8-K 1 0001.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 23, 2000 Dynatech Corporation (Exact name of registrant as specified in its charter) Delaware 1-12657 04-2258582 (State or other jurisdiction (Commission File No.) (IRS Employee of incorporation) Identification No.) 3 New England Executive Park, Burlington, Massachusetts 01803 (Address of principal executive offices) (Zip code) Registrant's telephone no., including area code: (781) 272-6100 TOTAL NUMBER OF PAGES: Item 2. Acquisition and Disposition of Assets. ------------------------------------- (a) On May 23, 2000, Dynatech Corporation, a Delaware corporation ("Dynatech"), and its wholly-owned subsidiary DWW Acquisition Corporation, a Delaware corporation ("MergerCo"), completed their merger (the "Merger") with Wavetek Wandel Goltermann, Inc., a Delaware corporation ("WWG"), pursuant to which WWG became an indirect, wholly-owned subsidiary of Dynatech. The Merger was consummated pursuant to an Agreement and Plan of Merger, dated as of February 14, 2000 (the "Merger Agreement"), among Dynatech, MergerCo and WWG, a copy of which is included as Exhibit 2.1 to this Report and is incorporated by reference herein. In the Merger, Dynatech paid to the former WWG stockholders approximately $250 million in cash and issued approximately 15 million newly-issued shares of Dynatech common stock. In addition, Dynatech paid approximately $8 million to cash out existing WWG options. Dynatech financed the Merger with new equity and debt. Dynatech sold 43.125 million newly-issued shares of common stock to investment funds managed by Clayton, Dubilier & Rice, Inc. for $4.00 per share and an aggregate purchase price of $172.5 million. Dynatech also entered a new credit facility with a syndicate of lenders that provides for borrowings of up to $860 million. In addition, Dynatech intends to sell 4.983 million newly-issued shares of common stock at the same price per share that was paid by the Clayton, Dubilier & Rice funds in a rights offering to its stockholders of record on April 20, 2000. The rights offering will provide such stockholders the opportunity to reverse the diminution of their percentage equity ownership interest in Dynatech that resulted from our sale of common stock to the Clayton, Dubilier & Rice funds. A copy of the press release announcing the completion of the Merger is included as Exhibit 99.1 to this Report and is incorporated herein by reference. As a result of the Merger, Dynatech will focus on its Communications Test Solutions and Visual Communications businesses. As such, Dynatech has decided to divest the Industrial Computing and Communication business conducted by its ICS-Advent and Itronix Corporation subsidiaries. For the nine months ended December 31, 1999, the Industrial Computing and Communication business accounted for approximately 34% of Dynatech's sales. Dynatech remains committed to maximizing its investment in ICS-Advent and Itronix. The planned divestiture is expected to occur no later than the first quarter of fiscal year 2002. The planned disposition of the Industrial Computing and Communications business will be treated as discontinued operations for accounting purposes. 2 Item 7. Financial Statements and Exhibits. --------------------------------- (a) Financial statements of business acquired are included in this Report as the following exhibits and are incorporated herein by reference. 99.2 Audited financial statements of WWG as of September 30, 1999 and September 30, 1998 and for the three years ended September 30, 1999. 99.3 Unaudited financial statements of WWG as of March 31, 2000 and for the six-month periods ended March 31, 2000 and March 31, 1999. (b) Unaudited Pro Forma Financial Statements. