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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 30, 1999
DATA SYSTEMS & SOFTWARE INC.
(Exact name of Registrant as Specified in its Charter)
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Delaware 0-19771 22-2786081
(State or Other Jurisdiction (Commission file Number) (IRS Employer
of Incorporation) Identification No.)
200 Route 17, Mahwah, New Jersey 07430
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 529-2026
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
This Form 8-K/A amends the Form 8-K filed on September 9, 1999 reporting
the acquisition ("Acquisition") by the Registrant's Comverge Technologies, Inc.
subsidiary of assets of the Control Systems Business Unit of Scientific-Atlanta,
Inc.
The following audited balance sheets of the Control Systems Business Unit
of Scientific-Atlanta, Inc. as of July 2, 1999 and June 26, 1998 and the related
statements of operations and cash flows for the year then ended relate to the
acquired business.
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Control Systems Business unit
(A Business Unit of Scientific-Atlanta, Inc.)
Financial Statements
July 2, 1999 and June 26, 1998
TABLE OF CONTENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Balance Sheets--July 2, 1999 and June 26, 1998
Statements of Operations for the Years Ended July 2, 1999 and June 26, 1998
Statements of Cash Flows for the Years Ended July 2, 1999 and June 26, 1998
NOTES TO FINANCIAL STATEMENTS
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Scientific-Atlanta, Inc.:
We have audited the accompanying balance sheets of CONTROL SYSTEMS BUSINESS unit
(a business unit of Scientific-Atlanta, Inc.) as of July 2, 1999 and June 26,
1998 and the related statements of operations and cash flows for the years then
ended. 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 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Control Systems Business Unit
(a business unit of Scientific-Atlanta, Inc.) as of July 2, 1999 and June 26,
1998 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
October 18, 1999
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CONTROL SYSTEMS BUSINESS UNIT
(A Business Unit of Scientific-Atlanta, Inc.)
BALANCE SHEETS
JULY 2, 1999 AND JUNE 26, 1998
ASSETS
1999 1998
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(In Thousands)
CURRENT ASSETS:
Accounts receivable, less allowance for
doubtful accounts of $68 in 1999 and 1998 $ 734 $ 2,674
Inventories 1,438 924
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Total current assets 2,172 3,598
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MACHINERY AND EQUIPMENT, at cost 3,419 3,692
Less accumulated depreciation 2,510 2,386
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909 1,306
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PATENTS, net 230 218
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$ 3,311 $ 5,122
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LIABILITIES AND BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,645 $ 1,036
Accrued liabilities 420 475
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Total current liabilities 2,065 1,511
Other liabilities 180 256
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Total liabilities 2,245 1,767
CONTINGENCIES (Note 6)
BUSINESS UNIT EQUITY 1,066 3,355
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$ 3,311 $ 5,122
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The accompanying notes are an integral part of these balance sheets.
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CONTROL SYSTEMS BUSINESS UNIT
(A Business Unit of Scientific-Atlanta, Inc.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 2, 1999 AND JUNE 26, 1998
1999 1998
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(In Thousands)
SALES $ 7,644 $ 11,742
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COSTS AND EXPENSES:
Costs of sales 8,850 12,519
Sales and administrative 2,223 3,291
Research and development 750 3,696
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Total costs and expenses 11,823 19,506
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NET LOSS $ (4,179) $ (7,764)
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The accompanying notes are an integral part of these statements.
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CONTROL SYSTEMS BUSINESS UNIT
(A Business Unit of Scientific-Atlanta, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 2, 1999 AND JUNE 26, 1998
<TABLE>
<CAPTION>
1999 1998
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,179) $ (7,764)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 417 372
Changes in operating assets and liabilities:
Accounts receivable 1,940 1,387
Inventories (514) 1,678
Patents (27) (22)
Accounts payable and accrued liabilities 554 (725)
Other liabilities (76) (134)
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Net cash used in operating activities (1,885) (5,208)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of machinery and equipment (5) (623)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Parent 1,890 5,831
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CHANGE IN CASH AND CASH EQUIVALENTS 0 0
CASH AND CASH EQUIVALENTS, beginning of year 0 0
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CASH AND CASH EQUIVALENTS, end of year $ 0 $ 0
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</TABLE>
The accompanying notes are an integral part of these statements.
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CONTROL SYSTEMS BUSINESS UNIT
(A Business Unit of Scientific-Atlanta, Inc.)
