<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------------------
Date of Report (Date of earliest event reported): DECEMBER 17, 1998
BROOKTROUT TECHNOLOGY, INC.
(Exact name of Registrant as specified in charter)
MASSACHUSETTS 0-20698 04-2814792
------------- ------- ----------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
410 FIRST AVENUE, NEEDHAM, MA 02494
-----------------------------------
(Address of principal executive offices) (Zip Code)
(781) 449-4100
--------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS
On December 17, 1998, Brooktrout Technology, Inc. (the "Registrant")
acquired substantially all of the computer telephony business (the "CTP
Business"), and assumed certain specified liabilities, of Octel Communications
Corporation, a Delaware corporation, a subsidiary of Lucent Technologies Inc.,
for $29.4 million in cash (the "Acquisition").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Statements of Net Assets Acquired (predecessor cost basis) as of
September 30, 1998 and 1997, and the related Statements of Net
Sales, Cost of Sales and Certain Direct Operating Expenses for each
of the three years in the period ended September 30, 1998 of the CTP
Business.
(b) Pro Forma Financial Information.
Pro Forma Condensed Consolidated Income Statements for the year
ended December 31, 1997 and the nine months ended September 30, l998
and a Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1998.
(c) Exhibits.
23.1 Consent of Deloitte & Touche LLP
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized
BROOKTROUT TECHNOLOGY, INC.
Dated: March 2, 1999 By:/s/ Robert C. Leahy
---------------------------------------
Robert C. Leahy
Vice President
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To Brooktrout Technology, Inc.:
We have audited the accompanying statements (predecessor cost basis) of net
assets acquired of Lucent Computer Telephony Products Group ("CTP"), a business
unit of Octel Communications Corporation, as of September 30, 1998 and 1997, and
the related statements of net sales, cost of sales and certain direct operating
expenses for each of the three years in the period ended September 30, 1998.
These financial statements are the responsibility of CTP's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements were prepared for inclusion in a Form 8-K/A of
Brooktrout Technology, Inc. on the predecessor cost basis as described in Note 1
and are not intended to be a complete presentation of CTP's financial position,
results of operations and cash flows. As described in Note 1, the statements do
not include any push down of the purchase price allocation related to the
acquisition of Octel Communications Corporation by Lucent Technologies Inc. and
exclude amounts allocated to the Company by Octel for general business and
administrative efforts and certain other expenses.
In our opinion, the statements referred to above present fairly, in all material
respects, the net assets acquired of CTP as of September 30, 1998 and 1997, and
the related net sales, cost of sales and certain direct operating expenses for
each of the three years in the period ended September 30, 1998, on the
predecessor cost basis as described in Note 1 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
San Jose, California
February 26, 1999
<PAGE> 5
LUCENT COMPUTER TELEPHONY PRODUCTS GROUP
(A BUSINESS UNIT OF OCTEL COMMUNICATIONS CORPORATION)
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS ACQUIRED (PREDECESSOR COST BASIS)
SEPTEMBER 30, 1998 AND 1997 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance of $405 and $330 in
1998 and 1997, respectively $4,312 $3,887
Inventories 2,623 2,018
Other current assets 212 292
------ ------
Total current assets 7,147 6,197
PROPERTY AND EQUIPMENT, Net 1,487 1,978
------ ------
TOTAL ASSETS 8,634 8,175
------ ------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable 1,390 1,027
Other current liabilities 639 504
------ ------
Total current liabilities 2,029 1,531
------ ------
COMMITMENTS (See Note 4)
NET ASSETS ACQUIRED $6,605 $6,644
====== ======
See notes to financial statements.
