<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
SCHEDULE 14D-1/A
------------------------------------
TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(D)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934
SAGE LABORATORIES, INC.
(Name of Subject Company)
FIL ACQUISITION CORP.
FILTRONIC PLC
(Bidders)
--------------
COMMON STOCK, $.10 PAR VALUE PER SHARE
(Title of Class of Securities)
--------------
786 650 101
(CUSIP Number of Class of Securities)
--------------
PROFESSOR DAVID RHODES
EXECUTIVE CHAIRMAN
FILTRONIC PLC
THE WATERFRONT
SALTS MILL ROAD, SALTAIRE
SHIPLEY, WEST YORKSHIRE
ENGLAND, BD18 3TT
011-44-1274-530-622
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Copy to:
NANCY E. FUCHS, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
425 PARK AVENUE
NEW YORK, NEW YORK 10022
-------------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE
Transaction Value Amount of Registration Fee
$19,482,137.50 $3,896.43**
(1)
* For purposes of calculating fee only. This amount assumes (i) the purchase of
1,085,265 outstanding shares of common stock of Sage Laboratories, Inc. and (ii)
28,000 shares of common stock of Sage Laboratories, Inc. which may be issued
upon exercise of outstanding options, in each case, at $17.50 in cash per share.
The amount of the filing fee calculated in accordance with Regulation 240.0-11
of the Securities Exchange Act of 1934, as amended, equals 1/50 of one percentum
of the value of shares to be purchased.
** Previously paid.
/ / Check box if any part of the fee is offset as provided by Rule 0-11 (a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
2
<PAGE> 3
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 (this "Statement")
relates to the offer by FIL Acquisition Corp., a Massachusetts corporation (the
"Purchaser"), and a direct wholly owned subsidiary of Filtronic plc, a company
organized under the laws of England and Wales ("Parent"), to purchase all of the
outstanding shares (the "Shares") of common stock, par value $.10 per share (the
"Common Stock") of Sage Laboratories, Inc., a Massachusetts corporation (the
"Company"), at $17.50 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated May 19, 1998
(the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1),
and in the related Letter of Transmittal, a copy of which is attached hereto as
Exhibit (a)(2) (which together constitute the "Offer").
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Sage Laboratories, Inc., a
Massachusetts corporation, and the address of its principal executive offices is
11 Huron Drive, East Natick Industrial Park, Natick, Massachusetts 01760.
(b) The class of securities to which this Statement relates is the
Common Stock. The Company has represented that as of May 12, 1998 there were
1,085,265 shares of Common Stock, issued and outstanding and (b) outstanding
options to purchase an aggregate of 177,300 shares of Common Stock. Purchaser is
seeking to purchase all of the outstanding Shares at a purchase price of $17.50
per Share, net to the seller in cash.
(c) The information set forth in "Section 6--Price Range of the Shares;
Dividends on the Shares" of the Offer to Purchase is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by Parent and the
Purchaser. The information set forth in the "INTRODUCTION" and "Section
9--Certain Information Concerning Parent and the Purchaser" of the Offer to
Purchase is incorporated herein by reference. The name, business address,
present principal occupation or employment, the material occupations, positions,
offices or employments for the past five years and citizenship of each director
and executive officer of Parent and the Purchaser and the name, principal
business and address of any corporation or other organization in which such
occupations, positions, offices and employments are or were carried on are set
forth in Annex I and II of the Offer to Purchase and incorporated herein by
reference.
The definition of "Minimum Condition" on page 27 and all references to
requiring "at least 66 2/3% of the total number of shares" in respect of such
Minimum Condition are hereby amended to add the following: "the Shares that are
the subject of the Stockholders Agreements shall be considered tendered for
purposes of calculating the Minimum Condition."
(e)-(f) During the last five years neither Parent, the Purchaser, nor,
to the best knowledge of Parent and the Purchaser, any of the persons listed in
Annex I and II of the Offer to Purchase have been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which any such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
3
<PAGE> 4
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)(1) Other than the transactions described in Item 3(b) below,
neither Parent, the Purchaser, nor, to the best knowledge of Parent and the
Purchaser, any of the persons listed in Annex I and II of the Offer to Purchase,
has entered into any transaction with the Company, or any of the Company's
affiliates which are corporations, since the commencement of the Company's third
full fiscal year preceding the date of this Statement, the aggregate amount of
which was equal to or greater than one percent of the consolidated revenues of
the Company for (i) the fiscal year in which such transaction occurred or (ii)
the portion of the current fiscal year which has occurred if the transaction
occurred in such year.
(a)(2) Other than the transactions described in Item 3(b) below,
neither Parent, the Purchaser, nor, to the best knowledge of Parent and the
Purchaser, any of the persons listed in Annex I and II of the Offer to Purchase,
has entered into any transaction since the commencement of the Company's third
full fiscal year preceding the date of this Statement, with the executive
officers, directors or affiliates of the Company which are not corporations, in
which the aggregate amount involved in such transaction or in a series of
similar transactions, including all periodic installments in the case of any
lease or other agreement providing for periodic payments or installments,
exceeded $40,000.
(b) The information set forth in the "INTRODUCTION", "Section 9 --
Certain Information Concerning Parent and the Purchaser", "Section 11 --
Contracts with the Company; Background of the Offer and "Section 12 -- Purpose
of the Offer, Short Form Merger; Plans for the Company; Dissenters' Rights;
Going Private Transactions" of the Offer to Purchase is incorporated herein by
reference.
See Item 2 with respect to amendment of calculation of the "Minimum
Conditions."
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The first and second paragraphs on page 13 under the heading
"Source and Amount of Funds" are hereby amended to read in their entirety as
follows:
"The total amount of funds required by Parent and Purchaser to purchase
all Shares that may be tendered pursuant to the Offer, purchased pursuant to
the Stockholder Agreements, in the Merger, and to pay related fees and expenses
is estimated to be approximately $20.1 million. The Purchaser will obtain all
such funds from Parent or its affiliates by means of loans from Parent. Parent
will obtain all the funds required in connection with the Offer from (i)
Parent's available general corporate funds and (ii) borrowings by Parent under
an unsecured credit facility (the "Bank Credit"). This Offer is not conditioned
upon any financing arrangements.
The Bank Credit is available to Parent, its affiliates and subsidiaries
pursuant to an arrangement with Barclays Bank plc (the "Bank"). As is customary
in the United Kingdom, the Bank Credit is arranged as an understanding between
Parent and the Bank that is not committed to formal documentation. While the
Parent has had lines of credit with the Bank for a period of years, the Bank
Credit has been available to Parent since May 1998. Pursuant to the Bank Credit,
Parent, its subsidiaries and affiliates may borrow under overdrafts and other
types of borrowings. The total amount of funds made available under the Bank
Credit is approximately (pounds sterling) 32.5 million, in the aggregate,
including up to (pounds sterling)12.0 million designated for borrowings in
connection with the Offering, the Stockholders Agreement and the Merger. Loans
will bear interest during any particular interest period at 1.0% plus the London
Interbank Offer Rate (LIBOR)
The Bank has committed to make loans pursuant to the Bank Credit
through September 30, 1998. The Bank has confirmed to Parent that, subject to
ordinary course renewal procedures and there being no unforseen circumstances,
the Bank Credit will be extended through November 30, 1999.
