announcement of the reported sale, the
Company's management projected pro forma revenues in 1995 and pro
forma pretax income, assuming certain expense eliminations, which
was not intended to meet the requirements of Regulation S-X but
was intended to provide a forward-looking estimate. The pro
forma pretax income for 1995 included in this filing can be
reconciled to the previously provided forward-looking estimate as
follows (in millions of dollars):
[S] [C]
1995 Pretax income per pro forma $23.4
Less: Pretax gain on sale (42.3)
Add: Provision for restructuring 25.1
6.2
Forward-looking adjustments
not included in pro forma:
Acquisition costs 1.0
Goodwill amortization and other 0.8
1995 forward-looking pretax estimate $8.0
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Item 7. Financial Statements and Exhibits. Page
(b) Pro forma condensed financial information 4
Pro forma consolidated balance sheet at March 31, 1996 5
Pro forma consolidated statement of operations for the
three-month period ended March 31, 1996 6
Pro forma consolidated statement of operations for the
year ended December 31, 1995 7
(c) Exhibits 9
(2) Asset Purchase Agreement by and among Tone Holdings, Inc.
and Tone Acquisition Corporation, Executone Network Services,
Inc. and Executone Information Systems, Inc. dated as of April 9,
1996 and Amendment No. 1 to Asset Purchase Agreement dated as of
May 31, 1996, by and among Clarity Telecom Holdings, Inc.
(formerly known as Tone Holdings, Inc.), Clarity Telecom, Inc.
(formerly known as Tone Acquisition Corporation), Executone
Network Services, Inc. and Executone Information Systems, Inc.
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<PAGE>
Executone Information Systems, Inc.
Unaudited Pro Forma Consolidated Financial Information
The historical consolidated financial statements of Executone
Information Systems, Inc. are as originally reported in its
reports on Forms 10-K and 10-Q. The balance sheet and statements
of operations of the telephony businesses sold to Clarity are
based upon the historical financial results of the Direct Sales
and Services Group, including the long-distance reseller
business, for the respective periods. In addition, the Company
previously announced that is was negotiating an agreement to sell
its videoconferencing division. Although terms have not yet been
finalized, the pro forma condensed statements assume that the
disposition will result in a loss of approximately $2.5 million.
The pro forma condensed statements also reflect the sale of the
Pittsburgh direct sales office at its approximate book value and
the disposal of the Company's inmate calling business which is
expected to result in a loss of approximately $1 million.
The pro forma condensed consolidated balance sheet as of March
31, 1996 has been prepared to reflect the use of a portion of the
proceeds from these transactions to repay the Company's bank
borrowings, assuming the transaction had taken place at that
date. The pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 and for the three-
month period ended March 31, 1996 have been prepared assuming
these transactions occurred January 1, 1995 and January 1, 1996,
respectively. The condensed statements of operations also
reflect the impact of reductions in force which have already been
made related to these dispositions.
The pro forma information does not purport to represent the
Company's actual results of operations if the transactions
described above would have occurred at the beginning of the
respective periods. In addition, the information may not be
indicative of future results.
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<PAGE>
Executone Information Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1996
Unaudited
<TABLE>
<CAPTION>
(000s) Businesses Pro Forma EISI
EISI Sold Adjustments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,280 $ 0 $39,288 (a,b) $45,568
Accounts receivable, net 43,718 (18,303) (1,000) (a) 24,415
Inventories 36,380 (16,625) (4,000) (a) 15,755
Prepaid expense and
other current assets 4,587 (2,524) 0 2,063
Total Current Assets 90,965 (37,452) 34,288 87,801
Property & Equipment, Net 18,781 (7,650) (2,000) (a) 9,131
Intangibles, Net 19,990 0 0 19,990
Deferred Taxes 31,376 0 (14,937) (a,b) 16,439
Other Assets 3,199 (981) 3,323 (a,b) 5,541
Total Assets $164,311 $(46,083) $20,674 $138,902
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $30,869 $ (7,201) $ 0 $23,668
Deferred revenue and
customer deposits 20,409 (19,564) 0 845
Other current liabilities 18,714 (5,684) 1,728 (a,b) 14,758
Tot. Current Liabilities 69,992 (32,449) 1,728 39,271
Long-Term Debt 28,879 (387) (15,312) (b) 13,180
Long-Term Deferred Revenue 2,780 (2,494) 0 286
Total Liabilities 101,651 (35,330) (13,584) 52,737
Stockholders Equity:
Common stock 519 0 0 519
Preferred stock 7,300 0 0 7,300
Additional paid-in capital 79,716 0 100 (a) 79,816
Retained earnings (deficit) (24,875) (10,753) 34,158 (a,b) (1,470)
Total Stockholders' Eq. 62,660 (10,753) 34,258 86,165
Total Liabilities and Stockholders'
Equity $164,311 $(46,083) $ 20,674 $138,902
</TABLE>
(a)To reflect total proceeds of $65.5 million for the sale
of all of the Company's direct sales and services offices,
the videoconferencing division and the inmate calling
business, estimated gain, net of audit, legal and other
expenses directly related to the sales, and the impact of
the utilization of net operating losses on the deferred tax
asset.
