-----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, G8DHIH7RX612+Yie06cnQzFRcOArHAjyheZP6RTRa1fDjRjBc1Jste90rTdydcc7 AtiD0UrYSXmy5bDhmiWNHA== 0000891618-00-002999.txt : 20000523 0000891618-00-002999.hdr.sgml : 20000523 ACCESSION NUMBER: 0000891618-00-002999 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000308 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SDL INC CENTRAL INDEX KEY: 0000934741 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770331449 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-25688 FILM NUMBER: 640919 BUSINESS ADDRESS: STREET 1: 80 ROSE ORCHARD WAY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089439411 MAIL ADDRESS: STREET 1: 80 ROSE ORCHARD WAY CITY: SAN JOSE STATE: CA ZIP: 95134 8-K/A 1 FORM 8-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 8, 2000 Commission File Number: 0-25688 SDL, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 77-0331449 - -------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 80 Rose Orchard Way, San Jose, California 95134 - --------------------------------------------- ------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 943-9411 This form 8-K/A amends Form 8-K filed with the Securities and Exchange Commission on March 21, 2000 (the "Original Form 8-K") by including the financial statements and pro forma financial information referred to below. ITEM 5. OTHER EVENTS SDL, Inc. (SDL) has included herein the consolidated financial statements of Queensgate Instruments, Limited (Queensgate) for the years ended March 31, 1999 and 1998 and pro forma financial information giving effect to the proposed merger between SDL and Queensgate. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired i. Report of Arthur Andersen, Independent Auditors ii. Consolidated profit and loss account for the years ended March 31, 1999 and 1998 iii. Consolidated balance sheets as of March 31, 1999 and 1998 iv. Consolidated cash flow statement for the years ended March 31, 1999 and 1998 v. Notes to Financial Statements for the years ended March 31, 1999 and 1998 Queensgate Instruments, Limited Condensed Financial Statements (unaudited) i. Balance Sheet as of December 31, 1999 and March 31, 1999 2 ii. Statements of Operations for the nine months ended December 31, 1999 and 1998 iii. Statements of Cash Flows for the nine months ended December 31, 1999 and 1998 iv. Notes to Financial Statements for the nine months ended December 31, 1999 and 1998 (b) Pro Forma Financial Information Pro Forma Combined Consolidated Financial Statements (unaudited) i. Pro Forma Combined Consolidated Statements of Operations for the year ended December 31, 1999 ii. Pro Forma Combined Consolidated Statement of Operations for the three months ended March 31, 2000 iii. Notes to Pro Forma Combined Consolidated Financial Statements (c) Exhibits 23.1 Consent of Arthur Andersen, Independent Auditors 3 AUDITORS' REPORT TO THE SHAREHOLDERS OF SDL QUEENSGATE LIMITED: We have audited the accounts on pages 5 to 29 which have been prepared under the historical cost convention, as modified for the revaluation of certain fixed assets, and the accounting policies set out on pages 9 to 11. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS Directors' responsibilities Company law requires the directors to prepare accounts for each financial year which give a true and fair view of the state of affairs of the company and group and of the profit or loss of the group for that period. In preparing those accounts, the directors are required to: - - select suitable accounting policies and then apply them consistently; - - make judgements and estimates that are reasonable and prudent; - - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and - - prepare the accounts on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and group and enable them to ensure that the accounts comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditors' responsibilities It is our responsibility to form an independent opinion, based on our audit, on the accounts and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board in the United Kingdom which are substantially consistent with U.S. generally accepted auditing standards. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts and of whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. 4 OPINION In our opinion the accounts give a true and fair view of the state of affairs of the company and the group at 31 March 1999 and 31 March 1998 and of its results and cash flows for the years then ended and have been properly prepared in accordance with the Companies Act 1985. RECONCILIATION TO US GAAP Accounting practices used by the group in preparing the accompanying financial statements conform with generally accepted accounting principles in the United Kingdom, but do not conform with accounting principles generally accepted in the United States. A description of these differences and a complete reconciliation of the consolidated net loss or profit after taxation and shareholders' funds to U.S. generally accepted accounting principles is set forth in Note 27. ARTHUR ANDERSEN CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS Abbots House Abbey Street Reading Berkshire RG1 3BD 6 April 2000 5 Consolidated profit and loss account For the year ended 31 March 1999
Notes 1999 1998 GBP GBP TURNOVER Existing operations 3,301,859 4,480,433 Acquisitions -- 469,964 ---------- ---------- Continuing operations 2 3,301,859 4,950,397 Cost of sales (2,026,174) (1,652,095) ---------- ---------- GROSS PROFIT 1,275,685 3,298,302 Distribution costs (102,489) (93,919) Administration expenses (3,868,502) (2,921,328) Other operating income 3 -- 308,933 ---------- ---------- OPERATING (LOSS) PROFIT Existing operations (2,695,306) 498,408 Acquisitions -- 93,580 ---------- ---------- (LOSS) PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST (2,695,306) 591,988 Interest payable and similar charges 4 (50,193) (15,992) Interest receivable and similar income 3,596 1,757 Dividend income -- 10,000 ---------- ---------- (LOSS) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 5 (2,741,903) 587,753 Tax credit (charge) on (loss) profit on ordinary activities 7 330,858 (191,087) ---------- ---------- (LOSS) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 17 (2,411,045) 396,666 Dividends paid and proposed on equity and non-equity shares 8, 18 (9,167) (90,096) ---------- ---------- RETAINED (LOSS) PROFIT FOR THE YEAR (2,420,212) 306,570 ========== ==========
The accompanying notes are an integral part of this consolidated profit and loss account. All operations relate to continuing activities and no operations were acquired or discontinued in the current period. 6 Consolidated balance sheet 31 March 1999
Notes 1999 1998 GBP GBP FIXED ASSETS Tangible assets 9 1,679,776 780,895 Investments 10 250 200,000 ---------- ---------- 1,680,026 980,895 ---------- ---------- CURRENT ASSETS Stocks 11 790,416 701,621 Debtors 12 1,273,090 1,747,066 Cash at bank and in hand 358,514 99,229 ---------- ---------- 2,422,020 2,547,916 CREDITORS: Amounts falling due within one year 13 (1,379,483) (1,096,611) ---------- ---------- NET CURRENT ASSETS 1,042,537 1,451,305 ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES 2,722,563 2,432,200 CREDITORS: Amounts falling due after more than one year 14 (748,070) (13,754) PROVISIONS FOR LIABILITIES & CHARGES 15 (346,615) (149,759) ---------- ---------- NET ASSETS 1,627,878 2,268,687 ========== ========== CAPITAL AND RESERVES Called-up share capital 16 3,703 3,498 Other reserves 17 1,624,175 2,265,189 ---------- ---------- SHAREHOLDERS' FUNDS 18 1,627,878 2,268,687 ---------- ---------- SHAREHOLDERS' FUNDS MAY BE ANALYSED AS: Equity interests 1,544,545 2,185,354 Non equity interests 83,333 83,333 ---------- ---------- 1,627,878 2,268,687 ========== ==========
SIGNED ON BEHALF OF THE BOARD N K Reay Director 6 April 2000 The accompanying notes are an integral part of this consolidated balance sheet. 7 Company balance sheet 31 March 1999
