<PAGE> 1
FORM 8-K/A
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
MRV COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-23452 06-1340090
(Commission File Number) (I.R.S. Employer Identification No.)
8917 Fullbright Ave.
Chatsworth, CA 91311
(Address of Principal executive offices) (Zip Code)
818 773-9044
(Registrant's telephone number, including area code)
N/A
(Form name or former address, if changed since last report)
<PAGE> 2
This Form 8-K/A Supplements and completes registrant's Form 8-K filed
February 13, 1998:
Item 7 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The following financial statements of Xyplex, Inc. are included
herewith:
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
AUDITED FINANCIAL STATEMENTS AT OCTOBER 31, 1997 AND 1996 AND FOR THE YEAR ENDED
OCTOBER 31, 1997 AND THE PERIOD APRIL 10, 1996 TO OCTOBER 31, 1996
Report of Independent Auditors (Ernst & Young LLP)........................................... 4
Balance Sheets at October 31, 1997 and 1996.................................................. 5
Statements of Operations for the year ended October 31, 1997
and the period April 10, 1996 to October 31, 1996 ................................... 6
Statements of Changes in Stockholders Equity for the year ended
October 31, 1997 and the period April 10, 1996 to October 31, 1996................... 7
Statements of Cash Flows for the year ended October 31, 1997
and the period April 10, 1996 to October 31, 1996.................................... 8
Notes to Financial Statements................................................................ 9
AUDITED FINANCIAL STATEMENTS AT APRIL 9, 1996 AND
FOR THE PERIOD JANUARY 1, 1996 TO APRIL 9, 1996
Report of Independent Auditors (Coopers & Lybrand L.L.P.).................................... 21
Balance Sheet at April 9, 1996............................................................... 22
Statement of Loss for the period January 1, 1996 to April 9, 1996 ........................... 23
Statement of Parent Company Investment....................................................... 24
Statement of Cash Flows for the period January 1, 1996 to April 9, 1996...................... 25
Notes to Financial Statements................................................................ 26
(b) Pro Forma Financial Information
The following pro forma financial information is included herewith:
Unaudited Pro Forma Consolidated Financial Statements........................................ 33
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997....................... 34
Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1997.................................................................... 36
Notes and Assumptions to Unaudited Pro Forma Consolidated Financial Statements.............. 37
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MRV COMMUNICATIONS, INC.
Date: April 17, 1998 BY: /s/ EDMUND GLAZER
-------------------------------------
Edmund Glazer
Chief Financial Officer
<PAGE> 4
Report of Independent Auditors
Board of Directors
Whittaker Corporation
We have audited the accompanying balance sheets of Xyplex, Inc. (the Company) as
of October 31, 1997 and 1996, and the related statements of operations, changes
in stockholder's equity, and cash flows for the year ended October 31, 1997 and
the period from April 10, 1996 to October 31, 1996. 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 Xyplex, Inc. at October 31,
1997 and 1996, and the results of its operations and its cash flows for the year
ended October 31, 1997 and the period from April 10, 1996 to October 31, 1996,
in conformity with generally accepted accounting principles.
/S/ Ernst & Young
ERNST & YOUNG LLP
November 26, 1997, except
Note 13, as to which the
date is March 11, 1998
<PAGE> 5
Xyplex, Inc.
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
OCTOBER 31
1997 1996
----------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,037 $ 1,225
Notes receivable 8 344
Accounts receivable, less reserve of $1,712 and
$1,042 in 1997 and 1996, respectively 12,319 14,543
Inventory 3,276 6,694
Deferred income taxes 5,071 6,281
Prepaid expenses and other current assets 864 928
----------------------------
Total current assets 22,575 30,015
----------------------------
Property and equipment, net 4,832 6,974
Other assets 320 1,464
Goodwill - 61,025
Developed technology 7,968 13,344
Customer relations 12,110 19,264
Other intangible assets 1,529 3,556
----------------------------
Total assets $49,334 $135,642
============================
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable $ 5,257 $ 5,964
Accrued payroll taxes and deductions 489 130
Accrued warranty expense 1,029 1,183
Other accrued expenses 5,096 6,265
Deferred revenue 3,296 3,359
Current portion of capital lease obligations 57 150
----------------------------
Total current liabilities 15,224 17,051
----------------------------
Long-term portion of capital lease obligations 112 -
Deferred income taxes 5,688 11,197
Due to parent company 6,932 4,290
Commitments and contingencies
Parent company investment 21,378 103,104
----------------------------
Total liabilities and parent company investment $49,334 $135,642
============================
</TABLE>
See accompanying notes.
<PAGE> 6
Xyplex, Inc.
Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
PERIOD
APRIL 10
YEAR ENDED 1996 TO
OCTOBER 31 OCTOBER 31
1997 1996
--------------------------------
<S> <C> <C>
Net sales $ 75,663 $ 52,021
Cost of sales 37,004 25,168
--------------------------------
Gross profit 38,659 26,853
Operating expenses:
Selling and marketing 25,542 17,963
General and administrative 8,170 2,719
Research and development 13,465 7,797
Parent company allocations 3,346 1,895
Amortization of goodwill and other intangible 12,064 4,827
assets
Impairment of goodwill and other intangible assets 63,172 -
Write off of acquired in-process research and
development - 11,700
--------------------------------
Total operating expenses 125,759 46,901
--------------------------------
Operating loss (87,100) (20,048)
Interest expense (5) (9)
Interest income 18 -
--------------------------------
Net loss before income tax benefit (87,087) (20,057)
Benefit from federal income taxes (6,778) (6,704)
--------------------------------
Net loss $ (80,309) $(13,353)
================================
</TABLE>
See accompanying notes.
<PAGE> 7
Xyplex, Inc.