NOTES TO FINANCIAL STATEMENTS
JULY 2, 1999 AND JUNE 26, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Control Systems Business Unit (the "Company") is an operating business
unit of Scientific-Atlanta, Inc. ("SA" or the "Parent"). The Company is not
a separate legal entity and, accordingly, has no authorized or outstanding
capital stock. The Company manufactures resistors, transmitters,
thermostats, and meter components for electric utility automation systems
designed to allow utility companies to regulate and verify power usage
remotely.
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") and present the financial position
and results of operations of the Company as if such unit had operated as a
separate corporate entity unaffiliated with SA. The results of operations
include direct charges for expenses, such as facilities and telephone
expenses, and indirect charges for other common expenses and corporate
expenses. Common expenses include, but are not limited to, shared factories
and functional services, such as purchasing, human resources, financial
services, and legal services, which are charged based on management's
estimate of effort expended to support the business unit. Corporate
expenses are allocated to business units based on the ratio of the business
unit's sales to consolidated sales. Management believes that the charges
and allocations are based on practical and reasonable methods. However,
these financial statements are not necessarily indicative of the results of
operations that would have occurred if the Control Systems Business Unit
had been an independent company.
Amounts owed to SA by the Company have been included as a component of
business unit equity, as these advances do not have any scheduled maturity
dates and are not expected to be settled upon the sale of the Company by SA
(Note 8).
Use of Estimates
The preparation of the accompanying financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The estimates made by
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management primarily relate to receivable and inventory reserves and
certain accrued liabilities principally relating to warranty and service
provisions and compensation.
Revenue Recognition
The Company recognizes revenue upon the shipment of products.
Research and Development Expenditures
Research and development costs are expensed as incurred.
Depreciation, Maintenance and Repairs
Depreciation is provided using principally the straight-line method over
the estimated useful lives of the assets. Maintenance and repairs are
charged to expense as incurred. Renewals and betterments are capitalized.
The cost and accumulated depreciation of property retired or otherwise
disposed of are removed from the respective accounts, and the gains or
losses thereon are included in the statement of earnings.
Warranty Costs
The Company accrues warranty costs at the time of sale. Expenses related to
unusual product warranty problems and product defects are recorded in the
period the problem is identified.
Cash and Cash Equivalents
SA provides a centralized cash management function; accordingly, the
Company does not maintain separate cash accounts, and its cash
disbursements and collections are settled by SA.
Fair Value of Financial Instruments
The book values of trade accounts receivable and trade accounts payable
approximate their fair values principally because of the short-term
maturities of these instruments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost includes materials, direct labor, and manufacturing overhead.
Market is defined principally as net realizable value. Inventories include
purchased and manufactured components in various stages of assembly, as
presented in the following table (in thousands):
1999 1998
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Raw materials and work in process $1,139 $ 876
Finished goods 299 48
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Total inventory $1,438 $ 924
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2. ACCOUNTS PAYABLE
Accounts payable consist primarily of amounts due to vendors for raw
materials required for manufacturing. These amounts are not specifically
identifiable to a business unit. Accounts payable has been allocated based
on a ratio of the Company's inventory to total inventory manufactured by
the domestic operations of SA. Management has determined that such
allocation is a practical and reasonable method of allocation. However,
these financial statements are not necessarily indicative of the financial
position that would have occurred if the Company had been an independent
company.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of July 2, 1999 and June
26, 1998 (in thousands):
1999 1998
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Warranty and service $ 128 $ 128
Common liabilities 292 347
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$ 420 $ 475
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Common liabilities consist primarily of accruals for compensation and
employee benefits such as vacation, health and disability insurance, and
retirement plans, which are made on a companywide basis for domestic
employees. These liabilities are not specifically identifiable to a
business unit. Business units are supported by shared factories and
functional services, such as purchasing, human resources, financial
services, and legal services. Common liabilities have been allocated based
on a ratio of the Company's sales to total sales generated by the domestic
operations of SA. Management has determined that such allocation is a
practical and reasonable method of allocation. However, these financial
statements are not necessarily indicative of the financial position that
would have occurred if the Company had been an independent company.
4. OTHER LIABILITIES
Other liabilities consist of common liabilities for accrued benefits and
retirement plans and are allocated using the methodology described in Note
3.