Notes 1999 1998 GBP GBP FIXED ASSETS Tangible assets 9 1,474,736 562,010 Investments 10 173,610 374,010 ---------- ---------- 1,648,346 936,020 ---------- ---------- CURRENT ASSETS Stocks 11 670,340 588,469 Debtors: Amounts falling due within one year 12 1,592,486 1,352,119 Cash at bank and in hand 169,126 16,172 ---------- ---------- 2,431,952 1,956,760 CREDITORS: Amounts falling due within one year 13 (1,244,138) (940,326) ---------- ---------- NET CURRENT ASSETS 1,187,814 1,016,434 ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES 2,836,160 1,952,454 CREDITORS: Amounts falling due after more than one year 14 (748,070) (13,754) PROVISIONS FOR LIABILITIES & CHARGES 15 (346,615) (149,759) ---------- ---------- NET ASSETS 1,741,475 1,788,941 ========== ========== CAPITAL AND RESERVES Called-up share capital 16 3,703 3,498 Other reserves 17 1,737,772 1,785,443 ---------- ---------- SHAREHOLDERS' FUNDS 18 1,741,475 1,788,941 ========== ========== SHAREHOLDERS' FUNDS MAY BE ANALYSED AS: Equity interests 1,685,142 1,705,608 Non equity interests 83,333 83,333 ---------- ---------- 1,741,475 1,788,941 ========== ==========
SIGNED ON BEHALF OF THE BOARD N K Reay Director 6 April 2000 The accompanying notes are an integral part of this balance sheet 8 Consolidated Cash Flow Statement For the year ended 31 March 1999
Notes 1999 1998 GBP GBP NET CASH OUTFLOW FROM OPERATING ACTIVITIES 19 (799,733) (89,766) Returns on investments and servicing of finance 20 (75,983) (29,169) Taxation 20 (159,167) (260,495) Capital expenditure and financial investment 20 (628,545) (114,840) Acquisition and disposals -- (90,126) Equity dividends paid (60,708) (53,057) ---------- ---------- CASH OUTFLOW BEFORE FINANCING (1,724,136) (637,453) Financing 20 2,193,440 (252,953) ---------- ---------- INCREASE (DECREASE) IN CASH IN THE YEAR 21 469,304 (890,406) ========== ==========
The accompanying notes are an integral part of this consolidated cash flow statement. Consolidated statement of total recognised gains and losses For the year ended 31 March 1999
1999 1998 GBP GBP Retained (loss) profit for the financial year (2,420,212) 306,570 Foreign exchange movement 18 53,953 13,638 ---------- ---------- TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR (2,366,259) 320,208 ========== ==========
The accompanying notes are an integral part of this statement. 9 Notes to accounts 31 March 1999 1 ACCOUNTING POLICIES Basis of accounting A summary of the principal accounting policies is set out below. Other than the change in the basis for calculating depreciation on tangible fixed assets all accounting policies have been applied consistently throughout the year and the preceding year. The accounts have been prepared under the historical cost convention as modified for the revaluation of certain fixed assets and in accordance with applicable accounting standards. Basis of consolidation The group accounts consolidate the accounts of SDL Queensgate Limited and its subsidiary undertakings drawn up to 31 March each year. The results of subsidiaries acquired are consolidated from the date when control passed. Acquisitions are accounted for under the acquisition method. For the purposes of consolidation the closing rate method is used, under which translation gains or losses are shown as movements on reserves. Profit and loss accounts and cash flows of overseas branches and subsidiary are translated at the average rate for the year. The loss for the financial year after tax of Queensgate Instruments Limited was GBP1,797,261 (1998: Profit of GBP494,977). As provided by Section 230 of the Companies Act 1985, no profit and loss account is presented in respect of SDL Queensgate Limited. Goodwill Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight line basis over its useful economic life. Provision is made for any impairment. On acquisitions prior to 31 March 1998, where the fair value of the consideration given was less than the fair value of the identifiable assets, the resulting negative goodwill was credited immediately to reserves. Investments Investments in subsidiary undertakings in the company only balance sheet are stated at cost less provision for impairment where appropriate. Other investments at valuation or cost less any provision for impairment where appropriate. Tangible fixed assets Tangible fixed assets are shown at historic cost less accumulated depreciation. For 1999 depreciation has been calculated on the straight-line basis and aims to write down the cost or valuation of all tangible fixed assets over their expected useful lives. The previous depreciation policy was based on the reducing balance method. The effect of changing the basis of calculation of depreciation is an increase of GBP24,924 in the depreciation charge for the year. 10 ACCOUNTING POLICIES (CONTINUED) Tangible fixed assets (continued) The rates applied are: Freehold property 25 years Leasehold improvements the remaining period of the lease Furniture and equipment 3 - 15 years Motor vehicles 5 years Foreign currency Transactions denominated in foreign currencies are recorded in sterling at actual exchange rates as of the date of the transaction or at the appropriate forward contract rate. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the profit and loss account. Monetary assets and liabilities denominated in foreign currencies are reported at the rates of exchange prevailing at the year-end or at the appropriate forward contract rate. Stocks Stocks and work in progress are stated at the lower of cost and net realisable value. Long-term contract balances included in stock are stated at cost, after provision has been made for any foreseeable losses and the deduction of applicable payments on account. The amount by which recorded turnover is in excess of amounts invoiced is classified as amounts recoverable on contracts. Turnover is ascertained in a manner appropriate to the state of completion of the contract and attributable profit is recognised when the outcome of the contract can be assessed with reasonable certainty. Full provision is made for losses on all contracts in the year in which the loss is first foreseen. Provision is made for obsolete, slow moving or defective items where appropriate. Leases Assets held under finance leases, which confer rights and obligations similar to those attached to owned assets, are capitalised as tangible fixed assets and are depreciated over the shorter of the lease terms and their useful lives. The capital elements of future lease obligations are recorded as liabilities, while the interest elements are charged to the profit and loss account over the period of the leases to produce a constant rate of charge on the balance of capital repayments outstanding. Hire purchase transactions are dealt with similarly, except that assets are depreciated over their useful lives. Rentals under operating leases are charged on a straight line basis over the lease term, even if the payments are not made on such a basis. 11 ACCOUNTING POLICIES (CONTINUED) Taxation Corporation tax payable is provided on taxable profits at the current rate. Deferred taxation has been calculated using the liability method. Deferred taxation is provided on timing differences which will probably reverse, at the rates of tax likely to be in force at the time of the reversal. Deferred tax is not provided on timing differences which, in the opinion of the directors, will probably not reverse. Pension costs The group operates a defined contribution scheme. The amount charged to the profit and loss account in respect of the scheme is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet. Research and development All research and development costs are charged immediately to the profit and loss account. Government grants Government grants of a revenue nature are credited to the profit and loss account in the same period as the related expenditure. Turnover Turnover arises entirely from the group's principal activity and comprises the value of sales (excluding VAT and similar taxes, trade discounts and intra-group transactions) of goods and services in the normal course of business. 2 TURNOVER ANALYSIS In the opinion of the directors, disclosure of the information required by paragraph 55 of Schedule 4 to the Companies Act 1985 concerning particulars of turnover would be seriously prejudicial to the interests of the group. Accordingly this information has not been presented. 3 OTHER OPERATING INCOME Other operating income for 1998 relates to an insurance claim in respect of business interruption. 4 INTEREST PAYABLE AND SIMILAR CHARGES
