-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqWR4f3rvOTow9C9p1o+VadJ7MTgvqJze6wXRKnoukGQep+v1FHvOIF4lgrAI/lZ t/Jq36/nAX935UfqHwsARA== 0000002601-99-000004.txt : 19990506 0000002601-99-000004.hdr.sgml : 19990506 ACCESSION NUMBER: 0000002601-99-000004 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990225 ITEM INFORMATION: FILED AS OF DATE: 19990505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROFLEX INC CENTRAL INDEX KEY: 0000002601 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 111974412 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-08037 FILM NUMBER: 99611180 BUSINESS ADDRESS: STREET 1: 35 S SERVICE RD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 5166946700 MAIL ADDRESS: STREET 1: 35 S SERVICE ROAD CITY: PLAINVIEW STATE: NY ZIP: 11803 FORMER COMPANY: FORMER CONFORMED NAME: ARX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AEROFLEX LABORATORIES INC DATE OF NAME CHANGE: 19851119 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: February 25, 1999 (Date of earliest event reported) Aeroflex Incorporated - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-8037 11-1974412 - -------------------------------------------------------------------------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification incorporation) Number) 35 South Service Road, Plainview, New York 11803 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (516) 694-6700 -------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits ----------------------------------------- (a) Financial Statements of Business Acquired ----------------------------------------- Audited financial statements of the Integrated Circuits Business unit of UTMC Microelectronic Systems, Inc. (a wholly-owned subsidiary of United Technologies Corporation ("UTC")) as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998. Prior to the acquisition, UTMC distributed by dividend to UTC the assets and UTC assumed the liabilities of the Circuit Card Assembly ("CCA") portion of UTMC's business. UTMC, at acquisition, consisted of only the Integrated Circuits Business. The audited financial statements do not include the assets distributed to UTC, the liabilities assumed by UTC or the results of operations or cash flows of the CCA Business. (b) Pro Forma Financial Information (Unaudited) ------------------------------------------- Pro Forma Balance Sheet - Aeroflex Incorporated and Subsidiaries as of December 31, 1998 Pro Forma Statements of Operations - Aeroflex Incorporated and Subsidiaries for the year ended June 30, 1998 - Aeroflex Incorporated and Subsidiaries for the six months ended December 31, 1998 Notes to Pro Forma Financial Statements (c) Exhibits -------- None SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aeroflex Incorporated By: /s/ Michael Gorin ------------------------------------- Michael Gorin President and Chief Financial Officer Date: May 5, 1999 Integrated Circuits Business unit of UTMC Microelectronic Systems, Inc. (A wholly-owned subsidiary of United Technologies Corporation) Financial Statements December 31, 1998 and 1997 Report of Independent Accountants February 25, 1999 To the Board of Directors and Shareowner of UTMC Microelectronic Systems, Inc. In our opinion, the accompanying balance sheets and the related statements of income and of cash flows present fairly, in all material respects, the financial position of the Integrated Circuits Business unit of UTMC Microelectronic Systems, Inc. (a wholly-owned subsidiary of United Technologies Corporation) at December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the management of UTMC Microelectronic Systems, Inc.; our responsibility is to express an opinion on these statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements relate to the operations of Integrated Circuits Business unit of UTMC Microelectronic Systems, Inc. Therefore, such financial statements are not necessarily indicative of the financial position, results of operations and cash flows of the Integrated Circuits Business unit of UTMC Microelectronic Systems, Inc. in the future or indicative of the results that would have been reported if the Integrated Circuits Business unit of UTMC Microelectronic Systems, Inc had operated as a separate entity. /s/ PricewaterhouseCoopers LLP Balance Sheets (Dollar amounts in thousands) - -----------------------------------------------------------------------------
December 31, 1998 1997 Assets Current Assets: Cash $ 39 $ 34 Accounts receivable 5,184 3,455 Inventories, net 7,135 9,228 Deferred income taxes 3,189 2,731 Prepaid expenses 111 86 ---------- ---------- Total current assets 15,658 15,534 ---------- ---------- Property, plant and equipment, net 15,305 15,023 Deferred income taxes 610 922 ---------- ---------- Total Assets $ 31,573 $ 31,479 ========== ========== Liabilities and Parent Company Investment: Current Liabilities: Accounts payable $ 1,054 $ 1,415 Accrued expenses 1,634 1,169 ---------- ---------- Total current liabilities 2,688 2,584 Other liabilities 68 - ---------- ---------- Total Liabilities 2,756 2,584 ---------- ---------- Commitments and contingencies (Note 10) Parent company investment 28,817 28,895 ---------- ---------- Total Liabilities and Parent Company Investment $ 31,573 $ 31,479 ========== ========== See accompanying notes to the financial statements.
