UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 1, 1999
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RADISYS CORPORATION
State of Oregon 0-26844 93-0945232
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(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File No.) Identification No.)
5445 NE Dawson Creek Drive, Hillsboro, OR 97124
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(Address of principal executive offices) (Zip Code)
(503) 615-1100
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
------------------------------------------------
The following financial statements of the business acquired are attached
hereto:
Report of Independent Accountants .................................. F-1
Statement of Assets to be Acquired, December 31, 1998 and 1997 ..... F-2
Statement of Direct Revenues and Direct Operating Expenses
for the years ended December 31, 1998, 1997 and 1996 ............... F-3
Notes to Financial Statements ...................................... F-4
(b) Pro forma financial information.
-----------------------------------
The following unaudited pro forma consolidated condensed financial
statements are attached hereto:
Unaudited Pro Forma Consolidated Condensed Financial Data
as of and for the year ended December 31, 1998 ..................... F-8
Unaudited Pro Forma Consolidated Condensed Balance Sheet Data
December 31, 1998 .................................................. F-10
Unaudited Pro Forma Consolidated Condensed Statement of Operations
Data Year ended December 31, 1998 .................................. F-11
Notes to Unaudited Pro Forma Consolidated Condensed Financial
Data ............................................................... F-12
2
<PAGE>
(c) Exhibits.
-------------
2.1* Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation, dated as of
February 9, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
* Previously filed.
3
<PAGE>
SIGNATURE
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 hereunto duly authorized.
Dated: April 21, 1999
RADISYS CORPORATION
By: GLENFORD J. MYERS
--------------------------------
Dr. Glenford J. Myers
Chairman of the Board,
President and Chief Executive Officer
4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of RadiSys Corporation
We have audited the accompanying statement of assets to be acquired of the ARTIC
Business Unit of International Business Machines Corporation as of December 31,
1998 and 1997, and the related statements of direct revenues and direct
operating expenses for each of the three years in the period ended December 31,
1998. These 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, the accompanying financial statements were prepared
solely to present the assets of ARTIC to be acquired by RadiSys Corporation
pursuant to the Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation dated February 9, 1999, and the
related direct revenues and direct operating expenses of ARTIC, and are not
intended to be a complete presentation of the assets and liabilities or the
results of operations of the ARTIC Business Unit of International Business
Machines Corporation.
The ARTIC Business Unit of International Business Machines Corporation is a
member of a group of affiliated companies and, as disclosed in the financial
statements, has extensive transactions and relationships with members of the
group. Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from transactions among
wholly unrelated parties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets to be acquired of the ARTIC Business Unit of
International Business Machines Corporation at December 31, 1998 and 1997, and
the direct revenues and direct operating expenses for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Portland, Oregon
April 16, 1999
F-1
<PAGE>
<TABLE>
ARTIC BUSINESS UNIT OF INTERNATIONAL BUSINESS MACHINES CORPORATION
STATEMENT OF ASSETS TO BE ACQUIRED
DECEMBER 31, 1998 AND 1997
<CAPTION>
December 31,
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Inventories, net $ 6,241 $ 6,814
Equipment, net 478 432
--------- ----------
Total assets acquired $ 6,719 $ 7,246
========= ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
ARTIC BUSINESS UNIT OF INTERNATIONAL BUSINESS MACHINES CORPORATION
STATEMENT OF DIRECT REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Year Ended December 31,
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Direct revenues, net $ 46,327 $ 52,440 $ 62,550
Direct operating expenses:
Costs of revenues 22,246 23,538 34,457
Research and development 8,105 10,715 7,175
Selling, general and
administrative 534 530 423
--------- --------- ---------
Total direct operating expenses 30,885 34,783 42,055
--------- --------- ---------
Direct revenues in excess of direct
operating expenses $ 15,442 $ 17,657 $ 20,495
========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-3
<PAGE>
ARTIC BUSINESS UNIT OF INTERNATIONAL BUSINESS MACHINES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS:
International Business Machines Corporation ("IBM") and RadiSys Corporation (the
"Buyer" or "RadiSys") entered into a definitive agreement (the "Agreement") on
February 9, 1999 under which the Buyer acquired certain assets dedicated to the
design, manufacture and sale of IBM's ARTIC communications coprocessor adapter
hardware and software for wide area network and other telephony applications
(collectively referred to as the "ARTIC Business Unit"). The ARTIC Business Unit
has been operating as a division of IBM since 1986. The accompanying financial
statements present the assets to be acquired and the direct revenues and direct
operating expenses of the ARTIC Business Unit based upon the structure of the
transaction as described in the Agreement; this transaction is herein referred
to as the "Acquisition."
