<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
(Amendment No. 1)
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 16, 1998
VERILINK CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-19360 94-2857548
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
145 BAYTECH DRIVE, SAN JOSE, CALIFORNIA 95134
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
408-945-1199
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
The undersigned hereby amends Item 7 of its Current Report on Form 8-K filed
with the Commission on December 1, 1998 to read as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(a) Financial statements of business acquired.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and November 15, 1998
Consolidated Statements of Operations for the period July 3, 1996 through
December 31, 1996, the year ended December 31, 1997 and the period from
January 1, 1998 through November 15, 1998
Consolidated Statement of Shareholders' Equity and Related Party
Liabilities
Consolidated Statements of Cash Flows for the period July 3, 1996 through
December 31, 1996, the year ended December 31, 1997 and the period from
January 1, 1998 through November 15, 1998
Notes to Consolidated Financial Statements
(b) Pro forma financial information.
Introduction to Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet as of
September 27, 1998
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations
for the year ended June 28, 1998
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations
for the three months ended September 27, 1998
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Information
(c) Exhibits.
Pursuant to Item 601 of Regulation S-K, the following exhibits are filed
herewith:
Exhibit No. Description
----------- -----------
2.01 Stock Purchase Agreement Dated as of November 16,
1998 by and between Acme-Cleveland Corporation as
Seller and Verilink Corporation as Buyer.*
- ---------
* Exhibit previously filed.
<PAGE> 3
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.
VERILINK CORPORATION
February 1, 1999 By: /s/ John C. Batty
----------------------------------------
John C. Batty,
Vice President, Finance and Chief
Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
<PAGE> 4
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of TxPort, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and related party
liabilities and of cash flows present fairly, in all material respects, the
financial position of TxPort, Inc. and its subsidiary at November 15, 1998 and
December 31, 1997 and the results of their operations and their cash flows for
the periods then ended and the results of their operations for the period July
3, 1996 through December 31, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits 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 audits provide a
reasonable basis for the opinion expressed above.
TxPort, Inc. is a member of a group of affiliated companies owned by Danaher
Corporation ("Danaher") and, as disclosed in Notes 4 and 6 to the consolidated
financial statements, certain administrative, technical, and financing services
are provided to TxPort, Inc. by Danaher or its affiliates. It is possible that
the terms of these services are not the same as those that would result from
transactions among wholly unrelated parties.
PricewaterhouseCoopers LLP
San Jose, California
January 29, 1999
<PAGE> 5
TXPORT, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 15, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 340,000
Accounts receivable, net 2,632,000 2,756,000
Inventory 1,918,000 6,547,000
Prepaid expenses and other current assets 10,000 158,000
------------ ------------
Total current assets 4,560,000 9,801,000
Property and equipment, net 841,000 1,174,000
Intangibles 8,048,000 8,189,000
------------ ------------
Total Assets $ 13,449,000 $ 19,164,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 163,000 $ 136,000
Accounts payable 790,000 932,000
Accrued liabilities 2,465,000 2,383,000
------------ ------------
Total current liabilities 3,418,000 3,451,000
------------ ------------
Commitments and contingencies (Note 7)
Shareholders' equity and related party liabilities:
Common Stock: $1 par value; 100 shares authorized;
100 shares issued and outstanding
at November 15, 1998 and December 31, 1997 -- --
Additional paid-in capital 11,085,000 11,085,000
Accumulated deficit (65,577,000) (61,665,000)
Cumulative translation adjustment 52,000 23,000
Long-term note payable to related party 55,000,000 55,000,000
Current payable to related party 9,471,000 11,270,000
