<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 33-93464
DICTAPHONE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3506655
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3191 Broadbridge Avenue
Stratford, CT 06614
(203) 381-7000
(Address of principal executive offices, including zip code,
and telephone number, including area code)
_________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
---
Number of shares of Common Stock, par value $.01 per share, outstanding as of
August 12, 2000: 100
The Common Stock of the registrant is not publicly traded.
<PAGE>
Explanatory Note:
-----------------
On May 5, 2000, Lernout & Hauspie Speech Products N.V. acquired all of the
outstanding capital stock of the Company through a merger of the Company into a
wholly-owned subsidiary of Lernout & Hauspie. The Condensed Consolidated
Financial Statements contained in Part I, Item 1 of this Quarterly Report on
Form 10-Q are divided into Condensed Consolidated Financial Statements for
Dictaphone Corporation, the Successor Company, for the two months ended and as
of June 30, 2000 and Dictaphone Corporation, the Predecessor Company, for the
one and four months ended April 30, 2000 and the three and six months ended June
30, 1999 and as of December 31, 1999. The Condensed Consolidated Financial
Statements for Dictaphone Corporation, the Successor Company, include the
results of operations of Dictaphone Corporation from May 1, 2000. The results
of operation for the period for May 1, 2000 through May 4, 2000 are immaterial.
In connection with the Acquisition, Lernout & Hauspie Speech Products N.V.
announced its intent to dispose of Dictaphone's contract manufacturing business
in Florida. Dictaphone is currently in discussions regarding the sale of that
business and expects to complete the sale by the end of 2000. The expected net
proceeds of the sale and cash flows of this business until it is sold, less an
allocation of interest expense for the holding period, were allocated to net
assets held for sale in the allocation of the Dictaphone purchase price. Any
difference between the actual and expected amounts will result in an adjustment
to goodwill. The business held for sale had net income of $0.2 million from the
date of the Acquisition to June 30, 2000.
1
<PAGE>
DICTAPHONE CORPORATION
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. Condensed Consolidated Financial Statements 3
Dictaphone Corporation (Successor Company)
------------------------------------------
Condensed Consolidated Statement of Operations for the
Two Months Ended June 30, 2000 (Unaudited) 3
Condensed Consolidated Balance Sheet as of June 30, 2000
(Unaudited) 4
Condensed Consolidated Statement of Cash Flow for the Two
Months Ended June 30, 2000 (Unaudited) 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Dictaphone Corporation (Predecessor Company)
--------------------------------------------
Condensed Consolidated Statements of Operations for the One
Month and Four Months Ended April 30, 2000 and the Three
and Six Months Ended June 30, 1999 (Unaudited) 17
Condensed Consolidated Balance Sheet as of December 31,
1999 18
Condensed Consolidated Statements of Cash Flow for the
Four Months Ended April 30, 2000 and the Six Months Ended
June 30, 1999 (Unaudited) 19
Notes to Unaudited Condensed Consolidated Financial
Statements 20
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 33
PART II. OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 38
ITEM 6. Exhibits and Reports on Form 8-K 38
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
<TABLE>
<CAPTION>
DICTAPHONE CORPORATION (Successor Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(Dollars in thousands)
Two Months
Ended
June 30, 2000
-------------
<S> <C>
Revenues:
Product sales and rentals $ 17,421
Contract manufacturing sales ---
Support services 12,186
----------
Total revenue 29,607
----------
Costs and expenses:
Cost of sales, rentals and support services 17,414
Selling and administrative 17,685
Amortization of intangibles 16,373
Research and development 2,159
----------
Operating loss (24,024)
Interest expense 6,573
Other expense (income) - net 849
----------
Loss before income taxes (31,446)
Income tax benefit 227
----------
Net loss (31,219)
----------
Net loss applicable to Common Stock $ (31,219)
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
DICTAPHONE CORPORATION (Successor Company)
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands)
June 30, 2000
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,747
Accounts receivable, less allowance of $2,148 80,316
Receivable due from affiliate 4,533
Inventories 18,533
Assets to be disposed of 31,028
Other current assets 3,871
----------
Total current assets 141,028
Property, plant and equipment, net 33,485
Deferred financing costs, net of accumulated amortization of $17,077 5,297
Intangibles, net of accumulated amortization of $16,373 834,314
Other assets 4,053
----------
Total assets $1,018,177
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 6,314
Interest payable 12,149
Accrued liabilities 24,892
Advance billings 61,175
Current portion of long-term debt 198
----------
Total current liabilities 104,728
Long-term debt 389,500
Accrued pension liability 5,323
Other liabilities 10,460
----------
Total liabilities 510,011
----------
Contingencies (Note 7)
Stockholder's equity:
Common stock ($.01 par value; 100 shares outstanding) 1
Additional paid-in capital 539,444
Accumulated deficit (31,219)
Accumulated other comprehensive loss (60)
----------
Total stockholder's equity 508,166
----------
Total liabilities and stockholders' equity $1,018,177
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
DICTAPHONE CORPORATION (Successor Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(Dollars in thousands)
Two Months
Ended
June 30, 2000
-------------
<S> <C>
Operating activities:
Net loss $ (31,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 17,960
Provision for deferred income taxes (240)
Changes in assets and liabilities:
Accounts receivable (12,916)
Inventories (5,149)
Other current assets 72
Accounts payable and accrued liabilities 1,431
Advance billings 13,222
Other liabilities 691
----------
Net cash used in operating activities (16,148)
----------
Investing activities:
Net investment in fixed assets (842)
Licenses and software development costs capitalized (2,000)
----------
Net cash used in investing activities (2,842)
----------
Financing activities:
Borrowings under revolving credit facility 16,500
Other (398)
----------
Net cash provided by financing activities 16,102
----------
Effect of exchange rate changes on cash (25)
----------
Decrease in cash (2,913)
----------
Cash and cash equivalents, beginning of period 5,660
----------
Cash and cash equivalents, end of period $ 2,747
==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 242
==========
Income taxes paid $ 167
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DICTAPHONE CORPORATION (Successor Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, or as otherwise indicated)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
On March 7, 2000, the Company entered into a definitive agreement to be
acquired by Lernout & Hauspie Speech Products N.V. ("Lernout & Hauspie"). On
May 5, 2000, Lernout & Hauspie acquired all of the outstanding stock of the
Company (the "Acquisition") for approximately 9.4 million shares of Lernout &
Hauspie Common Stock, taking into account the two-for-one stock split
effective as of May 12, 2000, through the merger of the Company with a
wholly-owned subsidiary of Lernout & Hauspie. In connection with the
Acquisition, a portion of the Company's approximately $430 million of debt
and other obligations were paid off or refinanced by an advance made to the
Company by Lernout & Hauspie.
The capital structure and accounting basis of the assets and liabilities
of the Company as of June 30, 2000 and thereafter differ from those of the
Company prior to its acquisition (the "Predecessor Company") as a result of
the application of purchase accounting. The Acquisition is being accounted
for under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16, Accounting for Business Combinations. The
total purchase price has been allocated to tangible and intangible assets and
liabilities of the Company based on preliminary estimates of their respective
fair values. Accordingly, the allocation of the purchase price reflected in
the accompanying condensed consolidated balance sheet will be adjusted upon
final determination of the purchase price adjustments and upon the final
results of gathering certain necessary information. The final asset and
liability values may differ from those set forth in such balance sheet,
however, the changes are not expected to have a material effect on the
results of operations or financial position of the Company.
The condensed consolidated financial statements of Dictaphone Corporation
(the "Company") are unaudited as of and for the two month period ended June
30, 2000, but in the opinion of management contain all adjustments that are
of a normal and recurring nature necessary to present fairly the financial
position and results of operations and cash flows for the period presented.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Results of
operations for the two months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the remainder of the year.
The accounting policies of the Successor Company are consistent with
those discussed in the Company's Annual Report on Form 10-K except for
revenue recognition which is disclosed below.