Parent has not made any definitive arrangements for such refinancing.
In the absence of any public financing, it is anticipated that borrowings
incurred by Parent in connection with the Offer will be converted to
medium/long term loans of the Bank, which will be repaid in turn from
internally generated funds of Parent and, after the Merger is consummated, of
the Company or from other sources.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the "INTRODUCTION", "Section 11 --
Contracts with the Company; Background of the Offer" and "Section 12 -- Purpose
of the Offer; Short Form Merger; Plans for the Company; Dissenters' Rights;
Going Private Transactions" of the Offer to Purchase is incorporated herein by
reference.
The second sentence of the first full paragraph on page 15 under the
heading "Purpose of the Offer; Short Form Merger; Plans for the Company;
Dissenters' Rights; Going Private Transactions" is hereby amended to read in its
entirety as follows: "The Board of Directors of the Company has approved the
Offer, the Merger and the Merger Agreement and the transactions contemplated
thereby, and, unless the Merger is consummated pursuant to the short-form merger
provisions under the BCL described below, the only remaining required corporate
action of the Company is the approval and adoption of the Merger Agreement and
the Merger by the affirmative vote of the holders of 66 2/3% of the holders of
outstanding Shares."
See Item 2 with respect to amendment of calculation of the "Minimum
Conditions."
(f)-(g) The information set forth in "Section 7 -- Effects of the Offer
on the Market for the Shares; Stock Quotations; Registration under the Exchange
Act" of the Offer to Purchase is incorporated herein by reference.
The following sentence is hereby added to the third full paragraph on
page 11 under the heading "Effects of The Offer on The Market for Shares; Stock
Quotations; Registration Under the Exchange Act": "Parent intends to deregister
the Shares under the Exchange Act following consummation of the Merger, and
therefore, Parent shall be the only Shareholder affected by such
deregistration."
5
<PAGE> 5
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth in "Section 9 -- Certain Information
Concerning Parent and the Purchaser"; "Section 11 -- Contracts with the Company;
Background of the Offer" and "Section 13 -- The Merger Agreement; Stockholder
Agreement" of the Offer to Purchase is incorporated herein by reference.
Item (iv) on page 25 under the heading "Certain Conditions of the
Offer" is hereby amended to read in its entirety as follows: "at any time on or
after the date of the Merger Agreement, and on or prior to the Expiration Date,
any of the following conditions shall exist:"
See Item 2 with respect to amendment of calculation of the "Minimum
Condition".
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the "INTRODUCTION", "Section 10 -- Source
and Amount of Funds"; "Section 11 -- Contracts with the Company; Background of
the Offer"; "Section 12 --Purpose of the Offer; Short Form Merger; Plans for the
Company; Dissenters' Rights; Going Private Transactions" and "Section 16 -- Fees
and Expenses" of the Offer to Purchase is incorporated herein by reference.
See Item 5 for amendment to Section 12.
See Item 2 with respect to amendment of calculation of the "Minimum
Condition".
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "Section 17 -- Fees and Expenses" of the
Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Set forth below is certain selected consolidated financial information
relating to Parent and its subsidiaries for the fiscal years ended May 31, 1997,
1996 and 1995 (the "Financial Statements"). The selected consolidated financial
information is denominated in pounds sterling and prepared in accordance with
generally accepted accounting principles in the United Kingdom ("UK GAAP"). UK
GAAP differs in certain significant respects from generally accepted accounting
principles in the United States ("US GAAP"). Immediately following Parent's
summary consolidated financial information set forth below is a brief summary of
certain differences between UK GAAP and US GAAP. Parent has not examined whether
adjustments necessary to conform its Financial Statements with US GAAP would be
material. Parent's financial statements for the fiscal years ended May 31, 1997
and 1996 are incorporated herein by reference and a copy of which has been filed
with the Commission as Exhibit (a)(10) to the Schedule 14D-1 may be inspected at
the Commission's public reference facilities in Washington, D.C., and copies
thereof may be obtained from such facilities upon payment of the Commission's
customary charges, in the manner set forth in Section 8 of the Offer to Purchase
under "Available Information" (although they will not be available at the
regional offices of the Commission). Set forth below is certain summary
financial information excerpted or derived from Parent's Financial Statements.
Such summary information is qualified in its entirety by reference to Parent's
Financial Statements and all the financial information and related notes
contained therein.
FILTRONIC PLC
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS OF POUNDS STERLING(1), EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
------------------------------------------
1997 1996 1995
(POUNDS)000 (POUNDS)000 (POUNDS)000
-------------------------------------------
<S> <C> <C> <C>
Income statement data
Sales ............................... 46,590 33,448 25,664
Operating profit .................... 4,666 3,376 3,156
Net interest payable ................ (603) (129) 123
------ ------ ------
Profit on ordinary activities before
taxation ............................. 4,063 3,247 3,279
Profit retained for the year ......... 2,290 1,955 2,005
Per share data
Amounts in accordance with UK GAAP
Earnings per ordinary share -
pence(2) ............................. 6.52 5.59 6.36
Balance sheet data (at end of period)
Amounts in accordance with UK GAAP
Net current assets ................... 4,679 3,363 8,581
Total assets ......................... 43,116 31,785 22,812
Total liabilities .................... 21,657 12,941 6,289
Shareholders' funds .................. 21,459 18,844 16,437
</TABLE>
- -------------
(1) Parent publishes its financial statements in pounds sterling. The United
States dollar exchange rate based on the London closing mid-rates for
pounds sterling to dollars, expressed in $1 per (Pounds)(1), for the fiscal
dates (or in the case of high, low and average, the calendar years)
indicated, are as follows and are based on published financial sources:
<TABLE>
<CAPTION>
YEAR END RATE YEAR HIGH YEAR LOW YEAR AVERAGE
------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year ended 5/31/95 ........... $1.5880 1.6402 1.5313 1.5783
Fiscal Year ended 5/31/96 ........... 1.5505 1.7150 1.4927 1.5619
Fiscal Year ended 5/31/97 ........... 1.6405 1.7071 1.5790 1.6386
</TABLE>
- ------------
(2) The weighted average number of shares outstanding during the fiscal years
ended May 31, 1995, 1996 and 1997 were 43,590,211, 42,664,874 and
36,497,212, respectively.
Certain Differences Between UK GAAP and US GAAP. Although UK GAAP
differs in certain significant respects from US GAAP, Parent believes that the
differences are not material to a decision by a holder of Shares whether to
sell, tender or hold any Shares because any such differences would not reflect
the ability of the Purchaser to obtain sufficient funds to pay for the Shares
to be acquired pursuant to the Offer. While the following is not a
comprehensive summary of all the differences between UK GAAP and US GAAP, other
differences are unlikely to have a significant effect on the consolidated
income or shareholder's funds of the Purchaser.
