SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 2, 1999
PINNACLE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
California 0-24784 94-3003809
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
280 North Bernardo Ave., Mountain View, California 94043
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(Address of principal executive offices of Registrant, including zip code)
(650) 237-1600
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(Registrant's telephone number, including area code)
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The undersigned Registrant hereby amends the following items, financial
statements, exhibits, or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on August 13, 1999
(the "Form 8-K"):
Item 7. Financial Statements and Exhibits.
a. Financial Statements of Business Acquired.
Based on the materiality of this acquisition to Pinnacle Systems, Inc.
(the "Company"), Rule 3-05(b)(2)(ii) of Regulation S-X requires the
Company to furnish full audited financial statements for the acquired
business as specified in Rule 3-01 and Rule 3-02. However, due to the de
minimus nature of the operations of the Video Server Business in
proportion to the Hewlett-Packard Company as a whole, separate financial
statements have never been prepared for the acquired business in
accordance with Generally Accepted Accounting Principles.
Based on the circumstances described above, the following audited and
unaudited financial statements are hereby included in this Form 8-K/A.
The Company believes the provision of these financial statements to be in
compliance with the requirements of Rule 3-05 of Regulation S-X as the
most appropriate presentation under the circumstances (note that none of
the conditions specified in S-X Rule 1-02(w) exceed 40%):
o Audited Statement of Tangible Assets Sold and Liabilities Assumed as of
July 31, 1999.
o Audited Statement of Revenues and Direct Expenses of the Business for the
fiscal year ended October 31, 1998.
o Unaudited Statement of Revenues and Direct Expenses of the Business for
the fiscal nine-month periods ended July 31, 1999 and 1998.
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<PAGE>
Hewlett-Packard Company
Broadcast Video Server Business
Statements of Tangible Assets Sold and Liabilities Assumed as of July 31, 1999,
and of Revenues and Direct Expenses for the year ended October 31, 1998
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<PAGE>
Report of Independent Accountants
To the Board of Directors
Hewlett-Packard Company
We have audited the accompanying statement of tangible assets sold and
liabilities assumed of the Hewlett-Packard Company ("HP") Broadcast Video Server
Business (the "Business") as of July 31, 1999, and the related statement of
revenues and direct expenses for the year ended October 31, 1998. These
statements are the responsibility of HP's management. Our responsibility is to
express an opinion on these 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 statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosure in these statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statements were prepared for inclusion in the Securities and
Exchange Commission Current Report on Form 8-K of Pinnacle Systems, Inc. as
described in Note 2 and are not intended to be a complete presentation of the
Business' financial position and results of operation.
In our opinion the statements referred to above present fairly, in all material
respects, the tangible assets sold and liabilities assumed as described in Note
2 as of July 31, 1999, and the revenues and direct expenses as described in Note
2 for the year ended October 31, 1998, of the Business in conformity with
generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 28, 1999
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<PAGE>
Hewlett-Packard Company Broadcast Video Server Business
Statement of Tangible Assets Sold and Liabilities Assumed (in thousands)
July 31,
1999
--------
Tangible assets sold:
Finished goods inventory $ 3,683
--------
Machinery and equipment 2,538
Less: Accumulated depreciation (2,339)
--------
199
--------
Total tangible assets sold $ 3,882
========
Liabilities assumed:
Accrued warranties $ 1,434
--------
Total liabilities assumed $ 1,434
========
See accompanying Notes to the Statements of Tangible Assets Sold and Liabilities
Assumed and of Revenues and Direct Expenses
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<PAGE>
Hewlett-Packard Company Broadcast Video Server Business
Statement of Revenues and Direct Expenses (in thousands)
For the Nine
Months Ended For the Year
July 31, Ended
------------------ October 31,
1999 1998 1998
---- ---- ----
(unaudited)
Net revenues $ 18,085 $ 23,213 $ 33,672
Cost of goods sold 9,196 11,204 16,708
-------- -------- --------
8,889 12,009 16,964
Direct expenses:
Research and development 4,346 5,588 7,310
Selling, general and
administrative 11,876 11,264 16,001
-------- -------- --------
Deficiency of revenues over
direct expenses $ (7,333) $ (4,843) $ (6,347)
======== ======== ========
See accompanying Notes to the Statements of Tangible Assets Sold and Liabilities
Assumed and of Revenues and Direct Expenses
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<PAGE>
Hewlett-Packard Company Broadcast Video Server Business
Notes to Statement of Tangible Assets Sold and Liabilities Assumed and
Statement of Revenues and Direct Expenses (in thousands)
1. Description of Business
The Broadcast Video Server Business (the "Business") of the
Hewlett-Packard Company ("HP"), is engaged in the design, manufacture and
marketing of video broadcast servers for use in the broadcast market.