6
<PAGE>
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue. For voice processing systems and communications recording
-------
equipment that have installation requirements, the Company recognizes revenue
upon installation, which is when contractual obligations have been satisfied.
Revenue for all other products is recognized upon shipment. The new policy is
a result of the adoption of the business practices and revenue recognition
assumptions and estimates used by Lernout & Hauspie.
Intangibles. Assembled workforce and capitalized technology are amortized
-----------
on a straight line basis over five years. Customer lists are amortized on a
straight line basis over eight years. All other intangibles are being
amortized on a straight line basis over 10 years. The Company periodically
evaluates the recoverability of goodwill and other intangible assets by
assessing whether the unamortized intangible asset can be recovered over its
remaining useful life through future operating cash flows on an undiscounted
basis.
2. INVENTORIES
Inventories consist of the following:
June 30, 2000
-------------
Raw materials and work in process $ 3,701
Supplies and service parts 4,834
Finished products 9,998
--------
Total inventories $ 18,533
========
3. INTANGIBLES
The following summarizes intangible assets, net of accumulated
amortization of $16,373, at June 30, 2000. Amortization expense for the two
months ended June 30, 2000 was $16,373.
June 30, 2000
-------------
Goodwill $ 580,934
Tradenames 29,008
Customer lists 129,348
Assembled workforce 20,784
Capitalized technology 74,240
---------
$ 834,314
=========
4. LONG-TERM DEBT
Long-term debt consists of the following:
June 30, 2000
-------------
Revolving line of credit $ 16,500
Due to parent 173,000
Senior subordinated notes 200,000
---------
$ 389,500
=========
7
<PAGE>
4. LONG-TERM DEBT (Continued)
The due to parent is for a term of two years as from May 5, 2000 at a
fixed interest rate of 8% per annum, payable on the end of each term of six
months and for the first time on November 5, 2000. The Senior Subordinated
Notes bear interest at a rate of 11 3/4% per annum, payable semi-annually on
each February 1 and August 1. The Notes mature on August 1, 2005. The
aggregate principal amount of the revolving line of credit is $20 million.
Loans under the revolving line of credit bear interest at a per annum
interest rate equal to Deutsche Bank's floating base rate.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires
that derivative instruments be recognized as either assets or liabilities in
the consolidated balance sheet based on their fair values. Changes in the
fair values of such derivative instruments will be recorded either in results
of operations or in other comprehensive income, depending on the intended use
of the derivative instrument. The initial application of SFAS 133 will be
reported as the effect of a change in accounting principle. SFAS 133, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company will adopt the requirements of SFAS 133 in its
financial statements for the year ending December 31, 2001. The Company has
not yet determined the effect that the adoption of SFAS 133 will have on its
financial position, results of operations or liquidity.
On March 31, 2000, the FASB issued FASB Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation - An Interpretation of
APB Opinion No. 25 ("FIN 44"). FIN 44 provides quidance for issues that have
arisen in applying Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. FIN 44 applies prospectively to new awards,
exchanges of awards in a business combination, modifications to outstanding
awards, and changes in grantee status that occur on or after July 1, 2000.
The Company has not yet determined the effect that the provision of FIN 44
will have on its financial position, results of operations or liquidity.
8
<PAGE>
6. PROFORMA COMBINED STATEMENTS OF OPERATIONS DATA
The following summary proforma financial information reflects the
Acquisition of Dictaphone as if it occurred on January 1, 1999 for purposes
of the statement of operations. The summary proforma information is not
necessarily representative of what the Company's results of operations would
have been had this Acquisition in fact occurred on January 1, 1999 and is not
intended to project the Company's results of operations for any future period
or date.
Proforma financial information in thousands:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000
---------------------------------------------------------------
Predecessor Dictaphone
Company Corporation
Four Months Two Months Dictaphone
Ended Ended Proforma Corporation
April 30, 2000 June 30, 2000 Adjustments Proforma
-------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Revenue $ 98,571 $ 29,607 $ (12,502)(a) $ 115,676
Cost & Expenses:
Cost of sales 68,117 17,414 (10,849)(a) 74,682
Selling & admini-
strative 39,672 17,685 (4,124)(a)(b) 53,233
Amortization of
intangibles 2,945 16,373 29,494 (a)(b) 48,812
Research &
development 2,492 2,159 --- 4,651
-------------- ------------- ----------- ---------
Operating (loss) profit (14,655) (24,024) (27,023) (65,702)
Interest expense 14,025 6,573 (6,501)(a)(c)(d) 14,097
Other expense 62 849 --- 911
-------------- ------------- ----------- ---------
Loss before income
taxes (28,742) (31,446) (20,522) (80,710)
Income tax (benefit)
expense (521) (227) (8,209)(e) (8,957)
-------------- ------------- ----------- ---------
Net loss $ (28,221) $ (31,219) $ (12,313) $ (71,753)
============== ============= ========== =========
<CAPTION>
Six Months Ended
June 30, 1999
-------------------------------------------------
Dictaphone
Predecessor Proforma Corporation
Company Adjustments Proforma
------- ----------- --------
<S> <C> <C> <C>
Revenue $ 168,271 $ (23,248)(a) $ 145,023
Cost & Expenses:
Cost of sales 89,752 (19,827)(a) 69,925
Selling & admini-
strative 51,365 (2,933)(a)(b) 48,432
Amortization of
intangibles 6,477 42,182 (a)(b) 48,659
Research &
development 4,880 --- 4,880
--------- ----------- ---------
Operating (loss) profit 15,797 (42,670) (26,873)
Interest expense 20,063 (8,580)(a)(c)(d) 11,483
Other expense 377 --- 377
--------- ----------- ---------
Loss before income
taxes (4,643) (34,090) (38,773)
Income tax (benefit)
expense 921 (13,636)(e) (12,715)
--------- ----------- ---------
Net loss $ (5,564) $ (20,454) $ (26,018)
========= =========== =========
</TABLE>
9
<PAGE>
6. PROFORMA COMBINED STATEMENTS OF OPERATIONS DATA (Continued)
Notes to Proforma Combined Statements of Operations Data
--------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
Proforma Proforma
Adjustments Adjustments
----------- -----------
<S> <C> <C>
a) To reflect the planned disposal of the Company's Manufacturing Business
Revenue $ (12,502) $ (23,248)
Cost of sales (10,849) (19,827)
Selling & administrative (221) (516)
Amortization of intangibles (768) (1,157)
Interest expense (1,295) (1,878)
b) To reflect the elimination of the historical amortization of goodwill,
other intangibles and capitalized software costs and record the amortization
of goodwill, capitalized technology and other intangibles in connection with
the Acquisition of the Company by Lernout & Hauspie.
Total historical goodwill and intangible amortization (2,945) (6,477)
Less portion related to the Company's Manufacturing Business 768 1,157
----------- -----------
Net historical intangible amortization (2,177) (5,320)
Historical capitalized technology amortization (3,903) (2,417)
Acquisition related amortization of goodwill, intangibles &
capitalized technology 32,439 48,659
c) To reflect the reduction in interest expense related to the Company's long
term debt repaid on the date of the Acquisition.
Historical interest expense relating to repaid debt (5,315) (7,020)
Less portion related to the Company's Manufacturing Business 491 657
----------- -----------
Net historical interest expense relating to repaid debt (4,824) (6,363)
d) To reflect the reduction in the Company's historical amortization of deferred
financing fees associated with long term debt repaid on the date of the
Acquisition. (382) (339)
e) To reflect the income tax effect of the proforma adjustments at an effective
tax rate of 40%. $ (8,209) $ (13,636)
</TABLE>
10
<PAGE>
7. CONTINGENCIES
Contingencies
On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes"), the Company's
former parent corporation, filed a complaint against Sudbury Systems, Inc.
("Sudbury") in the United States District Court for the District of
Connecticut alleging intentional and wrongful interference with Pitney
Bowes's plans to sell the Company. The complaint seeks damages and a
declaratory judgment relating to the validity of a patent owned by Sudbury
entitled "Rapid Simultaneous Multiple Access Information Storage and
Retrieval System" and the alleged infringement thereof by the Company.