</TABLE>
-2-
<PAGE> 6
LUCENT COMPUTER TELEPHONY PRODUCTS GROUP
(A BUSINESS UNIT OF OCTEL COMMUNICATIONS CORPORATION)
<TABLE>
<CAPTION>
STATEMENTS OF NET SALES, COST OF SALES AND CERTAIN DIRECT OPERATING
EXPENSES (PREDECESSOR COST BASIS)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
NET SALES $30,842 $29,329 $27,245
COST OF SALES 10,746 11,436 11,360
------- ------- -------
GROSS PROFIT 20,096 17,893 15,885
CERTAIN DIRECT OPERATING EXPENSES:
Selling and marketing 7,252 6,237 6,348
Research and development 5,588 3,901 2,897
General and administrative 1,890 1,840 2,227
------- ------- -------
Total certain direct operating expenses 14,730 11,978 11,472
------- ------- -------
EXCESS OF NET SALES OVER COST OF SALES
AND CERTAIN DIRECT OPERATING EXPENSES $ 5,366 $ 5,915 $ 4,413
======= ======= =======
</TABLE>
See notes to financial statements.
-3-
<PAGE> 7
LUCENT COMPUTER TELEPHONY PRODUCTS GROUP
(A BUSINESS UNIT OF OCTEL COMMUNICATIONS CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Pursuant to an Asset Purchase Agreement dated December 17, 1998 ("the
Agreement") between Brooktrout Technology, Inc. ("Brooktrout") and Octel
Communications Corporation ("Octel"), Brooktrout acquired certain assets
and assumed certain liabilities relating exclusively to the business
operations of Lucent Computer Telephony Products Group ("CTP"), a business
unit of Octel, for an aggregate purchase price of $30.5 million (including
$1.1 million of business acquisition costs). Octel is a wholly-owned
subsidiary of Lucent Technologies Inc. ("Lucent") and was acquired by
Lucent effective September 30, 1997. Octel and Lucent are collectively
referred to herein as the "Parent." Under the Agreement, Brooktrout
acquired accounts receivable, inventories, property and equipment, and
rights to certain contracts, tradenames and intellectual property and
assumed liabilities related to trade payables and certain other
obligations, including product warranties and marketing commitments. The
Parent retained certain other assets and liabilities, including all
accrued employee compensation obligations, debt obligations, and any
obligations arising from claims or assessments, as defined. In addition,
the Parent retained all income tax assets and liabilities, including
deferred income taxes.
CTP manufactures products that connect personal computers and local area
networks with telephone networks and provides related technologies for the
voice processing industry. CTP's operations are carried out from two
facilities, located in California and the United Kingdom.
The accompanying financial statements are derived from the historical
accounting records of CTP and present, on a predecessor cost basis, the
net assets acquired in accordance with the Agreement as of September 30,
1998 and 1997 and the statements of net sales, cost of sales and certain
direct operating expenses for each of the three years in the period ended
September 30, 1998 (collectively, the "Statements"), and are not intended
to be a complete presentation of CTP's financial position, results of
operations and cash flows. The historical operating results may not be
indicative of the results after the acquisition by Brooktrout.
The accompanying statements have been prepared on the predecessor cost
basis of accounting. The predecessor cost basis does not reflect the push
down to CTP of the purchase price allocation resulting from the
acquisition of its parent, Octel, by Lucent in September 1997. In
connection with the acquisition of Octel by Lucent, the Company was
directed to record an allocation of purchase price to increase the value
of its property and equipment by $667,000 (unaudited). The Company was not
directed to record any other adjustments related to the acquisition of
Octel, such as identifiable intangible assets, goodwill and acquired
in-process research and development. The Company was not provided (and has
been unable to obtain) documentation supporting the allocation of purchase
price to the Company and, accordingly, the Company is not able to verify
the appropriateness or completeness of such allocation. The adjustment has
been excluded from the statements of net assets acquired and the related
depreciation expense has been excluded from the statement of net sales,
cost of sales and certain direct operating expenses for the year ended
September 30, 1998.
-4-
<PAGE> 8
The statements of net sales, cost of sales and certain direct operating
expenses include all net sales, costs of sales, and certain operating
expenses directly attributable to CTP. Such statements do not include
allocations by the Parent for general business and administrative efforts
in support of CTP or certain income tax amounts. Such unaudited amounts
excluded aggregated $301,000, $540,000 and $87,000 for the years ended
September 30, 1998, 1997 and 1996, respectively. These items were excluded
because the information needed to quantify their effects was not made
available to the Company by Octel or Lucent and, accordingly, management
does not believe that the appropriateness of such amounts is determinable.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Sales are recognized upon shipment. Provisions for
warranty obligations are recorded concurrently with the recognition of
sales.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose CTP to concentration of credit risk consist primarily of accounts
receivable. CTP sells its products primarily to large organizations and
generally does not require its customers to provide collateral or other
security to support accounts receivable. CTP performs ongoing credit
evaluations of its customers and maintains allowances for estimated
possible losses.