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Unaudited Pro Forma Condensed Consolidated Financial Statements give effect to the following: . The merger with WWG (after giving effect to the divestitures of the Precision Measurement and Test Tools divisions, which occurred in January 2000); . The sale, in connection with the WWG merger, of 43,125,000 newly-issued but unregistered shares of our common stock to Clayton, Dubilier & Rice Fund V Limited Partnership and Clayton, Dubilier & Rice Fund VI Limited Partnership, and the concurrent establishment of our new credit facility; . Dynatech's rights offering to holders of its common stock on the close of business on April 20, 2000, which is expected to be completed on or about June 21, 2000; . The inclusion of the results of operations for the full periods presented relating to our acquisitions of Pacific Systems Corporation, Sierra Design Labs, Applied Digital Access, Inc. and to reflect within the balance sheet our acquisition of certain assets and liabilities of WPI, Inc. (WPI's results of operations have been excluded from the pro forma statements because this business is reported within discontinued operations); . The exclusion of the results of operations for the full periods presented relating to our divestitures of ComCoTec, Inc. and Parallax, Inc., and our probable divestiture of DataViews Corporation, and the exclusion from the balance sheet of certain assets and liabilities of DataViews Corporation; and . The plan to discontinue Dynatech's Industrial Computing and Communications business segment. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1999 set forth herein was prepared assuming that the above-listed transactions took place on that date. The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended December 31, 1999 and Unaudited Pro Forma Condensed Consolidated Statement of Operations for the fiscal year ended March 31, 1999 set forth herein were prepared assuming that the above-listed transactions occurred as of the first day of each of the periods presented. The Unaudited Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the Dynatech and WWG historical Consolidated Financial Statements, which are incorporated by reference in this Report, as well as Dynatech's "Management Discussion and Analysis of Financial Condition and Results of Operations", included in Dynatech's Annual Report on Form 10-K for the fiscal year ended March 31, 1999, filed with SEC on June 14, 1999. The pro forma adjustments, as described in the Notes to Unaudited Pro Forma Statements herein, are based on currently available information and certain adjustments that management believes are reasonable. This pro forma financial information is presented for informational purposes only and does not necessarily represent what Dynatech's financial position or results of operations would have been if these transactions had in fact occurred on the dates indicated and is not necessarily indicative of Dynatech's financial position or results of operations for any future period. 3 DYNATECH CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET December 31, 1999 (in thousands)
Adjusted Other WWG Purchase Debt Related Equity Related Dynatech Acquisitions/ Pro Forma Accounting Pro Forma Pro Forma Corporation (a) Divestitures (b) WWG (c) Adjustments (d) Adjustments (f) Adjustments (h) Total --------------- ---------------- --------- --------------- --------------- --------------- ---------- ASSETS Current asset: Cash and cash equivalents...... $ 39,016 $(30,804) $ 38,830 $(258,000) $ 170,000 $147,032 $ 106,074 Accounts receivable, net.............. 71,962 (970) 99,083 -- -- -- 170,075 Inventories....... 33,033 -- 61,863 45,000 -- -- 139,896 Other current assets........... 26,206 (57) 15,104 -- -- -- 41,253 Net assets from discontinued operations....... 31,490 34,761 -- -- -- -- 66,251 --------- -------- -------- --------- --------- -------- ---------- Total current assets......... 201,707 2,930 214,880 (213,000) 170,000 147,032 523,549 Property and equipment, net.... 23,483 (387) 57,670 10,000 -- -- 90,766 Intangible assets, net............... 63,388 -- 141,204 284,788 -- -- 489,380 Other assets....... 74,084 (20) 6,138 -- 9,200 -- 89,402 --------- -------- -------- --------- --------- -------- ---------- Total assets.... $ 362,662 $ 2,523 $419,892 $ 81,788 $ 179,200 $147,032 $1,193,097 ========= ======== ======== ========= ========= ======== ========== LIABILITIES & STOCKHOLDERS' DEFICIT Current liabilities: Notes payable and current portion of long-term debt............. $ 6,398 $ -- $ 32,752 $ -- $ (28,000) $ -- $ 11,150 Other current liabilities...... 