Sudbury responded by answering the complaint and filing a third-party
complaint against the Company alleging patent infringement and seeking
preliminary and permanent injunctive relief and treble damages. Sudbury's
patent expired in April 1998. As a result, injunctive relief is no longer
available to Sudbury. Pretrial proceedings, including claim construction and
dispositive motions are continuing. A trial date in 2000 is likely.
Management believes the Company has meritorious defenses to the claims
against it. Consequently, the Company has not provided for any loss exposure
in connection with this complaint. Additionally, regardless of the outcome
of this litigation, Pitney Bowes has agreed to defend this action and to
indemnify the Company for any liabilities arising from such litigation.
The Company is subject to federal, state and local laws and regulations
concerning the environment and is currently participating in administrative
proceedings as a participant in a group of potentially responsible parties in
connection with two third party disposal sites. These proceedings are in the
preliminary stage, and it is currently impossible to reasonably estimate the
potential costs of remediation, the timing and extent of remedial actions
which may be required by governmental authorities, and the amount of
liability, if any, of the Company alone or in relation to that of any other
responsible parties. When it is possible to make a reasonable estimate of the
Company's liability with respect to such a matter, a provision will be made
as appropriate. Additionally, the Company has settled and paid its liability
at three other third party disposal sites. At a fourth site, the Company has
paid approximately $11 thousand for its share of the costs of the first phase
of the clean up of the site, and management believes that it has no
continuing material liability for any later phases of the cleanup.
Consequently, management believes that its future liability, if any, for
these four sites is not material. In addition, regardless of the outcome of
such matters, Pitney Bowes has agreed to indemnify the Company in connection
with retained environmental liabilities and for breaches of the environmental
representations and warranties in the Stock and Asset Purchase Agreement,
originally executed on April 25, 1995 and amended August 11, 1995 between
Dictaphone Acquisition Corporation and Pitney Bowes subject to certain
limitations.
The Company is a defendant in a number of additional lawsuits and
administrative proceedings, none of which will, in the opinion of management,
have a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company does not believe that the ultimate resolution of the
litigation, administrative proceedings and environmental matters described
above in the aggregate will have a material adverse effect on the Company's
consolidated financial position or results of operations.
11
<PAGE>
8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION
The following consolidating financial statements include the Company and
all majority-owned subsidiaries as follows: Dictaphone Canada Ltd./Ltee.,
Dictaphone Company Ltd., Dictaphone Deutschland GmbH and Dictaphone
International A.G. (collectively, "Dictaphone Non-U.S.").
Dictaphone Corporation has fully and unconditionally guaranteed the
repayment of $200.0 million of 11 3/4% Senior Subordinated Notes due 2005
(the "Notes") issued to finance the acquisition of the Company from Pitney
Bowes. The Notes are subordinate to financing of the Credit Agreement, dated
August 7, 1995, as amended by five amendments to the Credit Agreement, dated
June 28, 1996, June 27, 1997, July 21, 1997, November 14, 1997 and December
31, 1998 (collectively, the "Credit Agreement"), and other senior
indebtedness as defined in the indenture pursuant to which the Notes were
issued (the "Note Indenture"). The Company had $200.0 million of Notes
outstanding as of June 30, 2000. As a result of the Acquisition, the
Noteholders had the option to put the Notes to the Company. In July 2000,
holders of $41.6 million of the Notes exercised that right and those Notes
were redeemed. As of April 30, 2000, the Credit Agreement consisted of a
$75.0 million Tranche B Term Loan due June 30, 2002 (the "Tranche B Loan"), a
$62.75 million Tranche C Term Loan due June 30, 2002 (the "Tranche C Loan"
and together with the Tranche B Loan, the "Term Loans") and a six-year
revolving credit facility of up to $40.0 million (the "Revolving Credit
Facility"). The Company repaid the Term Loans and the Revolving Credit
Facility immediately following the Acquisition of the Company by Lernout &
Hauspie on May 5, 2000. Dictaphone Non-U.S. is not a guarantor of the Notes.
12
<PAGE>
8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
The following are the supplemental consolidating statement of operations
for the two month period ended June 30, 2000, the supplemental consolidating
balance sheet information as of June 30, 2000, and cash flow information for
the two month period ended June 30, 2000.
Dictaphone Corporation (Successor Company)
Supplemental Condensed Consolidating Statement of Operations Information
Two Months Ended June 30, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 18,340 $ 2,437 $(3,356) $ 17,421
Contract manufacturing sales --- --- --- ---
Support services 11,019 1,167 --- 12,186
-------- ------- ------- --------
Total revenues 29,359 3,604 (3,356) 29,607
-------- ------- ------- --------
Costs and expenses:
Cost of sales, rentals and support services 17,672 3,098 (3,356) 17,414
Selling and administrative, including
amortization of intangibles 32,471 1,587 --- 34,058
Research and development 2,159 --- --- 2,159
Interest expense (net) and other expense 6,159 1,263 --- 7,422
-------- ------- ------- --------
Total costs and expenses 58,461 5,948 (3,356) 61,053
-------- ------- ------- --------
Loss before income taxes (29,102) (2,344) --- (31,446)
Income tax (expense) benefit (13) 240 --- 227
-------- ------- ------- --------
Net loss $(29,115) $(2,104) $ --- $(31,219)
======== ======= ======= ========
</TABLE>
13
<PAGE>
8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Successor Company)
Supplemental Condensed Consolidating Balance Sheet Information
June 30, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,184 $ 563 $ --- $ 2,747
Accounts receivable, less allowances 79,226 7,092 (6,002) 80,316
Receivable due from affiliate 4,533 --- --- 4,533
Inventories 13,673 4,860 --- 18,533
Assets to be disposed of 31,028 --- --- 31,028
Other current assets 2,829 1,042 --- 3,871
---------- ------- -------- ----------
Total current assets 133,473 13,557 (6,002) 141,028
Investments in subsidiaries 16,751 --- (16,751) ---
Property, plant and equipment, net 30,989 2,496 --- 33,485
Deferred financing costs, net 5,297 --- --- 5,297
Intangibles, net 822,572 11,742 --- 834,314
Other assets 2,042 2,011 --- 4,053
---------- ------- -------- ----------
Total assets $1,011,124 $29,806 $(22,753) $1,018,177
========== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest payable
and accrued liabilities $ 36,917 $12,700 $ (6,262) $ 43,355
Advance billings 58,594 2,581 --- 61,175
Current portion of long-term debt --- 198 --- 198
---------- ------- -------- ----------
Total current liabilities 95,511 15,479 (6,262) 104,728
Long-term debt 389,500 16,491 (16,491) 389,500
Accrued pension liability 5,323 --- --- 5,323
Other liabilities 10,460 --- --- 10,460
Stockholders' equity (deficit) 510,330 (2,164) --- 508,166
---------- ------- -------- ----------
Total liabilities and stockholders' equity $1,011,124 $29,806 $(22,753) $1,018,177
========== ======= ======== ==========
</TABLE>
14
<PAGE>
8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION
(Continued)
Dictaphone Corporation (Successor Company)
Supplemental Condensed Consolidating Statement of Cash Flows Information
Two Months Ended June 30, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(29,115) $(2,104) $ --- $(31,219)
Adjustment to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 17,461 499 --- 17,960
Provision for deferred income taxes --- (240) --- (240)
Change in assets and liabilities:
Accounts receivable (15,872) 2,574 382 (12,916)
Inventories (1,371) (3,778) --- (5,149)
Other current assets 51 21 --- 72
Accounts payable and accrued
liabilities (340) 2,337 (566) 1,431
Advance billings 13,022 200 --- 13,222
Other assets and other 29 478 184 691
-------- ------- ------------- --------
Net cash used in operating activities (16,135) (13) --- (16,148)
-------- ------- ------------- --------
Investing activities:
Net investment in fixed assets (611) (231) --- (842)
Licenses and software development
costs capitalized (2,000) --- --- (2,000)
-------- ------- ------------- --------
Net cash used in investing activities (2,611) (231) --- (2,842)
-------- ------- ------------- --------
Financing activities:
Borrowings from revolving credit facility 16,500 --- --- 16,500
Other (281) (117) --- (398)
-------- ------- ------------- --------
Net cash provided by (used in) financing
activities 16,219 (117) --- 16,102
-------- ------- ------------- --------
Effect of exchange rate changes on cash --- (25) --- (25)
-------- ------- ------------- --------
Decrease in cash (2,527) (386) --- (2,913)
Cash and cash equivalents,
beginning of period 4,711 949 --- 5,660
-------- ------- ------------- --------
Cash and cash equivalents,
end of period $ 2,184 $ 563 $ --- $ 2,747
======== ======= ============= ========
</TABLE>
15
<PAGE>
9. COMPREHENSIVE LOSS
Total comprehensive loss for the two months ended June 30, 2000 consists
of the following:
Two Months Ended
June 30, 2000
-------------
Net loss $(31,219)
Foreign currency translation
adjustments (60)
--------
Total comprehensive loss $(31,279)
========
10. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
As a result of the Company's announcement of its intention to dispose
of its manufacturing business, Dictaphone has one reportable segment:
System Products and Services. The System Products and Services segment
consists of the sale and service of system-related products to dictation
and voice management and communications recording system customers in
selected vertical markets.