Statements of Changes in Stockholder's Equity
Period April 10, 1996 to October 31, 1997
(In thousands)
<TABLE>
<CAPTION>
PARENT
COMPANY
INVESTMENT
--------------
<S> <C>
Acquisition by Whittaker $116,457
Net loss (13,353)
--------------
Balance at October 31, 1996 103,104
Dividend to parent (1,417)
Net loss (80,309)
--------------
Balance at October 31, 1997 $ 21,378
==============
See accompanying notes.
</TABLE>
<PAGE> 8
Xyplex, Inc.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
PERIOD APRIL 10
YEAR ENDED 1996 TO
OCTOBER 31 OCTOBER 31
1997 1996
-----------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(80,309) $(13,353)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 16,050 6,855
Impairment of goodwill and other intangible assets 63,172 -
Loss on sale and retirement of equipment 241 34
Write off of acquired in-process research and
development - 11,700
Write off of other intangible assets 220 -
Deferred income tax benefit (4,299) (5,278)
Deferred revenue (63) (37)
Changes in assets and liabilities:
Accounts receivable 807 2,647
Inventory 3,418 68
Prepaid expenses and other current assets 64 269
Accounts payable 439 (1,846)
Accrued expenses (363) (4,648)
-------- --------
Net cash used in operating activities (623) (3,589)
INVESTING ACTIVITIES
Purchase of equipment (1,940) (1,017)
Proceeds from sale of equipment 45 -
Notes receivable 336 -
Other 662 (1,358)
-------- --------
Net cash used in investing activities (897) (2,375)
FINANCING ACTIVITIES
Change in cash overdrafts (1,146) (450)
Principal payments on capital lease obligations (164) (243)
Net receipts from parent company 2,642 4,290
-------- --------
Net cash provided by financing activities 1,332 3,597
-------- --------
Net decrease in cash and cash equivalents (188) (2,367)
Cash and cash equivalents at beginning of the period 1,225 3,592
-------- --------
Cash and cash equivalents at end of the period $ 1,037 $ 1,225
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 13 $ 23
Income taxes 388 115
</TABLE>
See accompanying notes.
<PAGE> 9
Xyplex, Inc.
Notes to Financial Statements
October 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Xyplex, Inc. (the Company or Xyplex) designs, manufactures, markets and supports
data networking products. On April 10, 1996, Xyplex was acquired by Whittaker
Corporation (Whittaker) for total consideration of $116.5 million, and, during
the period from April 10, 1996 to January 13, 1997, Xyplex was a wholly-owned
subsidiary of Whittaker. Since January 13, 1997, the Company has been owned by
Whittaker Xyplex, Inc., a wholly-owned subsidiary of Whittaker. Pursuant to the
purchase method of accounting, the assets and liabilities acquired by Whittaker
were revalued to their fair value at the date of acquisition. As a result of the
transaction, the Company recorded intangible assets of $37.2 million and
goodwill of $62.8 million. Acquired in-process research and development valued
at $11.7 million was expensed at the acquisition date.
The accompanying historical financial statements represent the Company's results
of operations and its financial condition as a wholly-owned subsidiary of
Whittaker. Interest expense associated with Whittaker's general corporate debt
has not been allocated to the Company's financial statements. Certain costs and
expenses presented in the financial statements represent intercompany
allocations and management's estimates of the costs of services provided to the
Company by Whittaker. During the first quarter of 1997, certain operations of
another subsidiary of Whittaker were integrated into the operations of the
Company. The financial statements of the Company for 1997 reflect the results of
operations and its financial position net of certain costs and balance sheet
amounts allocated to this integrated operation. (See Note 2 for further
discussion of allocations and amounts due to parent company.)
PARENT COMPANY INVESTMENT
The parent company investment account represents the net assets of the Company
and includes a $1.4 million dividend distribution in the form of a transfer of
assets to Whittaker in 1997.
<PAGE> 10
Xyplex, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The accompanying financial statements include the accounts of the Company. The
preparation of financial statements in conformity with generally accepted
accounting principles may require management to make certain estimates and
assumptions that could affect the amounts reported in the financial statements
and accompanying notes. Actual costs could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes product revenue upon shipment of goods and software.
Maintenance and support fees greater than $10,000 are recognized ratably over
the life of the contract.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance and
repairs are charged to expense, while the costs of significant improvements are
capitalized. Depreciation is computed using the straight-line method and
allocates the cost of these assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -----------
<S> <C>
Equipment 3-5 years
Computer equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Term of lease
Equipment under capital lease Term of lease
</TABLE>
Upon retirement or sale, the cost of assets disposed and the related accumulated
depreciation are eliminated, and the related gains or losses are reflected in
income.
<PAGE> 11
Xyplex, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Until May of 1997, goodwill and other intangible assets were amortized on a
straight-line basis over periods of 20 years in the case of goodwill, 15 years
in the case of developed technologies and customer relations, and five years in
the case of other intangible assets. Beginning in May of 1997, the amortization
periods for goodwill and customer relations were reduced to seven years.
At October 31, 1997 and 1996, intangible assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
---------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $62,786 $1,761
Developed technology $12,624 $4,656 15,000 1,656
Customer relations 16,388 4,278 20,000 736
Other intangibles 4,141 2,612 4,956 1,400
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
When indicators of impairment of long-lived assets used in operations or
long-lived assets to be disposed of are present, and the undiscounted future
cash flows estimated to be generated by those assets are less than the carrying
value of such assets, an impairment loss would be recorded by the Company (see
Note 3).
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, capitalization
of internally developed computer software costs begins upon the establishment of
technological feasibility. The Company believes that once a working model has
been established, the additional development costs to bring the product to a
commercially acceptable level are not significant. There were no software
development costs capitalized as of October 31, 1997 and 1996.