The financial statements have been prepared to substantially comply with the
rules and regulations of the Securities and Exchange Commission for business
combinations accounted for as a purchase and are not intended to be a complete
presentation of the financial position, results of operations and cash flows as
if the ARTIC Business Unit had operated as a stand-alone company. The ARTIC
Business Unit was not operated as a stand-alone business within IBM. Assets used
in the ARTIC Business Unit were an integral part of the IBM operations to
design, manufacture and sell IBM's ARTIC communications coprocessor adapter
hardware and software for wide area network and other telephony applications.
The ARTIC Business Unit operated to support IBM's demand in the personal
computer, RS600 midrange server, other IBM divisions, original equipment
manufacturer and value added reseller lines of business. Because the ARTIC
Business Unit was not operated as a stand-alone business, the presentation does
not include certain indirect expenses of the ARTIC Business Unit which were
incurred by other divisions of IBM. Therefore, the accompanying financial
statements are not representative of the complete financial position or results
of operations of the ARTIC Business Unit for the periods presented.
IBM provided various services to the ARTIC Business Unit including, but not
limited to, general management, facilities management, human resources, data
processing, security, payroll and employee benefits administration, financial,
legal, tax, insurance administration, duplicating, telecommunications and other
miscellaneous services. Expenses related to employee benefits, facilities
management, data processing, security, duplicating and telecommunications have
been allocated to the ARTIC Business Unit and presented in the accompanying
statement of direct revenues and direct operating expenses. These allocations
have been made first on the basis of direct usage when identifiable, with the
remainder allocated on the basis of revenues, headcount, or other statistical
basis. Where the allocations are based on headcount, the number of employees
associated with the ARTIC Business Unit has been identified or estimated by
management of IBM based on its understanding of the Agreement, in order for such
allocations to be made. These methods of allocating indirect costs are
considered reasonable;
F-4
<PAGE>
however, they do not necessarily reflect the costs that the ARTIC Business Unit
would have incurred on a stand-alone basis. The financial information included
herein may not necessarily reflect the financial position, results of operations
and cash flows of the ARTIC Business Unit on a stand-alone basis in the future.
Expenses related to general management, human resources, payroll and employee
benefits administration, financial, legal, tax, insurance administration, and
other miscellaneous services have not been allocated by IBM to the ARTIC
Business Unit and are not included in the accompanying financial statements.
In the accompanying statement of direct revenues and direct operating expenses,
direct revenues presented are derived from intercompany billings to IBM
divisions or actual billings to third parties, while direct operating expenses
presented are actual expenses incurred by the ARTIC Business Unit plus expense
allocations from IBM. Direct revenues include hardware and software sales as
well as non-recurring engineering revenues. Sales to IBM represented 92%, 94%,
and 95% of direct revenues in 1998, 1997 and 1996, respectively.
The ARTIC Business Unit participates in a centralized cash management system
wherein cash receipts are transferred to and cash disbursements are made by IBM.
Since cash and cash equivalents related to the operations of the ARTIC Business
Unit will not be acquired by the Buyer, they are excluded from the statement of
assets to be acquired.
2. SUMMARY OF ACCOUNTING POLICIES
Inventories
Inventories consist primarily of finished goods and are valued at the lower of
cost or market, cost being determined on the basis of weighted average cost.
The ARTIC Business Unit periodically evaluates its inventory in terms of
obsolete or slow moving items. The reserve for slow moving and obsolete
inventory was $500 and $980 at December 31, 1998 and 1997, respectively.
Equipment
Equipment is recorded at cost and depreciated for financial reporting purposes
on a straight-line basis over the estimated useful life of three to five years.
Ordinary maintenance and repair expenditures are charged to expense as incurred.
Revenue recognition
The ARTIC Business Unit recognizes revenue on product sales upon shipment.
F-5
<PAGE>
Research and development
Expenditures for research and development are expensed as incurred. A portion of
the ARTIC Business Unit's research and development costs were funded by other
divisions of IBM. These recoveries, which are included in direct revenues, were
$2,317, $1,887 and $1,764 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Income taxes
Income taxes have not been provided in the financial statements as the ARTIC
Business Unit is part of the consolidated IBM company and income taxes were not
allocated to the divisional level.