------------ ------------
Total shareholders' equity and related party liabilities 10,031,000 15,713,000
------------ ------------
Total liabilities and shareholders' equity and related
party liabilities $ 13,449,000 $ 19,164,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
TXPORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period For the Period
January 1, For the July 3,
1998 to Year Ended 1996 to
November 15, December 31, December 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 19,319,000 $ 27,716,000 $ 14,424,000
Net sales related party 4,245,000 9,474,000 4,722,000
------------ ------------ ------------
Total net sales 23,564,000 37,190,000 19,146,000
------------ ------------ ------------
Cost of sales 9,681,000 12,603,000 8,299,000
Cost of sales related party 4,429,000 10,257,000 4,781,000
------------ ------------ ------------
Total cost of sales 14,110,000 22,860,000 13,080,000
------------ ------------ ------------
Gross profit 9,454,000 14,330,000 6,066,000
------------ ------------ ------------
Operating expenses:
Research and development 3,678,000 4,359,000 1,918,000
Sales and marketing 5,060,000 7,749,000 3,345,000
General and administrative 933,000 1,937,000 754,000
Related party management and technology fees 1,546,000 2,218,000 1,448,000
------------ ------------ ------------
Total operating expenses 11,217,000 16,263,000 7,465,000
------------ ------------ ------------
Loss from operations (1,763,000) (1,933,000) (1,399,000)
Interest expense related party 4,255,000 4,927,000 1,995,000
------------ ------------ ------------
Loss before income taxes (6,018,000) (6,860,000) (3,394,000)
Benefit from income taxes 2,106,000 2,401,000 1,188,000
------------ ------------ ------------
Net loss $ (3,912,000) $ (4,459,000) $ (2,206,000)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
TXPORT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND RELATED PARTY LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Share-
Long-Term holders'
Note Current Equity and
Additional Cumulative Payable to Payable to Related
Common Stock Paid-In Accumulated Translation Related Related Party
Shares Amount Capital Deficit Adjustment Party Party Liabilities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 3, 1996 100 $-- $11,085,000 $ -- $ -- $ -- $ 8,987,000 $20,072,000
Net related party
transactions -- -- -- -- -- -- 362,000 362,000
Dividend paid -- -- -- (55,000,000) -- 55,000,000 -- --
Translation
adjustment -- -- -- -- 4,000 -- -- 4,000
Net loss -- -- -- (2,206,000) -- -- -- (2,206,000)
--- --- ----------- ------------ ------- ----------- ----------- -----------
Balance at
December 31, 1996 100 -- 11,085,000 (57,206,000) 4,000 55,000,000 9,349,000 18,232,000
Net related party
transactions -- -- -- -- -- -- 1,921,000 1,921,000
Translation
adjustment -- -- -- -- 19,000 -- -- 19,000
Net loss -- -- -- (4,459,000) -- -- -- (4,459,000)
--- --- ----------- ------------ ------- ----------- ----------- -----------
Balance at
December 31, 1997 100 -- 11,085,000 (61,665,000) 23,000 55,000,000 11,270,000 15,713,000
Net related party
transactions -- -- -- -- -- -- (1,799,000) (1,799,000)
Translation
adjustment -- -- -- -- 29,000 -- -- 29,000
Net loss -- -- -- (3,912,000) -- -- -- (3,912,000)
--- --- ----------- ------------ ------- ----------- ----------- ------------
Balance at
November 15, 1998 100 $-- $11,085,000 $(65,577,000) $52,000 $55,000,000 $ 9,471,000 $ 10,031,000
=== === =========== ============ ======= =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
TXPORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period For the Period
January 1, For the July 3,
1998 to Year Ended 1996 to
November 15, December 31, December 31,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,912,000) $(4,459,000) $(2,206,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for doubtful accounts and returns (41,000) 34,000 (29,000)
Loss on disposal of property and equipment 5,000 3,000 --
Depreciation and amortization 556,000 811,000 457,000
Amortization of goodwill 191,000 220,000 110,000
Changes in current assets and liabilities:
Accounts receivable 165,000 1,801,000 --
Inventory 4,629,000 1,293,000 3,627,000
Prepaid expenses and other current assets 148,000 (35,000) (17,000)
Accounts payable (142,000) (454,000) (320,000)
Accrued liabilities 130,000 (156,000) (589,000)
Income taxes payable -- -- (423,000)
----------- ----------- -----------
Net cash provided by used in operating activities 1,729,000 (942,000) 610,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (318,000) (771,000) (638,000)