89,252 (753) 94,502 20,000 15,680 (40,000) 178,681 --------- -------- -------- --------- --------- -------- ---------- Total current liabilities.... 95,650 (753) 127,254 20,000 (12,320) (40,000) 189,831 Long-term debt..... 560,198 -- 224,233 -- 198,000 -- 982,431 Pension liabilities....... -- -- 34,552 -- -- -- 34,552 Deferred compensation...... 7,145 -- -- -- -- -- 7,145 Other long term liabilities....... -- -- 11,641 54,000 -- -- 65,641 Common stock and APIC.............. -- -- -- 130,000 -- 192,432 322,432 Stockholders' deficit........... (300,331) 3,276 22,212 (122,212) (6,480) (5,400) (408,935) --------- -------- -------- --------- --------- -------- ---------- Total liabilities and stockholders' deficit........ $ 362,662 $ 2,523 $419,892 $ 81,788 $ 179,200 $147,032 $1,193,097 ========= ======== ======== ========= ========= ======== ==========
See accompanying notes to the unaudited pro forma statements. 4 DYNATECH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS Nine Months Ended December 31, 1999 (in thousands, except per share data)
Adjusted Other Other Dynatech Acquisitions/ Pro Forma Amortization Pro Forma Corporation (a) Divestitures (b) WWG (c) of Intangibles (e) Adjustments Total --------------- ---------------- --------- ------------------ ----------- -------- Sales................... $316,808 $21,791 $370,196 $ -- $ -- $708,795 Cost of sales........... 105,499 9,758 143,394 -- -- 258,651 -------- ------- -------- -------- ------- -------- Gross profit............ 211,309 12,033 226,802 -- -- 450,144 -------- ------- -------- -------- ------- -------- Selling, general and administrative expense................ 106,212 8,975 134,119 1,250 -- 250,556 Product development expense................ 41,643 5,717 51,286 -- -- 98,646 Recapitalization-related costs.................. 13,259 -- -- -- -- 13,259 Restructuring and other non-recurring charges.. -- -- 2,748 -- -- 2,748 Acquired In-Process R&D.................... -- -- -- -- -- -- Amortization of intangibles............ 4,538 389 14,716 48,762 -- 68,405 Amortization of unearned compensation........... 1,102 (55) -- -- -- 1,047 -------- ------- -------- -------- ------- -------- Total operating expenses............... 166,754 15,026 202,869 50,012 -- 434,661 -------- ------- -------- -------- ------- -------- Operating income....... 44,555 (2,993) 23,933 (50,012) -- 15,483 Interest expense........ (38,429) (4) (15,891) -- (16,262)(f) (70,586) Interest income......... 1,872 346 462 -- -- 2,680 Other income, net....... (48) 2 (2,250) -- -- (2,296) -------- ------- -------- -------- ------- -------- Income (Loss) from continuing operations before income taxes.... 7,950 (2,649) 6,254 (50,012) (16,262) (54,719) Provision for income taxes.................. 4,771 198 7,046 (3,250) (6,505)(g) 2,260 Minority interest....... -- -- -- -- -- -- -------- ------- -------- -------- ------- -------- Income (Loss) from continuing operations.. $ 3,179 $(2,847) $ (792) $(46,762) $(9,757) $(56,979) ======== ======= ======== ======== ======= ======== Income (Loss) per share for continuing operations: Basic.................. $ 0.03 $ (0.31) ======== ======== Diluted................ $ 0.02 $ (0.31) ======== ======== Weighted average number of shares: Basic.................. 121,310 184,405 Diluted................ 131,366 184,405
See accompanying notes to the unaudited pro forma statements. 5 DYNATECH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS For the Fiscal Year Ended March 31, 1999 (in thousands, except per share data)
Adjusted Other Pro Other Dynatech Acquisitions Forma Amortization Pro Forma Corporation (a) Divestitures (b) WWG (c) of Intangibles (e) Adjustments Total --------------- ---------------- -------- ------------------ ----------- --------- Sales................... $329,532 $ 27,223 $447,061 $ -- $ -- $ 803,816 Cost of sales........... 108,568 12,028 183,811 -- -- 304,407 -------- -------- -------- -------- -------- --------- Gross profit............ 220,964 15,195 263,250 -- -- 499,409 -------- -------- -------- -------- -------- --------- Selling, general and administrative expense................ 112,581 10,604 175,636 1,667 -- 300,488 Product development expense................ 