Certain risks and uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets to be acquired at the date of the financial
statements, and the reported amounts of direct revenue and direct operating
expenses during the reporting period. Actual results could differ from those
estimates.
3. EQUIPMENT
Equipment, which consists primarily of office furniture and equipment and
manufacturing test equipment, was $1,550 and $1,198 at gross cost at December
31, 1998 and 1997, respectively. Accumulated depreciation was $1,072 and $766 at
December 31, 1998 and 1997, respectively. Depreciation expense was not material
for the years ended December 31, 1998, 1997 and 1996.
Occupancy and facilities expense, which primarily consists of rent, utilities
and insurance expense, allocated to the ARTIC Business Unit for the years ended
December 31, 1998, 1997 and 1996 was approximately $842, $809 and $665,
respectively.
Pursuant to the Agreement, RadiSys will sublease the IBM facilities for a period
of no greater than six months from the date of closing. RadiSys will obtain its
own office space for the Boca Raton, Florida site outside of IBM premises.
4. PENSION AND HEALTH CARE PLANS
The employees of the ARTIC Business Unit participated in IBM pension and retiree
health care benefit plans. Pursuant to the Agreement, liabilities pertaining to
participation by such employees of the ARTIC Business Unit in IBM pension and
retiree health care benefit plans are not assumed by the Buyer. Accordingly,
such liabilities are excluded from the accompanying statement of assets to be
acquired.
5. RELATED PARTY TRANSACTIONS
As described in Note 1, a significant portion of the ARTIC Business Unit's sales
were to IBM divisions. RadiSys has the exclusive right to manufacture the
designs of current ARTIC
F-6
<PAGE>
products for two years. RadiSys purchased the right to use certain patents for a
term of five years. It cannot be assumed that the relationship with IBM will
continue as historically represented and that competition for these products
will not increase or alternative sources will not be obtained by IBM in the
future.
Certain revenues and cost of sales were allocated to the ARTIC Business Unit
from the Personal Computer Division for OEM and product service considerations.
Pursuant to the Agreement, RadiSys does not retain the rights to these revenues
and cost of sales allocations. Revenues were $1,860, $1,824 and $2,149 and cost
of sales were $1,870, $1,519 and $1,794 for the years ended December 31, 1998,
1997 and 1996, respectively.
6. RISK CONCENTRATIONS, COMMITMENTS AND CONTINGENCIES
Export Sales
Export sales from the U.S. for the years ended December 31, 1998, 1997 and 1996
were approximately as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Europe $ 8,233 $ 10,732 $ 14,292
Asia 914 1,533 3,159
Other 2,507 4,810 8,394
========== ========== ==========
Total $ 11,654 $ 17,075 $ 25,845
========== ========== ==========
</TABLE>
Commitments
Pursuant to the Agreement, RadiSys acquired the rights and obligations of IBM in
connection with purchase orders relating to the ARTIC Business Unit which were
outstanding at the closing of the Acquisition. These purchase orders relate
primarily to raw materials and purchased parts for inventories not yet received.
RadiSys must negotiate the contracts with suppliers beyond the period and terms
of the Agreement.
7. TRANSITION SERVICES AGREEMENTS
Concurrent with the closing of the Acquisition, IBM and RadiSys entered into
transition services agreements (the "Transition Agreements") whereby IBM agreed
to provide, and RadiSys agreed to purchase, certain support and services
(collectively, the "IBM Services") including inventory logistical and storage
services; network, data and information processing services; facilities
management services and accounting services. Generally, the cost to RadiSys for
the IBM Services will be the cost to IBM including labor, out of pocket costs to
third parties and a reasonable allocation for overhead costs.
F-7
<PAGE>
RADISYS CORPORATION
Unaudited Pro Forma Consolidated
Condensed Financial Data
As of and for the year ended December 31, 1998
International Business Machines Corporation ("IBM") and RadiSys Corporation (the
"Buyer" or "RadiSys") entered into a definitive agreement (the "Agreement") on
February 9, 1999 under which the Buyer acquired certain assets dedicated to the
design, manufacture and sale of IBM's ARTIC communications coprocessor adapter
hardware and software for wide area network and other telephony applications
(collectively referred to as the "ARTIC Business Unit"). This transaction is
herein referred to as the Acquisition.