<PAGE> 12
Xyplex, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company records income taxes based on an asset and liability approach which
results in the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the book and
tax bases of assets and liabilities. For purposes of these financial statements,
income taxes have been calculated as if Xyplex had prepared a tax return on a
stand-alone basis.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, Reporting Comprehensive Income, effective for the 1999 fiscal year. SFAS
No. 130 establishes standards for reporting and displaying comprehensive income
and its components in the financial statements. Comprehensive income is defined
as the change in the equity of a business enterprise during a period from
transactions and other events from nonowner sources. The Company does not expect
the adoption of SFAS No. 130 will have a material effect on its financial
statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective for the 1999 fiscal year. SFAS No.
131 requires the reporting of certain information about operating segments of a
business enterprise and supersedes SFAS No. 14, Financial Reporting for Segments
of a Business Enterprise, but retains the requirements to report information
about major customers. The Company does not expect the adoption of SFAS No. 131
to have a material effect on its financial statements.
2. ALLOCATED COSTS AND DUE TO PARENT COMPANY
The historical statements of operations include charges from Whittaker
representing the Company's share of the cost of support services provided. These
charges are allocations of allowable corporate expenses, as defined in the
Federal Acquisitions Regulation, associated with legal, marketing, management
and financial services. The basis of the allocation is the Company's relative
amount of payroll, sales and the year-to-date change in fixed assets and
inventory compared to Whittaker's consolidated balances for such amounts.
<PAGE> 13
Xyplex, Inc.
Notes to Financial Statements (continued)
2. ALLOCATED COSTS AND DUE TO PARENT COMPANY (CONTINUED)
Following the acquisition of the Company by Whittaker, the Company has
participated in the Whittaker cash management program. All of this cash
management activity is reflected in "due to parent company." Intercompany
activity also includes, among other things, allocations of corporate expenses,
state and federal income tax payments and credits, and insurance costs. An
analysis of due to parent company for the period from April 10, 1996 to October
31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at April 10, 1996 $ -
Net cash transferred from parent company (2,747)
Allocation of costs from parent company (1,895)
Net payments on behalf of affiliates 352
--------
Balance at October 31, 1996 (4,290)
--------
Net cash transferred from parent company (4,157)
Allocation of costs from parent company (3,605)
Net payments on behalf of affiliates 345
Transfers to affiliates 4,775
--------
Balance at October 31, 1997 $(6,932)
========
</TABLE>
The average amount due to parent for the year ended October 31, 1997 and the
period from April 10, 1996 to October 31, 1996 was $6.3 million and $4.1
million, respectively.
During the first quarter of 1997, certain operations of Whittaker
Communications, Inc., another wholly-owned subsidiary of Whittaker formerly
located in Santa Clara, California, were integrated into the Company. The
results of operations and the financial position of the two operations are
segregated and reported separately. This segregation procedure involves the
allocation of certain costs and balance sheet amounts which cannot be directly
assigned to the appropriate operation.
Management of the Company believes the methods used to allocate the costs are
reasonable based on the Company's use of such services.
<PAGE> 14
Xyplex, Inc.
Notes to Financial Statements (continued)
3. IMPAIRMENT CHARGE
In connection with the April 1996 acquisition of the Company by Whittaker,
goodwill and other intangible assets of $62.8 million and $37.2 million,
respectively, were recorded. These assets were being amortized, on a
straight-line basis, over periods of 20 years in the case of goodwill and five
to 15 years in the case of other intangible assets. During the third quarter of
1997, the Company reduced the amortization periods for goodwill and certain
other intangible assets from 20 and 15 years, respectively, to seven years. This
adjustment resulted in an $8.1 million goodwill and other intangible asset
impairment charge which represents the increased amortization from the date of
acquisition to the beginning of the third quarter of 1997. As a result of the
Company's declining revenues and continued operating losses in 1997, an
additional goodwill and other intangible asset impairment charge of $55.1
million was recorded by the Company in the fourth quarter of 1997. The fair
value of these assets was based on the estimated value of consideration offered
to Whittaker by a third party in November 1997 for the sale of the Company.
4. INVENTORY
Inventories, net of reserves for excess and obsolete inventory of $3.0 million
and $7.0 million at October 31, 1997 and 1996, respectively, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
Raw materials $ 410 $ 928
Work in process 319 2,002
Finished goods 2,547 3,764
-----------------------------
$3,276 $6,694
=============================
</TABLE>
Work in process and finished goods inventories include materials, labor and
manufacturing overhead.
<PAGE> 15
Xyplex, Inc.
Notes to Financial Statements (continued)
5. PROPERTY AND EQUIPMENT
Property and equipment at October 31, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
Equipment $ 5,669 $ 6,381
Furniture and fixtures 990 1,167
Leasehold improvements 752 852
Equipment under capital lease 444 452
Construction in progress 104 57
------- -------
7,959 8,909
Less accumulated depreciation and (3,127) (1,935)
amortization
------- -------
$ 4,832 $ 6,974
======= =======
</TABLE>
Depreciation expense, which includes amortization expense of assets under
capital leases, was approximately $4.0 million and $2.0 million for the twelve
months ended October 31, 1997 and the period April 10, 1996 to October 31, 1996,
respectively.
Equipment under capital leases has accumulated amortization of $0.2 million and
$0.2 million as of October 31, 1997 and 1996. Acquisitions of equipment under
capital lease obligations totaled $0.2 million in 1997. There were no such
acquisitions in 1996.
<PAGE> 16
Xyplex, Inc.