Goodwill and US Purchase Accounting. Under US GAAP and UK GAAP,
purchase consideration in respect of subsidiaries acquired is allocated on the
basis of appraised values to the various net assets of the subsidiaries at the
dates of acquisition and any net balance is treated as goodwill. However, US
GAAP also requires value to be assigned to any separately identifiable
intangible assets -- which would be amortized over their estimated useful lives
not to exceed 40 years -- and to acquired in-process research and development
which would be written off to the profit and loss account in the period of the
acquisition. Also, US GAAP requires goodwill to be recognized as an asset and
amortized over its estimated useful life not to exceed 40 years. Under UK GAAP
goodwill is written off directly against reserves. Any acquisition related
expenses are considered part of the purchase consideration under US GAAP and
effectively added to goodwill. Such costs are either written off on the income
statement or reserves under UK GAAP in the period of acquisition.
Ordinary Dividends. Under UK GAAP, final ordinary dividends are
provided for in the fiscal year in respect of which they are recommended by the
board of directors for approval by the shareholders. Under US GAAP, such
dividends are not provided for until declared by the board of directors.
Deferred Taxation. Under UK GAAP, no provision is made for deferred
taxation if there is reasonable evidence that such deferred taxation will not
be payable in the foreseeable future, deferred tax assets are generally not
recognized under UK GAAP unless they are likely to be recovered in the
foreseeable future (i.e., one year from the balance sheet date). Under US GAAP,
deferred tax assets and liabilities are recognized in full and any net
deferred tax assets are then assessed for probable recoverability. As long as
it is more likely than not that sufficient future taxable income will be
available to utilize the deferred tax assets, no valuation allowance is
provided.
Depreciation on freehold buildings. Under UK GAAP, companies are
permitted to carry freehold buildings at undepreciated historical cost of
valuation so long as these buildings are "well-maintained". US GAAP requires
that all tangible fixed assets in service, other than freehold land, be
depreciated over their estimated useful lives.
ITEM 10. ADDITIONAL INFORMATION.
(a) Except as disclosed in Items 3 and 7 above, there are no present or
proposed material contracts, arrangements, understandings or relationships
between Parent or the Purchaser, or to the best knowledge of Parent and the
Purchaser, any of the persons listed in Annex I and II of the Offer to Purchase,
and the Company, or any of its executive officers, directors, controlling
persons or subsidiaries.
(b)-(c) The information set forth in the "INTRODUCTION", "Section 15 --
Certain Conditions of the Offer" and "Section 16 -- Certain Legal Matters" of
the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in "Section 7 -- Effect of the Offer on
the Market for Shares; Stock Quotation; Registration under the Exchange Act" and
"Section 16 -- Certain Legal Matters" of the Offer to Purchase is incorporated
herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letters
of Transmittal, to the extent not otherwise incorporated herein by reference, is
incorporated herein by reference.
The last sentence of the first paragraph on page 5 under the heading
"Acceptance for Payment and Payment of Offer Price" is hereby revised to read
in its entirety as follows: "Any determination concerning the satisfaction of
such terms and conditions shall be made by the Purchaser in its reasonable
judgment, and such determination shall be final and binding on all tendering
stockholders."
6
<PAGE> 6
ITEM 11. MATERIALS TO BE FILED AS EXHIBITS.
(a)(1)* Offer to Purchase dated May 19, 1998.
(a)(2)* Letter of Transmittal.
(a)(3)* Letter for use by Brokers, Dealers, Banks, Trust Companies
and Nominees to their Clients.
(a)(4)* Letter to Clients.
(a)(5)* Notice of Guaranteed Delivery.
(a)(6)* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7)* Press Release issued by Parent, dated May 13, 1998.
(a)(8)* Press Release issued by the Company, dated May 13, 1998.
(a)(9)* Fairness Opinion of KPMG Peat Marwick, dated May 13, 1998.
(a)(10) Financial Statements of Parent
(b)(1)* Agreement and Plan of Merger, dated as of May 13, 1998, by
and among Parent, the Purchaser and the Company.
(b)(2)* Shareholder Agreement, dated May 13, 1998, by and among
Parent, the Purchaser and Carl A. Marguerite.
(b)(3)* Shareholder Agreement, dated May 13, 1998, by and among
Parent, the Purchaser and John E. Miller.
(b)(4)* Shareholder Agreement, dated May 13, 1998, by and among
Parent, the Purchaser and Janusz J. Majewski.
(b)(5)* Letter, dated May 1, 1998, from Parent to the Company.
(b)(6)* Confidentiality Agreement, dated February 12, 1998, by and
between Parent and the Company.
(c) None.
(d) Not applicable.
(e) None.
* Filed previously on combined Schedule 14D-1 and Schedule 13D (registration
no. 5-20308) filed on May 19, 1998.
7
<PAGE> 7
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: June 9, 1998
FIL ACQUISITION CORP.
By: /s/ Christopher Schofield
Name: Christopher Schofield
Title: Clerk
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: June 9, 1998
FILTRONIC plc
By: /s/ Christopher Schofield
Name: Christopher Schofield
Title: Company Secretary and Solicitor
8
<PAGE> 8
INDEX TO EXHIBITS
(a)(1)* Offer to Purchase dated May 19, 1998.
(a)(2)* Letter of Transmittal.
(a)(3)* Letter for use by Brokers, Dealers, Banks, Trust Companies
and Nominees to their Clients.
(a)(4)* Letter to Clients.
(a)(5)* Notice of Guaranteed Delivery.
(a)(6)* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7)* Press Release issued by Parent, dated May 13, 1998.
(a)(8)* Press Release issued by the Company, dated May 13, 1998.
(a)(9)* Fairness Opinion of KPMG Peat Marwick, dated May 13, 1998.
(a)(10) Financial Statements of Parent
(b)(1)* Agreement and Plan of Merger, dated as of May 13, 1998, by
and among Parent, the Purchaser and the Company.
(b)(2)* Stockholder Agreement, dated as of May 13, 1998 by and among
Parent, the Purchaser and Carl A. Marguerite.
(b)(3)* Stockholder Agreement, dated May 13, 1998, by and among
Parent, the Purchaser and John E. Miller.
(b)(4)* Stockholder Agreement, dated May 13, 1998, by and among
Parent, the Purchaser and Janusz J. Majewski.
(b)(5)* Letter, dated May 1, 1998, from Parent to the Company.
(b)(6)* Confidentiality Agreement, dated February 12, 1998, by and
between Parent and the Company.
(c) None.
(d) Not applicable.
(e) None.
* Filed previously on combined Schedule 14D-1 and Schedule 13D (registration
no. 5-20308) filed on May 19, 1998.
9
<PAGE> 1
Auditors' Report to the Shareholders of Filtronic Comtek plc
We have audited the financial statements on pages 10 to 28 which have been
prepared under the historical cost convention as modified by the revaluation of
certain freehold land and buildings and on the basis of the accounting policies
set out on pages 15 and 16. We have also examined the amounts disclosed relating
to the emoluments and share options of the directors which form part of the
report to shareholders by the remuneration committee on pages 32 to 37.