1999 1998 GBP GBP On bank loans and overdrafts 29,728 5,723 On finance leases and hire purchase contracts 20,465 10,269 -------- -------- 50,193 15,992 ======== ========
12 5 (LOSS) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION The (loss) profit on ordinary activities before taxation is stated after charging (crediting):
1999 1998 GBP GBP Depreciation and amounts written off tangible fixed assets - - owned 256,455 76,984 - - held under finance leases and hire purchase contracts 65,542 61,354 Business relocation costs 354,083 -- Government grants (16,888) (94,559) Operating lease rentals - plant and machinery 6,656 12,824 - other 149,082 140,368 Auditors' remuneration for audit services 32,783 21,960 Auditor's remuneration for non-audit services 4,750 3,000 Research and development 862,430 656,632 ========== =========
The depreciation charge for the year includes GBP80,478 in relation to accelerated depreciation for assets no longer fully utilised following the relocation of the business to new premises. 6 STAFF COSTS The average monthly number of employees (including executive directors) was:
1999 1998 Number Number Production 29 26 Research and development 23 21 Sales 10 9 Administration 18 17 ---------- ---------- 80 73 ========== ========= Their aggregate remuneration comprised: 1999 1998 GBP GBP Wages and salaries 2,307,573 1,654,828 Social security costs 206,171 140,656 Pension costs 97,071 70,507 ---------- ---------- 2,610,815 1,865,991 ========== =========
13 6 STAFF COSTS (CONTINUED) Directors' remuneration The remuneration of the directors was as follows:
1999 1998 GBP GBP Emoluments 450,095 347,659 Company contributions to money purchase pension schemes 28,602 28,806 ---------- ---------- 478,697 376,465 ========== ========= Pensions The number of directors who were members of pension schemes was as follows: 1999 1998 Number Number Money purchase schemes 4 4 ========== ========= Highest-paid director The above amounts for remuneration include the following in respect of the highest paid director: 1999 1998 GBP GBP Emoluments 114,516 101,316 Company contributions to money purchase schemes 10,200 10,200 ---------- --------- 124,716 111,516 ========== =========
Share options Options over ordinary shares in the company issued to and held during the year by the directors were:
As at date of Number of options appointment* ------------------------- As at or Granted Exercised 31 March 1 April 1998 during the year 1998 I E Thomas* -- 12 -- 12 C M Shannon -- 15 -- 15 ------------ ---------- -- 27 ============ ==========
The options are exercisable on the successful flotation or sale of the company. 14 7 TAX ON (LOSS) PROFIT ON ORDINARY ACTIVITIES The tax credit (charge) comprises:
1999 1998 GBP GBP Corporation tax at 31% (1998: 31%) 158,774 (153,744) Deferred taxation 149,759 11,103 Overseas taxation 22,325 (48,446) -------- -------- 330,858 (191,087) ======== ========
8 DIVIDENDS PAID AND PROPOSED ON EQUITY AND NON-EQUITY SHARES
1999 1998 GBP GBP NON-EQUITY DIVIDENDS `A' ordinary at GBP10.49 per share (1998:GBP10.49) 9,167 9,167 `A' ordinary participating at GBPnil per share (1998: GBP23.14) -- 20,221 -------- -------- 9,167 29,388 EQUITY DIVIDENDS Ordinary shares at GBPnil per share (1998: GBP20.22) -- 60,708 -------- -------- 9,167 90,096 ======== ========
15 9 TANGIBLE FIXED ASSETS
GROUP Freehold Motor Furniture & Leasehold property vehicles equipment improvements Total COST GBP GBP GBP GBP GBP At the beginning of the year 188,416 21,527 830,860 164,495 1,205,298 Additions -- -- 904,107 333,896 1,238,003 Disposals -- (21,527) (41,207) (169,019) (231,753) Foreign exchange differences -- -- 3,336 -- 3,336 ---------- ---------- ---------- ---------- ---------- At the end of the year 188,416 -- 1,697,096 329,372 2,214,884 ---------- ---------- ---------- ---------- ---------- DEPRECIATION At the beginning of the year 8,000 12,636 331,810 71,957 424,403 Charge for the year 8,000 -- 212,069 101,928 321,997 Disposals -- (12,636) (30,542) (169,019) (212,197) Foreign exchange differences -- -- 905 -- 905 ---------- ---------- ---------- ---------- ---------- At the end of the year 16,000 -- 514,242 4,866 535,108 ---------- ---------- ---------- ---------- ---------- NET BOOK VALUE At the end of the year 172,416 -- 1,182,854 324,506 1,679,776 ========== ========== ========== ========== ========== At the beginning of the year 180,416 8,891 499,050 92,538 780,895 ========== ========== ========== ========== ==========
The figures stated above include the net book value of assets held under finance leases of GBP649,156 (1998: GBP209,059). 16 9 TANGIBLE FIXED ASSETS (CONTINUED)
COMPANY Motor Furniture & Leasehold vehicles equipment improvements Total COST GBP GBP GBP GBP At the beginning of the year 21,527 775,175 164,495 961,197 Additions -- 899,136 333,896 1,233,032 Disposals (21,527) (39,925) (169,019) (230,471) Foreign e change differences -- 1,420 -- 1,420 ------------ ------------ ------------ ------------ At the end of the year -- 1,635,806 329,372 1,965,178 ------------ ------------ ------------ ------------ DEPRECIATION At the beginning of the year 12,636 314,594 71,957 399,187 Charge for the year -- 201,150 101,928 303,078 Disposals (12,636) (30,435) (169,019) (212,090) Foreign e change differences -- 267 -- 267 ------------ ------------ ------------ ------------ At the end of the year -- 485,576 4,866 490,442 ------------ ------------ ------------ ------------ NET BOOK VALUE At the end of the year -- 1,150,230 324,506 1,474,736 ============ ============ ============ ============ At the beginning of the year 8,891 460,581 92,538 562,010 ============ ============ ============ ============
The figures stated above include the net book value of assets held under finance leases of GBP649,156 (1998: GBP209,059). 10 FIXED ASSET INVESTMENTS
Group Company ---------------------- ---------------------- 1999 1998 1999 1998 GBP GBP GBP GBP Subsidiary undertakings at cost -- -- 173,360 174,010 Other investments 250 200,000 250 200,000 -------- -------- -------- -------- 250 200,000 173,610 374,010 ======== ======== ======== ========
The movement in the carrying value of subsidiary undertakings represents the write off of amounts relating to dormant subsidiaries. 17 10 FIXED ASSET INVESTMENTS (CONTINUED) Principal group investments The parent company has investments in the following subsidiary undertakings and other investments: Wholly owned subsidiary undertakings Country of Principal activity incorporation Queensgate Instruments Incorporated USA Sale of electro- optical instruments IC Optical Systems Limited England & Wales Manufacturer of specialised optical components The other investment represents a 25% holding in LOT-Oriel Limited, a company incorporated in England and Wales. Its principal activity is the sale of electro-optical instruments. The remaining 75% holding in LOT-Oriel Limited is owned by a single party. Due to the nature of the group's holding and the control exercised by the other shareholder, the directors do not believe they have a significant influence over LOT-Oriel Limited and therefore do not consider the company an associated company and have therefore not applied equity accounting principles to the investment. In the opinion of the directors the value of these investments is not less than their carrying value. A provision for impairment in the investment in LOT-Oriel Limited was recorded in the year, which reduces the investment carrying value to its original level. The provisions for impairment have been set off against the revaluation reserve. Acquisition of subsidiary undertaking On 8 April 1997 the company acquired 100% of the issued share capital of IC Optical Systems Limited for consideration of GBP160,000. 18 10 FIXED ASSET INVESTMENTS (CONTINUED) Acquisition of subsidiary undertaking (continued) The following table sets out the fair values of the identifiable assets and liabilities acquired.