42,181 13,529 69,011 -- -- 124,721 Recapitalization-related costs.................. 40,767 -- -- -- -- 40,767 Restructuring and other non-recurring charges.. -- 1,666 8,896 -- -- (i) 10,562 Acquired In-Process R&D.................... -- -- 27,732 -- -- 27,732 Amortization of intangibles............ 2,726 1,073 10,405 75,934 -- 90,138 Amortization of unearned compensation........... 1,228 -- -- -- -- 1,228 -------- -------- -------- -------- -------- --------- Total operating expenses............... 199,483 26,872 291,680 77,601 -- 595,636 -------- -------- -------- -------- -------- --------- Operating income...... 21,481 (11,677) (28,430) (77,601) -- (96,227) Interest expense........ (46,178) -- (19,856) -- (23,764) (f) (89,798) Interest income......... 3,391 620 847 -- -- 4,858 Other income, net....... 15,702 (15,912) (4,735) -- -- (4,945) -------- -------- -------- -------- -------- --------- Income (Loss) from continuing operations before income taxes.... (5,604) (26,969) (52,174) (77,601) (23,764) (186,112) Provision (benefit) for income taxes........... (152) (5,912) (12,475) (4,334) (9,506)(g) (32,379) Minority interest....... -- -- (2,314) -- -- (2,314) -------- -------- -------- -------- -------- --------- Income (Loss) from continuing operations.. $ (5,452) $(21,057) $(37,385) $(73,267) $(14,258) $(151,419) ======== ======== ======== ======== ======== ========= Income (Loss) per share from continuing operations: Basic................. $ 0.05 $ (0.89) ======== ========= Diluted............... $ 0.05 $ (0.89) ======== ========= Weighted average number of shares: Basic................. 106,212 169,307 Diluted............... 106,212 169,307
See accompanying notes to the unaudited pro forma statements. 6 NOTES TO UNAUDITED PRO FORMA STATEMENTS a. Discontinued Operations In May 2000, the Board of Directors approved a plan to discontinue Dynatech's Industrial Computing and Communications business segment. Dynatech expects to dispose of the businesses in this segment through a sale transaction no later than the first quarter of fiscal year 2002. Set forth below is the unaudited balance sheet for Dynatech as of December 31, 1999, which has been adjusted to reflect the discontinued operations. Pro Forma Balance Sheet at December 31, 1999 (In thousands)
Adjusted Dynatech Discontinued Dynatech Corporation Operations Corporation ----------- ------------ ----------- ASSETS Current assets: Cash and cash equivalents............... $ 39,016 $ -- $ 39,016 Accounts receivable, net................ 88,813 (16,851) 71,962 Inventories............................. 51,244 (18,211) 33,033 Other current assets.................... 27,670 (1,464) 26,206 Net assets from discontinued operations............................. -- 31,490 31,490 --------- -------- --------- Total current assets.................. 206,743 (5,036) 201,707 Property and equipment, net............... 32,781 (9,298) 23,483 Intangible assets, net.................... 92,769 (29,381) 63,388 Other assets.............................. 74,704 (620) 74,084 --------- -------- --------- Total assets.......................... $ 406,997 $(44,335) $ 362,662 ========= ======== ========= LIABILITIES & STOCKHOLDERS' DEFICIT Current liabilities: Notes payable and current portion of long-term debt......................... $ 6,398 $ -- $ 6,398 Other current liabilities............... 133,587 (44,335) 89,252 --------- -------- --------- Total current liabilities............. 139,985 (44,335) 95,650 Long-term debt............................ 560,198 -- 560,198 Pension liability......................... -- -- -- Deferred compensation..................... 7,145 -- 7,145 Other long term liabilities............... -- -- -- Common stock.............................. -- -- -- Stockholders' deficit..................... (300,331) -- (300,331) --------- -------- --------- Total liabilities and stockholders' deficit.............................. $ 406,997 $(44,335) $ 362,662 ========= ======== =========
7 NOTES TO UNAUDITED PRO FORMA STATEMENTS--(Continued) a. Discontinued Operations--(continued) Set forth below are the unaudited results of operations adjusted for discontinued operations for Dynatech for the nine month period ended December 31, 1999.