Sales to major customers, including sales to their direct contract
manufacturers, as a percentage of net sales for the years ended September
30, were as follows: 1998, one customer represented 13%, 1997, two
customers represented 13% and 11%, and 1996, three customers represented
13%, 11% and 10%.
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
Statements. Actual results could differ from those estimates.
INVENTORIES - Inventories are determined by the lower of actual cost using
the first-in, first-out method ("FIFO"), or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets ranging from three to five years. Leasehold
improvements are amortized over the shorter of the lease term or the
estimated useful life of the related assets.
LONG-LIVED ASSETS - Long-lived assets are reviewed for impairment when
events or circumstances indicate that the carrying amount of the
long-lived asset may not be recoverable by comparing carrying value to net
realizable value, determined based on estimated undiscounted cash flows
over remaining useful lives. If impairment is indicated, the carrying
amount of the asset is reduced to its estimated fair value.
-5-
<PAGE> 9
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, consist of (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Computers and equipment $ 2,887 $ 2,575
Office furnishings and fixtures 566 560
Leasehold improvements 669 669
------- -------
4,122 3,804
Less accumulated depreciation and amortization (2,635) (1,826)
------- -------
Property and equipment, net $ 1,487 $ 1,978
======= =======
</TABLE>
Depreciation and amortization expense was $809,000, $818,000 and $560,000
for the years ended September 30, 1998, 1997 and 1996, respectively.
4. LEASES
The Company leases certain facilities under operating leases. Total rental
expense for the years ended September 30, 1998, 1997 and 1996 was
approximately $598,000, $596,000 and $418,000, respectively. Minimum
future rental commitments under operating leases having noncancelable
lease terms in excess of one year aggregated $1,130,000 as of September
30, 1998 and are payable as follows: 1999, $509,000; 2000, $462,000; and
2001, $195,000.
5. TRANSACTIONS WITH RELATED PARTIES
During 1998, net sales to the Parent were $1,360,000. During 1997 and
1996, net sales to Octel were $757,000 and $797,000, respectively. At
September 30, 1998, accounts receivable include $473,000 due from the
Parent related to product sales.
* * * * *
<PAGE> 10
BROOKTROUT TECHNOLOGY, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
(the "Pro Forma Financial Statements") are based on historical financial
statements of the Registrant and the CTP Business and have been prepared to
illustrate the effects of the Acquisition.
The unaudited pro forma condensed consolidated statements of income for the year
ended December 31, 1997 for the nine months ended September 30, 1998 give effect
to the Acquisition as if the transaction had been completed as of January 1,
1997. Such statements do not include the effect of the $9.8 million nonrecurring
charge for in-process research and development that has not reached
technological feasibility and does not have alternative future uses. The
unaudited pro forma condensed consolidated balance sheet as of September 30,
1998 gives effect to the Acquisition as if the transaction had been completed as
of that date. The Proforma Financial Statements do not include certain
additional expenses relating to general business and administrative efforts that
may be incurred by Brooktrout in providing services to the CTP business which
were previously provided by Lucent.
The Acquisition will be accounted for using the purchase method of accounting.
The total purchase price will be allocated to the tangible and intangible assets
and liabilities acquired based upon their respective fair values. The allocation
of the aggregate purchase price reflected in the Pro Forma Financial Statements
is preliminary and is subject to adjustment, upon the receipt of, among other
things, certain appraisals of the acquired assets and liabilities.
The Pro Forma Financial Statements do not purport to present the actual
financial position or results of operations that would have occurred had the
transactions and events reflected therein in fact occurred on the dates
specified, nor do they purport to be indicative of the results of operations or
financial condition that may be achieved in the future. The Pro Forma Financial
Statements are based on certain assumptions and adjustments described in the
notes hereto and should be read in conjunction therewith.