Respective responsibilities of directors and auditors
As described in the statement on page 8 the company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the company and the group at 31 May 1997 and of the profit of the
group for the year then ended and have been properly prepared in accordance with
the Companies Act 1985.
Ernst & Young
Chartered Accountants
Registered Auditor
Leeds
4 August 1997
<PAGE> 2
Consolidated Profit and Loss Account
for the year ended 31 May 1997
<TABLE>
<CAPTION>
1997 1996
Note (pound)000 (pound)000
<S> <C> <C> <C>
Sales 1 46,590 33,448
---------------------
Operating profit 2 4,666 3,376
Net interest payable 4 (603) (129)
---------------------
Profit on ordinary activities before
taxation 4,063 3,247
Taxation on profit on ordinary activities 7 1,221 862
---------------------
Profit on ordinary activities after taxation 2,842 2,385
Dividends 8 552 430
---------------------
Profit retained for the year 20 2,290 1,955
---------------------
Earnings per share 9 6.52p 5.59p
Fully diluted earnings per share 9 6.28p 5.27p
Dividend per share 8 1.25p 1.00p
</TABLE>
The operating profit arises from continuing operations.
The profit as stated in the consolidated profit and loss account is not
materially different to the historical cost profit for the year.
Statement of Total Recognised Gains and Losses
for the year ended 31 May 1997
<TABLE>
<CAPTION>
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Profit on ordinary activities after taxation 2,842 2,385
Currency exchange movement arising on consolidation (615) 172
-------------------
Total recognised gains and losses 2,227 2,557
-------------------
</TABLE>
<PAGE> 3
Consolidated Balance Sheet
at 31 May 1997
<TABLE>
<CAPTION>
1997 1996
Note (pound)000 (pound)000
<S> <C> <C> <C>
Tangible fixed assets 10 19,896 17,804
------ ------
Current assets
Stocks 12 9,103 4,783
Debtors 13 12,893 9,016
Cash 1,224 182
------ ------
23,220 13,981
Creditors: amounts falling due within
one year 14 18,541 10,618
------ ------
Net current assets 4,679 3,363
------ ------
Total assets less current liabilities 24,575 21,167
Creditors: amounts falling due after
one year 15 3,116 2,323
------ ------
Net assets 21,459 18,844
------ ------
Capital and reserves
Called up share capital 17 4,419 4,301
Share premium account 19 10,542 9,720
Revaluation reserve 19 106 106
Capital reserve 19 32 32
Profit and loss account 20 6,360 4,685
------ ------
Equity shareholders, funds 21 21,459 18,844
------ ------
</TABLE>
Approved by the Board on 4 August 1997
Professor J D Rhodes OBE FEng FRS
J Samuel FCA
<PAGE> 4
Consolidated Cash Flow Statement
for the year ended 31 May 1997
<TABLE>
<CAPTION>
Note 1997 1996
<S> <C> <C> <C>
(pound)000 (pound)000
Net cash flow from operating activities
Returns on investment and servicing of finance A 1,948 1,085
---------- ----------
Interest received 124 445
Interest paid (638) (516)
Interest element of finance lease payments (89) (58)
---------- ----------
Net cash flow from returns on investment and servicing of finance (603) (129)
---------- ----------
Tax paid (672) (974)
---------- ----------
Capital expenditure
Purchase of tangible fixed assets (3,572) (10,974)
Sale of tangible fixed assets 44 57
---------- ----------
Net cash flow from capital expenditure (3,528) (10,917)
---------- ----------
Equity dividends paid (217) (638)
---------- ----------
---------- ----------
Net cash flow before financing (3,072) (11,573)
---------- ----------
Financing
Issue of shares 940 280
Financing of existing assets under a finance lease contract -- 991
Capital element of hire purchase and finance lease payments (329) (151)
Loans taken out 914 1,487
Loans repaid (274) (42)
---------- ----------
Net cash flow from financing 1,251 2,565
---------- ----------
---------- ----------
Decrease in cash B (1,821) (9,008)
---------- ----------
</TABLE>
<PAGE> 5
Notes to the Consolidated Cash Flow Statement
for the year ended 31 May 1997
<TABLE>
<CAPTION>
A. Reconciliation of operating profit to net cash flow from operating activities
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Operating profit 4,666 3,376
Depreciation 1,805 1,376
(Profit)/loss on disposal of tangible fixed assets (21) 39
Increase in stocks (4,492) (531)
Increase in debtors (4,211) (3,298)
Increase in creditors 4,201 123
------- -------
Net cash flow from operating activities 1,948 1,085
------- -------
B. Reconciliation of net cash flow to movement in net debt
1997 1996
(pound)000 (pound)000
Decrease in cash (1,821) (9,008)
Cash flow from debt (640) (1,445)
Cash flow from finance leases 329 (840)
------- -------
Change in net debt from cash flows (2,132) (11,293)
New finance leases (834) --
Currency exchange movement 150 --
------- -------
Movement in net debt (2,816) (11,293)
Opening (net debt)/net funds (6,827) 4,466
------- -------
Closing net debt (9,643) (6,827)
------- -------
</TABLE>
<TABLE>
<CAPTION>
C. Analysis of movement in net debt
At Currency At
1 June Cash Non-cash exchange 31 May
1996 flow movement movement 1997
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C> <C>
Cash 182 1,224
Bank overdrafts (4,311) (7,106)
------ ------
Net cash (4,129) (1,821) -- 68 (5,882)
------ ------
Loans due within one year (63) (182)
Loans due after one year (1,409) (1,852)
------ ------
Total loans (1,472) (640) -- 78 (2,034)
Finance leases due within one year (312) (463)
Finance leases due after one year (914) (1,264)
------ ------
Total finance leases (1,226) 329 (834) 4 (1,727)
------ ------
------ ------ ------ ------ ------
Net debt (6,827) (2,132) (834) 150 (9,643)
------ ------ ------ ------ ------
</TABLE>
<PAGE> 6
Company Balance Sheet
at 31 May 1997
<TABLE>
<CAPTION>
1997 1996
Note (pound)000 (pound)000
<S> <C> <C> <C>
Tangible fixed assets 10 4,858 4,776
Investments 11 12,095 11,922
------ ------
16,953 16,698
------ ------
Current assets
Debtors 13 6,879 4,184
Creditors: amounts falling due within one year 14 7,737 6,483
------ ------
Net current liabilities (858) (2,299)
------ ------
Total assets less current liabilities 16,095 14,399
Creditors: amounts falling due after one year 15 24 23
Net assets 16,071 14,376
------ ------
Capital and reserves
Called up share capital 17 4,419 4,301
Share premium account 19 10,542 9,720
Profit and loss account 20 1,110 355
------ ------
Equity shareholders, funds 21 16,071 14,376
------ ------
</TABLE>
The financial statements on pages 10 to 28 were approved by the Board of
directors on 4 August 1997 and signed on its behalf by:
Professor J D Rhodes OBE FEng FRS
J Samuel FCA
<PAGE> 7
Accounting Policies
Basis of accounting
The financial statements have been prepared on the historical cost basis
of accounting modified for the revaluation of certain freehold land and
buildings and in accordance with applicable UK accounting standards.