Notes to Financial Statements (continued)
6. LONG-TERM DEBT
Long-term debt at October 31, 1997 and 1996 consisted of the following (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
---------------------------------------------------
<S> <C> <C> <C> <C>
Capitalized lease obligations with
monthly installments through
July of 2000, with interest
rates ranging to 11.36% $169 9.15% $150 7.05%
Less current maturities 57 150
------------- -----------
$112 $ -
============= ===========
</TABLE>
Since April 10, 1996, the Company has guaranteed the obligations of Whittaker
under Whittaker's bank credit agreement. Since such date, the Company has also
pledged its accounts receivable, inventory, equipment and certain other assets
to secure such obligations.
7. INCOME TAXES
Income tax benefit for the year ended October 31, 1997 and the period from April
10, 1996 to October 31, 1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Components of the provision:
Federal $(6,778) $(5,972)
State - (732)
---------------------------
$(6,778) $(6,704)
===========================
Classification of the provision:
Current $(2,479) $(1,426)
Deferred (4,299) (5,278)
---------------------------
$(6,778) $(6,704)
===========================
</TABLE>
<PAGE> 17
Xyplex, Inc.
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Foreign income taxes were not material.
A reconciliation of income tax computed at the U.S. federal statutory tax rate
to the effective tax rate for the year ended October 31, 1997 and the period
from April 10, 1996 to October 31, 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
U.S. federal statutory rate (34.0)% (34.0)%
State taxes, net of U.S. federal
income tax benefit 0.0 (2.4)
Goodwill amortization 24.1 3.0
Valuation allowance 1.8 0.0
Other items 0.3 0.0
-----------------------------
Effective tax rate (7.8)% (33.4)%
=============================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the reported amounts of assets and liabilities in the financial
statements and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at October 31, 1997 and
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Deferred tax assets:
Receivables valuation $ 719 $ 438
Inventory valuation 2,023 4,277
Excess of book over tax depreciation 1,689 1,081
Benefits from net operating loss carryforward 1,584 -
Other 3,670 3,806
---------------------------
Total before valuation allowance 9,685 9,602
Valuation allowance (1,584) -
---------------------------
Net deferred tax assets $ 8,101 $ 9,602
===========================
Deferred tax liabilities:
Intangible assets $ 8,718 $14,518
===========================
</TABLE>
In 1997 and 1996, the Company was reimbursed by its Parent $3.5 million and $1.6
million, respectively, for the tax benefit of its sustained losses. In 1997, the
Company established a full allowance against its net operating loss carryforward
in compliance with SFAS No. 109. At October 31, 1997, the Company has $4.7
million total net operating loss carryforwards, which will expire in the years
2011 and 2012.
<PAGE> 18
Xyplex, Inc.
Notes to Financial Statements (continued)
8. 401(K) RETIREMENT PLAN
The Company sponsors a defined contribution 401(k) plan covering a majority of
its domestic employees under which participants can make pretax contributions of
up to 15% of eligible compensation and receive a matching contribution of 75% on
up to 6% of their eligible compensation. The Company has recorded as expense for
the year ended October 31, 1997 and the period April 10, 1996 to October 31,
1996 $0.8 million and $0.2 million, respectively, representing its contributions
to this plan.
9. LEASE COMMITMENTS
The Company has both operating and capital lease commitments for certain
facilities and equipment. Future minimum payments under capital leases and under
noncancellable operating leases, net of rentals to be received from existing
noncancellable operating subleases, as of October 31, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
----------------------------------------------
<S> <C> <C> <C>
1998 $1,329 $ 70
1999 664 70
2000 414 52
2001 281 -
------------ ------------
Total minimum lease payments $2,688 192
============
Less amount representing interest 23
------------
Present value of net minimum lease payments $169
============
</TABLE>
Rent expense was $2.6 million and $1.6 million for the year ended October 31,
1997 and the period from April 10, 1996 to October 31, 1996, respectively.
<PAGE> 19
Xyplex, Inc.
Notes to Financial Statements (continued)
10. SIGNIFICANT CUSTOMERS AND EXPORT SALES
No single customer accounted for more than 10% of net sales during 1997 or 1996.
Export sales as a percentage of net sales for the year ended October 31, 1997
and the period from April 10, 1996 to October 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Europe 13.5% 13.9%
Pacific Rim 4.5 3.9
Canada 4.5 4.8
Other 7.1 5.8
--------------------------
29.6% 28.4%
===========================
</TABLE>
11. EMPLOYMENT AGREEMENTS
During 1997, the Company initiated a long-term retention bonus program covering
certain key employees. Payments under the plan will be made, on varying dates
from March 1998 to December 1998, to individuals covered under the plan who are
active, full-time employees of the Company at various dates ranging from January
1, 1998 to December 31, 1998. Potential payments under the program total
approximately $1.7 million.
12. YEAR 2000 COMPLIANCE (UNAUDITED)
In 1997, the Company upgraded its information management system to be Year 2000
compliant. The Company has also communicated with its suppliers and others it
does business with and has addressed any significant issues identified. No
further significant expenditures are expected to be made related to Year 2000
compliance.
<PAGE> 20
Xyplex, Inc.
Notes to Financial Statements (continued)
13. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITORS
On January 30, 1998, Whittaker sold all of the common stock of its wholly-owned
subsidiary, Whittaker Xyplex, Inc., which, since January 13, 1997, has been the
parent company of Xyplex, Inc., to MRV Communications, Inc. (MRV) for $35
million in cash plus warrants to purchase 421,402 shares of common stock of MRV.
Whittaker shall be entitled to receive warrants to purchase an additional 78,598
shares of common stock of MRV upon Whittaker's timely performance of certain
covenants. The stock purchase agreement provides for the reattribution of the
Company's net operating losses to Whittaker. Concurrently with the sale of the
Company, the liens on the Company's assets securing Whittaker's obligations
under Whittaker's bank credit agreement were released, and the Company's
guarantee of such obligations was canceled.