2. Basis of Presentation
On August 2, 1999, HP sold to Pinnacle Systems, Inc. ("Pinnacle" or the
"Company") certain tangible assets and the buyer assumed certain
liabilities of the Business in accordance with the Asset Purchase
Agreement between HP and Pinnacle dated June 30, 1999 (the "Purchase
Agreement").
The accompanying statements of tangible assets sold and liabilities
assumed as of July 31, 1999 and of revenues and direct expenses for the
nine months ended July 31, 1999 and 1998 (unaudited) and the year ended
October 31, 1998, have been prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission for
inclusion in the Current Report on Form 8-K of Pinnacle.
The statement of tangible assets sold and liabilities assumed includes
the amounts of certain tangible assets and liabilities of the Business at
July 31, 1999. Tangible assets sold include finished goods inventories
and property, plant and equipment as specifically identified in the
Purchase Agreement. The property, plant and equipment include equipment
for research and development, manufacturing and testing of broadcast
servers. Liabilities assumed include the Business' warranty obligations,
as specifically identified in the Purchase Agreement.
The statement of revenues and direct expenses includes direct expenses of
the Business for research and design, manufacturing, marketing,
distribution, and administration as well as allocations of costs incurred
by HP primarily for selling, administration and management services that
are directly attributed to the operations of the Business. Corporate
overhead, interest expense and income tax incurred by HP have been
excluded from the statement of revenues and direct expenses. These
statements do not purport to represent all the costs and expenses
associated with a stand-alone separate company, or the costs which may be
incurred by an unaffiliated company to achieve similar results. Complete
financial statements, including historical balance sheets, were not
prepared as HP did not maintain the Business as a separate business unit
and has not segregated indirect operating cost information or certain
assets and liabilities in the Business' accounting records.
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Hewlett-Packard Company Broadcast Video Server Business
Notes to Statement of Tangible Assets Sold and Liabilities Assumed and
Statement of Revenues and Direct Expenses (in thousands)
The statement of revenues and direct expenses for the nine months ended
July 31, 1999 and 1998 are unaudited; however, in the opinion of HP and
the Business' management, these statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of these statements.
3. Summary of Significant Policies
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 Business' financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue recognition
Revenue is recognized upon shipment, except for non-standard sales
contracts where revenues is recognized upon customer acceptance. A
provision for estimated future warranty costs is recorded at the time
revenue is recognized.
Revenue from non-standard sales contracts with significant customization
and integration services to meet specific customer needs is recognized
using the percentage of completion method. Progress towards completion is
measured upon the achievement of certain project installation and
acceptance milestones, which approximate the portion of actual costs
incurred.
The Business sells broadcast video server products to domestic and
international broadcast video communication customers. The following
table is a summary of sales by major geographic region (percentage of
total revenues):
For the Nine
Months Ended For the Year
July 31, Ended
------------------ October 31,
1999 1998 1998
---- ---- ----
(unaudited)
United States 81% 65% 56%
United Kingdom -- 7% 13%
Other international 19% 28% 31%
------- ------- -------
Total 100% 100% 100%
======= ======= =======
No single customer represented greater than 10% of total revenues during
the nine months ended July 31, 1998 (unaudited) and the year ended
October 31, 1998. One customer represented 39% (unaudited) of total
revenues during the nine months ended July 31, 1999.
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<PAGE>
Hewlett-Packard Company Broadcast Video Server Business
Notes to Statement of Tangible Assets Sold and Liabilities Assumed and
Statement of Revenues and Direct Expenses (in thousands)
Inventories
Inventories are valued at standard cost which approximates actual cost
computed on a first-in, first-out basis, not in excess of market values.
Property, plant and equipment
Property, plant and equipment are stated at cost. Additions, improvements
and major renewals are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. Depreciation is provided using
accelerated methods, principally over 10 to 18 years for buildings and
improvements and 3 to 10 years for machinery and equipment. Depreciation
expense amounted to $159 (unaudited), $372 (unaudited) and $486 during
the nine months ended July 31, 1999 and 1998 and the year ended October
31, 1998, respectively.