Dictaphone Corporation (Successor Company)
Segment Profit and Loss and Assets
<TABLE>
<CAPTION>
System
Products &
Services
--------
<S> <C>
Revenue from external customers
Two months ended June 30, 2000 $ 29,607
Intersegment revenues
Two months ended June 30, 2000 ---
Segment loss before income taxes
Two months ended June 30, 2000 (31,446)
Total assets as of June 30, 2000 1,018,177
Manufacturing business assets to be disposed of (31,028)
----------
Segment assets $ 987,149
</TABLE>
16
<PAGE>
DICTAPHONE CORPORATION (Predecessor Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
One Month Four Months Three Months Six Months
Ended Ended Ended Ended
April 30, 2000 April 30, 2000 June 30, 1999 June 30, 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Product sales and rentals $ 6,527 $ 50,772 $48,539 $ 96,767
Contract manufacturing sales 3,348 12,502 12,900 23,248
Support services 7,438 35,297 24,221 48,256
-------- -------- ------- --------
Total revenues 17,313 98,571 85,660 168,271
-------- -------- ------- --------
Costs and expenses:
Cost of sales, rentals and support services 13,927 68,117 46,302 89,752
Selling and administrative 13,524 39,672 24,410 51,365
Amortization of intangibles 736 2,945 3,238 6,477
Research and development 715 2,492 2,442 4,880
-------- -------- ------- --------
Operating (loss) profit (11,589) (14,655) 9,268 15,797
Interest expense 3,531 14,025 9,924 20,063
Other expense (income) - net 272 62 46 377
-------- -------- ------- --------
Loss before income taxes (15,392) (28,742) (702) (4,643)
Income tax (benefit) expense (526) (521) 696 921
-------- -------- ------- --------
Net loss (14,866) (28,221) (1,398) (5,564)
Stock dividends on PIK Preferred Stock 561 2,210 1,479 2,710
-------- -------- ------- --------
Net loss applicable to Common Stock $(15,427) $(30,431) $(2,877) $ (8,274)
======== ======== ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE>
DICTAPHONE CORPORATION (Predecessor Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,190
Accounts receivable, less allowance of $1,801 100,834
Inventories 49,759
Other current assets 6,152
---------
Total current assets 162,935
Property, plant and equipment, net 37,489
Deferred financing costs, net of accumulated amortization of $16,145 8,141
Intangibles, net of accumulated amortization of $133,964 194,865
Deferred tax asset 39,934
Other assets 17,774
---------
Total assets $ 461,138
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,755
Interest payable 9,965
Accrued liabilities 30,928
Advance billings 49,100
Current portion of long-term debt 790
---------
Total current liabilities 102,538
Long-term debt 353,443
Accrued pension liability 9,953
Other liabilities 12,806
---------
Total liabilities 478,740
---------
Contingencies (Note 5)
Stockholders' equity:
Preferred stock ($.01 par value; 7,500,000 shares authorized; 2,742,400
shares of 14% PIK perpetual preferred stock
issued and outstanding, liquidation value of $27,424
at December 31, 1999) 27,424
Preferred stock ($.01 par value; 10,000,000 shares authorized;
2,000,000 shares of 12% Convertible PIK preferred stock issued and
outstanding, liquidation value of $22,306 at December 31, 1999) 22,306
Common stock ($.01 par value; 30,000,000 shares authorized;
12,934,000 shares outstanding at December 31, 1999) 130
Notes receivable from stockholders (741)
Additional paid-in capital 115,140
Treasury stock, at cost (66,000 shares at December 31, 1999) (660)
Accumulated deficit (179,360)
Accumulated other comprehensive loss (1,841)
---------
Total stockholders' equity (deficit) (17,602)
---------
Total liabilities and stockholders' equity $ 461,138
=========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
18
<PAGE>
DICTAPHONE CORPORATION (Predecessor Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Four Months Six Months
Ended Ended
April 30, 2000 June 30, 1999
--------------- --------------
<S> <C> <C>
Operating activities:
Net loss $(28,221) $ (5,564)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,376 13,093
Provision for deferred income taxes 44 47
Non-cash provision for inventory obsolescence (Note 2) 9,206 ---
Changes in assets and liabilities:
Accounts receivable 22,117 (9,259)
Inventories 1,025 3,552
Other current assets (1,564) 1,860
Accounts payable and accrued liabilities (14,343) (1,264)
Advance billings (1,054) 3,782
Other assets and other (5,894) (5,987)
-------- --------
Net cash (used in) provided by operating activities (8,308) 260
-------- --------
Investing activities:
Net investment in fixed assets (5,315) (6,152)
-------- --------
Net cash used in investing activities (5,315) (6,152)
-------- --------
Financing activities:
Sale of preferred stock --- 20,000
Borrowings under revolving credit facility 18,250 17,250
Repayments under revolving credit facility (4,250) (36,750)
Repayments under term loans 439 ---
Other (1,336) (951)
-------- --------
Net cash provided by (used in) financing activities 13,103 (451)
-------- --------
Effect of exchange rate changes on cash (10) (35)
-------- --------
Decrease in cash (530) (6,378)
Cash and cash equivalents, beginning of period 6,190 11,727
-------- --------
Cash and cash equivalents, end of period $ 5,660 $ 5,349
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 17,254 $ 19,136
======== ========
Income taxes paid $ 993 $ 195
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
19
<PAGE>
DICTAPHONE CORPORATION (Predecessor Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, or as otherwise indicated)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
On March 7, 2000, the Company entered into a definitive agreement to
be acquired by Lernout & Hauspie Speech Products N.V. ("Lernout &
Hauspie"). On May 5, 2000, Lernout & Hauspie acquired all of the
outstanding stock of the Company (the "Acquisition") for approximately 9.4
million shares of Lernout & Hauspie Common Stock, taking into account the
two-for-one stock split effective as of May 12, 2000, through the merger of
the Company with a wholly-owned subsidiary of Lernout & Hauspie. In
connection with the Acquisition, a portion of the Company's approximately
$430 million of debt and other obligations were paid off or refinanced by
an advance made to the Company by Lernout & Hauspie.
The capital structure and accounting basis of the assets and
liabilities of the Company as of June 30, 2000 and thereafter differ from
those of the Company prior to its acquisition (the "Predecessor Company")
as a result of the application of purchase accounting. The Acquisition is
being accounted for under the purchase method of accounting in accordance
with Accounting Principles Board Opinion No. 16, Accounting for Business
Combinations. The total purchase price has been allocated to tangible and
intangible assets and liabilities of the Company based on preliminary
estimates of their respective fair values. Accordingly, the allocation of
the purchase price reflected in the accompanying condensed consolidated
balance sheet will be adjusted upon final determination of the purchase
price adjustments and upon the final results of gathering certain necessary
information. The final asset and liability values may differ from those set
forth in such balance sheet, however, the changes are not expected to have
a material effect on the results of operations or financial position of the
Company.