<PAGE> 11
BROOKTROUT TECHNOLOGY, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
REGISTRANT CTP BUSINESS
HISTORICAL AS OF HISTORICAL AS OF
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents 27,952 - (27,952) (a) -
Marketable securities 12,431 - (1,448) 10,983
Accounts receivable (less allowance for
doubtful accounts of $2,313 and $1,164 in
1998 and 1997, respectively) 12,869 4,312 17,181
Inventory 8,311 2,623 206 (b)(a) 11,140
Deferred tax assets 2,649 2,649
Prepaid expenses 726 212 - 938
------ ----- ------ ------
Total current assets 64,938 7,147 (29,194) 42,891
Equipment and furniture:
Computer equipment 7,557 1,539 (415) (e)(a) 8,681
Furniture and office equipment 5,879 774 (399) (e)(a) 6,254
------ ----- ------ ------
Total 13,436 2,313 (814) 14,935
Less accumulated depreciation and
amortization (5,454) (826) - (6,280)
------ ----- ------ ------
Equipment and furniture -- net 7,982 1,487 (814) 8,655
Deferred tax assets 1,178 - 3,719 (f)(a) 4,897
Developed Technology - - 12,157 (c)(a) 12,157
Other Intangible Assets - - 2,553 (g)(a) 2,553
Investments and other assets 796 - - 796
------ ----- ------ ------
Total 74,894 8,634 (11,579) 71,949
====== ===== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accruals 13,174 2,017 1,148 (a) 16,339
Accrued compensation and commissions 3,296 - - 3,296
Customer deposits 379 - - 379
Accrued warranty costs 1,052 12 - 1,064
Accrued income taxes 621 - - 621
------ ----- ------ ------
Total current liabilities 18,522 2,029 1,148 21,699
Deferred rent 347 - - 347
Commitments and contingencies - - -
Stockholders' equity:
Preferred stock, $1.00 par value; authorized
100 shares; Issued and outstanding, none - - -
Common stock, $.01 par value; authorized
25,000 shares; issued and outstanding,
10,828 and 10,741 in 1998 and 1997,
respectively 108 - - 108
Additional paid-in capital 32,337 - - 32,337
Unrealized (losses) on marketable securities (244) - - (244)
Currency translation adjustment -
Retained earnings 23,824 - (6,122) (d)(a) 17,702
Net Assets Acquired 6,605 (6,605) (a) -
------ ----- ------ ------
Total stockholders' equity 56,025 6,605 (12,727) 49,903
====== ===== ====== ======
Total 74,894 (8,634) (11,579) 71,949
====== ===== ====== ======
</TABLE>
<PAGE> 12
BROOKTROUT TECHNOLOGY, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
REGISTRANT CTP BUSINESS
HISTORICAL FOR THE HISTORICAL FOR THE
TWELVE MONTHS ENDED TWELVE MONTHS ENDED PRO FORMA
DECEMBER 31, 1997 SEPTEMBER 30, 1997 ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Revenue 72,192 29,329 (854) (1) 100,667
Costs and expenses:
Cost of product sold 32,381 11,436 568 (1)(2)(3) 44,385
Research and development 13,627 3,901 - 17,528
Purchased research and development 3,746 - - 3,746
Selling, general and administrative 19,970 8,105 296 (4) 28,371
Merger related charges - - - -
Income (loss) from operations 2,468 5,887 (1,718) 6,637
Other income (expense):
Interest/other income 1,688 28 (1,425) 291
Interest expense (11) - (3) (14)
Total other income 1,677 28 - 1,705
Income before income tax provision (benefit) 4,145 5,915 (3,146) 6,914
Income tax provision (benefit) 1,494 - 1,053 (5) 2,547
Net income 2,651 5,915 (4,199) 4,367
Basic income per common share:
Net income 0.25 0.41
Shares for basic 10,702 10,702
Diluted income per common share:
Net income 0.23 0.39
Shares for diluted 11,300 11,300
</TABLE>
<PAGE> 13
BROOKTROUT TECHNOLOGY, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
REGISTRANT CTP BUSINESS
HISTORICAL AS OF HISTORICAL AS OF
SEPTEMBER 30, 1998 JUNE 30, 1998 ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Revenue 75,526 22,386 (508) (1) 97,404
Costs and expenses:
Cost of product sold 31,404 8,748 610 (1)(2)(3) 40,762
Research and development 15,744 4,840 - 20,584
Purchased research and development (1 - - - -
Selling, general and administrative 21,201 5,506 222 (4) 26,929
Merger related charges - - - -
Income (loss) from operations 7,177 3,292 (1,340) 9,129
Other income (expense):
Interest/other income 1,498 84 (1,191) 391
Interest expense - - - -
Total other income 1,498 84 - 1,582
Income before income tax provision (benefit 8,675 3,376 (2,531) 9,520