Consolidation
The financial statements consolidate the results and net assets of the
company and all of its subsidiaries as listed in note 11. The financial
statements of overseas subsidiaries are translated at the rate of exchange
ruling at the balance sheet date. Currency exchange movements arising on the
retranslation of opening net assets and long term intra group loans are taken
directly to reserves.
Sales
Sales represents amounts receivable, excluding value added tax and
overseas sales taxes, in respect of goods and services provided in the ordinary
course of business.
Foreign currency transactions
In the United Kingdom, significant sales in foreign currencies are hedged
against exchange differences by taking out a foreign currency overdraft for each
contract and determining a fixed rate of exchange for that contract ("the
contract rate"). This overdraft is matched by a sterling deposit of equal value.
In Australia, significant sales in foreign currencies are hedged by forward
foreign exchange contracts. Sales and the related debtors at the period end are
translated at the relevant contract rate. In the United States of America all
sales are in US dollars.
Purchases in foreign currencies are translated at the rate of exchange
ruling at the date of the transaction. Other assets and liabilities at the year
end are translated at the rate of exchange applicable at that date. Exchange
movements are included in the profit and loss account for the year.
Tangible fixed assets
Fixed assets are included in the financial statements at cost or valuation
less accumulated depreciation.
Depreciation is provided in order to write off the cost or valuation of
tangible fixed assets in equal instalments over their useful lives as follows:
<TABLE>
<S> <C>
Freehold buildings 50 years
Plant and machinery 3-10 years
Fixtures and fittings 7-10 years
Motor vehicles 3-5 years
</TABLE>
No depreciation is charged in respect of freehold land.
<PAGE> 8
Accounting Policies
Fixed assets held under finance lease agreements
Where assets are financed by agreements that give rights approximating to
ownership, the assets are treated as if they had been purchased outright and the
corresponding liability to the finance company is included as an obligation
under finance lease agreements.
Depreciation on financed assets is charged to the profit and loss account
in accordance with the accounting policy above.
Finance payments are treated as consisting of capital and interest
elements and the interest is charged to the profit and loss account over the
period of the lease.
All other leases are regarded as 'operating leases' and the relevant
annual rentals are charged to the profit and loss account on a straight line
basis over the period of the lease.
Research and development expenditure
Research and development expenditure is written off to the profit and loss
account when it is incurred.
Stocks and work in progress
Stocks and work in progress are stated at the lower of cost and estimated
net realisable value. Cost comprises the purchase price of raw materials and
components together with direct labour and attributable overheads. Estimated net
realisable value is based on the estimated selling price less further costs
expected to be incurred to completion and disposal.
Deferred taxation
Deferred taxation is provided using the liability method in respect of all
timing differences which are expected to reverse in the foreseeable future.
Government grants
Government grants which are related to revenue expenditure are recognised
in the profit and loss account so as to match the expenditure to which they
relate.
Capital grants are shown as deferred income and credited to the profit and
loss account over the expected useful economic life of the related asset in line
with the depreciation policy set out above.
Retirement schemes
For United Kingdom employees, the company operates a defined benefits
retirement scheme for eligible employees including directors. For employees in
the United States of America, Filtronic Comtek, Inc. operates a defined
contribution plan under section 401(k) of the Internal Revenue Code. For
employees in Australia, Filtronic Comtek Pty Limited contributes to a defined
contribution superannuation fund. The United Kingdom scheme, which provides
defined benefits based on length of pensionable service and pensionable salary
at retirement, is administered by trustees. The funds of all the schemes are
independent of the group's finances. Contributions to the UK scheme are charged
to the profit and loss account so as to spread the costs of pensions over the
employees' working lives with the group. Contributions to the other schemes are
charged to the profit and loss account as incurred.
<PAGE> 9
Notes to the Financial Statement
for the year ended 31 May 1997
1. Sales and segment analysis
Class of business
The company's sales and profit before taxation were all derived from its
principal activity of the design and manufacture of microwave products for
cellular telecommunications systems.
<TABLE>
<CAPTION>
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Geographical analysis by destination
Sales
United Kingdom 13,064 8,763
Europe 9,109 6,851
North America 22,395 17,056
Asia Pacific 2,022 778
------ ------
46,590 33,448
------ ------
Geographical analysis by origin
Sales
United Kingdom 23,953 18,493
United States of America 20,689 14,489
Australia 1,948 466
------ ------
46,590 33,448
------ ------
Profit before taxation
United Kingdom 2,322 3,014
United States of America 1,294 170
Australia 447 63
------ ------
4,063 3,247
------ ------
Net assets
United Kingdom 12,967 11,434
United States of America 7,880 7,080
Australia 612 330
------ ------
21,459 18,844
------ ------
</TABLE>
<PAGE> 10
Notes to the Financial Statements
for the year ended 31 May 1997
2. Operating profit
<TABLE>
<CAPTION>
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Income
Sales 46,590 33,448
Increase in stocks of finished goods and work in progress 1,007 6
-------- --------
47,597 33,454
-------- --------
Costs
Raw materials and consumables 21,124 14,287
-------- --------
Staff costs:
Wages and salaries 10,846 8,335
Social security costs 965 755
Other pension costs 396 291
-------- --------
12,207 9,381
-------- --------
Depreciation:
Assets held under finance leases 245 171
Owned assets 1,560 1,205
-------- --------
1,805 1,376
-------- --------
Other operating charges 7,795 5,034
-------- --------
-------- --------
42,931 30,078
-------- --------
-------- --------
Operating profit 4,666 3,376
-------- --------
</TABLE>
3. Profit and loss account items
<TABLE>
<CAPTION>
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Operating profit is stated after charging/(crediting):
Research and development costs 4,204 3,361
(Profit)/loss on disposal of tangible fixed assets (21) 39
Auditors' remuneration -- audit fee -- Ernst & Young 34 29
-- Other subsidiary auditors -- 3
-- other fees -- Ernst & Young 25 34
-- Other subsidiary auditors -- 2
Operating lease rentals -- land and buildings 88 183
-- other 120 64
-------- --------
</TABLE>
<PAGE> 11
Notes to the Financial Statement
for the year ended 31 May 1997
4. Net interest payable
<TABLE>
<CAPTION>
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Interest receivable
Bank interest receivable 124 445
--------- ---------
Interest payable
Interest on bank overdrafts 519 445
Interest on other loans 109 56
Finance lease interest 89 58
Other interest 10 15
--------- ---------
727 574
--------- ---------
Net interest payable 603 129
--------- ---------
</TABLE>
5. Employees
The monthly average number of people, including executive directors, employed by
the group was:
<TABLE>
<CAPTION>
1997 1996
Number Number
<S> <C> <C>
United Kingdom 309 216
United States of America 244 222
Australia 17 7
--------- ---------
570 445
--------- ---------
</TABLE>
6. Directors' emoluments
Details of directors' emoluments are set out in the report of the remuneration
committee on pages 32 to 37.