The following unaudited pro forma consolidated condensed financial data has been
derived from the respective historical financial statements. The historical
financial statements of the ARTIC Business Unit present the assets to be
acquired and the direct revenues and direct operating expenses of the ARTIC
Business Unit based upon the structure of the transaction at and for the year
ended December 31, 1998. The ARTIC Business Unit was not operated as a
stand-alone business within IBM. Assets used in the ARTIC Business Unit were an
integral part of the IBM operations to provide the design, manufacture and sale
of IBM's ARTIC communications coprocessor adapter hardware and software for wide
area network and other telephony applications for use in higher level products
produced by IBM. Such activity was accounted for largely as internal cost
transfers without any formal contracts, billing or revenue tracking. Because the
ARTIC Business Unit was not operated as a stand-alone business, the presentation
does not include certain indirect expenses of the ARTIC Business Unit.
Therefore, the financial statements are not representative of the complete
financial position or results of operations of the ARTIC Business Unit for the
periods presented.
The unaudited pro forma consolidated condensed balance sheet gives effect to the
Acquisition on a purchase basis as if it had been consummated on December 31,
1998. The unaudited pro forma consolidated condensed statement of operations
data gives effect to the Acquisition on a purchase basis as if it had been
consummated on January 1, 1998.
In the opinion of management of RadiSys, all adjustments necessary to present
fairly such unaudited pro forma consolidated condensed financial data have been
made based on the terms and structure of the Acquisition. These unaudited pro
forma consolidated condensed financial data are not necessarily indicative of
what actual results would have been if the Acquisition had occurred at the
beginning of the respective periods nor do they purport to indicate the results
of future operations of RadiSys. These unaudited pro forma consolidated
condensed financial data should be read in conjunction with the accompanying
notes to the pro forma consolidated condensed financial data and the historical
financial statements of RadiSys and the ARTIC Business Unit.
Prior to the Acquisition, the ARTIC Business Unit was operated as a part of IBM.
Management of IBM allocated certain costs in preparation of the historical
financial statements of the
F-8
<PAGE>
ARTIC Business Unit. These cost allocations do not necessarily reflect the
actual costs that would have been incurred by the ARTIC Business Unit if it had
been operated as a stand-alone business.
The adjustments to the unaudited pro forma consolidated condensed financial data
are preliminary and are subject to adjustment based on the Agreement and the
actual amounts of assets acquired assumed as of the closing date, March 1, 1999.
F-9
<PAGE>
<TABLE>
RADISYS CORPORATION
Pro Forma Consolidated Condensed Balance Sheet Data
December 31, 1998
(Unaudited)
(In thousands)
<CAPTION>
ARTIC
RadiSys Business
Historical Historical Pro forma
Dec. 31, Dec. 31, Pro forma Consolidated
1998 1998 (1) Adjustments References Dec. 31, 1998
---- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 38,831 (27,303) A $ 11,528
Accounts Receivable 19,603 19,603
Inventories 15,706 6,241 624 B 22,571
Other current assets 1,878 1,878
Property and equipment, net 11,759 478 12,237
Goodwill and intangibles 3,003 19,960 C 22,963
Other non-current assets 3,674 3,674
---------- ---------- -------------
Total Assets $ 94,454 6,719 $ 94,454
========== ========== =============
LIABILITIES AND
SHAREHOLDER'S EQUITY
Accounts Payable $ 7,848 $ 7,848
Accrued Expenses 4,910 4,910
Total shareholders' equity 81,696 81,696
---------- -------------
Total Liabilities and
shareholders' equity $ 94,454 $ 94,454
========== =============
(1) ARTIC Business Unit historical December 31, 1998 amounts represent only the assets to be acquired.
See accompanying notes to pro forma consolidated condensed financial data.
</TABLE>
F-10
<PAGE>
<TABLE>
RADISYS CORPORATION
Pro Forma Consolidated Condensed Statement of Operations Data
Year ended December 31, 1998
(Unaudited)
(In thousands, except share and per share data)
<CAPTION>
ARTIC
RadiSys Business
Historical Historical Pro forma
Dec. 31, Dec. 31, Pro forma Consolidated
1998 1998 (1) Adjustments References Dec. 31, 1998
---- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 108,198 46,327 $ 154,525
Operating expenses:
Costs of goods sold 71,568 22,246 93,814
Research and development 13,591 8,105 21,696
Selling, general 16,301 534 2,549 D 19,384
and administrative ---------- ---------- -------------
Total operating expenses 101,460 30,885 134,894
Income from operations 6,738 15,442 19,631
Other income, net 1,573 ========== (1,420) E 153
---------- -------------
Income before income taxes 8,311 19,784
Income tax expense 2,879 4,012 F 6,891
========== -------------
Net income $ 5,432 $ 12,893
========== =============
Per share data:
Net income
Basic $ 0.69 N/A $ 1.64
Diluted $ 0.68 N/A $ 1.60
Weighted average shares:
Basic 7,885,000 N/A 7,885,000
Dilute 8,034,000 N/A 8,034,000
(2) ARTIC Business Unit historical 1998 amounts represent only direct revenues and direct operating expenses.