Income tax provision (benefit 3,210 - 321 (5) 3,531
Net income 5,465 3,376 (2,852) 5,989
Basic income per common share:
Net income 0.51 0.56
Shares for basic 10,774 10,774
Diluted income per common share:
Net income 0.48 0.52
Shares for diluted 11,482 11,482
</TABLE>
<PAGE> 14
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
(a) The purchase price of the acquisition of the CTP Business is computed as
follows:
Cash.............................................................29,400,000
Buyer transaction expenses........................................1,148,000
-----------
TOTAL...........................................................$30,548,000
===========
The purchase price is expected to be allocated as follows:
Current assets...................................................$6,446,000
Liabilities assumed..............................................(1,656,000)
Equipment and Other...............................................1,262,000
In-process technology.............................................9,786,000
Customer Base.....................................................1,276,000
Trademark...........................................................304,000
Existing technology..............................................12,157,000
In Place Workforce..................................................973,000
-----------
TOTAL...........................................................$30,548,000
===========
The allocation of the purchase price among identifiable intangible assets
was based on a preliminary independent appraisal of the fair value of those
assets. Such appraisal allocated $9.8 million to purchased in-process
research and development. The $9.8 million was expensed in the fourth
quarter of 1998 upon closing as the technology has not yet reached
technological feasibility and does not have alternative future uses. The
unaudited pro forma condensed combined statements of income do not include
this one-time charge for purchased in-process technology as it represents a
material nonrecurring charge in accordance with the rules for the
preparation of pro forma financial statements.
(b) Represents the step-up in basis relating to finished goods inventory to
record such inventory at its fair value at the date of the acquisition.
(c) Reflects allocation of purchase price to existing technology.
(d) Reflects one-time charge for purchased in-process technology.
(e) Reflects allocation of purchase price to fixed assets.
(f) Reflects the deferred tax asset associated with the one-time charge for
purchased in-process technology.
(g) Reflects allocation of purchase price to customer base, trademarks and
in-place workforce.
<PAGE> 15
(1) Represents the elimination of intercompany sales and related cost of sales.
(2) Represents the additional cost of sales associated with the step-up in
inventory recorded as part of the acquisition in the amount of $206..
(3) Represents the amortization associated with the existing technology in the
amount of $1,216 and $912 for the twelve months ended December 31,
1997 and the nine months ended September 30, 1998, respectively which are
being amortized over their estimated useful lives of 10 years.
(4) Represents the amortization of other identifiable intangibles over their
estimated useful lives.
(5) Represents a pro forma income tax based on a statutory rate of 38%.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-12313 on Form S-8 and Registration Statement No. 333-62959 on Form S-8 of
Brooktrout Technology, Inc. of our report dated February 26, 1999, (relating to
the predecessor cost basis statements of net assets as of September 30, 1997 and
1998, and the related statements of net sales, cost of sales and certain direct
operating expenses for each of the three years in the period ending September
30, 1998 of Lucent Computer Telephony Products Group), which express an
unqualified opinion and includes an explanatory paragraph relating to the
exclusion of certain expenses appearing in this current report on Form 8-K/A of
BrookTrout Technology, Inc.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 2, 1999