Proceeds on disposal of property and equipment 90,000 -- --
----------- ----------- -----------
Net cash used in investing activities (228,000) (771,000) (638,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) intercompany transactions (1,799,000) 1,921,000 362,000
Proceeds from (repayment of) bank borrowings (71,000) (303,000) 78,000
----------- ----------- -----------
Net cash provided by (used in) financing activities (1,870,000) 1,618,000 440,000
----------- ----------- -----------
Effect of exchange rate changes on cash 29,000 19,000 4,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (340,000) (76,000) 416,000
Cash and cash equivalents at beginning of period 340,000 416,000 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ -- $ 340,000 $ 416,000
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
TXPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
TxPort, Inc. (the "Company") was originally incorporated in Alabama in
1990 and was reincorporated in Delaware in 1995. The Company designs,
manufactures and sells customer premise telecommunication access products
serving the functional applications of channel service units ("CSU"),
channel service unit/data service units ("CSU/DSU"), multiplexers, and
frame relay access devices. The Company is currently developing several
new products that address the growing interest in incorporating CSU/DSU
functionality with other hardware platforms.
The Company's customers include major U.S. long distance and local
exchange carriers, as well as various telecom Value Added Resellers/Value
Added Distributors.
The Company's primary premise is located in Madison, Alabama.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, TxPort Data, Inc. (incorporated in
Canada). Intercompany transactions and accounts have been eliminated.
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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments and accounts receivable. The Company's accounts receivable are
derived from revenue earned from customers located principally in the U.S.
The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its
customers. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.
The following table summarizes the revenues from customers in excess of
10% of the total revenues:
<TABLE>
<CAPTION>
Period Ended Year Ended
November 15, December 31,
1998 1997
<S> <C> <C>
Bell Atlantic (NYNEX) 15.1% 14.1%
Reuters 10.0% 10.8%
MCI Worldcom 6.8% 23.7%
</TABLE>
<PAGE> 10
TXPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At November 15, 1998, these three companies accounted for 15.1%, 17.9% and
11.4% of total accounts receivable, respectively. At December 31, 1997,
they accounted for 18.7%, 12.3% and 24.7% of total accounts receivable,
respectively.
INVENTORY
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of estimated useful lives of the
assets, generally two to ten years, or the lease term of the respective
assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of ("SFAS 121"). SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such
assets.
GOODWILL
Goodwill resulting from the acquisition of Acme-Cleveland Corporation (the
Company's parent) by Danaher Corporation is included in intangibles at
November 15, 1998 and December 31, 1997, and is being amortized using the
straight line method over forty years.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS
No. 123").
FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiary in Canada is considered an independent
operation having the local currency as its functional currency.
Accordingly, its net assets are translated at period end exchange rates,
while its income and expense accounts are translated at average rates in
effect during the period. Adjustments resulting from these translations
are reflected in the Shareholders' Equity and Related Party Liabilities
section titled "Cumulative translation adjustment."
INCOME TAXES
As a wholly owned subsidiary the Company's income or loss is included in a
consolidated return for Federal income tax purposes. The income tax
benefits resulting from net operating losses are therefore passed to other
companies within the Group. Consideration for the benefit of net operating
losses transferred is received at an agreed rate of 35% of the loss from
operations. Deferred income tax assets and liabilities are maintained by
its parent companies.
REVENUE RECOGNITION
The Company recognizes revenue on shipment of product except in relation
to separately identified maintenance revenue which is recognized over the
maintenance period.