For the Nine Month Period Ended December 31, 1999 ------------------------------------------ (In thousands) Dynatech Discontinued Adjusted Dynatech Corporation Operations Corporation ----------- ------------ ----------------- Sales............................... $477,125 $(160,317) $316,808 Cost of sales....................... 205,900 (100,401) 105,499 -------- --------- -------- Gross profit........................ 271,225 (59,916) 211,309 -------- --------- -------- Selling, general and administrative expense............................ 131,604 (25,392) 106,212 Product development expense......... 51,628 (9,985) 41,643 Recapitalization-related costs...... 13,259 -- 13,259 Restructuring and other non- recurring charges.................. -- -- -- Acquired In-Process R&D............. -- -- -- Amortization of intangibles......... 7,053 (2,515) 4,538 Amortization of unearned compensation....................... 1,451 (349) 1,102 -------- --------- -------- Total operating expenses............ 204,995 (38,241) 166,754 -------- --------- -------- Operating income.................. 66,230 (21,675) 44,555 Interest expense.................... (38,433) 4 (38,429) Interest income..................... 1,874 (2) 1,872 Other income, net................... 11 (59) (48) -------- --------- -------- Income from continuing operations before income taxes................ 29,682 (21,732) 7,950 Provision for income taxes.......... 12,812 (8,041) 4,771 -------- --------- -------- Income from continuing operations... 16,870 (13,691) 3,179 Discontinued Operations: Income from discontinued operations, net of income tax provision of 8,041............... -- 13,691 13,691 -------- --------- -------- Net Income.......................... $ 16,870 $ -- $ 16,870 ======== ========= ========
8 NOTES TO UNAUDITED PRO FORMA STATEMENTS--(Continued) a. Discontinued Operations--(continued) Set forth below are the unaudited results of operations adjusted for discontinued operations for the fiscal year ended March 31, 1999.
For the Fiscal Year Ended March 31, 1999 ------------------------------------------ (In thousands) Dynatech Discontinued Adjusted Dynatech Corporation Operations Corporation ----------- ------------ ----------------- Sales............................... $522,854 $(193,322) $329,532 Cost of sales....................... 228,572 (120,004) 108,568 -------- --------- -------- Gross profit........................ 294,282 (73,318) 220,964 -------- --------- -------- Selling, general and administrative expense............................ 149,006 (36,425) 112,581 Product development expense......... 54,023 (11,842) 42,181 Recapitalization-related costs...... 43,386 (2,619) 40,767 Restructuring and other non- recurring charges.................. -- -- -- Acquired In-Process R&D............. -- -- -- Amortization of intangibles......... 6,228 (3,502) 2,726 Amortization of unearned compensation....................... 1,519 (291) 1,228 -------- --------- -------- Total operating expenses............ 254,162 (54,679) 199,483 -------- --------- -------- Operating income................ 40,120 (18,639) 21,481 Interest expense.................... (46,198) 20 (46,178) Interest income..................... 3,398 (7) 3,391 Other income, net................... 15,959 (257) 15,702 -------- --------- -------- Income (Loss) from continuing operations before income taxes..... 13,279 (18,883) (5,604) Provision (Benefit) for income taxes.............................. 6,834 (6,986) (152) -------- --------- -------- Income (Loss) from continuing operations......................... 6,445 (11,897) (5,452) Discontinued Operations: Income from discontinued operations, net of income tax provision of 6,986............... -- 11,897 11,897 -------- --------- -------- Net Income.......................... $ 6,445 $ -- $ 6,445 ======== ========= ========