Fair value to group GBP Tangible fixed assets 188,855 Stocks 106,277 Debtors 67,059 Cash 69,874 ---------- TOTAL ASSETS 432,065 ========== Creditors Bank loans (144,523) Other creditors (55,633) ---------- TOTAL LIABILITIES (200,156) ---------- NET ASSETS 231,909 ---------- Negative goodwill (71,909) ---------- Cash consideration 160,000 ==========
The negative goodwill arising has been credited to reserves. In relation to the acquisition of IC Optical Systems Limited, continuing operations in 1998 include cost of sales of GBP216,118, gross profit of GBP253,846, and administrative expenses of GBP151,750. Net cash outflows in respect of the acquisition comprised:
GBP Cash consideration (160,000) Cash at bank and in hand acquired 69,874 ---------- (90,126) ==========
19 11 STOCKS
Group Company ---------------------- ---------------------- 1999 1998 1999 1998 GBP GBP GBP GBP Raw materials and consumables 360,198 342,619 354,344 338,749 Work-in-progress 418,065 304,371 303,843 195,090 Finished goods and goods for resale 12,153 54,631 12,153 54,630 -------- -------- -------- -------- 790,416 701,621 670,340 588,469 ======== ======== ======== ========
12 DEBTORS Amounts falling due within one year:
Group Company ------------------------ ------------------------- 1999 1998 1999 1998 GBP GBP GBP GBP Trade debtors 828,914 1,078,015 314,970 225,012 Amounts recoverable on contracts 12,000 115,237 12,000 115,237 Amounts owed by group undertakings -- -- 909,321 496,412 VAT 143,357 51,950 143,357 51,950 Tax and ACT recoverable 160,729 22,524 160,729 22,524 Overseas corporation tax recoverable 59,858 30,938 -- -- Other debtors 25,807 274,878 21,207 270,442 Prepayments and accrued income 42,425 173,524 30,902 170,542 --------- --------- --------- --------- 1,273,090 1,747,066 1,592,486 1,352,119 ========= ========= ========= =========
13 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group Company ------------------------ ------------------------- 1999 1998 1999 1998 GBP GBP GBP GBP Obligations under finance leases and hire purchase 168,998 45,172 168,998 45,172 contracts Bank overdrafts 19,431 280,970 19,431 280,970 Trade creditors 408,243 221,094 349,878 133,773 UK taxation payable -- 150,617 -- 130,456 Social Security and other taxes 72,546 57,192 65,032 44,208 ACT on proposed dividends -- 22,524 -- 22,524 Other creditors 835 66,844 835 43,770 Accruals and deferred income 700,263 162,102 630,797 149,357 Proposed dividends 9,167 90,096 9,167 90,096 --------- --------- --------- --------- 1,379,483 1,096,611 1,244,138 940,326 ========= ========= ========= =========
20 14 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group Company ------------------------ ------------------------- 1999 1998 1999 1998 GBP GBP GBP GBP Obligations under finance leases and hire purchase Contracts 261,537 13,754 261,537 13,754 Bank loan (net of issue costs) 486,533 -- 486,533 -- -------- -------- -------- -------- 748,070 13,754 748,070 13,754 ======== ======== ======== ========
On 21 August 1998 the Company entered into a 5 year multi-line facility of GBP2.5m with National Westminster Bank PLC at an interest rate of 1.5% over base. This facility was fully repaid and cancelled on 8 March 2000 consequent upon the acquisition of the Company by SDL Inc. Finance leases
Group Company ---------------------- ---------------------- 1999 1998 1999 1998 GBP GBP GBP GBP Between one and two years 187,379 8,807 187,379 8,807 Between two and five years 74,158 4,947 74,158 4,947 -------- -------- -------- -------- 261,537 13,754 261,537 13,754 On demand or within one year 168,998 45,172 168,998 45,172 -------- -------- -------- -------- 430,535 58,926 430,535 58,926 ======== ======== ======== ========
21 15 PROVISIONS FOR LIABILITIES AND CHARGES
Business GROUP AND COMPANY relocation Warranty Deferred tax costs provisions Total GBP GBP GBP GBP At the beginning of the year 149,759 -- -- 149,759 Charged (credited) to profit and loss account (149,759) 292,615 54,000 196,856 --------- --------- --------- --------- At the end of the year -- 292,615 54,000 346,615 ========= ========= ========= =========
The business relocation costs represent the costs associated with leasehold premises vacated prior to the year end when the company moved to larger premises. Deferred taxation provided and deferred taxation not provided are as follows:
Provided Not provided --------------------------- --------------------------- 1999 1998 1999 1998 GBP GBP GBP GBP GROUP AND COMPANY Accelerated capital allowances 476,781 149,759 -- -- Losses carried forward (476,781) -- (228,836) -- Taxation on revaluation surpluses -- -- -- 61,925 ---------- ---------- ---------- ---------- -- 149,759 (228,836) 61,925 ========== ========== ========== ==========
22 16 SHARE CAPITAL
1999 1998 GBP GBP Authorised `A' ordinary shares of GBP1 each 1,124 1,124 Ordinary shares of GBP1 each 3,023 2,624 11% cumulative redeemable preference shares of GBP1 each -- 240,000 -------- -------- 4,147 243,748 ======== ======== Allotted, called up and fully paid `A' ordinary shares of GBP1 each 874 874 Ordinary shares of GBP1 each 2,829 2,624 -------- -------- 3,703 3,498 ======== ========
During the year 205 ordinary shares were issued for a cash consideration of GBP1,925,200 (net of costs). `A' ordinary shares The `A' ordinary shares are non-equity shares which carry an entitlement to a fixed cumulative dividend of a sum equal to 11% of the total subscription price for the `A' ordinary shares in issue in each year. They are entitled to a participating cumulative dividend of a sum equal to 5% of the net profit of the group based on the published financial statements for each financial year after deduction of the fixed cumulative dividend paid in the year. They are further entitled to a dividend per share equal to the dividend per share paid to the Ordinary shareholds less the participating dividend per share. The holders of `A' ordinary shares have one vote for every GBP1 share held. `A' ordinary shareholders have the right on winding up to receive, in priority to the ordinary shareholders, an amount equal to the subscription price per share together with a sum equal to any assets or accruals of dividends calculated to the date of winding up. Subsequent events On 2 July 1999 the Company passed a resolution to sub-divide each `A' ordinary share of GBP1 into 1,000 `A' ordinary shares of 0.1p and each ordinary share of GBP1 into 1,000 ordinary shares of 0.1p. Change to Articles of Association On 8 March 2000 the Company changed its Articles of Association. The `A' ordinary shares are no longer entitled to a fixed cumulative dividend or to receive priority on a winding up. The `A' ordinary shares and the Ordinary shares now have identical rights. 23 17 RESERVES
Share Capital GROUP Profit and loss premium redemption Revaluation Other account account reserve reserve reserves Total GBP GBP GBP GBP GBP GBP At 1 April 1997 1,399,463 83,859 190,000 199,750 -- 1,873,072 Profit for the financial 396,666 -- -- -- -- 396,666 year Dividends (90,096) -- -- -- -- (90,096) Foreign exchange movement 13,638 -- -- -- -- 13,638 Negative goodwill arising in the year -- -- -- -- 71,909 71,909 Transfer between reserves 7,191 -- -- -- (7,191) -- ---------- ---------- ---------- ---------- ---------- ---------- At 31 March 1998 1,726,862 83,859 190,000 199,750 64,718 2,265,189 Loss for the financial year (2,411,045) -- -- -- -- (2,411,045) Share issue during the year -- 1,924,995 -- -- -- 1,924,995 Dividends (9,167) -- -- -- -- (9,167) Reduction (Note 10) -- -- -- (199,750) -- (199,750) Foreign exchange movement 53,953 -- -- -- -- 53,953 Transfer between reserves 7,191 -- -- -- (7,191) -- ---------- ---------- ---------- ---------- ---------- ---------- At 31 March 1999 (632,206) 2,008,854 190,000 -- 57,527 1,624,175 ========== ========== ========== ========== ========== ==========