<PAGE> 11
TXPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Period For the Period
January 1, July 3,
1998 to Year Ended 1996 to
November 15, December 31, December 31,
1998 1997 1996
<S> <C> <C> <C>
Supplemental noncash investing
and financing activity:
Accrued contingent acquisition
payment $ 50,000 $ -- $ --
----------- ---- -----------
Dividend paid by a note payable $ -- $ -- $55,000,000
=========== ==== ===========
</TABLE>
3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
November 15, December 31,
1998 1997
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 2,761,000 $ 2,926,000
Less:Allowance for doubtful accounts (129,000) (170,000)
----------- -----------
$ 2,632,000 $ 2,756,000
=========== ===========
Inventory:
Finished goods $ 1,704,000 $ 4,857,000
Work-in-progress 38,000 738,000
Raw materials 176,000 952,000
----------- -----------
$ 1,918,000 $ 6,547,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
November 15, December 31,
1998 1997
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Leasehold improvements $ 283,000 $ 285,000
Machinery and equipment 2,030,000 2,133,000
---------- ----------
2,313,000 2,418,000
Less: Accumulated depreciation and amortization (1,472,000) (1,244,000)
---------- ----------
$ 841,000 $1,174,000
========== ==========
Accrued liabilities:
Payroll and related expenses $ 775,000 $ 811,000
Warranty 536,000 579,000
Credits due to customers 210,000 --
Other 944,000 993,000
---------- ----------
$2,465,000 $2,383,000
========== ==========
</TABLE>
<PAGE> 12
TXPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
The Company is a member of a group of affiliated companies owned by
Danaher Corporation ("Danaher"). Significant related party transactions
with Danaher and its affiliates not disclosed elsewhere in the financial
statements are as follows:
RELATED PARTY SALES
The Company was a subcontract manufacturer for an affiliate. The revenue
and cost of sales are separately shown in the consolidated statements of
operations. These transactions declined throughout 1998 with the last
occurring in September 1998. Revenues recorded are not necessarily
indicative of those that would have been recorded if the Company had not
been a related entity.
TECHNICAL SERVICES
Danaher and its affiliates own or have the right to use patents, know-how
and other proprietary technology as well as substantial expertise in the
design and manufacture of products and systems using this technology. In
consideration for the use of the technology and expertise, the Company
paid Danaher and its affiliates a percentage of revenue. The expense for
these services amounted to $482,000, $832,000 and $588,000 for the period
ended November 15, 1998, the year ended December 31, 1997 and the period
ended December 31, 1996, respectively. Such charges and allocations are
not necessarily indicative of the costs that would have been incurred if
the Company had not been a related entity.
CONSULTING SERVICES
Danaher provides to the Company various administrative services such as
cash management; employee pension plan and benefits management; tax,
accounting, financial reporting and regulatory compliance services and
administration; and tax, financial and strategic planning services. The
costs of these functions have been allocated to the Company based on a
percentage of revenue methodology. The allocated costs of these services
amounted to $966,000, $1,386,000 and $958,000 for the period ended
November 15, 1998, the year ended December 31, 1997 and the period ended
December 31, 1996, respectively. Such charges and allocations are not
necessarily indicative of the costs that would have been incurred if the
Company had not been a related entity.
5. INCOME TAXES
The Company had carried forward state income tax net operating losses of
$3,085,000, $9,199,000 and $15,810,000 at December 31, 1996, December 31,
1997 and November 15, 1998, respectively. Management believes that, based
on a number of factors, it is more likely than not that the deferred tax
assets as a result of the net operating losses will not be utilized, such
that a full valuation allowance has been recorded.
<PAGE> 13
TXPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. LONG TERM NOTE PAYABLE TO RELATED PARTY
The Company entered into a promissory note in the amount of $55,000,000
with a related party on July 31, 1996. The note bears interest at a rate
of 2% over the yield on the U.S. Treasury's 30-year benchmark bond and the
total amount is due on July 31, 2006. Interest is calculated on the basis
of a year of 365 days and payable on a semi-annually basis.
7. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
At November 15, 1998, the Company had approximately $452,000 in
noncancelable purchase commitments with suppliers. The Company expects to
sell all products which it has committed to purchase from suppliers.
LEASES
The Company leases office space and equipment under noncancelable
operating leases with various expiration dates through May 2001. The
Company subleases certain properties for the remainder of the lease life.