9 NOTES TO UNAUDITED PRO FORMA STATEMENTS--(Continued) b. Dynatech Acquisitions and Divestitures Acquisitions related to Continuing Operations Pacific Systems Corporation On June 19, 1998, Dynatech, through one of its indirectly wholly owned subsidiaries, acquired all of the outstanding capital stock of Pacific Systems Corporation of Kirkland, Washington ("Pacific") for a total purchase price of approximately $20 million, including an incentive earnout. The acquisition was accounted for using the purchase method of accounting and resulted in $18.0 million of goodwill which is being amortized over 30 years. The operating results of Pacific have been included in Dynatech's consolidated financial statements since June 19, 1998. Sierra Design Labs On September 10, 1999, Dynatech, through one of its wholly owned subsidiaries, purchased the outstanding stock of Sierra Design Labs ("Sierra"), a Nevada Corporation for a total purchase price of $6.3 million. The acquisition was accounted for using the purchase method of accounting and resulted in $4.9 million of goodwill which is being amortized over 10 years. The operating results of Sierra have been included in Dynatech's consolidated financial statements since September 10, 1999. Applied Digital Access, Inc. On November 1, 1999, Dynatech, through one of its wholly owned subsidiaries, acquired all the outstanding stock of Applied Digital Access, Inc. ("ADA") for a total purchase price of approximately $81 million. The acquisition was accounted for using the purchase method of accounting and resulted in $36 million of goodwill which is being amortized over 3 years. The operating results of ADA have been included in Dynatech's consolidated financial statements since November 1, 1999. Divestitures related to Continuing Operations ComCoTec, Inc. On June 30, 1998, Dynatech sold the assets of ComCoTec, Inc. ("ComCoTec") located in Lombard, Illinois to The Potomac Group, Inc. for $21 million. Dynatech recorded a pre-tax gain on $15.9 million on the sale of the assets, which was included in other income. Parallax, Inc. During fiscal year 1999, Dynatech liquidated the assets and liabilities of Parallax, Inc. ("Parallax"). Any gain or loss from the liquidation activities was immaterial. DataViews Corporation During the fourth quarter of fiscal year 2000, Dynatech initiated activities to dispose of DataViews Corporation ("DataViews"), located in Northampton, Massachusetts. During March 2000, the Company received a signed letter of intent to sell the stock of DataViews for a sale price of approximately $4 million. The gain on sale of the business is expected to be approximately $3.3 million. Acquisitions related to Discontinued Operations WPI Husky Computer, Inc., WPI Husky Computers Limited, WPI Oyster Termiflex Limited On February 24, 2000, Dynatech, through one of its wholly owned subsidiaries, purchased with cash certain assets and liabilities of WPI Husky Computer, Inc., WPI Husky Computers Limited and WPI Oyster Termiflex Limited (collectively "Husky"), all of which were subsidiaries of WPI, Inc. The total purchase price for Husky totalled approximately $34.8 million. The acquisition was accounted for using the purchase method of accounting and resulted in approximately $30.0 million of goodwill which is being amortized over 5 years. 10 NOTES TO UNAUDITED PRO FORMA STATEMENTS--CONTINUED c. Pro Forma WWG On May 23, 2000, Dynatech consummated the merger of one of its subsidiaries with Wavetek Wandel Goltermann, Inc. ("WWG") pursuant to which WWG became a Dynatech subsidiary. Set forth below is the unaudited pro forma balance sheet of WWG as of December 31, 1999, which assumes that the divestitures of the Precision Measurement and Test Tools divisions, which occurred in January 2000, were consummated on December 31, 1999. The proceeds related to these divestitures totalled approximately $25.3 million in cash.