5. INCOME TAXES
For the years ended July 2, 1999 and June 26, 1998, the Company's results
were included in the federal and state income tax returns for
Scientific-Atlanta, Inc. For the purpose of these financial statements, the
income tax provision has been determined on a basis as if the Company were
a separate taxpayer. Due to the history of losses incurred by the Company,
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the net deferred tax asset resulting from temporary differences is not
considered probable of realization and therefore is offset in all periods
presented by a valuation allowance.
6. CONTINGENCIES
The Company is a party to various legal proceedings arising in the ordinary
course of business. In management's opinion, the outcome of these
proceedings will not have a material adverse effect on the Company's
financial position or results of operations.
7. SEGMENT INFORMATION
SA adopted Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
during fiscal 1999, and as such, the requirements set forth in SFAS No. 131
apply to the Control Systems Business Unit. SFAS No. 131 establishes
standards for reporting information about operating segments in financial
statements and requires selected information about operating segments in
interim financial reports. Operating segments are defined as components of
an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
The Control Systems Business Unit operates in the satellite segment that
consists of satellite network and satellite television network systems. The
Company had sales to one customer that were 18% of total sales in fiscal
1999 and sales to three separate customers that were 15%, 13%, and 12% in
fiscal year 1998. No other customer accounted for 10% or more of the
Company's total sales in either of the two years. The Control Systems
Business Unit did not have sales or long-lived assets in any single foreign
country exceeding 10% of total sales or total long-lived assets in 1999 or
1998.
8. SUBSEQUENT EVENT
On June 11, 1999, SA signed a definitive agreement to sell the inventory,
manufacturing assets, and patents of the Control Systems Business Unit to
Comverge Technologies, Inc. The sale was effective at the beginning of the
business day on August 30, 1999 for an initial payment of $3,259,000 in
cash and a deferred payment of $750,000 subject to certain potential
purchase price adjustments.
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(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated statements of
operations of the Registrant for the year ended December 31, 1998 and the six
months ended June 30, 1999 assume the Acquisition occurred on January 1, 1998.
The following unaudited pro forma balance sheet as of June 30, 1999 assumes that
the Acquisition occurred on June 30, 1999.
The unaudited pro forma condensed consolidated financial statements
presented herein are based on the historical financial statements of the
Registrant included with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998 and the Registrant's Quarterly Reports on Form 10-Q
for the six months ended June 30, 1999 as filed with the Securities and Exchange
Commission and should be read in conjunction therewith. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the pro forma data.
Such statements are presented for illustrative purposes only and are not
necessarily indicative of the operating results that would have been achieved if
the Acquisition had occurred on the date specified, nor are they indicative of
the Registrant's future operating results.
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Acquisition of
Historical Control Systems Pro Forma Adjustments Pro Forma
---------- --------------- --------------------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 969 $ 969
Trade accounts receivable, net 7,255 7,255
Inventory 581 $ 1,862 2,443
Other current assets 1,098 1,098
-------------- -------------- --------------
Total current assets 9,903 1,862 11,765
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Investments 50,967 50,967
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Property and equipment, net 1,499 1,810 3,309
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Other assets 3,601 509 4,110
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$ 65,970 $ 4,181 $ 70,151
============== ============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and short-term debt $ 8,209 $ 3,431 (1) ($318) (3) $ 11,322
Other current liabilities 980 750 (2) 1,730
-------------- -------------- ---------- --------------
Total current liabilities 9,189 4,181 (318) 13,052
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Total long-term liabilities 554 554
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Minority interests 22,535 22,535
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Shareholders' equity:
Common stock -- $.01 par value per share:
Authorized 20,000 shares; Issued 7,923 shares 79 $318 (3) 397
Additional paid-in capital 35,024 35,024
Retained earnings 954 954
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36,057 36,375
Treasury stock, at cost -- 490,262 shares (2,365) (2,365)
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Total shareholders' equity 33,692 34,010
-------------- -------------- ---------- --------------
Total liabilities and shareholders' equity $ 65,970 $ 4,181 $ 318 $ 70,151
============== ============== ========== ==============
</TABLE>
See referenced notes attached.