<PAGE> 21
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Raytheon Company:
We have audited the accompanying balance sheet of Xyplex, Inc. as of April 9,
1996, and the related statements of loss, parent company investment and cash
flows for the period January 1, 1996 through April 9, 1996. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
As discussed in Note 1, interest expense associated with Raytheon Company's
general corporate debt bas not been allocated to Xyplex, Inc.'s financial
statements. Also as discussed in Note 1, Xyplex, Inc. has earned interest income
primarily on its intercompany receivable from Raytheon based on an agreed-upon
rate. As discussed in Note 2, certain costs and expenses presented in the
financial statements represent allocations of the costs of services provided to
Xyplex, Inc. by Raytheon Company. As a result of these factors, the financial
statements presented may not be indicative of the financial position or results
of operations that would have been achieved had Xyplex, Inc. operated as a
nonaffiliated entity.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Xyplex, Inc. as of April 9,
1996, and the results of its operations and its cash flows for the period
January 1, 1996 through April 9, 1996 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 24, 1996
<PAGE> 22
XYPLEX, INC.
BALANCE SHEET
April 9, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 200,000
Accounts receivable, less reserve of $585,000 18,159,000
Inventory 9,695,000
Other current assets 922,000
Receivable from parent company 32,412,000
------------
Total current assets 61,388,000
Property and equipment, net 7,840,000
Deferred tax asset 6,790,000
Other assets 2,025,000
Goodwill 83,357,000
------------
Total assets $161,400,000
============
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Current portion of capital lease obligations 366,000
Accounts payable 5,392,000
Accrued payroll and employee benefits 4,386,000
Other accrued expenses 1,973,000
Deferred revenue 3,900,000
------------
Total current liabilities 16,017,000
Long-term portion of capital lease obligations 27,000
Commitments and contingencies
Parent company investment 145,356,000
------------
Total liabilities and parent company investment $161,400,000
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 23
XYPLEX, INC.
STATEMENT OF LOSS
for the period January 1, 1996 through April 9, 1996
<TABLE>
<S> <C>
Net sales $ 28,100,000
Cost of sales 13,141,000
------------
Gross profit 14,959,000
------------
Operating expenses:
Selling and marketing 9,456,000
General and administrative 1,573,000
Research and development 4,458,000
Parent company allocations 100,000
Amortization of goodwill 2,267,000
------------
Total operating expenses 17,854,000
------------
Loss from operations (2,895,000)
Interest expense (10,000)
Interest income from parent company 698,000
------------
Net loss before income tax provision (2,207,000)
Provision for federal income taxes 62,000
------------
Net loss $ (2,269,020)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 24
XYPLEX, INC.
STATEMENT OF PARENT COMPANY INVESTMENT
for the period January 1, 1996 through April 9, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY
INVESTMENT
<S> <C>
Balance, January 1, 1996 $ 147,625,000
Net loss (2,269,000)
-------------
Balance, April 9, 1996 $ 145,356,000
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 25
XYPLEX, INC.
STATEMENT OF CASH FLOWS
for the period January 1, 1996 through April 9, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(2,269,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,554,000
Deferred income tax provision (654,000)
Changes in assets and liabilities:
Accounts receivable 1,425,000
Inventory (721,000)
Other current assets (132,000)
Accounts payable and accrued expenses (4,508,000)
Deferred revenue 766,000
-----------
Net cash used in operating activities (2,539,000)
-----------
Cash flows from investing activities:
Purchase and sale of equipment, net (1,154,000)
Purchase of licenses and other intangible assets (112,000)
Proceeds from maturities of securities 400,000
-----------
Net cash used in investing activities (866,000)
-----------
Cash flows from financing activities:
Increase in accounts payable related to cash overdrafts 2,293,000
Payments of capital leases (163,000)
Net receipts from parent company 1,362,000
-----------
Net cash provided by financing activities 3,492,000
-----------
Net increase in cash and cash equivalents 87,000
Cash and cash equivalents, beginning of period 113,000
-----------
Cash and cash equivalents, end of period $ 200,000
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 26
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Xyplex, Inc. (the "Company" or "Xyplex") designs, manufactures, markets
and supports data networks. On October 7, 1994, Xyplex was acquired by
Raytheon Company ("Raytheon") for total consideration of $186,000,000.
Pursuant to the purchase method of accounting, the assets and
liabilities acquired by Raytheon were revalued to their fair value. The
excess of the purchase price over the fair value of the net assets
acquired was approximately $125,000,000 and accordingly, goodwill and
the parent company investment were increased by $125,000,000. Effective
on the close of business on April 9, 1996, Xyplex was acquired by
Whittaker Corporation.
The accompanying historical financial statements present the Company's
results of operations and its financial condition as a wholly-owned
subsidiary of Raytheon from January 1, 1996 through April 9, 1996.
Interest expense associated with Raytheon's general corporate debt has
not been allocated to the Company's financial statements. Certain costs
and expenses presented in the financial statements represent
intercompany allocations and management's estimates of the costs of
services provided to the Company by Raytheon. (See Note 2 for further
discussion of allocations.) Additionally, as discussed in further detail
below, Xyplex earned interest income primarily on its intercompany
receivable from Raytheon based on an agreed-upon rate. As a result of
these factors, the financial statements presented may not be indicative
of the results that would have been achieved had the Company operated as
a non-affiliated entity.
The Company has had transactions in the normal course of business with
Raytheon and its subsidiaries. Revenues from these transactions,
totaling $142,000 for the period ended April 9, 1996, are in accordance
with Xyplex's normal terms and conditions. The remaining receivables
from these transactions with Raytheon are included in trade accounts
receivable and totaled $26,000 as of April 9, 1996.