7. Taxation on profit on ordinary activities
<TABLE>
<CAPTION>
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Corporation tax 1,069 1,005
Adjustment to prior year (101) --
--------- ---------
968 1,005
Overseas taxation 253 (143)
--------- ---------
1,221 862
--------- ---------
Comprising:
Current taxation 1,221 1,027
Deferred taxation -- (165)
--------- ---------
1,221 862
--------- ---------
</TABLE>
The amount of unprovided deferred taxation for the year was (pound)348,000 (1996
(pound)Nil) (see note 16).
<PAGE> 12
Notes to the Financial Statements
for the year ended 31 May 1997
8. Dividends
<TABLE>
<CAPTION>
1997 1996 1997 1996
per share per share (pound)000 (pound)000
<S> <C> <C> <C> <C>
Interim dividend -- paid 0.25p 0.75p 110 323
Final dividend -- proposed 1.00p 0.25p 442 107
----- ----- ----- -----
1.25p 1.00p 552 430
----- ----- ----- -----
</TABLE>
9. Earnings per share
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Earnings per share 6.52p 5.59p
Fully diluted earnings per share 6.28p 5.27p
----- -----
</TABLE>
Earnings per share has been calculated in accordance with Financial Reporting
Standard No.3. Accordingly undiluted earnings per share has been calculated on
the basis of the weighted average number of shares in issue throughout the
period. The fully diluted earnings per share calculation has been calculated on
the additional assumptions that all share options have been exercised and that
interest has been earned on the amounts received for these shares. The number of
shares used in the calculations is as follows:
<TABLE>
<CAPTION>
1997 1996
Number Number
<S> <C> <C>
Undiluted 43,590,211 42,664,874
Fully diluted 51,258,937 50,584,720
---------- ----------
</TABLE>
The earnings per share is based on (pound)2,842,000 being the profit on ordinary
activities after taxation but before dividends for the year ended 31 May 1997
(1996 (pound)2,385,000).
<PAGE> 13
Notes to the Financial Statements
for the year ended 31 May 1997
<TABLE>
<CAPTION>
10. Tangible fixed assets Freehold Plant & Fixtures Motor Total
land & buildings machinery & fittings vehicles
The Group (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C> <C>
Cost or valuation
At 1 June 1996 10,297 7,477 1,849 456 20,079
Additions 290 3,422 649 45 4,406
Disposals -- (8) (1) (89) (98)
Currency exchange movement (258) (181) (88) (8) (535)
------ ------ ----- --- ------
At 31 May 1997 10,329 10,710 2,409 404 23,852
------ ------ ----- --- ------
Depreciation
At 1 June 1996 19 1,823 237 196 2,275
Charge for the year 174 1,270 263 98 1,805
Disposals -- (7) (1) (67) (75)
Currency exchange movement -- (33) (12) (4) (49)
------ ------ ----- --- ------
At 31 May 1997 193 3,053 487 223 3,956
------ ------ ----- --- ------
Net book value at 31 May 1997 10,136 7,657 1,922 181 19,896
------ ------ ----- --- ------
Net book value at 31 May 1996 10,278 5,654 1,612 260 17,804
------ ------ ----- --- ------
Finance leases included in the above:
Net book value at 31 May 1997 -- 1,707 28 74 1,809
------ ------ ----- --- ------
Net book value at 3l May 1996 -- 1,061 3 143 1,207
------ ------ ----- --- ------
The company
Cost
At 1 June 1996 4,673 32 -- 156 4,861
Additions 155 35 12 -- 202
Group transfers -- -- -- 24 24
Disposals -- -- -- (24) (24)
------ ------ ----- --- ------
At 31 May 1997 4,828 67 12 156 5,063
------ ------ ----- --- ------
Depreciation
At 1 June 1996 -- 8 -- 77 85
Charge for the year 82 12 2 37 133
Group transfers -- -- -- 6 6
Disposals -- -- -- (19) (19)
------ ------ ----- --- ------
At 31 May 1997 82 20 2 101 205
------ ------ ----- --- ------
Net book value at 31 May 1997 4,746 47 10 55 4,858
------ ------ ----- --- ------
Net book value at 31 May 1996 4,673 24 -- 79 4,776
------ ------ ----- --- ------
Finance leases included in the above:
Net book value at 31 May 1997 -- -- -- 30 30
------ ------ ----- --- ------
Net book value at 31 May 1996 -- -- -- 39 39
------ ------ ----- --- ------
</TABLE>
One of the group's freehold buildings was independently valued in 1994 at
(pound)215,000. At the time of valuation the carrying value of this property was
(pound)109,000. After depreciation at 2% per annum, the net book value of
freehold land and buildings on an historical cost basis would have been
(pound)10,033,000 (1996 (pound)10,173,000).
<PAGE> 14
Notes to the Financial Statements
for the year ended 31 May 1997
11. Investments
The company
Interests in subsidiary undertakings
<TABLE>
<CAPTION>
(pound)000
<S> <C>
Shares at cost
At 1 June 1996 11,922
Additions 173
------
At 31 May 1997 12,095
------
</TABLE>
The additions represent the increased investment in Filtronic Comtek (UK)
Limited resulting from the issue of shares in respect of options exercised
during the year under the Initial Share Option Scheme.
Interests in subsidiary undertakings
<TABLE>
<CAPTION>
Name of Country of Description of Proportion Activity
subsidiary incorporation shares held held
undertaking or registration
<S> <C> <C> <C> <C>
Filtronic Comtek (UK) Limited England & Wales 12.2787p 100% Design and manufacture
ordinary shares of microwave products
Filtronic Comtek Research Limited England & Wales (pound)1 ordinary shares 100% Dormant company
Filtronic Comtek (Overseas
Holdings) Limited England & Wales (pound)1 ordinary shares 100% Holding company
</TABLE>
The shares of the following group companies are held by Filtronic Comtek
(Overseas Holdings) Limited or its subsidiaries.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Filtronic Comtek Pty Limited Australia A$1 ordinary shares 100% Design and manufacture
of microwave products
Filtronic Comtek Holdings, Inc. USA $1 ordinary shares 100% Holding company
Filtronic Comtek, Inc. USA $1 ordinary shares 100% Design and manufacture
of microwave products
Filtronic Comtek (Barbados), Barbados BD$1 ordinary shares 100% USA foreign sales
Limited corporation
</TABLE>
Each subsidiary undertaking operates out of its country of incorporation or
registration.