(b)To reflect the repayment of a portion of the Company's
debt, primarily the revolving credit facility, using the
proceeds from the sale. Also, writeoff of related
deferred debt issue costs.
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<PAGE>
Executone Information Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
Three-Month Period Ended March 31, 1996
Unaudited
<TABLE>
<CAPTION>
(000s) Businesses Pro Forma EISI
EISI Sold Adjustments Pro Forma
<S> <C> <C> <C> <C>
Revenues $66,966 $(47,630) $13,568 (a) $32,904
Cost of Revenues 40,486 (31,582) 12,984 (a) 21,888
Gross Profit 26,480 (16,048) 584 11,016
Operating Expenses:
Product development
and engineering 3,764 0 0 3,764
Selling, general and
administrative 26,274 (16,635) (293) (c) 9,346
Total Operating Exps. 30,038 (16,635) (293) 13,110
Operating Income/(Loss) (3,558) 587 877 (2,094)
Interest and Other Exp,Net 592 1 (890) (b) (297)
Gain on Sale of Net Assets 0 0 42,342 (d) 42,342
Income/(Loss) Bef.Inc.Tax (4,150) 586 44,109 40,545
Provision/(Benefit)
for Income Taxes (1,660) 234 19,644 (e) 18,218
Net Income/(Loss) $(2,490) $ 352 $24,465 $22,327
Earnings/(Loss) Per Share $ (0.05) $ 0.42
Weighted Average Shares Outstanding
51,853 52,754
</TABLE>
(a)To addback revenue and cost impact of sales from
Executone to the DSOs which originally were eliminated in
consolidation.
(b)To reflect the reduction of interest expense due to debt
repayment using the sale proceeds and interest income
generated by the investment of such net proceeds.
(c) Impact of reduction in force associated with business
dispositions.
(d) To reflect net gains on dispositions of net assets.
(e) To reflect the tax impact of pro forma adjustments at a 40%
effective rate.
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<PAGE>
Executone Information Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 1995
Unaudited
<TABLE>
<CAPTION>
(000s) Businesses Pro Forma EISI
EISI Sold Adjustments Pro Forma (f)
<S> <C> <C> <C> <C>
Revenues $296,393 $(202,048) $60,475 (a) $154,820
Cost of Revenues 173,536 (129,678) 59,287 (a) 103,145
Gross Profit 122,857 (72,370) 1,188 51,675
Operating Expenses:
Product development
and engineering 14,703 0 0 14,703
Selling, general and
administrtaive 100,520 (67,080) (1,173) (c) 32,267
Provision for restructuring
and unusual items 44,042 (18,907) 0 25,135
Total Operating Exps. 159,265 (85,987) (1,173) 72,105
Operating Income/(Loss) (36,408) 13,617 2,361 (20,430)
Interest and Other Exps.,Net 2,813 (236) (4,061) (b) (1,484)
Gain on Sale of Net Assets 0 0 42,342 (d) 42,342
Income/(Loss) Bef.Inc.Taxes (39,221) 13,853 48,764 23,396
Provision/(Benefit) for
Income Taxes (2,287) (1,236) 21,506 (e) 17,983
Net Income/(Loss) $(36,934) $ 15,089 $27,258 $ 5,413
Earnings/(Loss) Per Share $ (0.79) $ 0.11
Weighted Average Shares Outstanding
46,919 49,148
</TABLE>
(a)To addback revenue and cost impact of sales from
Executone to the DSOs which originally were eliminated in
consolidation.
(b)To reflect the reduction of interest expense due to debt
repayment using the sale proceeds and interest income
generated by the investment of such net proceeds.
(c)Impact of reduction in force associated with
business dispositions.
(d) To reflect net gains on dispositions of net assets.
(e) To reflect the tax impact of pro forma adjustments at a 40%
effective rate.
(f) Refer to "Forward-Looking Statements" in Item 2.
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<PAGE>
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 thereunto duly authorized.
EXECUTONE INFORMATION SYSTEMS, INC.
By:__________________________________
Anthony R. Guarascio
Vice President, Finance and
Chief Financial Officer
Date: June 15, 1996
-8-
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EXHIBIT INDEX
Exhibit
Number Document
2 Asset Purchase Agreement by and among Tone
Holdings, Inc. and Tone Acquisition Corporation,
Executone Network Services, Inc. and Executone
Information Systems, Inc. dated as of April 9,
1996 and Amendment No. 1 to Asset Purchase
Agreement dated as of May 31, 1996, by and among
Clarity Telecom Holdings, Inc. (formerly known as
Tone Holdings, Inc.), Clarity Telecom, Inc.
(formerly known as Tone Acquisition Corporation),
Executone Network Services, Inc. and Executone
Information Systems, Inc. Incorporated by
reference to the Registrant's Annual Report on
Form 10-K/A for the year ended December 31, 1995.
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