Statements of Income (Dollar amounts in thousands) - --------------------------------------------------------------------------------
For the years ended December 31, 1998 1997 1996 Sales $ 28,966 $ 37,359 $ 35,675 Sales to affiliates 4,447 4,190 3,296 ---------- ---------- ---------- Total sales 33,413 41,549 38,971 Cost of goods sold 12,498 16,371 19,427 ---------- ---------- ---------- Gross profit 20,915 25,178 19,544 Research and development expenses 8,218 6,859 7,634 Selling and marketing expenses 4,840 4,940 4,943 General and administrative expenses 2,254 2,204 3,509 ---------- ---------- ---------- Operating income 5,603 11,175 3,458 Other income (expense) Other income (expense), net (14) 4 71 Loss on sale/disposal of fixed assets (65) (1,705) (126) ---------- ---------- ---------- Income before provision for income taxes 5,524 9,474 3,403 Provision for income taxes 2,166 3,682 1,357 ---------- ---------- ---------- Net Income $ 3,358 $ 5,792 $ 2,046 ========== ========== ========== See accompanying notes to the financial statements.
Statements of Cash Flows (Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------ For the years ended December 31, 1998 1997 1996 Cash flows from operating activities Net income $ 3,358 $ 5,792 $ 2,046 Adjustments to reconcile net income to net cash provided by operating activities Deferred income tax provision (146) 243 1,383 Depreciation 1,575 1,407 1,152 Provision for obsolescence 1,126 974 2,784 Loss on disposal of property, plant and equipment 65 1,705 126 Changes in operating assets and liabilities Accounts receivable (1,729) 963 (643) Inventories 967 2,930 (6,802) Prepaid expenses (25) 227 144 Accounts payable (361) (1,079) 2,011 Accrued expenses 465 (1,073) (1,771) Other liabilities 68 (3,802) 49 --------- ---------- ---------- Net cash provided by operating activities 5,363 8,287 479 --------- ---------- ---------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 1 4,275 - Purchase of property, plant and equipment (1,923) (16,888) (3,542) --------- ---------- ---------- Net cash used for investing activities (1,922) (12,613) (3,542) --------- ---------- ---------- Cash flows from financing activities Change in Parent company investment (3,436) 4,327 3,068 --------- ---------- ---------- Net increase in cash 5 1 5 Cash, at beginning of period 34 33 28 --------- ---------- ---------- Cash, at end of period $ 39 $ 34 $ 33 ========= ========== ========== See accompanying notes to the financial statements.
Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 1. Basis of Presentation and Organization Pursuant to a Stock Purchase Agreement dated February 25, 1999 (Agreement) between United Technologies Corporation (UTC) and Aeroflex, Inc. (Aeroflex), the operations comprising the Integrated Circuits Business unit (the IC Business) of UTMC Microelectronic Systems, Inc. (UTMC), a wholly-owned subsidiary of UTC, were sold to Aeroflex effective February 25, 1999. Under the terms of the Agreement, substantially all of the assets and liabilities of the IC Business were sold with the exception of the following: - Inventories of silicon wafers that are identified for, and uniquely suitable for, manufacture and incorporation into the products of Hamilton Standard (HS), a division of UTC, and all intellectual property or other data necessary for the design and manufacture and incorporation thereof; - All related party receivables and payables between the IC Business and its affiliates; and - Certain liabilities related to retirement benefits, welfare, workers compensation and other employee benefits. Prior to 1997, UTMC was comprised of one business unit, the IC Business. In 1997 and subsequently, UTMC was comprised of two business units, the IC Business and the Circuit Card Assembly Business (the CCA Business). Throughout the period covered by the financial statements, UTMC was conducted and accounted for as an operating unit of HS. Historically, separate financial statements were not prepared for UTMC or the IC Business. These financial statements were derived from the historical accounting records of UTMC, and do not reflect the impact of the Agreement, with the exception of excluding the assets and liabilities discussed above. The excluded assets and liabilities were eliminated by a corresponding adjustment to the Parent company investment account. Changes in indebtedness between UTC and the IC Business are also reflected in the Parent company investment account in the accompanying Balance Sheets. The preparation of these financial statements required certain carve-out adjustments to derive the total revenues, expenses, assets and liabilities of the IC Business. Such adjustments have not been reflected in the books and accounting records of UTMC but are necessary to fairly reflect the actual historical results of the IC Business. The IC Business financial statements include all costs directly associated with the IC Business operations such as cost of goods sold, research and development, and sales and marketing. Additionally, certain costs have been incurred by UTMC that have been allocated among its two business units, one of which is the IC Business. These costs relate to support and administrative functions and Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 1. Basis of Presentation and Organization (Continued) are allocated to the IC Business based on the ratio of the IC Business' total directly identified costs as compared to the total directly identified costs of UTMC. Certain costs related to employee benefit programs, including employee insurance programs, are incurred by UTC and allocated to UTMC. These allocated costs are charged to UTMC and recorded as an offsetting credit in the Parent company investment account. The costs related to employee benefit programs are allocated to UTMC on an actuarial basis utilizing participant and plan design data. Furthermore, HS provides certain services related to information systems support, centralized accounting functions, legal and quality control as well as administrative management. The cost of these services are allocated based on the ratio of the sum of a) net assets of UTMC as of the beginning of the year; b) projected sales of UTMC for the year; and c) projected payroll of UTMC for the year to the sum of the same factors for all HS divisions. All of the allocations and estimates in the IC Division financial statements are based on assumptions that UTC, HS and UTMC management believes are reasonable under the circumstances. The IC Business' financial statements are not necessarily indicative of the financial position, results of operations and cash flows of the IC Business in the future or indicative of the results that would have been reported. The IC Business is engaged in developing, manufacturing, marketing and distributing integrated circuits for the aerospace and defense industry in the United States and Canada. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Risks and Uncertainties The business environment in which the IC Business operates is subject to rapidly changing conditions. Certain assets include estimates that are particularly sensitive to changes in the near term. Inventories and related specialized manufacturing equipment may be subject to such rapid technological change. Revenue Recognition Revenue from product sales is recorded at shipment. Revenue from non-recurring engineering contracts is recorded using the completed contract method. Such contracts are considered completed when the prototype is shipped. Prospective losses, if any, on these contracts are provided for Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 2. Summary of Significant Accounting Policies (Continued) when losses are anticipated. Subject to certain restrictions, the IC Business warrants its products for defects in materials and workmanship for a period of one year. Accruals for estimated future product warranty costs are provided at the time sales are recognized based upon the IC Business historical claim experience. Inventories Inventories include direct material, direct labor and manufacturing overhead and are accounted for at the lower-of-cost or market using the standard cost method, which approximated actual. The IC Business evaluates the need for reserves associated with obsolete, slow-moving and non-saleable inventory by estimating net realizable values. Inventoried costs in excess of requirements for contracts and current or anticipated orders have been reserved and written-off in the periods that such inventory was considered obsolete based on projected usage during the foreseeable future. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line basis over the following estimated useful lives: Building and improvements 20 to 40 years Furniture and fixtures 10 years Office equipment 3 to 5 years Machinery and equipment 5 years
Maintenance and repairs are expensed as incurred. Depreciation expense was $1,575, $1,407 and $1,152 for the year ended December 31, 1998, 1997 and 1996, respectively. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and the net gain or loss is included in the determination of net income. Research and Development Research and development costs not specifically covered by contracts are charged to expense as incurred. Income Taxes UTMC was included in the consolidated U.S. federal income tax return of UTC. Under an agreement with UTC, income taxes are allocated to members of the consolidated group based upon amounts they would pay or receive as if they filed a separate income tax return. The provision for income taxes of the IC Business has been prepared as if a separate U.S. federal income tax Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 2. Summary of Significant Accounting Policies (Continued) return had been prepared for such business on a stand-alone basis. Deferred income taxes are provided on the differences in the book and tax bases of assets and liabilities at the statutory tax rates expected to be in effect when such differences are reversed. A valuation allowance is provided on the tax benefits otherwise associated with certain tax attributes unless it is considered more likely than not that the benefits will be realized. UTC incurs federal and certain state taxes on behalf of UTMC with an allocation of such taxes to the IC Business. The financial statements of the IC Business reflect the charge or benefit related to the income taxes in the Parent company investment account. UTC prepares a combined state income tax return in unitary states. State taxes were allocated to UTMC with an allocation to the IC Business based on this unitary filing. UTMC files a stand-alone return in Colorado where it has accumulated significant net operating loss carryforwards. See further discussion of the state net operating loss carryforwards in Note 8. Fair Value of Financial Instruments The carrying amounts of the IC Business financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, approximate fair value. Long-Lived Assets The IC Business evaluates the carrying value of its long-lived assets under the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). In accordance with SFAS 121, when appropriate, the IC Business estimates the future undiscounted cash flows of the operations to which the long-lived assets relate to ensure that the carrying value has not been impaired. Management believes no such impairment exists at December 31, 1998 or 1997. Significant Customers The IC Business had direct sales to a customer that accounted for $8,288 and $4,989 of total sales for the years ended December 31, 1997 and 1996. No other customers accounted for more than 10% of total sales for any periods presented. 3. Supplemental Cash Flow Information
Years ended December 31, 1998 1997 1996 Cash paid for income taxes $ 2,312 $ 3,439 $ (26) ========= ========== ========
The amounts shown above represent those amounts charged to the IC Business through the Parent company investment account. Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 4. Related Party Transactions Corporate Services The financial statements include significant transactions with HS involving functions and services that were provided to UTMC and allocated to the IC Business. These services include information systems support, certain centralized accounting functions, legal services and quality control. The costs of these functions and services allocated to the IC Business was approximately $716, $665 and $677 for the years ended December 31, 1998, 1997 and 1996, respectively. Centralized Treasury Functions and Financing UTC provides centralized treasury functions and financing, including all investing and borrowing activities for UTMC. As part of this practice, surplus cash is remitted to UTC and UTC advances cash, as necessary, to UTMC. No interest is charged or paid on the net Parent company investment amount. A reconciliation of the Parent company investment account activity for the IC Business for the period is as follows:
Years ended December 31, 1998 1997 1996 Balance, beginning of year $ 28,895 $ 18,776 $ 13,662 Net income 3,358 5,792 2,046 Net inter-company transactions (3,436) 4,327 3,068 ----------- ----------- ----------- Balance, end of year $ 28,817 $ 28,895 $ 18,776 =========== =========== ===========