<PAGE> 15
Notes to the Financial Statements
for the year ended 31 May 1997
12. Stocks
<TABLE>
<CAPTION>
The group
1997 1996
(pound)000 (pound)000
<S> <C> <C>
Raw materials 5,907 2,594
Work in progress 2,518 1,627
Finished goods 678 562
----- -----
9,103 4,783
----- -----
</TABLE>
13. Debtors
<TABLE>
<CAPTION>
The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Trade debtors 12,520 8,566 -- --
Amounts due from group companies -- -- 6,751 4,095
Corporation tax -- 158 -- --
Advance corporation tax recoverable 110 27 110 27
Other taxes -- -- 9 51
Prepayments 263 265 9 11
------ ----- ----- -----
12,893 9,016 6,879 4,184
------ ----- ----- -----
</TABLE>
14. Creditors: amounts falling due within one year
<TABLE>
<CAPTION>
The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Bank overdrafts 7,106 4,311 7,046 3,043
Loans 182 63 -- --
Finance leases 463 312 13 17
Trade creditors 6,967 3,700 -- --
Amounts due to group companies -- -- -- 3,140
Corporation tax 1,404 957 -- --
Advance corporation tax 138 107 138 107
Other taxation and social security 480 201 -- --
Accruals and deferred income 1,359 860 98 69
Dividend payable 442 107 442 107
------ ------ ----- -----
18,541 10,618 7,737 6,483
------ ------ ----- -----
</TABLE>
<PAGE> 16
Notes to the Financial Statements
for the year ended 31 May 1997
15. Creditors: amounts falling due after one year
<TABLE>
<CAPTION>
The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
The following amounts are repayable
by instalments:
Loans: between 1 and 2 years 193 75 -- --
Loans: between 2 and 5 years 612 265 -- --
Loans: over 5 years 1,047 1,069 -- --
----- ----- -- --
Total loans 1,852 1,409 -- --
Finance leases: between 1 and 5 years 1,264 914 24 23
----- ----- -- --
3,116 2,323 24 23
----- ----- -- --
</TABLE>
One loan of (pound)246,000 bears interest at 6% per annum and is repayable by
monthly instalments until 2002. A second loan of (pound)1,204,000 bears interest
at 6.82% per annum and is repayable by monthly instalments until 2016. A third
loan of (pound)584,000 bears interest at 5% per annum and is repayable by
quarterly instalments until 2002.
16. Deferred taxation
<TABLE>
<CAPTION>
The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Full potential liability
Capital allowances in excess of depreciation 600 520 184 --
Other timing differences -- (270) -- --
Revaluation of fixed assets and capital gains 33 35 -- --
--- --- --- --
633 285 184 --
--- --- --- --
</TABLE>
No provision has been made for deferred taxation as the directors are of the
opinion that no liability will crystallise in the foreseeable future.
<PAGE> 17
Notes to the Financial Statements
for the year ended 31 May 1997
17. Share capital
<TABLE>
<CAPTION>
1997 1996 1997 1996
Number Number (pound)000 (pound)000
<S> <C> <C> <C> <C>
Authorised
Ordinary shares of 10p each 60,000,000 60,000,000 6,000 6,000
---------- ---------- ----- -----
Allotted, called up and fully paid
Ordinary shares of 10p each
Opening share capital 43,010,473 41,978,493 4,301 4,198
Allotted during the year 1,184,132 1,031,980 118 103
---------- ---------- ----- -----
Closing share capital 44,194,605 43,010,473 4,419 4,301
---------- ---------- ----- -----
</TABLE>
Exercise of options under the Filtronic Comtek (UK) Limited Initial Share Option
Scheme ("ISOS"), at an exercise price of 30p per share, resulted in the
allotment of 573,840 ordinary shares during the year.
Additionally Panmure Gordon & Co. Limited and NationsBanc Capital Markets, Inc.
exercised all their options during the year at an exercise price of 126p. This
resulted in the allotment of 488,234 and 122,058 ordinary shares respectively.
18. Share options
The following table shows the total number of options granted by the group under
its various option schemes as at 31 May 1997:
<TABLE>
<CAPTION>
Initial Share Executive Share Savings Related Share
Option Scheme Option Schemes Option Schemes
Number of Exercise Exercisable Number of Exercise Exercisable Number of Exercise Exercisable
Options Price Period Options Price Period Options Price Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5,014,060 30p 1/10/1994- 2,410,000 105p 18/10/1997- 683,129 120p 1/1/2000-
31/5/2001 to 30/4/2007 to 1/4/2004
505p 339p
</TABLE>
Options held under the ISOS relate to shares in Filtronic Comtek (UK) Limited
which, subject to the rules of that scheme, are acquired by the company in
consideration of the allotment of shares in the company.
The table above shows the ISOS options set out as if such conversion into shares
in the company had taken place. Further details of the rules of the ISOS can be
found in the report of the remuneration committee on pages 32 to 37.
The Executive Share Option Schemes and Savings Related Share Option Schemes are
in respect of the ordinary shares of 10p each in the company and are available
for all eligible employees. The ability to exercise Executive Share Options is
conditional upon the company achieving growth in earnings per share of 5% more
than the increase in the Retail Prices Index for each of the three financial
years following the grant of the option. The remuneration committee may vary
this performance target if it considers that such a target no longer represents
a fair measure of performance. All Savings Related Share Options were granted at
a discount of 20% to the average market price ruling for the three days prior to
the date of invitation. The total number of options disclosed above under
Executive Share Option Schemes includes 1,240,000 options which have been
granted to three executives in the USA and Australia subject to approval by
shareholders at the annual general meeting. Further details of this proposal are
set out in the directors' report on pages 5 to 7.
<PAGE> 18
Notes to the Financial Statements
for the year ended 31 May 1997
19. Reserves
<TABLE>
<CAPTION>
The group and
the company The group
Share premium Revaluation Capital
account reserve reserve
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
At 1 June 1996 9,720 106 32
Issue of shares 823 -- --
Issue costs (1) -- --
------ --- --
At 31 May 1997 10,542 106 32
------ --- --
</TABLE>
As a result of the allotment of shares under the ISOS, an amount of
(pound)115,000 was credited to the share premium account being 573,840 ordinary
shares of 10p each at 20p premium.
Additionally the allotment of shares to Panmure Gordon & Co. Limited and
NationsBanc Capital Markets, Inc. following the exercise of their options
resulted in an amount of (pound)708,000 being credited to the share premium
account, being 610,292 ordinary shares of 10p each at 116p premium.
20. Profit and loss account
<TABLE>
<CAPTION>
The group The company
(pound)000 (pound)000
<S> <C> <C>
At 1 June 1996 4,685 355
Profit retained for the year 2,290 755
Currency exchange movement arising on consolidation (615) --
----- -----
At 31 May 1997 6,360 1,110
----- -----
</TABLE>
Of the profit on ordinary activities after taxation for the year,
(pound)1,307,000 (1996 (pound)783,000) is dealt with in the profit and loss
account of Filtronic Comtek plc. A profit and loss account for the company alone
has not been presented in accordance with the exemptions allowed under S230 of
the Companies Act 1985.