The condensed consolidated financial statements of Dictaphone
Corporation (the "Company") are unaudited as of and for the one and four
month periods ended April 30, 2000 and the three and six month periods
ended June 30, 1999, but in the opinion of management contain all
adjustments that are of a normal and recurring nature necessary to present
fairly the financial position and results of operations and cash flows for
the periods presented. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
20
<PAGE>
2. INVENTORIES
Inventories consist of the following:
December 31,
1999
------------
Raw materials and work in process $23,376
Supplies and service parts 11,083
Finished products 15,300
-------
Total inventories $49,759
=======
During the three months ended March 31, 2000, the Company recorded a
non-cash charge of $9.2 million associated with the provision for excess
field service parts and inventory primarily related to products recently
replaced by newly introduced products. With the production of Freedom(TM)
in the first quarter of 2000, the Company provided for excess inventory
associated with those products that the Freedom(TM) product would replace,
recording this charge as an inventory provision.
3. INTANGIBLES
The following summarizes intangible assets, net of accumulated
amortization and writedowns of $133,964 at December 31, 1999. Amortization
expense for the one and four months ended April 30, 2000 and the three and
six months ended June 30, 1999 was $736, $2,945, $3,238 and $6,477,
respectively.
December 31,
1999
-----------
Goodwill $123,737
Tradenames 69,318
Non-compete agreement 1,041
Patents 769
--------
$194,865
========
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company has only limited
involvement with derivative financial instruments and does not use them for
trading purposes. The Company enters into interest rate swap and cap
agreements to reduce its exposure to interest rate fluctuations. The net
gain or loss from exchange of interest payments is included in interest
expense in the condensed consolidated statement of operations and interest
paid in the condensed consolidated statements of cash flow. The Company is
required to implement SFAS 133 in the first quarter of 2001. The Company
believes the impact of the new pronouncement on the financial statements
will be immaterial.
21
<PAGE>
5. CONTINGENCIES
Contingencies
On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes"), the
Company's former parent corporation, filed a complaint against Sudbury
Systems, Inc. ("Sudbury") in the United States District Court for the
District of Connecticut alleging intentional and wrongful interference with
Pitney Bowes's plans to sell the Company. The complaint seeks damages and a
declaratory judgment relating to the validity of a patent owned by Sudbury
entitled "Rapid Simultaneous Multiple Access Information Storage and
Retrieval System" and the alleged infringement thereof by the Company.
Sudbury responded by answering the complaint and filing a third-party
complaint against the Company alleging patent infringement and seeking
preliminary and permanent injunctive relief and treble damages. Sudbury's
patent expired in April 1998. As a result, injunctive relief is no longer
available to Sudbury. Pretrial proceedings, including claim construction
and dispositive motions are continuing. A trial date in 2000 is likely.
Management believes the Company has meritorious defenses to the claims
against it. Consequently, the Company has not provided for any loss
exposure in connection with this complaint. Additionally, regardless of the
outcome of this litigation, Pitney Bowes has agreed to defend this action
and to indemnify the Company for any liabilities arising from such
litigation.
The Company is subject to federal, state and local laws and
regulations concerning the environment and is currently participating in
administrative proceedings as a participant in a group of potentially
responsible parties in connection with two third party disposal sites.
These proceedings are in the preliminary stage, and it is currently
impossible to reasonably estimate the potential costs of remediation, the
timing and extent of remedial actions which may be required by governmental
authorities, and the amount of liability, if any, of the Company alone or
in relation to that of any other responsible parties. When it is possible
to make a reasonable estimate of the Company's liability with respect to
such a matter, a provision will be made as appropriate. Additionally, the
Company has settled and paid its liability at three other third party
disposal sites. At a fourth site, the Company has paid approximately
$11 thousand for its share of the costs of the first phase of the clean up
of the site, and management believes that it has no continuing material
liability for any later phases of the cleanup. Consequently, management
believes that its future liability, if any, for these four sites is not
material. In addition, regardless of the outcome of such matters, Pitney
Bowes has agreed to indemnify the Company in connection with retained
environmental liabilities and for breaches of the environmental
representations and warranties in the Stock and Asset Purchase Agreement,
originally executed on April 25, 1995 and amended August 11, 1995 between
Dictaphone Acquisition Corporation and Pitney Bowes subject to certain
limitations.
The Company is a defendant in a number of additional lawsuits and
administrative proceedings, none of which will, in the opinion of
management, have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company does not believe that the ultimate resolution of the
litigation, administrative proceedings and environmental matters described
above in the aggregate will have a material adverse effect on the Company's
consolidated financial position or results of operations.
22
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION
The following consolidated financial statements include the Company
and all majority-owned subsidiaries as follows: Dictaphone Canada
Ltd./Ltee., Dictaphone Company Ltd., Dictaphone Deutschland GmbH and
Dictaphone International A.G. (collectively, "Dictaphone Non-U.S.").
Dictaphone Corporation has fully and unconditionally guaranteed the
repayment of $200.0 million of 11 3/4% Senior Subordinated Notes due 2005
(the "Notes") issued to finance the acquisition of the Company from Pitney
Bowes. The Notes are subordinate to financing of the Credit Agreement,
dated August 7, 1995, as amended by five amendments to the Credit
Agreement, dated June 28, 1996, June 27, 1997, July 21, 1997, November 14,
1997 and December 31, 1998 (collectively, the "Credit Agreement"), and
other senior indebtedness as defined in the indenture pursuant to which the
Notes were issued (the "Note Indenture"). The Company had $200.0 million of
Notes outstanding as of June 30, 2000. As a result of the Acquisition, the
Noteholders had the option to put the Notes to the Company. In July 2000,
holders of $41.6 million of the Notes exercised that right and those Notes
were redeemed. As of April 30, 2000, the Credit Agreement consisted of a
$75.0 million Tranche B Term Loan due June 30, 2002 (the "Tranche B Loan"),
a $62.75 million Tranche C Term Loan due June 30, 2002 (the "Tranche C
Loan" and together with the Tranche B Loan, the "Term Loans") and a six-
year revolving credit facility of up to $40.0 million (the "Revolving
Credit Facility"). The Company repaid the Term Loans and the Revolving
Credit Facility immediately following the Acquisition of the Company by
Lernout & Hauspie on May 5, 2000. Dictaphone Non-U.S. is not a guarantor of
the Notes.
In January 1998, Dictaphone Corporation was merged into Dictaphone
Corporation (U.S.), whereupon the surviving corporation changed its name to
"Dictaphone Corporation".
23
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
The following are the supplemental consolidating statements of operations
for the one month and four month periods ended April 30, 2000 and the three
and six month periods ended June 30, 1999, the supplemental consolidating
balance sheet information as of December 31, 1999 and cash flow information
for the four month period ended April 30, 2000 and six month period ended
June 30, 1999.