Tax Arrangement See discussion in Note 2 under Income Taxes. Insurance Programs UTMC participates in UTC developed and administered employee insurance programs, including group medical, workers compensation, property, general and product liability coverage. Costs allocated to the IC Business relating to these programs was approximately $841, $955 and $907 for the years ended December 31, 1998, 1997 and 1996, respectively. Under these insurance programs, any group company submitting a claim would be liable to pay any deductible amount required under the policy coverage, depending upon type. It is likely that as a separate company, the IC Business would be subject to differing levels of insurance premiums, coverages and deductibles. However, management is not able to estimate what the expense would have been if the IC Business had operated as an unaffiliated entity. Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 4. Related Party Transactions (Continued) Employee pension plans The IC Business participates in two defined benefit pension plans covering substantially all employees. For salaried employees, plan benefits are generally based on years of service and the employees compensation during the last several years of employment. For hourly employees, plan benefits are generally based on years of service and the benefit level established by UTC. For purposes of the financial statements, the IC Business is considered to be a participant in multi-employer plans. Such costs and plan administrative costs allocated to the IC Business, approximated $339, $422 and $778 for the years ended December 31, 1998, 1997 and 1996, respectively. These balances are considered settled as accrued through the Parent company investment account. As discussed in Note 1, the liability as of December 31, 1998 is excluded from the sale of the IC Business. Employee savings plan The IC Business participates in UTCs Employee Stock Ownership Plan. The amounts expensed relative to the IC Business employees participation in that plan totaled $297, $288 and $305 for the years ended December 31, 1998, 1997 and 1996, respectively. These balances are considered settled as accrued through the Parent company investment account. As discussed in Note 1, the liability as of December 31, 1998 is excluded from the sale of the IC Business. 5. Inventories
December 31, 1998 1997 Raw materials $ 9,747 $ 12,049 Work-in-process 872 523 Contract costs 359 231 Finished goods 3,657 2,799 ---------- ---------- 14,635 15,602 Less: Inventory reserves 7,500 6,374 ---------- ---------- $ 7,135 $ 9,228 ========== ==========
Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 6. Property, Plant and Equipment
December 31, 1998 1997 Land $ 1,296 $ 1,296 Building and improvements 11,484 11,437 Machinery and equipment 24,787 23,061 Furniture and fixtures 1,796 1,754 Construction in-progress 372 357 ---------- ---------- 39,735 37,905 Less: Accumulated depreciation 24,430 22,882 ---------- ---------- $ 15,305 $ 15,023 ========== ==========
7. Accrued Expenses
December 31, 1998 1997 Payroll and employee related $ 896 $ 785 Customer advances 406 - Warranty 100 100 Property and other taxes 207 251 Other 25 33 ---------- ---------- $ 1,634 $ 1,169 ========== ==========
Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 8. Income Taxes The provision for income taxes consists of the following:
Years ended December 31, 1998 1997 1996 Current taxes Federal $ 2,262 $ 3,390 $ (106) State (unitary only) 50 49 80 ---------- ---------- --------- 2,312 3,439 (26) ---------- ---------- --------- Deferred taxes Federal (428) (228) 1,206 State (non unitary) 282 471 177 ---------- ---------- --------- (146) 243 1,383 ---------- ---------- --------- Provision for income taxes $ 2,166 $ 3,682 $ 1,357 ========== ========== =========
A reconciliation of income taxes determined using the federal statutory rate of 35% to actual income taxes provided is as follows:
Years ended December 31, 1998 1997 1996 Income before provision for income taxes $ 5,524 $ 9,474 $ 3,403 Taxes at U.S. federal statutory rate 1,933 3,316 1,191 State income taxes, net of federal benefit 219 338 165 Other, nondeductible items 14 28 1 ---------- ---------- --------- $ 2,166 $ 3,682 $ 1,357 =========== ========== =========
Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 8. Income Taxes (Continued) Temporary differences and carryforwards that gave rise to a significant portion of deferred tax assets and liabilities are as follows:
December 31, 1998 1997 Inventory reserves $ 3,000 $ 2,550 Colorado state net operating loss carryforwards 8,872 9,106 Employee related liabilities 245 214 Warranty and other reserves 40 40 Other 57 53 --------- --------- Gross deferred tax assets 12,214 11,963 Valuation allowance (8,053) (8,053) --------- --------- Deferred tax assets 4,161 3,910 Depreciation 360 254 Other 2 3 --------- --------- Deferred tax liabilities 362 257 --------- --------- Net deferred tax asset $ 3,799 $ 3,653 ========= =========