Additionally, Xyplex transferred a substantial amount of its cash and
investments to Raytheon upon the acquisition date and has subsequently
participated in the Raytheon cash management program. All of this cash
management activity is recorded in the receivable from parent company
account. Intercompany activity also includes allocations of corporate
expenses, state and federal income tax payments and credits, and
interest earned on the intercompany receivable balance itself. Interest
is earned on the intercompany receivable balance at a rate of 6.50% in
1996 and totaled approximately $698,000 for the period ended April 9,
1996.
PARENT COMPANY INVESTMENT
The parent company investment account represents the net assets of the
company. As described above, this account was credited with the excess
of the purchase price over the fair value of Xyplex's net assets at the
time of Raytheon's purchase.
Continued
<PAGE> 27
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
USE OF ACCOUNTING ESTIMATES
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 and liabilities
and disclosure of contingent assets and 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.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with original
maturities of ninety days or less at the time of acquisition. Under the
Company's cash management system with Raytheon, checks issued but not
presented to banks frequently result in overdraft balances for
accounting purposes. The Company has determined the net overdraft
balance by bank and has correspondingly reclassified these amounts to
Accounts Payable.
REVENUE RECOGNITION
The Company recognizes product revenue upon shipment of goods and
software. Maintenance and support fees greater than $10,000 are
recognized ratably over the life of the contract. A provision is made at
the time of shipment for estimated warranty costs to be incurred.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for
maintenance and repairs are charged to expense while the costs of
significant improvements are capitalized. Depreciation is computed using
the straight-line and accelerated methods in amounts that allocate the
cost of these assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------
<S> <C>
Equipment 5 years
Computer equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Term of Lease
Demonstration units 3 years
Equipment under capital lease Term of Lease
</TABLE>
Upon retirement or sale, the cost of assets disposed and the related
accumulated depreciation are eliminated and the related gains or losses
are reflected in income.
Continued
<PAGE> 28
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INTANGIBLES
Goodwill, which represents the amount Raytheon incurred in excess of the
fair value of the net assets of Xyplex on the date of purchase, is
amortized on a straight-line basis over a period of 15 years. For the
period ended April 9, 1996, the Company incurred amortization expense
related to this asset of $2,267,000. Accumulated amortization related to
goodwill totaled $42,018,000 as of April 9, 1996.
Other intangible assets, consisting primarily of licenses, are included
in other assets. These assets are amortized over a one to three year
period based on net realizable value. For the period ended April 9,
1996, the Company incurred amortization expense of $60,000. Accumulated
amortization related to these other assets totaled $684,000 as of April
9, 1996.
The Company periodically reviews the carrying value of its intangible
assets as well as the amortization periods to determine whether current
events and circumstances warrant adjustment to the carrying values or
estimated useful lives. At each balance sheet date, management evaluates
the carrying value of intangible assets to determine whether there has
been any permanent impairment. No such adjustments were made for the
period ended April 9, 1996.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. In
accordance with Statement of Financial Accounting Standards (SFAS) No.
86, capitalization of internally developed computer software costs
begins upon the establishment of technological feasibility. The Company
believes that once a working model has been established, the additional
development costs to bring the product to a commercially acceptable
level are not significant. There were no software development costs
capitalized as of April 9, 1996.
INCOME TAXES
The Company records income taxes based on an asset and liability
approach which results in the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the book and tax bases of assets and liabilities.
For purposes of these financial statements, income taxes have been
calculated as if Xyplex had prepared a tax return on a stand alone
basis.
In accordance with Raytheon's policy, all state and local taxes have
been included in general and administrative expenses.
2. ALLOCATED COSTS:
The historical statements of operations include charges from Raytheon
representing the Company's share of the cost of support services
provided. These charges are allocations of corporate expenses associated
with legal, marketing, management, financial and facilities management
services. The
Continued
<PAGE> 29
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
basis of the allocation is dependent on the functions and includes net
sales, square feet occupied, and percentage share of all other corporate
assessments. For these services, the Company was charged $100,000 for
the period ended April 9, 1996.
Management believes the methods used to allocate the costs are
reasonable based on the company's use of such facilities and services.
3. INVENTORY:
Inventories consist of the following at April 9, 1996:
<TABLE>
<S> <C>
Raw materials $ 756,000
Work in process 3,454,000
Finished goods 5,485,000
----------
$9,695,000
==========
</TABLE>
Work in process and finished goods inventories include materials, labor
and manufacturing overhead. As of April 9, 1996, finished goods include
approximately $2,563,000, of demonstration products located at the sales
and support offices and potential customer sites.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C>
Equipment $ 6,126,000
Computer equipment 8,817,000
Furniture and fixtures 1,633,000
Leasehold improvements 2,515,000
Demonstration units 3,528,000
Equipment under capital lease 3,511,000
------------
26,130,000
Less - Accumulated depreciation and amortization (18,290,000)
------------
$ 7,840,000
============
</TABLE>
Equipment under capital leases had accumulated amortization of
$2,563,000 as of April 9, 1996.
Continued
<PAGE> 30
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INCOME TAXES:
The provision for income taxes in the accompanying consolidated
statements of income consists of the following as of April 9, 1996:
<TABLE>
<S> <C>
Federal:
Current $ 716,000
Deferred (654,000)
---------
$ 62,000
=========
</TABLE>
A reconciliation of the federal statutory rate percentage to the
Company's effective tax rate percentage is as follows for the period
ended April 9, 1996.