21. Reconciliation of movements in shareholders' funds
<TABLE>
<CAPTION>
The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Profit on ordinary activities after taxation 2,842 2,385 1,307 783
Dividends (552) (430) (552) (430)
------ ------ ------ ------
Profit retained for the year 2,290 1,955 755 353
Currency exchange movement arising on
consolidation (615) 172 -- --
Issue of share capital 940 280 940 280
------ ------ ------ ------
Movement in shareholders' funds 2,615 2,407 1,695 633
Opening shareholders' funds 18,844 16,437 14,376 13,743
------ ------ ------ ------
Closing shareholders' funds 21,459 18,844 16,071 14,376
------ ------ ------ ------
</TABLE>
<PAGE> 19
Notes to the Financial Statements
for the year ended 31 May 1997
22. Financial commitments
At 31 May 1997 the group and the company had the following annual commitments
under non-cancellable operating leases expiring:
<TABLE>
<CAPTION>
The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Property
In the second to fifth year inclusive 108 84 -- --
--- --- -- --
Other
In the second to fifth year inclusive 117 74 6 9
--- --- -- --
</TABLE>
<TABLE>
<CAPTION>
23. Capital commitments The group The company
1997 1996 1997 1996
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Capital expenditure contracted
for but not provided in the
financial statements 168 102 56 56
--- --- -- --
</TABLE>
24. Pension schemes
For United Kingdom employees, the company operates a funded pension scheme
providing benefits based on final pensionable pay. The assets of the scheme are
held in a separate trustee fund administered by professional investment
managers. Contributions to the scheme are charged to the profit and loss account
so as to spread the cost of pensions over employees' working lives with the
company. The contributions are determined by a qualified actuary on the basis of
biennial valuations using the projected unit method and are met in the ratio of
two thirds by the company and one third by the employee. The most recent
valuation was at 1 July 1996. The assumptions which have the most significant
effect on the results of the valuation are those relating to the rate of return
on investments and the rates of increase in salaries. It was assumed that the
investment returns and future salary increases would be 9% per annum and 7% per
annum respectively. It was further assumed that pension increases would be in
accordance with the scheme rules. Future dividend increases in the existing
assets were assumed at 4.5% per annum.
The net pension cost for the year was (pound)300,000 (1996 (pound)221,000). The
net pension cost allowed for a surplus variation to be amortised over the
working lifetimes of the active members.
The variation was calculated to be (pound)7,000 and this will be adjusted in
line with future salaries.
The most recent actuarial valuation showed that the market value of the scheme's
assets was (pound)1,761,000 and that the actuarial value of those assets
represented 107% of the benefits that had accrued to members after allowing for
expected future increases in earnings. In accordance with the actuary's
recommendations, contributions to the scheme will remain at 15% of pensionable
salaries, two thirds of which is payable by the company. The valuation was
carried out prior to the statement by the Chancellor of the Exchequer on 2 July
1997 when he announced the abolition of tax credits on dividends received by
pension funds. No account has been taken of the changes in funding rates which
may be required as a consequence of that statement.
For employees in the United States of America, Filtronic Comtek, Inc.
contributes to a defined contribution plan under section 401(k) of the Internal
Revenue Code. Filtronic Comtek, Inc. is required to contribute an amount equal
to 50% of each participant's contribution to the plan, subject to statutory
limitations and may at its discretion make additional matching contributions on
behalf of participants. The net pension cost for the year was (pound)72,000
(1996 (pound)51,000).
For employees in Australia, Filtronic Comtek Pty Limited contributes 6% of
employees' basic salary into a defined contribution superannuation fund operated
by an independent insurance company. The net pension cost for the year was
(pound)16,000 (1996 (pound)12,000).
<PAGE> 20
Notes to the Financial Statements
for the year ended 31 May 1997
25. Contingent liabilities
At 31 May 1997 the group had no contingent liabilities. The company has given
guarantees in respect of bank borrowings and certain leasing arrangements of its
UK subsidiary undertakings. The contingent liability at 31 May 1997 in respect
of these guarantees amounted to (pound)1,867,000 (1996 (pound)63,000).
26. Transactions involving directors
Filtronic Components Limited, a wholly owned subsidiary of Filtronic Limited, a
company which is controlled by Professor J D Rhodes, has a licence to occupy 675
square feet of office accommodation from Filtronic Comtek, Inc.'s premises at
Merrimack, New Hampshire, USA. The licence is on an arms length basis and is
terminable upon six months' notice by either party. The fee payable by Filtronic
Components Limited is (pound)4,000 per annum. Other transactions involving the
purchase of materials and the supply of services to and from Filtronic
Components Limited occurred in the ordinary course of business during the year
as follows:
<TABLE>
<CAPTION>
(pound)000
<S> <C>
Sale of goods and services 29
Purchase of goods and services 27
</TABLE>
The balances outstanding with Filtronic Components Limited at 31 May 1997 were:
<TABLE>
<CAPTION>
(pound)000
<S> <C>
Amount owed by Filtronic Components Limited 5
Amount owed to Filtronic Components Limited 3
</TABLE>
On 17 October 1994, pursuant to the reorganisation of the Filtronic Limited
group of companies on 30 June 1994, the company entered into a licence agreement
with Filtronic Limited whereby that company granted the company a worldwide
royalty free irrevocable exclusive licence over certain intellectual property
for use in the non-military mobile communications and wireless local loop
network markets. The same licence is a sole but non-exclusive licence for other
non-military markets. The agreement involved the company granting to Filtronic
Limited certain reciprocal licences in respect of the military market.
Additionally, the company has the benefit of mutual restrictive covenants
contained in the licence by which Filtronic Limited has agreed that for the
period from 17 October 1994 to the longer of two years or when Professor J D
Rhodes ceases to be a director of both the company and Filtronic Limited it will
not directly or indirectly compete in the company's non-military mobile
communications or wireless local loop network markets and the company has agreed
that for the period from 17 October 1994 to the longer of two years or when
Professor J D Rhodes ceases to be a director of both the company and Filtronic
Limited it will not directly or indirectly compete in the military market.
<PAGE> 21
Auditors' Report to Filtronic Comtek plc
on Corporate Governance Matters
In addition to our audit of the financial statements we have reviewed the
directors' statements on pages 30 and 31 concerning the company's compliance
with the paragraphs of the Cadbury Code of Best Practice specified for our
review by the London Stock Exchange and their adoption of the going concern
basis in preparing the financial statements. The objective of our review is to
draw attention to any non-compliance with Listing Rules 12.43(j) and 12.43(v).
Basis of opinion
We carried out our review in accordance with guidance issued by the Auditing
Practices Board and assessed whether the directors' statements on going concern
and internal financial control are consistent with the information of which we
are aware from our audit. That guidance does not require us to perform the
additional work necessary to, and we do not, express any opinion on the
effectiveness of either the company's system of internal financial control or
its corporate governance procedures nor on the ability of the company to
continue in operational existence.
Opinion
With respect to the directors' statements on internal financial control on page
30 and going concern on page 31, in our opinion the directors have provided the
disclosures required by the Listing Rules referred to above and such statements
are consistent with the information of which we are aware from our audit work on
the financial statements.
Based on enquiry of certain directors and officers of the company, and
examination of relevant documents, in our opinion the directors' statements on
pages 30 and 31 appropriately reflect the company's compliance with the other
paragraphs of the Code specified for our review by Listing Rule 12.43(j).
Ernst & Young
Chartered Accountants
Leeds
4 August 1997