At December 31, 1998, the IC Business had Colorado state net operating loss carryforwards of $190,301 which expire between 1999 and 2011. Based on the earnings performance of the past three years and the projected profitability in the future, management believes that it is more likely than not that the IC Business will continue to generate taxable income sufficient to realize a portion of the tax benefit associated with the Colorado state net operating loss carryforwards prior to their expiration. Management has placed a valuation allowance against the net operating loss carryforwards due to certain limitations caused by the possible change in ownership. Management did not include a valuation allowance against the non-limited Colorado net operating losses or the deferred tax assets in any prior periods. If the IC Business is unable to generate sufficient taxable income in the future through operating results, increases in the valuation allowance will be required through a charge to income. The Colorado state net operating losses are shown as a deferred tax asset, net of federal benefit. Notes to Financial Statements (Dollar amounts in thousands) - -------------------------------------------------------------------------------- 9. Loss on Sale of Building During 1997, UTMC exercised its option to purchase a building subleased to a third party. The total purchase price of the building was $4,316. The agreement reached with the lessor also required UTMC to pay $3,807 to the lessor representing the amount of rent accrued on a straight-line basis in excess of the cash payments since the inception of the lease. The building and related land were resold, during 1997, for $4,275, net of closing costs, resulting in a loss of $1,705. 10. Commitments UTMC has various lease agreements for office space and equipment. These lease agreements expire at various dates through October 2000. Future minimum rental payments allocated to the IC Business at December 31, 1998 are $54 and $23 in 1999 and 2000, respectively. Total rental expense allocated to the IC Business for the years ended December 31, 1998, 1997 and 1996 was $182, $336 and $1,181, respectively. In conjunction with the sale of the IC Business, a facilities lease and services agreement has been executed between HS and Aeroflex. The agreement provides HS with facilities space for a limited period of time. The agreement also provides for certain transition services to be provided by HS and provides for certain staff support for the CCA Business to be provided by Aeroflex for a limited period of time. The total lease and net services fee to be paid by HS is $6,000 payable in twenty-four equal monthly installments. The agreement expires in February 2001. AEROFLEX INCORPORATED AND SUBSIDIARIES -------------------------------------- PRO FORMA BALANCE SHEET (Unaudited) ----------------------------------- The following pro forma balance sheet (unaudited) adjusts the historical consolidated balance sheet of Aeroflex Incorporated and subsidiaries as of December 31, 1998 for the effects of the acquisition of the Integrated Circuit Business unit of UTMC Microelectronic Systems, Inc. The acquisition has been accounted for under the purchase method of accounting. The pro forma balance sheet gives effect to the acquisition described in Item 2 of the Form 8-K filed on February 25, 1999, as if it had occurred on December 31, 1998. The balance sheet should be read in conjunction with the notes to the pro forma financial statements. AEROFLEX INCORPORATED AND SUBSIDIARIES -------------------------------------- PRO FORMA BALANCE SHEET (UNAUDITED) ----------------------------------- REFLECTING THE ACQUISITION OF THE INTEGRATED CIRCUIT BUSINESS ------------------------------------------------------------- UNIT OF UTMC MICROELECTRONIC SYSTEMS, INC. ------------------------------------------ DECEMBER 31, 1998 (In thousands, except per share amounts)
Historical Acquisition Pro Forma Pro Forma of UTMC(1) Adjustments(2) Results ASSETS Current assets: Cash and cash equivalents $ 21,402 $ 39 $ (21,100) $ 341 Accounts receivable, net 24,467 5,184 29,651 Inventories 29,359 7,135 36,494 Deferred income taxes 2,283 3,189 5,472 Prepaid expenses and other current assets 2,222 111 2,333 ---------- ---------- ---------- ---------- Total current assets 79,733 15,658 (21,100) 74,291 Property, plant and equipment, net 29,111 15,305 5,386 49,802 Intangible assets acquired in connection with the purchase of businesses, net 8,118 6,300 14,418 Costs in excess of fair value of net assets of businesses acquired, net 9,862 2,316 12,178 Other assets 3,267 100 3,367 ---------- ---------- ---------- ---------- Total assets $ 130,091 $ 30,963 $ (6,998) $ 154,056 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,777 $ $ 5,000 $ 6,777 Accounts payable 5,145 1,054 6,199 Accrued expenses and other current liabilities 10,627 1,634 12,261 Income taxes payable 2,108 2,108 ---------- ---------- ---------- ---------- Total current liabilities 19,657 2,688 5,000 27,345 ---------- ---------- ---------- ---------- Long-term debt 13,287 17,000 30,287 ---------- ---------- ---------- ---------- Deferred income taxes 982 (610) 3,319 3,691 ---------- ---------- ---------- ---------- Other long-term liabilities 2,513 68 2,581 ---------- ---------- ---------- ---------- Stockholders' equity: UTMC equity 28,817 (28,817) - Common stock, par value $.10 per share; authorized 25,000 shares; issued 17,706 shares 1,771 1,771 Additional paid-in capital 102,335 102,335 Accumulated deficit (10,110) (3,500) (13,610) ---------- ---------- ---------- ---------- 93,996 28,817 (32,317) 90,496 Less: Treasury stock, at cost (39 shares) 344 344 ---------- ---------- ---------- ---------- 93,652 28,817 (32,317) 90,152 ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity $ 130,091 $ 30,963 $ (6,998) $ 154,056 ========== ========== ========== ========== (1) (2) See notes to pro forma financial statements.