<TABLE>
<S> <C>
Income tax benefit at federal statutory rate (35.0)%
Amortization of nondeductible goodwill 35.9
Other 1.9
-----
Effective tax rate 2.8 %
=====
</TABLE>
The approximate income tax effect of each type of temporary difference
comprising the deferred tax asset as of April 9, 1996 is as follows:
<TABLE>
<S> <C>
Inventory $1,940,000
Deferred revenue 1,189,000
Depreciation 1,035,000
Accrued vacation 575,000
Accrued warranty 349,000
Bad debt 205,000
Other, net 299,000
----------
Total federal deferred tax asset 5,592,000
State deferred tax asset, net 1,198,000
----------
Total deferred tax asset $6,790,000
==========
</TABLE>
Income taxes paid to the parent company for the period ended April 9,
1996 totaled approximately $6,032,000.
Continued
<PAGE> 31
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. 401(k) RETIREMENT PLAN:
The Company had a 401(k) retirement plan covering all employees who are
regularly scheduled to work 1,000 or more hours of service per year.
Participants may elect to defer up to 15% of their compensation for
deposit under the plan, subject to certain IRS limitations. The Company
may elect to make contributions to the plan. The contributions are
allocated to each eligible participant's account in proportion to each
participant's deferrals for the plan year, subject to IRS limitations;
participants' deferrals in excess of 6% of compensation are not matched.
The Company elected to make contributions of $124,000 to the plan for
the period ended April 9, 1996.
7. LEASE COMMITMENTS:
The Company has both operating and capital lease commitments for certain
facilities and equipment. These leases expire at various dates through
the year 2014.
Future minimum lease payments under these noncancelable leases are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
---- ------ ------
<S> <C> <C>
1996 $1,458,000 $ 332,000
1997 761,000 85,000
1998 633,000 -
1999 416,000 -
2000 416,000 -
Thereafter 2,278,000 -
---------- ---------
Total minimum lease payments $5,962,000 417,000
==========
Less amount representing interest 24,000
---------
Present value of minimum lease payments 393,000
Less current portion of capital lease obligations 366,000
---------
$27,000
=========
</TABLE>
Rent expense was approximately $605,000 for the period ended April 9,
1996.
Continued
<PAGE> 32
XYPLEX, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. EXPORT SALES:
Export sales as a percentage of net sales for the period ended April 9,
1996 are as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
Europe 15.6%
Pacific Rim 5.4
Canada 4.7
Other 10.3
----
36.0%
====
</TABLE>
9. EMPLOYMENT AGREEMENTS:
During 1995, Raytheon and Xyplex provided strategic resolution bonuses
to key employees. These bonuses, totaling approximately $1,500,000, were
due and payable on March 1, 1996 for each employee who continued to be
an employee on March 1, 1996. Of the $1,500,000 charge, approximately
$250,000 was funded by Xyplex with the remainder funded by Raytheon.
Also during 1995, Raytheon entered into employment agreements with
certain key employees of the Company which provide for salary
continuation of up to 12 months in the event of termination of
employment without cause. The aggregate commitment under these
employment agreements should all covered employees be terminated is
approximately $1,500,000.
<PAGE> 33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give effect
to the Acquisition under the purchase method of accounting. The unaudited pro
forma consolidated financial statements are based on the historical consolidated
financial statements and notes there to (as applicable) of MRV Communications,
Inc. (MRV), which are included in MRV's Form 10-K for the year ended December
31, 1997, and the historical financial statements and notes thereto (as
applicable) of Xyplex Inc. (Xyplex) which are included elsewhere herein. The
unaudited pro forma consolidated balance sheet assumes that the Acquisition took
place on January 1, 1997 and consolidates MRV's December 31, 1997 consolidated
balance sheet with Xyplex's October 31, 1997 balance sheet. The unaudited pro
forma consolidated statement of income assumes that the Acquisition took place
as of January 1, 1997 and consolidates MRV's consolidated statement of
operations for the year ended December 31, 1997 with Xyplex's statement of
operations for the fiscal year ended October 31, 1997.
The unaudited pro forma consolidated financial statements are based on the
estimates and assumptions set forth in the notes to such statements. The pro
forma adjustments made in connection with the development of the pro forma
information are preliminary and have been made solely for purposes of developing
such pro forma information for illustrative purposes necessary to comply with
the disclosure requirements of the Securities and Exchange Commission. The
unaudited pro forma consolidated financial statements do not purport to be
indicative of the results of operations for future periods or the consolidated
financial position or the results that actually would have been realized had the
entities been consolidated during the period. The pro forma adjustments and
purchase price allocations are preliminary estimates only and are subject to
change. In connection with the Acquisition, MRV expects to restructure certain
operations. The restructure is expected to include closing of certain
facilities, reductions in workforce and settlement of distribution agreements.
The pro forma adjustments and financial statements do not include any amounts
related to the restructure of operations due to the Xyplex acquisition.
MRV estimates that it will incur direct transaction costs of approximately
$2,500,000 associated with the Acquisition. The purchase price also includes
$7,000,000 as the fair value of certain warrants given to the seller. The
warrants were valued using the Black Scholes method.
These unaudited pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of MRV, which are included in MRV's Form 10-K for the
year ended December 31, 1997, and the historical financial statements and the
related notes thereto of Xyplex, which are included elsewhere herein.