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Statement of Operations Information
One Month Ended April 30, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 6,460 $ 819 $ (752) $ 6,527
Contract manufacturing sales 3,348 --- --- 3,348
Support services 6,955 483 --- 7,438
-------- ------- ------ --------
Total revenues 16,763 1,302 (752) 17,313
-------- ------- ------ --------
Costs and expenses:
Cost of sales, rentals and support services 12,796 1,917 (786) 13,927
Selling and administrative, including
amortization of intangibles 13,383 877 --- 14,260
Research and development 715 --- --- 715
Interest expense (net) and other expense 3,348 455 --- 3,803
-------- ------- ------ --------
Total costs and expenses 30,242 3,249 (786) 32,705
-------- ------- ------ --------
Equity (loss) earnings (1,528) --- 1,528 ---
-------- ------- ------ --------
(Loss) income before income taxes (15,007) (1,947) 1,562 (15,392)
Income tax expense (benefit) 7 (547) 14 (526)
-------- ------- ------ --------
Net (loss) income $(15,014) $(1,400) $1,548 $(14,866)
======== ======= ====== ========
</TABLE>
24
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Statement of Operations Information
Four Months Ended April 30, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 48,511 $ 6,957 $(4,696) $ 50,772
Contract manufacturing sales 12,502 --- --- 12,502
Support services 32,846 2,451 --- 35,297
-------- ------- ------- --------
Total revenues 93,859 9,408 (4,696) 98,571
-------- ------- ------- --------
Costs and expenses:
Cost of sales, rentals and support services 64,685 8,000 (4,568) 68,117
Selling and administrative, including
amortization of intangibles 39,870 2,747 --- 42,617
Research and development 2,492 --- --- 2,492
Interest expense (net) and other expense 13,293 794 --- 14,087
-------- ------- ------- --------
Total costs and expenses 120,340 11,541 (4,568) 127,313
-------- ------- ------- --------
Equity (loss) earnings (1,124) --- 1,124 ---
-------- ------- ------- --------
(Loss) income before income taxes (27,605) (2,133) 996 (28,742)
Income tax expense (benefit) 28 (497) (52) (521)
-------- ------- ------- --------
Net (loss) income $(27,633) $(1,636) $ 1,048 $(28,221)
======== ======= ======= ========
</TABLE>
25
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Statement of Operations Information
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $44,754 $6,536 $(2,751) $48,539
Contract manufacturing sales 12,900 --- --- 12,900
Support services 21,841 2,380 --- 24,221
------- ------ ------- -------
Total revenues 79,495 8,916 (2,751) 85,660
------- ------ ------- -------
Costs and expenses:
Cost of sales, rentals and support services 44,304 4,835 (2,837) 46,302
Selling and administrative, including
amortization of intangibles 25,447 2,201 --- 27,648
Research and development 2,442 --- --- 2,442
Interest expense (net) and other expense 9,353 617 --- 9,970
------- ------ ------- -------
Total costs and expenses 81,546 7,653 (2,837) 86,362
------- ------ ------- -------
Equity earnings (loss) 468 --- (468) ---
------- ------ ------- -------
(Loss) income before income taxes (1,583) 1,263 (382) (702)
Income tax expense 23 638 35 696
------- ------ ------- -------
Net (loss) income $(1,606) $ 625 $ (417) $(1,398)
======= ====== ======= =======
</TABLE>
26
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Statement of Operations Information
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 89,530 $12,258 $(5,021) $ 96,767
Contract manufacturing sales 23,248 --- --- 23,248
Support services 43,772 4,484 --- 48,256
-------- ------- ------- --------
Total revenues 156,550 16,742 (5,021) 168,271
-------- ------- ------- --------
Costs and expenses:
Cost of sales, rentals and support services 85,616 9,261 (5,125) 89,752
Selling and administrative, including
amortization of intangibles 53,403 4,439 --- 57,842
Research and development 4,880 --- --- 4,880
Interest expense (net) and other expense 18,839 1,601 --- 20,440
-------- ------- ------- --------
Total costs and expenses 162,738 15,301 (5,125) 172,914
-------- ------- ------- --------
Equity earnings (loss) 1,073 --- (1,073) ---
-------- ------- ------- --------
(Loss) income before income taxes (5,115) 1,441 (969) (4,643)
Income tax expense 45 834 42 921
-------- ------- ------- --------
Net (loss) income $ (5,160) $ 607 $(1,011) $ (5,564)
======== ======= ======= ========
</TABLE>
27
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Balance Sheet Information
December 31, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,595 $ 1,595 $ --- $ 6,190
Accounts receivable, less allowances 92,608 10,822 (2,596) 100,834
Inventories 47,765 2,199 (205) 49,759
Other current assets 3,351 2,718 83 6,152
-------- ------- -------- --------
Total current assets 148,319 17,334 (2,718) 162,935
Investments in subsidiaries 30,883 --- (30,883) ---
Property, plant and equipment, net 34,444 3,045 --- 37,489
Deferred financing costs 8,141 --- --- 8,141
Intangibles, net 182,241 12,624 --- 194,865
Other assets 53,333 4,375 --- 57,708
-------- ------- -------- --------
Total assets $457,361 $37,378 $(33,601) $461,138
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest payable
and accrued liabilities $ 43,915 $11,329 $ (2,596) $ 52,648
Advance billings 46,571 2,529 --- 49,100
Current portion of long-term debt 628 162 --- 790
-------- ------- -------- --------
Total current liabilities 91,114 14,020 (2,596) 102,538
Long-term debt 353,317 17,117 (16,991) 353,443
Accrued pension expense 9,953 --- --- 9,953
Other liabilities 12,270 536 --- 12,806
Stockholders' equity (deficit) (9,293) 5,705 (14,014) (17,602)
-------- ------- -------- --------
Total liabilities and stockholders' equity $457,361 $37,378 $(33,601) $461,138
======== ======= ======== ========
</TABLE>
28
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Statement of Cash Flows Information
Four Months Ended April 30, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(27,633) $(1,636) $ 1,048 $(28,221)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 9,865 511 --- 10,376
Provision for deferred income taxes --- 44 --- 44
Non-cash provision for inventory
obsolescence 7,919 1,287 --- 9,206
Change in assets and liabilities:
Accounts receivable 18,359 734 3,024 22,117
Inventories 1,331 (434) 128 1,025
Other current assets (1,391) (121) (52) (1,564)
Accounts payable and accrued
liabilities (10,728) (515) (3,100) (14,343)
Advance billings (999) (55) --- (1,054)
Other assets and other (4,511) (335) (1,048) (5,894)
-------- ------- ------- --------
Net cash used in operating activities (7,788) (520) --- (8,308)
-------- ------- ------- --------
Investing activities:
Net investment in fixed assets (5,305) (10) --- (5,315)
-------- ------- ------- --------
Net cash used in investing activities (5,305) (10) --- (5,315)
-------- ------- ------- --------
Financing activities:
Sale of preferred stock --- --- --- ---
Borrowings from revolving credit facility 18,250 --- --- 18,250
Repayments under revolving credit facility (4,250) --- --- (4,250)
Repayments under term loans 439 --- --- 439
Other (1,230) (106) --- (1,336)
-------- ------- ------- --------
Net cash provided by (used in) financing
activities 13,209 (106) --- 13,103
-------- ------- ------- --------
Effect of exchange rate changes on cash --- (10) --- (10)
-------- ------- ------- --------
Increase (decrease) in cash 116 (646) --- (530)
Cash and cash equivalents,
beginning of period 4,595 1,595 --- 6,190
-------- ------- ------- --------
Cash and cash equivalents,
end of period $ 4,711 $ 949 $ --- $ 5,660
======== ======= ======= ========
</TABLE>
29
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation (Predecessor Company)
Supplemental Condensed Consolidating Statement of Cash Flows Information
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net (loss) income $ (5,160) $ 607 $ (1,011) $ (5,564)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 12,210 883 --- 13,093
Provision for deferred income taxes --- 47 --- 47
Change in assets and liabilities:
Accounts receivable (4,441) (2,765) (2,053) (9,259)
Inventories 2,178 1,478 (104) 3,552
Other current assets 1,890 (72) 42 1,860
Accounts payable and accrued
liabilities (2,884) (293) 1,913 (1,264)
Advance billings 3,231 551 --- 3,782
Other assets and other (6,609) (591) 1,213 (5,987)
-------- ------- ---------- ---------
Cash provided by (used in) operating
activities 415 (155) --- 260
-------- ------- ---------- ---------
Investing activities:
Net investment in fixed assets (6,039) (113) --- (6,152)
-------- ------- ---------- ---------
Cash used in investing activities (6,039) (113) --- (6,152)
-------- ------- ---------- ---------
Financing activities:
Sale of Preferred Stock 20,000 --- --- 20,000
Borrowing from revolving credit facility 17,250 --- --- 17,250
Repayment under revolving credit facility (36,750) --- --- (36,750)
Other (536) (415) --- (951)
-------- ------- ---------- ---------
Cash used in financing activities (36) (415) --- (451)
-------- ------- ---------- ---------
Effect of exchange rate changes on cash --- (35) --- (35)
-------- ------- ---------- ---------
Decrease in cash (5,660) (718) --- (6,378)
Cash and cash equivalents,
beginning of period 10,114 1,613 --- 11,727
-------- ------- ---------- ---------
Cash and cash equivalents,
end of period $ 4,454 $ 895 $ --- $ 5,349
======== ======= ========== =========
</TABLE>
30
<PAGE>
7. COMPREHENSIVE LOSS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") as of January 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income and
its components.