WWG pro forma balance sheet at December 31, 1999 ------------------------------ (In thousands) WWG Pro Forma WWG Divestiture WWG -------- ----------- --------- ASSETS Current assets: Cash and cash equivalents................. $ 13,530 $25,300 $ 38,830 Accounts receivable, net.................. 103,831 (4,748) 99,083 Inventories............................... 66,308 (4,445) 61,863 Other current assets...................... 15,104 -- 15,104 -------- ------- -------- Total current assets.................... 198,773 16,107 214,880 Property and equipment, net................. 58,075 (405) 57,670 Intangible assets, net...................... 157,405 (16,201) 141,204 Other assets................................ 6,146 (8) 6,138 -------- ------- -------- Total assets............................ $420,399 $ (507) $419,892 ======== ======= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long- term debt................................ $ 32,752 $ -- $ 32,752 Other current liabilities................. 95,221 (719) 94,502 -------- ------- -------- Total current liabilities............... 127,973 (719) 127,254 Long-term debt.............................. 224,233 -- 224,233 Pension liabilities......................... 34,552 -- 34,552 Deferred compensation....................... -- -- -- Other long term liabilities................. 11,641 -- 11,641 Common stock................................ -- -- -- Stockholders' equity (deficit).............. 22,000 212 22,212 -------- ------- -------- Total liabilities and stockholders' equity (deficit)....................... $420,399 $ (507) $419,892 ======== ======= ========
11 NOTES TO UNAUDITED PRO FORMA STATEMENTS--CONTINUED c. Pro Forma WWG--(continued) Set forth below are the unaudited pro forma results of operations for WWG for the nine month period ended December 31, 1999 and for the twelve months ended March 31, 1999. The WWG results have been adjusted to exclude the results of operations for the divestitures of the Precision Measurement and Test Tools divisions, which occurred during January 2000. WWG's fiscal year ends on September 30. The WWG historical information for the nine month period ended December 31, 1999 has been derived from the Statement of Operations for the year ended September 30, 1999 included in WWG's Form 10-K for the year ended September 30, 1999, then adding the Statement of Operations for the three months ended December 31, 1999, included in WWG's Form 10-Q for the period ended December 31, 1999, and then subtracting the Statement of Operations for the six month period ended March 31, 1999, included in WWG's Form 10-Q for the period ended March 31, 1999. Wandel Goltermann, Inc. acquired Wavetek Corporation in September 1998. The WWG historical information for the twelve month period ended March 31, 1999 has been derived from the historical Statements of Operations information of Wandel Goltermann, Inc. and Wavetek Corporation.
For the Nine Month Period Ended December 31, 1999 -------------------------------- (In thousands) WWG WWG Pro Forma Historical Divestiture WWG ---------- ----------- --------- Sales........................................ $391,904 $(21,708) $370,196 Cost of sales................................ 155,164 (11,770) 143,394 -------- -------- -------- Gross profit................................. 236,740 (9,938) 226,802 -------- -------- -------- Selling, general and administrative expense.. 142,103 (7,984) 134,119 Product development expense.................. 52,601 (1,315) 51,286 Restructuring and other non-recurring charges..................................... 2,748 -- 2,748 Amortization of intangibles.................. 14,716 -- 14,716 -------- -------- -------- Total operating expenses..................... 212,168 (9,299) 202,869 -------- -------- -------- Operating income........................... 24,572 (639) 23,933 Interest expense............................. (15,891) -- (15,891) Interest income.............................. 462 -- 462 Other income, net............................ (2,250) -- (2,250) -------- -------- -------- Income from continuing operations before income taxes................................ 6,893 (639) 6,254 Provision (Benefit) for income taxes......... 7,302 (256) 7,046 -------- -------- -------- Income from continuing operations............ $ (409) $ (383) $ (792) ======== ======== ========
12 NOTES TO UNAUDITED PRO FORMA STATEMENTS--CONTINUED c. Pro Forma WWG--(continued)