See accompanying notes to pro forma consolidated condensed financial data.
</TABLE>
F-11
<PAGE>
RADISYS CORPORATION
Notes to Pro Forma Consolidated
Condensed Financial Data
(Unaudited)
(In thousands, except share data)
(A) RadiSys paid $26,951 in cash consideration for the Acquisition. For pro
forma purposes, the cash consideration is $26,741 which takes into account the
inventory value at December 31, 1998 rather than at the purchase date of March
1, 1999. In addition, $562 of direct and incremental costs were incurred related
to the Acquisition and are included in the purchase price.
(B) Amount represents the adjustments to state inventory acquired at fair value
pursuant to APB16, "Business Combinations."
(C) Amount represents patent cost of $5,000 and goodwill related to the excess
of the purchase price over the fair value of the tangible assets acquired of
$14,960. Patents will be amortized ratably over five years and goodwill will be
amortized ratably over ten years.
(D) Amount represents $1,000 of patent amortization and $1,549 of goodwill
amortization for the year ended December 31, 1998.
(E) Amount represents a reduction in interest income assuming the cash
consideration was paid on January 1, 1998. The interest rate used is the pro
rata interest rate earned by the Company in 1998 of 5.2%.
(F) Amount represents the income tax effect of ARTIC Business Unit income from
operations, after pro forma adjustments for amortization and interest income, at
the statutory income tax rate of 35%.
(G) RadiSys and the ARTIC Business Unit estimate that, following the
Acquisition, additional one-time charges to operations will be incurred
associated with integrating the two businesses. However, these integration costs
cannot be currently estimated.
(H) Historically, the ARTIC Business Unit had significant sales to IBM. Due to
the related party nature of these transactions in the past, the future sales
volume and revenues associated with sales to IBM cannot be currently estimated.
F-12
<PAGE>
Exhibit Index
Exhibit Description
2.1* Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation, dated as of
February 9, 1999.
The following exhibits and schedules to the Asset Purchase
Agreement have been omitted and will be provided to the
Securities and Exchange Commission upon request:
Exhibit A Assignment and Assumption Agreement
Exhibit B Bill of Sale
Exhibit C Schedule of Disclosure and Exceptions
Schedule 1.1 Transferred Assets
Schedule 1.1(a) Production Equipment
Schedule 1.1(b) Furniture and Equipment
Schedule 1.1(c) Inventory and Work-in-Process
Schedule 1.1(d) Customer and Other Contracts to be
Transferred to Buyer as Transferred Assets
Schedule 1.2 Excluded Assets
Schedule 1.4 Assumed Liabilities
Schedule 1.4(a) Contracts to be Transferred to Buyer
as Assumed Liabilities
Schedule 1.4(b) Contracts with Seller or Seller's Affiliates
to be Transferred to Buyer as Assumed
Liabilities
Schedule 2.2 Closing Statement
Schedule 3.1 Estimated Allocation of Purchase Price
Schedule 4.2(a) Listing of Regular Employees
Schedule 4.2(b)(1) Summary of Buyer's Planned Employment Terms
and Benefit Plans
Schedule 4.2(b)(2) Buyer's Severance Pay Practice for
Transferred Employees
Schedule 8.3 Governmental Actions
Schedule 8.8 License Agreements
23.1 Consent of PricewaterhouseCoopers LLP
* Previously filed.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (No.s 33-80577, 333-00514 and 333-46473) of RadiSys
Corporation of our report dated April 16, 1999 relating to the statement of
assets to be acquired as of December 31, 1998 and the related statement of
direct revenues and direct operating expenses for the year then ended of the
ARTIC Business Unit of International Business Machines Corporation, which report
is included in this Amendment No. 1 to Current Report on Form 8-K of RadiSys
Corporation.
PricewaterhouseCoopers LLP
Portland, Oregon
April 21, 1999