Total comprehensive loss for the one and four months ending April 30, 2000
and three and six months ending June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
One Month Four Months Three Months Six Months
Ended Ended Ended Ended
April 30, 2000 April 30, 2000 June 30, 1999 June 30, 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $(14,866) $(28,221) $(1,398) $(5,564)
Foreign currency translation
adjustments (85) (188) (55) (169)
-------- -------- ------- -------
Total comprehensive loss $(14,951) $(28,409) $(1,453) $(5,733)
======== ======== ======= =======
</TABLE>
8. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Dictaphone has two reportable segments: System Products and Services, and
Contract Manufacturing. The System Products and Services segment consists of
the sale and service of system-related products to dictation and voice
management and communications recording system customers in selected vertical
markets. The Contract Manufacturing segment consists of the Manufacturing
Operations of Dictaphone which provides outside electronics manufacturing
services to original equipment manufacturers in the telecommunications, data
management, computer and electronics industries.
31
<PAGE>
8. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION (Continued)
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Dictaphone
evaluates performance based on profit or loss from operations before income
taxes, including nonrecurring gains and losses and foreign exchange gains
and losses.
Dictaphone Corporation (Predecessor Company)
Segment Profit and Loss and Assets
<TABLE>
<CAPTION>
System
Products & Contract
Services Manufacturing Total
---------- ------------- -----
<S> <C> <C> <C>
Revenue from external customers
One month ended April 30, 2000 $ 13,965 $ 3,348 $ 17,313
Three months ended June 30, 1999 72,760 12,900 85,660
Four months ended April 30, 2000 86,069 12,502 98,571
Six months ended June 30, 1999 145,023 23,248 168,271
Intersegment revenues
One month ended April 30, 2000 --- 1,750 1,750
Three months ended June 30, 1999 --- 9,360 9,360
Four months ended April 30, 2000 --- 9,428 9,428
Six months ended June 30, 1999 --- 19,887 19,887
Segment profit (loss)
One month ended April 30, 2000 (15,662) 270 (15,392)
Three months ended June 30, 1999 (2,217) 1,515 (702)
Four months ended April 30, 2000 (29,116) 374 (28,742)
Six months ended June 30, 1999 (7,312) 2,669 (4,643)
Segment assets
As of December 31, 1999 $416,523 $44,615 $461,138
</TABLE>
32
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1999 2000 1999 2000
---- ---- ---- ----
(in millions)
(unaudited)
<S> <C> <C> <C> <C>
Total revenue $85.7 $ 46.9 $168.3 $128.2
Cost of sales, rentals and support services 46.3 31.3 89.8 85.5
Selling and administrative expense (1) 27.6 48.3 57.8 76.7
Research and development 2.5 2.9 4.9 4.7
----- ------ ------ ------
Operating profit (loss) 9.3 (35.6) 15.8 (38.7)
----- ------ ------ ------
Net interest expense and other 10.0 11.2 20.5 21.5
Income tax (expense) benefit (0.7) 0.8 (0.9) 0.8
----- ------ ------ ------
Net loss $(1.4) $(46.0) $ (5.6) $(59.4)
===== ====== ====== ======
</TABLE>
_____________________
(1) Includes amortization of intangibles.
33
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 2000 1999 2000
---- ---- ---- ----
(in millions)
(unaudited)
<S> <C> <C> <C> <C>
Revenue from:
Sales:
Integrated Voice Systems $ 7.1 $ 4.7 $ 14.3 $ 9.8
Integrated Health Systems 16.8 4.6 29.5 18.9
----- ----- ------ ------
Total U.S. Voice Systems 23.9 9.3 43.8 28.7
----- ----- ------ ------
Communication Recording Systems 10.4 4.8 24.7 16.4
Customer Service Parts 4.0 3.9 7.9 7.1
International and Dealer Operations 9.9 5.7 19.7 15.4
Rentals 0.4 0.3 0.7 0.6
----- ----- ------ ------
Product Sales and Rentals 48.6 24.0 96.8 68.2
----- ----- ------ ------
Support Service:
Customer Service 20.8 16.7 41.6 40.8
Applications & Training Specialists 1.1 1.3 2.2 3.1
International and Dealer Operations 2.4 1.6 4.5 3.6
----- ----- ------ ------
Total support service 24.3 19.6 48.3 47.5
----- ----- ------ ------
Total System Products and Services 72.9 43.6 145.1 115.7
Contract Manufacturing 12.8 3.3 23.2 12.5
----- ----- ------ ------
Total Revenue $85.7 $46.9 $168.3 $128.2
===== ===== ====== ======
</TABLE>
Results of Operations - Second Quarter 2000 vs. Second Quarter 1999
Total revenue declined 45.3% to $46.9 million in the second quarter of 2000
from $85.7 million for the second quarter of 1999. This decline in revenue is
attributable to three factors: the adoption on May 1, 2000 of the business
practices and revenue recognition assumptions and estimates used by Lernout &
Hauspie (which reduced revenue by $10.8 million), the absence of Contract
Manufacturing revenue in May and June 2000 consistent with the decision to
dispose of Manufacturing Operations (which represented $7.1 million), as well as
the impact the Acquisition had on the Company's organizational structure and
product development process caused by management's focus on incorporating new
Lernout & Hauspie technology into the Company's products.
Integrated Voice Systems ("I.V.S.") revenue declined 33.8% to $4.7 million
due to lower desktop and portable, Enterprise Express(TM) and digital system
revenue. Integrated Health Systems ("I.H.S.") revenue decreased 72.6% to $4.6
million from $16.8 million due to lower Enterprise Express(TM) sales. Orders
for I.H.S. products declined 65.0% to $7.8 million versus the second quarter of
1999. Communications Recording Systems ("C.R.S.") revenue declined 53.8% to $4.8
million due to lower call center and recording equipment revenue. C.R.S. orders
of $10.6 million were 33.1% lower than the second quarter of 1999. Customer
Service revenue (including sale of parts) declined 16.9% to $20.6 million due to
lower hourly and installation revenue. Applications and Training Specialists
("A.T.S.") revenue increased 18.2% to $1.3 million due to increased training
provided in support of system products. Sales and support service revenue from
International and Dealer Operations declined 40.7% on lower system and C.R.S.
revenue.
Cost of sales, rentals and support services decreased 32.4% to $31.3
million (66.7% of revenue) in the second quarter of 2000 from $46.3 million
(54.0% of revenue) in the second quarter of 1999. The increase in cost of sales,
rentals and support services as a percentage of revenue is due primarily to
higher Customer Service costs and lower international margins.
34
<PAGE>
Selling and administrative expenses (including amortization of intangibles)
increased 75.0% to $48.3 million (103.0% of revenue) in the second quarter of
2000 from $27.6 million (32.2% of revenue) in the second quarter of 1999. This
increase is attributable to higher amortization expense associated with goodwill
from the Acquisition (+$13.9 million) and higher I.V.S., I.H.S., C.R.S. and
International selling expenses and higher information system costs.
Research and development expenses of $2.9 million (12.1% of product sales
and rental revenue) increased 16.0% from $2.5 million (5.2% of product sales and
rental revenue), reflecting increased staffing and compensation consistent with
major project development efforts.