COMPANY Share Capital Profit and premium redemption Revaluation loss account account reserve reserve Total GBP GBP GBP GBP GBP At 1 April 1997 882,008 83,859 190,000 199,750 1,355,617 Profit for the financial 494,977 -- -- -- 494,977 year Dividends (90,096) -- -- -- (90,096) Foreign exchange movement 24,945 -- -- -- 24,945 ---------- ---------- ---------- ---------- ---------- At 31 March 1998 1,311,834 83,859 190,000 199,750 1,785,443 Loss for the financial year (1,797,261) -- -- -- (1,797,261) Share issue during the year -- 1,924,995 -- -- 1,924,995 Dividends (9,167) -- -- -- (9,167) Reduction -- -- -- (199,750) (199,750) Foreign exchange movement 33,512 -- -- -- 33,512 ---------- ---------- ---------- ---------- ---------- At 31 March 1999 (461,082) 2,008,854 190,000 -- 1,737,772 ========== ========== ========== ========== ==========
24 18 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1999 1998 GROUP GBP GBP (Loss) profit for the financial year (2,411,045) 396,666 Dividends paid and proposed on equity and non-equity shares (9,167) (90,096) Share issue during the year 1,925,200 -- Reduction in revaluation reserve (199,750) -- Foreign exchange movement 53,953 13,638 Negative goodwill arising in the year -- 71,909 ------------ ------------ Net (reduction) addition to shareholders' funds (640,809) 392,117 Opening shareholders' funds 2,268,687 1,876,570 ------------ ------------ Closing shareholders' funds 1,627,878 2,268,687 ============ ============ 1999 1998 COMPANY GBP GBP (Loss) profit for the financial year (1,797,261) 494,977 Dividends paid and proposed on equity and non-equity shares (9,167) (90,096) Share issue during the year 1,925,200 -- Reduction in revaluation reserve (199,750) -- Foreign exchange movement 33,512 24,945 ------------ ------------ Net (reduction) addition to shareholders' funds (47,466) 429,826 Opening shareholders' funds 1,788,941 1,359,115 ------------ ------------ Closing shareholders' funds 1,741,475 1,788,941 ============ ============ 19 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS 1999 1998 GBP GBP Operating (loss) profit (2,695,306) 591,988 Depreciation charge 321,997 138,338 Loss on sale of tangible fixed assets -- 18,185 Increase in stocks (88,795) (128,896) Decrease (increase) in debtors 641,101 (342,554) Increase (decrease) in creditors and provisions for liabilities and charges 1,021,270 (366,827) ------------ ------------ NET CASH (OUTFLOW) INFLOW FROM OPERATING ACTIVITIES (799,733) (89,766) ============ ============
25 20 ANALYSIS OF CASH FLOW
1999 1998 GBP GBP Returns on investments and servicing of finance Interest received 3,596 1,757 Interest paid (29,728) (5,723) Interest element of finance lease and hire purchase rental payments (20,465) (10,269) Non equity dividends paid (29,386) (19,934) Dividends received -- 5,000 ------------ ------------ NET CASH OUTFLOW (75,983) (29,169) ============ ============ 1999 1998 Taxation GBP GBP UK corporation tax paid (152,572) (149,705) Overseas tax paid (6,595) (110,790) ------------ ------------ NET CASH OUTFLOW (159,167) (260,495) ============ ============ 1999 1998 Capital expenditure and financial investment GBP GBP Purchase of tangible fixed assets (648,101) (182,456) Sale of tangible fixed asset 19,556 67,616 ------------ ------------ NET CASH OUTFLOW (628,545) (114,840) ============ ============ 1999 1998 Financing GBP GBP Shares issued less expenses 1,925,200 -- Loans obtained (repaid) 486,533 (144,523) Capital element of finance lease and hire purchase payments (218,293) (108,430) ------------ ------------ NET CASH INFLOW (OUTFLOW) 2,193,440 (252,953) ============ ============
26 21 ANALYSIS AND RECONCILIATION OF NET DEBT
New 1 April finance Exchange 31 March 1998 Cash flow leases Movement 1999 GBP GBP GBP GBP GBP Cash in hand and at bank 99,229 207,765 -- 51,520 358,514 Overdrafts (280,970) 261,539 -- -- (19,431) ---------- ---------- ---------- ---------- ---------- (181,741) 469,304 -- 51,520 339,083 Finance leases (58,926) 218,293 (589,902) -- (430,535) Bank loans -- (486,533) -- -- (486,533) ---------- ---------- ---------- ---------- ---------- Net debt (240,667) 201,064 (589,902) 51,520 (577,985) ========== ========== ========== ========== ==========
1999 1998 GBP GBP Increase (decrease) in cash in the year 469,304 (890,406) Cash outflow from decrease in lease financing 218,293 108,430 Bank loan (obtained) repaid (486,533) 144,523 ---------- ---------- Change in net debt resulting from cash flows 201,064 (637,453) Loans acquired with subsidiary -- (144,523) New finance leases (589,902) (31,315) Translation difference 51,520 15,824 ---------- ---------- Movement in net debt in year (337,318) (797,467) Net debt at beginning of year (240,667) 556,800 ---------- ---------- Net debt at end of year (577,985) (240,667) ========== ==========
22 FINANCIAL COMMITMENTS On 21 August 1998 the Company and its subsidiary undertakings entered into a composite cross guarantee with National Westminster Bank PLC and granted a fixed and floating charge over the assets of the group to secure its banking facilities. Consequent upon the acquisition of the Company by SDL Inc. on 8 March 2000 the bank loans have been repaid and the facility with National Westminster Bank PLC fully discharged. The group no longer has any assets charged to secure its borrowings. Neither the group nor the company had any capital commitments at 31 March 1999 or 31 March 1998. 27 22 FINANCIAL COMMITMENTS (CONTINUED) Annual commitments under non-cancellable operating leases are as follows:
1999 1998 ---------------------- ----------------------- Land and Land and buildings Other buildings Other GBP GBP GBP GBP GROUP Expiry date - - within one year 125,798 24,263 -- 10,488 - - between two and five years 44,858 36,193 31,745 23,614 - - after five years 320,400 -- 100,000 -- -------- -------- -------- -------- 491,056 60,456 131,745 34,102 ======== ======== ======== ======== COMPANY Expiry date - - within one year 91,833 24,263 -- 10,488 - - between two and five years 9,819 33,770 -- 20,767 - - after five years 320,400 -- 100,000 -- -------- -------- -------- -------- 422,052 58,033 100,000 31,255 ======== ======== ======== ========
23 PENSION ARRANGEMENTS The group operates a number of defined contribution schemes for which the pension cost charge for the year amounted to GBP97,071 (1998: GBP70,507). 24 CONTINGENT LIABILITIES The company had forward foreign exchange contracts of GBP3.1m at 31 March 1999 (1998: GBP1.5m). 25 RELATED PARTY TRANSACTIONS The group has taken advantage of the exemptions set out in Financial Reporting Standard No. 8, "Related Party Transactions" and not disclosed related party transactions between members of the SDL Queensgate Limited group. During the year the Company received management fees of GBP15,202 (1998 GBP22,952) from GBPOT-Oriel Ltd. At the end of the year the Company was owed GBP5,000 (1998 GBP5,000) by LOT-Oriel Ltd. During the year two directors purchased cars at market value from the Company. 26 SUBSEQUENT EVENTS On 8 March 2000 the whole of the issued share capital of the Company was acquired by SDL Inc., a Top-100 NASDAQ listed US multi-national, and the Company changed its name to SDL Queensgate Ltd. As part of the take-over SDL Inc. entered into a loan agreement to provide funding of up to $15.0m for the future development of the Company in the period to 31 December 2001. Part of this funding was used to pay off bank borrowing which stood at GBP1.7m at 8 March 2000. 28 27 SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN UNITED KINGDOM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("UK GAAP") AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("US GAAP") The SDL Queensgate Limited's consolidated financial statements have been prepared under UK GAAP, which differs in certain significant respects from US GAAP. The principal differences between the Group's accounting policies under UK GAAP and US GAAP are set out below. a) Reconciliation of (loss)/profit on ordinary activities after tax and shareholders' funds between UK GAAP and US GAAP.