However, if TxPort extends its lease, the sublease is extended until
November 2000. Rent expense for the period ended November 15, 1998, the
year ended December 31, 1997 and the period ended December 31, 1996 was
$561,000, $741,000 and $427,000, respectively. The Company recognizes rent
expense on a straight-line basis over the lease period, and has accrued
for rent expense incurred but not paid.
Future minimum lease payments under noncancelable operating and capital
leases, including lease commitments entered into subsequent to November
15, 1998 and future minimum sublease rental receipts under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended Operating Sublease
November 15, Leases Income
<S> <C> <C>
1999 $464,000 $188,000
2000 70,000 13,000
2001 4,000 --
-------- --------
Total minimum lease payments and sublease income $538,000 $201,000
-------- --------
</TABLE>
CONTINGENCIES
The Company has received a claim for an increased contingent payment in
relation to an acquisition made by the Company in April 1996. Management
believes that the Company is indemnified against such a claim by its
parent prior to the November 16, 1998 transaction as discussed in Note 11.
The Company is engaged in another legal proceeding included in its normal
business activities. While it is not possible to determine the ultimate
outcome of this action at this time, management believes that any
liabilities resulting from the claim will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
<PAGE> 14
TXPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 100 shares of $1 par value Common Stock.
9. STOCK OPTION PLANS
In December 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). Under the Plan, stock options were granted to employees of the
Company. The options had a fair value, as defined in SFAS 123, of nil.
None of the options were ever exercised. As a result of the acquisition of
the Company by Verilink Corporation, as referred to in Note 11, all
outstanding options and the Plan were cancelled on November 16, 1998.
10. EMPLOYEE BENEFIT PLANS
The Company participates in an affiliate sponsored 401(k) defined
contribution plan covering all employees. Contributions made by the
Company vary between 3% and 6% of employee salaries depending upon
employee contribution levels. Employer contributions under this plan
amounted to $267,000, $346,000 and $183,000 for the period ended November
15, 1998, the year ended December 31, 1997 and the period ended December
31, 1996, respectively. The Plan was superceded by a Verilink Corporation
plan as a result of the transaction referred to in Note 11.
11. SUBSEQUENT EVENTS
On November 16, 1998, the Company was acquired by Verilink Corporation as
part of an agreement between TxPort's parent and Verilink Corporation.
All of TxPort's outstanding intercompany obligations to Danaher and its
affiliates were terminated. These obligations included liabilities
totaling $64,471,000.
<PAGE> 15
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION.
On November 16, 1998, Verilink Corporation purchased all of the outstanding
shares of TxPort, Inc. from Acme-Cleveland Corporation for $10,000,000 in cash.
The unaudited pro forma condensed combined consolidated financial information
gives effect to the acquisition of TxPort by Verilink under the purchase method
of accounting. The unaudited pro forma condensed combined consolidated balance
sheet combines Verilink's unaudited consolidated balance sheet and TxPort's
unaudited consolidated balance sheet at September 27, 1998 as if the acquisition
had occurred on September 27, 1998.
The unaudited pro forma condensed combined consolidated statements of operations
combine the historical results of operations of Verilink and TxPort for the
twelve months ended June 28, 1998 and the three months ended September 27, 1998,
giving effect to the acquisition as if it had occurred at June 30, 1997.
The pro forma financial information is presented for illustrative purposes only
and does not purport to be indicative of the operating results or financial
position that would have occurred had the acquisition been effected for the
periods indicated nor is it indicative of the future operating results or
financial position of the Company.
The pro forma adjustments are based upon information and assumptions available
at the time of the filing of this Form 8-K/A. The pro forma information should
be read in conjunction with the historical audited and unaudited consolidated
financial statements of Verilink, including the notes thereto, and the audited
historical financial statements of TxPort, including the notes thereto.
Verilink Corporation and TxPort, Inc.