Research and development
Research and development costs are expensed as incurred.
Company Allocations
Allocated costs directly related to the operations of the Business
primarily include trade discounts, field selling costs and certain
management and administrative costs. Such costs are allocated on a basis
considered reasonable by management as discussed below.
Trade discounts
Trade discounts of $88 (unaudited), $152 (unaudited), and $225 were
allocated to the Business during the nine months ended July 31, 1999 and
1998 and the year ended October 31, 1998, respectively. These represent
cash discounts that offset direct revenues earned by the Business and are
allocated based on a percentage of gross shipments applicable to a
geographic region.
Field selling costs
Field selling costs of $4,885 (unaudited), $5,102 (unaudited), $7,542
were allocated to the Business during the nine months ended July 31, 1999
and 1998 and the year ended October 31, 1998, respectively. These costs
include salaries and benefits, travel, facilities and other expenses
associated with HP's sales force and other international trading
expenses. These field selling costs are allocated based on a channel
model applicable to a geographic region.
Administrative and management costs
Administrative and management costs of $435 (unaudited), $476 (unaudited)
and $749 were allocated to the Business during the nine months ended July
31, 1999 and 1998 and the year ended October 31, 1998, respectively.
These costs include certain marketing management and administrative
services and are allocated based on relative usage or, as in personnel
related costs, on headcount.
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<PAGE>
4. Commitments
In April 1998, the Business entered into a contract to develop, install
and support a video server subsystem for a total contract price of $8,583
(unaudited). The Business recognized $3,635 (unaudited) of revenue during
the nine months ended July 31, 1999, which represents the estimated
percent complete of the project. No revenue had been recognized in prior
periods.
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b. Pro Forma Financial Information.
The following unaudited pro forma combined condensed balance sheet
gives effect to the acquisition by Pinnacle Systems, Inc. ("Pinnacle"
or the "Company") of certain tangible assets and assumption of certain
liabilities of the Video Communications Division ("the Business") from
the Hewlett-Packard Company ("HP") in a business combination accounted
for by the purchase method. The unaudited pro-forma combined condensed
balance sheet is based on the audited consolidated balance sheet of
Pinnacle as of June 30, 1999 and gives effect to the business
combination as if it had occurred on June 30, 1999. The pro forma
adjustments are based upon available information and certain
assumptions that management believes are reasonable under the
circumstances. In the opinion of management, all adjustments have been
made that are necessary to present fairly the pro forma data. Final
amounts could differ from those set forth below. The unaudited pro
forma condensed balance sheet is not intended to be a projection of
future financial condition.
Article 11 of Regulation S-X requires the preparation of a pro-forma
condensed statement of operations. Pro-forma statements are intended to
represent a modification of historical financial statements as though a
current event occurred at an earlier date. Separate, historical
statements of operations of the Business were never prepared by HP due
to the de minimus nature of the Business in proportion to HP as a
whole. Thus, in order to prepare historical pro-forma information, it
would be necessary for Pinnacle to make assumptions based on
forward-looking estimates. For the purposes of this document,
disclosure of such pro-forma condensed statements of operations could
be misleading and therefore have been omitted.
The unaudited pro forma condensed balance sheet should be read in
conjunction with the consolidated financial statements of Pinnacle
Systems, Inc. appearing in Pinnacle's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999 as filed with the Securities and
Exchange Commission, and the financial data of the Business appearing
elsewhere in this Form 8-K/A.
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<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1999
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<CAPTION>
Historical Historical Pro-Forma
(In thousands) Pinnacle Business Adjustments Pro-Forma
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<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 48,654 $ (12,597) $ 36,057
Marketable securities 31,058 31,058
Accounts receivable, net 35,449 4,344 39,793
Inventories 22,221 3,683 (3,483) 22,421
Other 13,153 13,153
-------------- -------------- -------------- --------------
Total current assets 150,535 3,683 (11,736) 142,482
Marketable securities 9,266 9,266
Property and equipment, net 10,809 199 11,008
Goodwill and other intangibles 25,503 31,150 56,653
Other assets 356 356
-------------- -------------- -------------- --------------
$ 196,469 $ 3,882 $19,414 $ 219,765
============== ============== ============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 30,210 1,434 2,730 $ 34,374
Shareholders' equity:
Common stock 169,078 21,132 190,210
Accumulated deficit (389) - (2,000) (2,389)
Accumulated other comprehensive loss (2,430) (2,430)
-------------- -------------- -------------- --------------
Total shareholders' equity 166,259 - 19,132 185,391
-------------- -------------- -------------- --------------
$ 196,469 $ 1,434 $21,862 $ 219,765
============== ============== ============== ==============
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
Note 1. Basis of Presentation
On August 2, 1999, Pinnacle completed the purchase of certain tangible assets
and the assumption of certain liabilities of the Video Communications Division
of the Hewlett-Packard Company ("HP"), pursuant to an Asset Purchase Agreement
dated June 30, 1999 (the "Agreement"). Under the terms of the Agreement,
Pinnacle acquired substantially all of the assets of HP's Video Communications
Division, including key technologies and intellectual property, the Media Stream
family of products and selected additional assets, as well as most managers and
employees. The Company paid approximately $12.6 million in cash and issued
773,172 shares of Pinnacle's common stock valued at approximately $20.6 million.