AEROFLEX INCORPORATED AND SUBSIDIARIES -------------------------------------- PRO FORMA STATEMENTS OF OPERATIONS (Unaudited) --------------------------------------------- The following pro forma statements of operations (unaudited) adjust the historical consolidated statements of operations of Aeroflex Incorporated and subsidiaries for the year ended June 30, 1998 and for the six months ended December 31, 1998 for the effects of the acquisition of the Integrated Circuit Business unit of UTMC Microelectronic Systems, Inc. ("UTMC") on February 25, 1999. The acquisition of UTMC was accounted for under the purchase method of accounting. The pro forma statements of operations give effect to the acquisition described in Item 2 of the Form 8-K filed on February 25, 1999, as if it had occurred on July 1, 1997. The pro forma statements of operations do not purport to be indicative of the operating results that would have been achieved had the acquisition been effected on the dates indicated, are not necessarily indicative of future operating results and should not be used as a forecast of future operations. These statements should be read in conjunction with the notes to the pro forma financial statements. AEROFLEX INCORPORATED AND SUBSIDIARIES -------------------------------------- PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED) --------------------------------------------- REFLECTING THE ACQUISITION OF THE INTEGRATED CIRCUIT BUSINESS ------------------------------------------------------------- UNIT OF UTMC MICROELECTRONIC SYSTEMS, INC. ------------------------------------------ YEAR ENDED JUNE 30, 1998 ------------------------ (In thousands, except per share amounts)
Historical Acquisition Pro Forma ProForma of UTMC Adjustments(3) Results after Acquisition Sales $ 118,861 $ 36,510 $ $ 155,371 Cost of sales 77,286 10,477 (168) 87,595 --------- ---------- ---------- ---------- Gross profit 41,575 26,033 168 67,776 Selling, general and administrative costs 21,545 6,671 987 29,203 Research and development costs 5,172 8,707 13,879 --------- ---------- ---------- ---------- Operating income 14,858 10,655 (819) 24,694 --------- ---------- ---------- ---------- Other expense (income) Interest expense 2,011 2,608 4,619 Interest and other expense (income) (309) 1,776 (4) 380 1,847 --------- ---------- ---------- ---------- Total other expense (income) 1,702 1,776 2,988 6,466 --------- ---------- ---------- ---------- Income before income taxes 13,156 8,879 (3,807) 18,228 Provision for income taxes 4,750 3,451 (1,240) 6,961 --------- ---------- ---------- ---------- Net income $ 8,406 $ 5,428 $ (2,567) $ 11,267 ========= ========== ========== ========== Net income per common share Basic $ .57 $ .76 ===== ===== Diluted $ .51 $ .69 ===== ===== Weighted average number of common shares outstanding Basic 14,802 14,802 ========= ========== Diluted 16,527 16,527 ========= ========== (3) See notes to pro forma financial statements. (4) Consists primarily of a loss on sale of land and building.