Pro Forma Condensed Combined Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 27, 1998
-------------------------------------------------------------
Historical Historical Pro Forma Pro Forma
Verilink TxPort Adjustments Combined
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,741,000 $ -- $(10,000,000)(a) $ 2,741,000
Short-term investments 29,145,000 -- 29,145,000
Accounts receivable, net 7,752,000 2,219,000 9,971,000
Inventories 4,864,000 2,106,000 6,970,000
Deferred tax assets 1,532,000 -- 1,532,000
Other current assets 257,000 7,000 264,000
------------ ----------- ------------ -----------
Total current assets 56,291,000 4,332,000 (10,000,000) 50,623,000
Property and equipment, net 7,116,000 835,000 7,951,000
Deferred tax assets 436,000 -- 436,000
Intangible assets -- 7,973,000 (2,438,000)(a),(b) 5,535,000
Other assets 1,419,000 -- 1,419,000
------------ ----------- ------------ -----------
Total assets $ 65,262,000 $13,140,000 $(12,438,000) $65,964,000
============ =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,970,000 $ 554,000 $ -- $ 2,524,000
Accrued expenses 7,516,000 2,183,000 1,295,000 (a) 10,994,000
Income taxes payable 1,117,000 -- 1,117,000
------------ ----------- ------------ ----------
Total liabilities 10,603,000 2,737,000 1,295,000 14,635,000
Note & Accounts Payable, Affiliate -- 64,251,000 (64,251,000)(b) --
Stockholders' equity 54,659,000 (53,848,000) 50,518,000(a),(b) 51,329,000
------------ ----------- ------------ -----------
Total liabilities and stockholders'
equity $ 65,262,000 $13,140,000 $(12,438,000) $65,964,000
============ =========== ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial information.
<PAGE> 16
Verilink Corporation and TxPort, Inc.
Pro Forma Condensed Combined Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Year Ended June 28, 1998
----------------------------------------------------------------
Historical Historical Pro Forma Pro Forma
Verilink TxPort Adjustments Combined
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 50,915,000 $24,221,000 $ -- $ 75,136,000
Cost of sales 25,794,000 12,149,000 37,943,000
------------ ----------- ----------- -----------
Gross Profit 25,121,000 12,072,000 -- 37,193,000
Operating expenses:
Research and development 12,484,000 3,874,000 16,358,000
Selling, general and administrative 16,382,000 10,173,000 (1,159,000)(c)(d) 25,396,000
------------ ----------- ----------- ----------
Total operating expenses 28,866,000 14,047,000 (1,159,000) 41,754,000
------------ ----------- ----------- ----------
Loss from operations (3,745,000) (1,975,000) 1,159,000 (4,561,000)
Interest and other income, net 2,066,000 -- (500,000)(e) 1,566,000
Intercompany interest -- (4,959,000) 4,959,000 (f) 0
------------ ----------- ----------- -----------
Loss before taxes (1,679,000) (6,934,000) 5,618,000 (2,995,000)
Benefit from income taxes 608,000 2,427,000 (2,427,000)(g) 608,000
------------ ----------- ----------- -----------
Net loss $ (1,071,000) $(4,507,000) $ 3,191,000 $(2,387,000)
============ =========== =========== ===========
Net loss per share - Basic $ (0.08) $ (0.17)
============ ===========
Net loss per share - Diluted $ (0.08) $ (0.17)
============ ===========
Shares used in per share computation - Basic 13,742 13,742
============ ===========
Shares used in per share computation - Diluted 13,742 13,742
============ ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial information.
<PAGE> 17
Verilink Corporation and TxPort, Inc.