The Company also incurred approximately $500,000 in transaction costs for a
total purchase price of $33.7 million. Pursuant to a stock restriction and
registration rights agreement entered into by the parties, Pinnacle filed with
the Securities and Exchange Commission a registration statement on Form S-3 with
respect to one-half of the Pinnacle Shares issued to HP. HP has agreed to
certain restrictions with respect to the disposition of the remainder of such
shares.
Note 2. Pro Forma Adjustments
(a) Under purchase accounting, the total purchase price will be allocated to the
Company's assets and liabilities based on their relative fair values.
Allocations are subject to valuations as of the date of the purchase
transaction. The amount and components of the estimated purchase price along
with the preliminary allocation of the estimated purchase price to assets
purchased are as follows (in thousands):
Common stock issued $ 20,632
Cash paid 12,597
Transaction costs 500
--------
Total purchase price $ 33,729
========
Accounts receivable $ 4,344
Other assets 400
Goodwill 14,000
Other intangibles 17,150
In-process research and development 2,000
Assumed liabilities (4,165)
--------
Net assets acquired $ 33,729
========
Accounts receivable are valued at net realizable value of amounts to be received
less an allowance for uncollectibility. The balance is derived from product
shipments made by HP prior to the completion of the acquisition. Based on HP's
revenue recognition policies, revenue from said shipments had not been
recognized as of the closing date of the acquisition and therefore HP had
maintained an inventory asset as of July 31, 1999. Subsequent to the completion
of the acquisition, Pinnacle valued the purchased assets related to these
shipments as accounts receivable without recognizing the related revenue.
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<PAGE>
(b) The Company will record a charge of approximately $2,000,000 for the fair
value of acquired in process research and development related to the net assets
acquired. This charge is included in the pro-forma adjustments and will be
reflected in the Company's statement of operations for the quarter ended
September 30, 1999.
(c) Other intangibles include mostly core/developed technology, licensing and
manufacturing agreements, acquired customer base, patents, trademarks and
assembled workforce. Goodwill represents the amount by which the cost of
acquired net assets exceeds the fair value of the net assets on the date of
purchase. Goodwill and other intangibles will be amortized using the
straight-line method over a period of three to five years.
Allocations are preliminary and subject to further review. Subsequent changes to
the purchase price allocation, if any, will be recorded as adjustments to
goodwill.
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<PAGE>
c. Exhibits.
2.1* Asset Purchase Agreement dated June 30, 1999 by and between Pinnacle
Systems, Inc. and Hewlett-Packard Company.
23.1 Consent of Independent Accountants
99.1* Press Release
- -------------------
* Previously filed.
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the
Asset Purchase Agreement have been omitted. The Registrant agrees to
supplementally furnish such schedules upon request of the Commission.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PINNACLE SYSTEMS, INC.
Dated: October 15, 1999 By: /S/ ARTHUR D. CHADWICK
-----------------------------------
Arthur D. Chadwick, Vice President
Finance and Administration
and Chief Financial Officer
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-84739) of Pinnacle Systems, Inc. of our report
dated September 28, 1999 relating to the statement of tangible assets sold and
liabilities assumed as of July 31, 1999 and the related statement of revenue and
direct expenses for the year ended October 31, 1998 of Hewlett-Packard Company
Broadcast Video Server Business which appears in the Current Report on Form
8-K/A, amendment No. 1, of Pinnacle Systems, Inc.'s Form 8-K originally filed on
August 13, 1999.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 14, 1999
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