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Acquisition of
Historical Control Systems Pro Forma Adjustments Pro Forma
---------- --------------- --------------------- ---------
<S> <C> <C> <C> <C>
Sales:
Products $ 2,419 $ 4,137 $ 6,556
Services 5,257 5,257
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7,676 4,137 11,813
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Cost of sales:
Products 2,032 4,378 6,410
Services 3,878 3,878
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5,910 4,378 10,288
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Gross profit 1,766 (241) 1,525
Research and development expenses 309 8 317
Selling, general and administrative expenses 2,790 976 $ 190 (4) 3,956
------------- ------------ -------------
Operating loss (1,333) (1,225) (2,748)
Other expenses, net 13 18 181 (5) 212
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Loss before income taxes (1,346) (1,243) (2,960)
Provision for income taxes 37 (6) 37
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Loss after income taxes (1,383) (1,243) (2,997)
Minority interests 18 18
Loss in affiliates, net of minority interests (1,513) (1,513)
------------- ------------ ---------- -------------
Net loss $ (2,878) $ (1,243) $ 371 $ (4,492)
============= ============ ========== =============
Basic and diluted net loss per share $ (0.39) $ (0.60)
============= =============
Weighted average number of shares
outstanding (in thousands) 7,433 7,433
============= =============
</TABLE>
See referenced notes attached
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DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Acquisition of
Historical Control Systems Pro Forma Adjustments Pro Forma
---------- --------------- --------------------- ---------
<S> <C> <C> <C>
Sales:
Products $ 18,062 $ 11,351 $ 29,413
Services 19,433 19,433
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37,495 11,351 48,846
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Cost of sales:
Products 14,306 11,903 26,209
Services 14,869 14,869
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29,175 11,903 41,078
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Gross profit 8,320 (552) 7,768
Research and development expenses 1,605 2,590 4,195
Selling, general and administrative expenses 14,303 2,831 $ 379 (4) 17,513
------------ -------------- ------------
Operating loss (7,588) (5,973) (13,940)
Gain on sale of division 5,998 5,998
Loss from contingent performance
of bank guarantees for affiliate 1,135 1,135
Unrealized loss from writedown of investment 6,103 6,103
Other expenses, net 1,102 4 340 (5) $ 318 (7) 1,764
------------ -------------- ------------
Loss before income taxes (9,930) (5,977) (16,944)
Provision for income taxes 35 (6) 35
------------ -------------- ------------
Loss after income taxes (9,965) (5,977) (16,979)
Minority interests 929 929
Loss in affiliates, net of minority interests (3,908) (3,908)
------------ -------------- ---------- ---------- ------------
Net loss $ (12,944) $ (5,977) $ 719 $ 318 $ (19,958)
============ ============== ========== ========== ============
Basic net loss per share $ (1.75) $ (2.70)
============ ============
Weighted average number of shares
outstanding (in thousands) 7,391 7,391
============ ============
</TABLE>
See referenced notes attached.
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Notes to Pro Forma Financial Statements
(1) Increase in short term bank debt and accounts payable to finance
acquisition.
(2) Balance due to seller.
(3) Reflects value of warrants issued to lender for nominal consideration in
connection with loan to finance acquisition assumed taken on January 1,
1998.
(4) Depreciation and amortization of tangible and intangible assets assumed
acquired on January 1, 1998.
(5) Finance expense on loan to finance acquisition assumed taken on January 1,
1998.
(6) As the registrant establishes a valuation allowance against all deferred
tax assets, no adjustment has been made to reflect any deferred tax benefit
associated with the losses of the acquired business.
(7) Amortization of deferred interest expense for the period as a portion of
the 12 month term of the bank loan.
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(c) Exhibits.
Exhibit 1--Consent of Arthur Andersen LLP
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the Township of
Mahwah, State of New Jersey, on November 12, 1999.
DATA SYSTEMS & SOFTWARE INC.
BY: /s/ GEORGE MORGENSTERN
GEORGE MORGENSTERN
Chairman of the Board, President
and Chief Executive Officer
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Exhibit 1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use of our report dated October 18, 1999 relating
to the Control Systems Business Unit of Scientific-Atlanta, Inc. in this Current
Report on Form 8-K/A of Data Systems & Software Inc. and to the incorporation by
reference in the Registration Statement of Data Systems & Software Inc. on Form
S-3 (Registration No. 333-90017) and in the Registration Statements of Data
Systems & Software Inc. on Forms S-8 (Registration Nos. 33-88422, 33-94974,
33-99196, 333-36159 and 333-65799).
Arthur Andersen LLP
Atlanta, Georgia
November 9, 1999