Pro Forma Condensed Combined Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 27, 1998
--------------------------------------------------------------
Historical Historical Pro Forma Pro Forma
Verilink TxPort Adjustments Combined
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $17,078,000 $ 4,806,000 $ -- $21,884,000
Cost of sales 8,308,000 2,513,000 10,821,000
----------- ----------- ---------- -----------
Gross Profit 8,770,000 2,293,000 -- 11,063,000
Operating expenses:
Research and development 3,290,000 1,052,000 4,342,000
Selling, general and administrative 4,928,000 1,963,000 (189,000)(c)(d) 6,702,000
----------- ----------- ---------- -----------
Total operating expenses 8,218,000 3,015,000 (189,000) 11,044,000
----------- ----------- ---------- -----------
Income (loss) from operations 552,000 (722,000) 189,000 19,000
Interest and other income, net 559,000 (125,000)(e) 434,000
Intercompany interest -- (1,216,000) 1,216,000 (f) 0
----------- ----------- ---------- -----------
Income (loss) before taxes 1,111,000 (1,938,000) 1,280,000 453,000
Provision for (benefit from) income taxes 389,000 (679,000) 449,000 (g) 159,000
----------- ----------- ---------- -----------
Net income (loss) $ 722,000 $(1,259,000) $ 831,000 $ 294,000
=========== =========== ========== ===========
Net income per share - Basic $ 0.05 $ 0.02
=========== ===========
Net income per share - Diluted $ 0.05 $ 0.02
=========== ===========
Shares used in per share computation - Basic 13,908 13,908
=========== ===========
Shares used in per share computation - Diluted 14,244 14,244
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statement.
<PAGE> 18
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Information
Note 1 - Pro Forma Adjustments
The following adjustments were applied to the historical condensed financial
statements to arrive at the pro forma condensed combined consolidated financial
statements.
(a) On November 16, 1998 Verilink Corporation completed its acquisition of
TxPort, Inc. The acquisition was accounted for using the purchase method,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on the estimated fair value as of the acquisition
date. The allocation of the purchase price, assuming the acquisition
occurred on September 27, 1998, for pro forma purposes, is as follows:
Cash Paid $10,000,000
Estimated acquisition costs 500,000
--------------
$10,500,000
==============
Tangible assets $ 5,167,000
Intangible assets 5,535,000
In-process research and development 3,330,000
Liabilities assumed (3,532,000)
--------------
$10,500,000
==============
Liabilities assumed includes amounts which were not included in the historic
TxPort financial statements related to the payment of retention bonuses and
severance costs of $795,000.
On the acquisition date, Verilink recorded a charge of 3,330,000 related to
the in-process research and development.
(b) Reflects purchase accounting adjustments to eliminate TxPort's equity
balance of $53,848,000, and other intangibles of $7,973,000. Note and
accounts payable to TxPort's affiliate were terminated as part of the
acquisition.
(c) Adjustment reflects the amortization of the amount of the purchase price
allocated to identified intangible assets over a period of 12 months for the
period ended June 27, 1998 and 3 months for the period ended September 27,
1998. The intangibles are being amortized as follows:
Economic
Intangible Asset Amount Useful Life
---------------- ------ -----------
Existing Technology $ 720,000 3 years
Customer Relations 1,510,000 5 years
Assembled Workforce 1,220,000 5 years
Goodwill 2,085,000 10 years
----------
$5,535,000
(d) Reflects the adjustment to remove the management and technology fee expense
in relation to agreements with TxPort's affiliates that were terminated as a
result of the purchase. Also eliminates the amortization of the intangible
eliminated in adjustment (b).
(e) Reflects the adjustment to reduce interest income as a result of a lower
cash and cash equivalents balance.
(f) Reflects the adjustment to eliminate the interest on the note that was
cancelled as a result of the purchase.
(g) Reflects the adjustment to income taxes based on the pro forma results for
the periods presented.
Note 2. NON-RECURRING REVENUE
Until September 1998 TxPort manufactured products for an affiliate. As this has
ceased, sales of $9,022,000 and $567,000 for the year ended June 28, 1998 and
the quarter ended September 27, 1998 respectively have been excluded from the
pro forma condensed combined consolidated statements of operations.
Note 3. MATERIAL NON-RECURRING CHARGES
Research and development in process costs, expensed in the period of the
acquisition, are not reflected in the pro forma statement of operations herewith
pursuant to Article 11 of Regulation S-X. The research and development in
process represents the estimated current fair market value using a risk adjusted
income approach, of specifically identified technologies which had not reached
technological feasibility.