Year ending Year ending 31 March 31 March 1999 1998 GBP GBP Consolidated (loss) profit on ordinary activities after taxation under UK GAAP (2,411,045) 396,666 Amortisation of negative goodwill. (note i) below) 14,382 14,382 ---------- ---------- (LOSS) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION UNDER US GAAP (2,396,663) 411,048 ========== ========== 31 March 31 March 1999 1998 GBP GBP Consolidated shareholders' funds under UK GAAP 1,627,878 2,268,687 Capitalisation of negative goodwill net of amortisation (note i) below) (43,145) (57,527) Non cumulative dividends payable (note ii) below) -- 60,708 Restatement of the carrying value of other investments to cost. (note iii) below) -- (199,750) --------- ---------- CONSOLIDATED SHAREHOLDERS' FUNDS UNDER US GAAP 1,584,733 2,072,118 ========= ==========
i) Negative goodwill During the year ended 31 March 1998 the company purchased the entire share capital of IC Optical Systems Limited. Negative goodwill of GBP71,909 arose on this acquisition. Under UK GAAP for the year ended 31 March 1998 the negative goodwill was credited immediately to reserves. Under US GAAP the negative goodwill should be capitalised and amortised to the profit and loss account over its expected useful life. For the purposes of this UK GAAP to US GAAP reconciliation the directors have adopted a useful life of 5 years. ii) Dividends Under UK GAAP non- cumulative dividends proposed but not paid are recorded as liabilities at the balance sheet date. Under US GAAP they are not recorded. iii) Other investments Under UK GAAP at 31 March 1998 the directors recorded their investment in LOT-Oriel Limited at a valuation in excess of its historic cost. 29 Under US GAAP investments must be carried at their historic cost, less any provisions for permanent diminution. b) Consolidated statement of cash flows The consolidated statement of cash flows prepared under UK GAAP presents substantially the same information as that required under US GAAP by SFAS 95 "Statements of Cash Flows". These standards differ, however, with regard to classification of items within the statements and as regards the definition of cash and cash equivalents. Under UK GAAP cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, equity dividends paid, capital expenditure and financial investment, management of liquid resources and financing activities. US GAAP, however, requires only three categories of cash flow activity to be reported: operating, investing and financing. Cash flows from taxation and returns on investments and servicing of finance shown under UK GAAP would be included as operating activities under US GAAP. The payment of dividends would be included as a financing activity under US GAAP. Under US GAAP overdrafts are not included in the definition of cash and cash equivalents, movements on the overdraft are treated as a financing cash flow. Summary statements of cash flows presented under US GAAP are given below:
31 March 31 March 1999 1998 GBP GBP Cash outflow from operating activities (1,034,883) (379,430) Cash outflow on investing activities (628,545) (204,966) Cash inflow (outflow) from financing activities 1,871,193 (25,040) ---------- ---------- Increase (decrease) in cash and cash equivalents 207,765 (609,436) Effect of exchange rate changes on cash and cash equivalents 51,520 15,824 Opening cash and cash equivalents 99,229 692,841 ---------- ---------- Closing cash and cash equivalents 358,514 99,229 ========== ==========
30 QUEENSGATE INSTRUMENTS, LIMITED BALANCE SHEET (UNAUDITED) (IN THOUSANDS)
DECEMBER 31, MARCH 31, 1999 1999 ------------- ------------- ASSETS GBP GBP Current assets Cash and cash equivalents GBP 36 GBP 359 Accounts receivable, net 1,064 1,273 Inventories 1,136 790 Prepaid Expenses and other current assets 129 -- ------------- ------------- 2,365 2,422 Property and equipment, net 1,525 1,681 ------------- ------------- GBP 3,890 GBP 4,103 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable GBP 302 GBP 408 Current Portion of Leases 177 169 Other Accrued Liabilities 763 803 ------------- ------------- Total Current Liabilities 1,242 1,380 Long-term Leases 127 262 Bank loan 1,636 487 Other 376 347 ------------- ------------- Total Long-Term Liabilities 2,139 1,096 ------------- ------------- ------------- ------------- Total Stockholders' equity 509 1,627 ------------- ------------- GBP 3,890 GBP 4,103 ============= =============
See accompanying notes. 31 QUEENSGATE INSTRUMENTS, LIMITED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, 1999 1998 --------- --------- GBP GBP Revenue GBP 4,099 GBP 2,493 Cost of revenue 1,985 1,172 --------- --------- Gross profit 2,114 1,321 Operating expenses: Research and development 664 552 Selling, general, and administrative 2,431 1,941 --------- --------- Total operating expenses 3,095 2,493 --------- --------- Operating loss (981) (1,172) Interest expense and other, net (69) (16) --------- --------- Loss before income taxes (1,050) (1,188) Provision (benefit) for income taxes -- (143) --------- --------- Net loss GBP(1,050) GBP(1,045) --------- --------- Less: Dividend on "A" ordinary shares (7) (7) --------- --------- Net loss applicable to ordinary shares GBP(1,057) GBP(1,052) ========= =========
See accompanying notes. 32 QUEENSGATE INSTRUMENTS, LIMITED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
9 MONTHS ENDED 1999 1998 -------- -------- GBP GBP Operating activities Net loss GBP(1,050) GBP(1,045) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 340 214 Changes in operating assets and liabilities: Trade receivable 209 972 Inventories (346) (191) Accounts payable (106) (121) Other accrued liabilities (40) (220) Long-term liabilities 30 (149) Other (166) (115) -------- -------- Total adjustments (79) 390 -------- -------- Net cash used by operating activities (1,129) (655) Investing activities Acquisition of property and equipment (184) (588) -------- -------- Net cash used in investing activities (184) (588) Financing activities Payments on capital lease (152) (145) Dividends payment (6) -- Proceeds from debt, net 1,148 1,446 -------- -------- Net cash provided in financing activities 990 1,301 Net increase (decrease) in cash and cash equivalents (323) 58 Cash and cash equivalents at beginning of period 359 99 -------- -------- Cash and cash equivalents at end of period GBP 36 GBP 157 ======== ========
See accompanying notes. 33 QUEENSGATE INSTRUMENTS NOTES TO INTERIM FINANCIAL STATEMENTS NINE MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998 1. BASIS OF PRESENTATION: The accompanying unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 8-K and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended December 31, 1999 are not necessarily indicative of the results that may be expected for future periods. For further information, refer to the financial statements for the year ended March 31, 1999 and 1998 and notes thereto included herein. The accompanying financial statements are prepared in British Pounds. In July 1999, the Company passed a resolution and subdivided each 'A' ordinary share of GBP1 into 1,000 'A' of ordinary shares of 0.1p and each ordinary shares of GBP1 was subdivided into 1,000 shares of 0.1p. 2. LONG-TERM DEBT The Company's long-debt facility was subject to satisfaction of certain financial covenants, including tangible net worth. The Company was in default of the financial covenants as of December 31, 1999. As a result of the sale of the Company to SDL, Inc. in March 2000 (see Note 4), the long-term debt was fully repaid. 3. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency forward exchange contracts to manage exposure related to anticipated foreign currency denominated intercompany sales transactions denominated primarily in US dollars. The Company does not enter into derivative financial instruments for trading purposes. All foreign currency forward exchange contracts are marked-to-market and unrealized gains and losses are included in current period net income as a component of other income (expense) if material. At December 31, 1999, the Company had outstanding foreign currency forward exchange contracts with notional amounts totaling approximately GDP 2,612,000 maturing at various dates through August 2000. Unrealized gains and losses were not material at December 31, 1999. While the contract or notional amounts of the Company's forward exchange contracts provide one measure of the volume of these transactions, they do not represent the amount of the Company's exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties' obligations exceed the obligations of the Company. The Company controls credit risk through credit approvals, limits and monitoring procedures. At December 31, 1999, the Company had all of its foreign exchange contracts with National Westminster Bank PLC. 4. SUBSEQUENT EVENT In March 2000, SDL, Inc. acquired the Company for initial consideration of $3 million of cash, 347,962 shares of the SDL's common stock with a fair value of approximately $77 million, and the assumption of 12,246 stock options of the Company by SDL. The purchase price also included contingent payments of up to an additional $150 million in common stock based on Queensgate's pretax profits for the 10 months ending December 31, 2000 and the twelve months ending December 31, 2001. SDL, Inc. is a publicly traded Company on the NASDAQ in the United States. SDL designs, manufactures and markets semiconductor lasers, fiber optic related products and optoelectronic modules and systems. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS (CONTINUED) (b) Pro Forma Financial Information The following unaudited pro forma financial statements consist of the unaudited pro forma combined consolidated statements of operations for SDL, Inc. Pro forma combined consolidated balance sheet information for SDL, Inc. is not presented because the historical consolidated financial statements included in the Company's Form 10-Q for the quarter ending March 31, 2000, already reflect the acquisition of Queensgate. The unaudited pro forma combined consolidated statement of operations for the year ended December 31, 1999, includes the historical results of SDL and Queensgate for the 12 months ended December 31, 1999, and adjustments (including the amortization of purchased intangible assets) necessary to reflect the acquisition of Queensgate as if it occurred on the first day of fiscal 1999. The unaudited pro forma combined consolidated statement of operations for the three months ended March 31, 2000, include the historical results of SDL for the three months ended March 31, 2000, the historical results of Queensgate for the period from January 1, 2000 through the date of acquisition by SDL on March 8, 2000, and adjustments (including the amortization of purchased intangible assets and the elimination of non-recurring in-process research and development charges related to the acquisition) necessary to reflect the acquisition of Queensgate as if it had occurred at the beginning of fiscal 1999. The historical results of operations of the Company for the three months ending March 31, 2000, already include the results of operations of Queensgate and amortization of purchased intangible assets relating to Queensgate for the period from the acquisition date March 8, 2000 through March 31, 2000. The unaudited pro forma combined consolidated statements of operations are not necessarily indicative of what the actual financial results would have been had the acquisition of Queensgate actually occurred at the beginning of fiscal 1999, and do not purport to represent the future results of operations of the Company. The unaudited pro forma consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended 1999 and the Company's Form 10-Q for the quarter ended March 31, 2000. 34 SDL, INC UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA ADJUST SDL SDL QUEENSGATE MENTS COMBINED ---------- ---------- ---------- ---------- Revenue $ 187,021 $ 8,259 $ -- $ 195,280 Cost of revenue 107,238 4,628 -- 111,866 ---------- ---------- ---------- ---------- Gross profit 79,783 3,631 -- 83,414 Operating expenses: Research and development 19,043 1,606 -- 20,649 Selling, general, and administrative 26,695 5,576 -- 32,271 Merger costs 2,677 -- -- 2,677 In process research and development 1,495 -- -- 1,495 Amortization of purchased intangibles 809 -- 18,411(2A) 19,220 ---------- ---------- ---------- ---------- Total operating expenses 50,719 7,182 18,411 76,312 ---------- ---------- ---------- ---------- Operating income (loss) 29,064 (3,551) (18,411) 7,102 Interest income (expense), net 5,429 (163) -- 5,266 ---------- ---------- ---------- ---------- Income (loss) before income taxes 34,493 (3,714) (18,411) 12,368 Provision (benefit) for income taxes 9,280 (538) (1,736)(2C) 7,006 ---------- ---------- ---------- ---------- Net income (loss) $ 25,213 $ (3,176) $ (16,675) $ 5,362 ========== ========== ========== ========== Earnings per share - basic $ 0.39 $ 0.08 ========== ========== Earnings per share - diluted $ 0.37 $ 0.08 ========== ========== Shares outstanding - basic 64,320 348(2D) 64,668 Share outstanding - diluted 68,470 360(2D) 68,830
See accompanying notes to unaudited pro forma condensed combined consolidated financial statements. 35 SDL, INC. UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA ADJUST SDL SDL QUEENSGATE MENTS COMBINED ---------- ---------- ---------- ---------- Revenue $ 72,206 $ 2,461 $ -- $ 74,667 Cost of revenue 37,616 1,798 -- 39,414 ---------- ---------- ---------- ---------- Gross profit 34,590 663 -- 35,253 Operating expenses: Research and development 5,903 352 -- 6,255 Selling, general, and administrative 7,298 605 -- 7,903 In process research and development 1,200 -- (1,200)(2B) -- Amortization of purchased intangibles 1,744 -- 3,068(2A) 4,812 ---------- ---------- ---------- ---------- Total operating expenses 16,145 957 1,868 18,970 ---------- ---------- ---------- ---------- Operating income (loss) 18,445 (294) (1,868) 16,283 Interest income (expense), net 4,485 (56) -- 4,429 ---------- ---------- ---------- ---------- Income (loss) before income taxes 22,930 (350) (1,868) 20,712 Provision (benefit) for income taxes 8,686 -- (289)(2C) 8,397 ---------- ---------- ---------- ---------- Net income (loss) $ 14,244 $ (350) $ (1,579) $ 12,315 ========== ========== ========== ========== Earnings per share - basic $ 0.20 $ 0.17 ========== ========== Earnings per share - diluted $ 0.19 $ 0.16 ========== ========== Shares outstanding - basic 72,019 233(2D) 72,252 Share outstanding - diluted 76,507 246(2D) 76,753
See accompanying notes to unaudited pro forma condensed combined consolidated financial statements. 36 SDL, Inc. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation The unaudited pro forma financial statements consist of the unaudited pro forma combined consolidated statements of operations for SDL, Inc. Pro forma combined consolidated balance sheet information for SDL, Inc. is not presented because the historical consolidated financial statements included in the Company's Form 10-Q for the quarter ending March 31, 2000, already reflect the acquisition of Queensgate. The unaudited pro forma combined consolidated statement of operations for the year ended December 31, 1999, includes the historical results of SDL and Queensgate for the 12 months ended December 31, 1999, and adjustments (including the amortization of purchased intangible assets) necessary to reflect the acquisition of Queensgate as if it occurred on the first day of fiscal 1999. The unaudited pro forma combined consolidated statement of operations for the three months ended March 31, 2000, include the historical results of SDL for the three months ended March 31, 2000, the historical results of Queensgate for the period from January 1, 2000 through the date of acquisition by SDL on March 8, 2000, and adjustments (including the amortization of purchased intangible assets and the elimination of non-recurring in-process research and development charges related to the acquisition) necessary to reflect the acquisition of Queensgate as if it had occurred at the beginning of fiscal 1999. The historical results of operations of the Company for the three months ending March 31, 2000, already include the results of operations for Queensgate and amortization of purchased intangible assets relating to Queensgate for the period from the acquisition date March 8, 2000 through March 31, 2000. The acquisition agreement between the Company and Queensgate provided for initial consideration of $3 million of cash and 347,962 shares of the SDL's common stock with a fair value of approximately $77 million, and contingent payments of up to an additional $150 million in common stock based on Queensgate's pretax profits for the 10 months ended December 31, 2000 and the twelve months ended December 31, 2001. In addition, SDL issued options in exchange for outstanding Queensgate options with the number of shares and the exercise price appropriately adjusted by the exchange ratio. The unaudited pro forma financial statements reflect the issuance of 347,962 SDL common shares for all of Queensgate's shares outstanding as of March 8, 2000. The average market price per SDL common share of $222.37 per share was used to determine the consideration given to Queensgate shareholders. The average market price per share of SDL common share is based on the average closing price for a range of trading days (March 3 through March 13, 2000) around the announcement date (March 8, 2000) of the acquisition. The estimated fair value of the options, as well as estimated direct transaction expenses of $1.1 million, have been included as a part of the total estimated purchase cost. The total purchase cost of the Queensgate acquisition is as follows (in thousands): Value of securities issued ............. $77,376 Cash ................................... 3,000 Assumption of Queensgate options ....... 1,502 ------- 81,878 Estimated transaction costs ............ 1,125 ------- Total purchase cost .................... $83,003
Annual Useful Amount Amortization Lives ------ ------------ ----- Purchase Price Allocation: Tangible net deficit $ (1,570) n/a n/a Tradename 2,000 $ 400 5 years Core technology 12,000 2,400 5 years Existing technology 6,200 1,240 5 years In process technology 1,200 n/a n/a Workforce 1,500 300 5 years Goodwill 70,353 14,071 5 years Deferred tax liabilities (8,680) n/a n/a -------- -------- Total estimated purchase price allocation: $ 83,003 $ 18,411
The Company has performed an allocation of the total purchase price of Queensgate to its individual assets. The purchase price allocation is preliminary and, therefore, subject to change based on Company's final analysis. Of the total purchase price, $1.2 million has been allocated to in-process research and development and was charged to expense in the quarter ending March 31, 2000. Due to their non-recurring nature, the in-process research and development attributed to the Queensgate transaction and the transaction costs incurred by Queensgate estimated at $1.2 million have been excluded in the pro forma statements of operations. After allocating value to the in-process research and development projects and Queensgate's tangible assets, specific intangible assets were then identified and valued. The related amortization of the identifiable intangible assets is reflected as a pro forma adjustment to the Pro Forma Combined Statement of Operations. The identifiable intangible assets include existing technology, core technology, trade name, and assembled workforce. The acquired existing technology is comprised of products in Queensgate portfolio that are already technologically feasible. The Company expects to amortize the acquired existing technology of approximately $6.2 million on a straight-line basis over an estimated remaining useful life of 5 years. The core technology represents Queensgate trade secrets and patents developed through years of experience designing and manufacturing optical network monitoring modules. This know-how enables the Company to develop new and improve existing optical network monitoring modules, processes, and manufacturing equipment, thereby providing Queensgate with a distinct advantage over its competitors and providing the Company with a reputation for technological superiority in the industry. The Company expects to amortize the core technology of approximately $12.0 million on a straight-line basis over an average estimated remaining useful life of 5 years. The trade names include the Queensgate trademark and trade name as well as all branded Queensgate products. The Company expects to amortize the trade names of approximately $2.0 million on a straight-line basis over an estimated remaining useful life of 5 years. The acquired assembled workforce is comprised of over 100 skilled employees across Queensgate's General and Administration, Research and Development, Sales and Marketing, and Manufacturing groups. The Company expects to amortize the assembled workforce of approximately $1.5 million on a straight-line basis over an estimated remaining useful life of 5 years. Goodwill, which represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets, is amortized on a straight-line basis over an estimated useful life of 5 years. 2. Pro forma adjustments (A) To record twelve months of amortization for purchased intangible assets for fiscal 1999 and to record additional amortization expense for purchased intangibles assets for the period from January 1, 2000 to March 8, 2000 (date of acquisition). Amortization expense for the period subsequent to the acquisition from March 9, 2000 to March 31, 2000 is already included in the historical financial results of the Company. (B) To eliminate non-recurring charges related to in-process research and development written off at the date of acquisition on March 8, 2000. (C) To record tax benefits relating to amortization of purchased intangibles. The pro forma combined provisions for income taxes do not represent the amounts that would have resulted had SDL and Queensgate filed consolidated income tax returns during the periods presented. (D) The pro forma basic and dilutive earnings per share are based on the historical weighted average number of SDL common shares outstanding during each period and adjusted to reflect the issuance, as of January 1, 1999, of 347,962 shares of SDL common stock. Dilutive securities including the replacement Queensgate options are included in the computation of pro forma diluted earnings per share. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SDL, INC. May 19, 2000 By: /s/ Michael L. Foster ------------------------------- Michael L. Foster Chief Financial Officer and Secretary (Duly Authorized Officer and Principal Financial and Accounting Officer) 38 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 23.1 Consent of Arthur Andersen, Independent Auditors EX-23.1 2 EXHIBIT-23.1 1 EXHIBIT 23.1 CONSENT OF ARTHUR ANDERSEN, INDEPENDENT AUDITORS As independent public accountants we hereby consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-84921, 33-90848, 33-92200, 333-57683 and Form S-3 No. 333-32068) pertaining to the 1995 Stock Option Plan, 1995 Employee Stock Purchase Plan, 1992 Stock Option Plan, and the Amended and Restated 1984 Incentive Stock Option Plan of SDL, Inc. and to the registration of shares of common stock of SDL, Inc. issued or to be issued in connection with its acquisition of Queensgate Instruments Limited, of our report dated April 6, 2000 with respect to the financial statements of Queensgate Instruments Limited included in this Current Report (Form 8-K) of SDL, Inc. filed May 22, 2000. /s/ Arthur Andersen Chartered Accountants Reading, England May 22, 2000 -----END PRIVACY-ENHANCED MESSAGE-----