The Company recorded an operating loss of $35.7 million (76.1% of revenue)
during the second quarter of 2000 compared to an operating profit of $9.3
million (10.9% of revenue) during the second quarter of 1999. This decline in
operating profit is attributable to the impact of the change in revenue
recognition, lower revenue and higher expense associated with the amortization
of intangibles and increased selling expense.
Results of Operations - Six Months 2000 vs. Six Months 1999
Total revenue for the first six months of 2000 of $128.2 million was 23.8%
lower than the first six months of 1999. As with the second quarter of 2000,
the major portion of the revenue decline was attributable to the adoption on May
1, 2000 of the business practices and revenue recognition assumptions and
estimates used by Lernout & Hauspie (which reduced revenue by $10.8 million),
the absence of Contract Manufacturing revenue in May and June 2000 consistent
with the decision to dispose of Manufacturing Operations (which represented $7.1
million), as well as the impact the Acquisition had on the Company's
organizational structure and product development process caused by management's
focus on incorporating new Lernout & Hauspie technology into the Company's
products.
I.V.S. revenue declined 31.5% due to lower billings of desktops, portables,
digital systems, Enterprise Express(TM) and Boomerang(TM). I.H.S. revenue
decreased 35.9% due to lower Enterprise Express(TM) revenue. Orders for I.H.S.
products decreased 44.0% to $20.3 million versus the first six months of 1999.
Order backlog for I.H.S. increased by $1.1 million to $13.0 million during the
first six months of 2000. C.R.S. revenue declined 33.6% due to lower
installation of recording and call center equipment. C.R.S. orders of $20.8
million were 28.1% lower than the first six months of 1999. C.R.S. order backlog
increased by $4.4 million to $14.2 million during the period. Customer Service
revenue was 3.2% lower than the prior year due to reduced third party
maintenance, warranty and installation revenue. Revenue from International and
Dealer Operations declined 21.5% due to lower Canadian C.R.S. and systems
revenue, lower service revenue in the U.K., lower systems revenue in Europe and
lower C.R.S. revenue in Asia and Latin America.
Cost of sales, rentals and support services decreased 4.8% to $85.5 million
(66.7% of revenue) from $89.8 million (53.4% of revenue) for the first six
months of 1999. The decline in cost of sales, rentals and support services is
attributable to the impact of lower revenue, the absence of Contract
Manufacturing costs for May and June 2000, partially offset by a non-cash charge
of $9.2 million recorded in the first quarter of 2000 associated with the
provision for excess field service parts and inventory related to products
recently replaced by the newly introduced Freedom(TM) product. With the
production of Freedom(TM) in the first quarter of 2000, the Company provided for
excess inventory associated with those products that the Freedom(TM) product
would replace, recording this charge as an inventory provision.
Selling and administrative expenses (including amortization of intangibles)
increased 32.7% to $76.7 million (59.8% of revenue) in the first six months of
2000 from $57.8 million (34.3% of revenue) in the first six months of 1999.
This increase is attributable to higher amortization expense associated with
goodwill from the Acquisition (+$12.8 million), as well as higher I.H.S., C.R.S.
and International selling expenses.
35
<PAGE>
Research and development expenses of $4.7 million (6.9% of product sales and
rental revenue) declined 4.1% from $4.9 million (5.1% of product sales and
rental revenue).
The Company recorded an operating loss of $38.7 million (30.2% of revenue)
during the first six months of 2000 compared to an operating profit of $15.8
million (9.4% of revenue) during the first six months of 1999. This decline in
operating profit is attributable to the change in revenue recognition, lower
revenue and higher amortization expense and higher I.H.S., C.R.S. and
International selling expenses.
Liquidity and Capital Resources
In May 2000, Lernout & Hauspie acquired the Company in a merger with a wholly
owned subsidiary of Lernout & Hauspie. As part of the Acquisition of the
Company, Lernout & Hauspie obtained $430 million in credit facilities (the "L&H
Revolving Credit Facility") to pay a portion of the purchase price, to repay
certain Dictaphone liabilities and for general corporate purposes. The L&H
Revolving Credit Facility consists of a short-term facility due March 31, 2001,
of $200 million at LIBOR plus 100 basis points and a five-year declining balance
facility of $230 million at LIBOR plus 175 basis points. Borrowings under the
five-year declining balance facility are for renewable terms of up to six months
and therefore will be accounted for as short-term debt. On May 5, 2000, with
funds advanced by Lernout & Hauspie in the amount of approximately $223 million,
the Company repaid the outstanding Term Loans and the loan outstanding under the
Revolving Credit Facility and retired all of the outstanding 14% PIK Preferred
Stock, made payments to holders of options to acquire stock of the Company as
required to close the Acquisition, and made certain other closing payments. Of
the $223 million advance, $50 million has been treated as a capital contribution
and $173 million has been treated as an intercompany loan. The loan bears
interest at 8% per annum, is due and payable on May 5, 2002 and is unsecured. In
connection with the Acquisition by Lernout & Hauspie, the Company established a
$20 million line of credit (the "Line of Credit") with Deutsche Bank. At June
30, 2000, availability under the Line of Credit was $3.5 million.
The Company had $200.0 million of Notes outstanding as of June 30, 2000. As
a result of the Acquisition, the Noteholders had the option to put the Notes to
the Company. In July 2000, holders of $41.6 million of Notes exercised that
right, and those Notes were redeemed. The Notes provide for each noteholder to
have the right to require that the Company repurchase the Notes at 101% of the
principal amount upon a change of control (as defined in the Note Indenture).
The L&H Revolving Credit Facility was used to fund the repurchase of the Notes.
The Notes bear interest of 11 3/4% per annum, payable semi-annually on each
February 1 and August 1. The Notes mature on August 1, 2005.
Capital expenditures for the first six months of 2000 totalled $6.2 million.
The Company's quarterly revenues and other operating results have been and
will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's financial performance during any
particular quarter. Such factors include, but are not limited to, the level of
orders that are received and shipped by the Company in any given quarter, the
rescheduling and cancellation of orders by customers, the availability and cost
of materials, the Company's ability to enhance its existing products and to
develop, manufacture and successfully introduce and market new products, new
product developments by the Company's competitors, market acceptance of products
of both the Company and its competitors, competitive pressures on prices, the
ability to attract and retain qualified technical personnel, significant damage
to or prolonged delay in operations at the Company's sole manufacturing
facility, and
36
<PAGE>
interest rate and foreign exchange fluctuations. The Company introduced a
number of new products in its target markets in 1997, 1998 and 1999 which are
expected to enhance future revenues and liquidity of the Company. However,
there can be no assurance that the Company will be able to implement its plans
to introduce such products in a timely fashion, or that such products will meet
the expectations of the Company for either revenues or profitability.
The Company may, from time to time, provide estimates as to future
performance. Such estimates would be "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Because such statements include risks and
uncertainties, actual results may differ materially from those estimates
provided. The Company undertakes no duty to update such forward-looking
statements. Factors that could cause actual results to differ from these
forward-looking statements include, but are not limited to, those previously
discussed herein.
37
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See Note 6 to the Company's Condensed Consolidated Statements of Operations
(Successor Company) (Unaudited) which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
27 -- Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
On June 5, 2000, the Company filed a Current Report on Form 8-K,
reporting under Item 4 thereof, regarding changes in the Company's
certifying accountant from Deloitte & Touche LLP to KPMG LLP. The
Company's Board of Directors decided to change auditors as a result of
the Acquisition of the Company by Lernout & Hauspie.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 21, 2000 Dictaphone Corporation
--------------------------------------
(Registrant)
By: /s/ John H. Duerden
--------------------------------------
Name: John H. Duerden
Title: President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ George M. Carpenter
--------------------------------------
Name: George M. Carpenter
Title: Assistant Secretary and
Chief Accounting Officer
(Principal Financial and Accounting
Officer)
39
<PAGE>
EXHIBIT INDEX
Exhibits Description
-------- -----------
27 -- Financial Data Schedule.