<PAGE> 34
MRV COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
MRV
Communications, Xyplex
Inc. Inc. Pro forma
1997 1997 Adjustments Consolidated
--------------- ------- ------------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,428 $ 1,037 $ (1,925)(4) $ 18,540
Notes receivable -- 8 -- 8
Short-term investments 36,413 -- (35,000)(1) 1,413
Accounts receivable, net 47,258 12,319 (1,500)(1) 58,077
Inventories 41,689 3,276 (1,500)(1) 43,465
Deferred income tax asset 2,280 5,071 -- 7,351
Other current 7,248 864 -- 8,112
--------- --------- --------- ---------
Total current assets 154,316 22,575 (39,925) 136,966
PROPERTY, PLANT AND EQUIPMENT,net 8,183 4,832 2,000 (1) 15,015
OTHER ASSETS:
Investments 62,382 -- -- 62,382
Deferred income tax asset 6,231 -- 6,900 (5) 13,131
Goodwill, net 5,077 -- 9,500 (1)
(1,350)(3) 13,227
Other intangibles -- 21,607 (21,607)(1) --
Other 47 320 -- 367
--------- --------- --------- ---------
73,737 21,927 (6,557) 89,107
$ 236,236 $ 49,334 $ (44,482) $ 241,088
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE> 35
MRV COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
MRV
Communications, Xyplex
Inc. Inc. Pro forma
1997 1997 Adjustments Consolidated
--------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of capital
lease obligations $ 111 $ 57 $ -- $ 168
Accounts payable 30,439 5,257 2,500 (1) 38,196
Accrued liabilities 8,429 6,614 1,203 (1) 16,246
Customer deposit 293 -- 293
Income taxes payable 3,485 -- (3,485)(5) --
Deferred revenue -- 3,296 3,296
--------- --------- --------- ---------
Total current liabilities 42,757 15,224 218 58,199
LONG-TERM LIABILITIES:
Capital lease obligations,
net of current portion 788 112 -- 900
Other long-term liabilities 2,065 -- -- 2,065
Deferred income taxes -- 5,688 -- 5,688
Due to parent company -- 6,932 (6,932)(1) --
--------- --------- --------- ---------
Total long-term liabilities 2,853 12,732 (6,932) 8,653
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 657 -- -- 657
STOCKKHOLDERS' EQUITY:
Preferred stock,$0.01 par value: -- -- -- --
Authorized-1,000 shares;
no shares issued or outstanding
Common stock, $0.0034 par value:
Authorized-40,000 shares
Issued and outstanding-26,360 88 -- 88
Capital in excess of par value 175,874 -- 7,000 (1) 182,874
Retained earnings (deficit) 14,635 -- (23,390)(6) (8,755)
Cumulative translation adjustments (628) -- -- (628)
PARENT COMPANY INVESTMENT -- 21,378 (21,378)(1) --
--------- --------- --------- ---------
189,969 21,378 (37,768) 173,579
$ 236,236 $ 49,334 $ (44,482) $ 241,008
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE> 36
MRV COMMUNICATIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, expect per share data)
<TABLE>
<CAPTION>
MRV
Communications, Xyplex
Inc. Inc. Pro forma
1997 1997 Adjustments Consolidated
--------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES, net $ 165,471 $ 75,663 $ -- $ 241,134
COSTS AND EXPENSES:
Cost of goods sold 94,709 37,004 -- 131,713
Research and development expenses 13,093 13,465 -- 26,558
Selling, general and
administrative expenses 27,365 33,712 -- 61,077
Purchased technology in progress -- -- 30,500 (1) 30,500
Parent company allocations -- 3,346 -- 3,346
Amortization of goodwill and other
intangible assets -- 12,064 1,350 (3) 13,414
Impairment of goodwill and other
intangible assets -- 63,172 (63,172)(2)(6) --
--------- --------- --------- ---------
135,167 162,763 (31,322) 266,608
--------- --------- --------- ---------
Operating income (loss) 30,304 (87,100) 31,322 (25,474)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense related to
convertible debentures and
acquisition (843) -- -- (843)
Minority interest (146) -- -- (146)
Interest income 2,841 18 (1,925)(4) 934
Interest expense (118) (5) -- (123)
Other 21 -- -- 21
--------- --------- --------- ---------
1,755 13 (1,925) (157)
--------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes 32,059 (87,087) 29,397 (25,631)
PROVISION (BENEFIT) FOR INCOME TAX 9,474 (6,778) (10,385)(5) (7,689)
--------- --------- --------- ---------
NET INCOME (LOSS) 22,585 (80,309) 39,782 (6) (17,942)
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE
INFORMATION:
Basic earnings (loss) per
common share 0.95 (0.76)
Diluted earnings (loss) per
common share 0.88 (0.76)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 23,670 23,670
Diluted 25,734 23,670
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements
<PAGE> 37
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
Adjustment
Number Comments
- ------------ ------------------------------------------------------------
(1) The purchase price of Xyplex and the estimated allocation of
the purchase price is summarized as follows:
<TABLE>
<S> <C>
Cash $35,000,000
Warrants 7,000,000
Other costs 2,500,000
-----------
$44,500,000
===========
PARENT COMPANY INVESTMENT $21,378,000
Add - Due to parent 6,932,000
-----------
28,310,000
Less - Intangibles per Xyplex 21,607,000
- Other write-offs 4,203,000
-----------
Net assets before allocation of
purchase price 2,500,000
Allocation of purchase
price to -
Purchased technology in
progress 30,500,000
Goodwill and other intangibles 9,500,000
Property, Plant & Equipment 2,000,000
-----------
$44,500,000
===========
</TABLE>
(2) In the fiscal year ended October 31, 1997, Xyplex recorded an
impairment loss of $63,172,000 related to goodwill. This pro
forma adjustment reflects results as if the write-off was
recorded prior to November 1, 1996.
(3) To record the amortization of $9,500,000 of goodwill over 7
years or approximately $1,350,000 per year.
(4) To reduce interest income by $1,925,000 to reflect use of
investments of $35,000,000 to fund purchase price, assumes 5.5
percent return on investments.
(5) After the above pro forma adjustments the income (loss) before
provision for income tax was a pro forma loss of $29,397,000.
This adjustment reflects the recording of a tax benefit for
this at an estimated effective rate of 30 percent or
$10,385,000.
(6) The net effect on 1997 income of the pro forma adjustments is
$39,782,000. The net effect on retained earnings (deficit) is
$(23,390,000), as $63,172,000 of the adjustments to the
operations were to move expense from 1997 to earlier periods.