AEROFLEX INCORPORATED AND SUBSIDIARIES -------------------------------------- PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED) ---------------------------------------------- REFLECTING THE ACQUISITION OF THE INTEGRATED CIRCUIT BUSINESS ------------------------------------------------------------- UNIT OF UTMC MICROELECTRONIC SYSTEMS, INC. ------------------------------------------ SIX MONTHS ENDED DECEMBER 31, 1998 ---------------------------------- (In thousands, except per share amounts)
Historical Acquisition Pro Forma Pro Forma of UTMC Adjustments(3) Results Sales $ 67,826 $ 16,301 $ $ 84,127 Cost of sales 44,299 7,413 (84) 51,628 --------- --------- --------- --------- Gross profit 23,527 8,888 84 32,499 Selling, general and administrative costs 11,392 3,753 494 15,639 Research and development costs 4,294 3,371 7,665 --------- --------- --------- --------- Operating income 7,841 1,764 (410) 9,195 --------- --------- --------- --------- Other expense (income) Interest expense 567 700 1,267 Interest and other expense (income) (544) 7 540 3 --------- --------- --------- --------- Total other expense (income) 23 7 1,240 1,270 --------- --------- --------- --------- Income before income taxes 7,818 1,757 (1,650) 7,925 Provision for income taxes 2,750 700 (531) 2,919 --------- --------- --------- --------- Net income $ 5,068 $ 1,057 $ (1,119) $ 5,006 ========= ========= ========= ========= Net income per common share Basic $ .29 $ .29 ===== ===== Diluted $ .27 $ .27 ===== ===== Weighted average number of common shares outstanding Basic 17,523 17,523 ========= ========= Diluted 18,751 18,751 ========= ========= (3) See notes to pro forma financial statements.
AEROFLEX INCORPORATED AND SUBSIDIARIES -------------------------------------- NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited) -------------------------------------------------- A. BASIS OF PRESENTATION --------------------- The accompanying pro forma financial statements (unaudited) present the financial position and results of operations of Aeroflex Incorporated and subsidiaries ("ARX") giving effect to the acquisition of UTMC Microelectronic Systems, Inc. ("UTMC"). Prior to the acquisition, UTMC distributed by dividend to its parent, United Technologies Corporation ("UTC"), the assets and UTC assumed the liabilities of the Circuit Card Assembly ("CCA") portion of UTMC's business. UTMC, at acquisition, consisted of only the Integrated Circuit Business. The pro forma financial statements do not include the assets distributed to UTC, the liabilities assumed by UTC or the results of operations of the CCA Business. The acquisition of UTMC by ARX was accounted for as a purchase and accordingly, the purchase price was allocated to the assets and liabilities of UTMC based on their fair values at February 25, 1999 (the date of acquisition). For the purpose of the pro forma balance sheet and the pro forma statements of operations, it is assumed that the acquisition occurred on December 31, 1998 and July 1, 1997, respectively. The pro forma statements of operations for the year ended June 30, 1998 and for the six months ended December 31, 1998 do not include a one-time charge of $3,500,000 which was recorded upon acquisition to reflect the write-off of the purchase price allocated to acquired in- process research and development. B. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS ------------------------------------- The pro forma financial statements of ARX give effect to the following pro forma adjustments and assumptions: 1. To record the acquisition of UTMC stock by ARX as described in Item 2 on Form 8-K filed on February 25, 1999. 2. To record the a) purchase price of $42,500,000 in cash, first from available cash and the balance from borrowings under the Registrant's term loan agreement, b) capitalized financing costs c) elimination of UTMC's equity accounts, d) capitalized acquisition costs, and e) allocation of the purchase price to the fair value of the assets acquired and liabilities assumed, including, for purposes of the pro forma balance sheet, the aforementioned $3,500,000 write-off of the fair value of the acquired in-process research and development. 3. To record a) depreciation and amortization based on estimated remaining lives of assets (ranging from six to fifteen years for intangibles) and adjustment to fair value of assets acquired, b) interest expense on additional bank borrowings and interest income forgone due to the use of cash for the acquisition, and c) the tax benefit of a) and b). -----END PRIVACY-ENHANCED MESSAGE-----