For the Twelve Month Period Ended March 31, 1999 ---------------------------------------- (In thousands) WWG WWG Pro Forma Historical Divestiture WWG ----------- ------------ ----------- Sales............................... $ 477,807 $ (30,746) $ 447,061 Cost of sales....................... 199,380 (15,569) 183,811 ----------- ----------- ----------- Gross profit........................ 278,427 (15,177) 263,250 ----------- ----------- ----------- Selling, general and administrative expense............................ 186,980 (11,344) 175,636 Product development expense......... 70,728 (1,717) 69,011 Restructuring and other non- recurring charges.................. 8,896 -- 8,896 Acquired In-Process R&D............. 27,732 -- 27,732 Amortization of intangibles......... 10,405 -- 10,405 ----------- ----------- ----------- Total operating expenses............ 304,741 (13,061) 291,680 ----------- ----------- ----------- Operating income (loss)........... (26,314) (2,116) (28,430) Interest expense.................... (19,856) -- (19,856) Interest income..................... 847 -- 847 Other income (loss), net............ (4,735) -- (4,735) ----------- ----------- ----------- Income (Loss) from continuing operations before income taxes..... (50,058) (2,116) (52,174) Provision (benefit) for income taxes.............................. (11,629) (846) (12,475) Minority interest................... (2,314) -- (2,314) ----------- ----------- ----------- Income (Loss) from continuing operations......................... $ (36,115) $ (1,270) $ (37,385) =========== =========== ===========
d. Purchase Accounting related to WWG Acquisition Aggregate purchase price: Cash in exchange for WWG stock..................................... $ 250,000 Cash in exchange for WWG options................................... 8,000 Dynatech Common Stock (approximately 14,987,000 shares)............ 130,000 --------- 388,000 Add: Estimated acquisition costs................................... 20,000 --------- Total purchase price............................................. 408,000 Less: Pro Forma WWG net assets acquired (see Note C )................ (22,212) --------- Total purchase price in excess of net assets acquired............ 385,788 Estimated purchase accounting allocations: Less: Inventory step-up to fair value.............................. (45,000) Less: Fixed assets step-up to fair value........................... (10,000) Less: Incremental completed technology acquired.................... (22,000) Less: Incremental assembled workforce acquired..................... (33,000) Less: In-process research and development acquired................. (100,000) Add: Deferred tax liabilities...................................... 54,000 Add: WWG historical debt issuance costs not acquired............... 5,415 --------- Estimated incremental goodwill from acquisition.................. $ 235,203 =========
13 NOTES TO UNAUDITED PRO FORMA STATEMENTS--CONTINUED The final allocation of the purchase price is dependent upon certain valuations and other studies that are still in progress. The estimated purchase price allocations are therefore preliminary, and have been presented solely for the purpose of developing these pro forma statements. The final allocation of the purchase price to be ultimately recorded in Dynatech's historical financial statements may or may not be materially different than what has been presented in these pro forma statements. The estimated in-process research and development charge of $100,000 has been included as an adjustment within the Unaudited Pro Forma Condensed Consolidated Balance Sheet, but has not been included as an adjustment within the Unaudited Pro Forma Consolidated Statements of Operations, as this charge is non-recurring in nature. For purposes of these pro forma statements, the estimated life of the WWG related pro forma intangible assets is a blended life of six years. WWG historical and pro forma intangible assets (adjusted as a result of the acquisition) at December 31, 1999 are as follows:
Pro Forma WWG Purchase Adjusted for WWG Accounting Purchase Historical Adjustments Accounting ---------- ----------- ------------ Goodwill............................... $ 62,211 $235,203 $297,414 Completed technology................... 77,544 22,000 99,544 Assembled work force................... 6,845 33,000 39,845 Deferred issuance costs................ 5,415 (5,415) -- Other.................................. 5,390 -- 5,390 -------- -------- -------- $157,405 $284,788 $442,193 ======== ======== ======== Pro forma annual amortization expense............................. $ 73,699 ========
To the extent that the blended life of the intangibles changed from six years to five years, total pro forma annual amortization expense would be $88,439. The estimated incremental increase related to the amortization of intangible assets is as follows:
Nine months Twelve months ended ended December 31, March 31, 1999 1999 ------------ ------------- Pro forma amortization expense................... $ 55,274 $ 73,699 Less: WWG historical amortization of intangible assets.......................................... (14,716) (10,405) -------- -------- Incremental pro forma amortization of intangible assets............................. $ 40,558 $ 63,294 ======== ========
14 NOTES TO UNAUDITED PRO FORMA STATEMENTS--CONTINUED e. Amortization of Intangibles and Depreciation
Nine months Twelve months ended ended December 31, March 31, 1999 1999 ------------ ------------- Incremental pro forma amortization of intangible assets from WWG acquisition....................... $40,558 $63,294 Adjustments to reflect full year amortization of goodwill to acquisitions consummated during the respective periods, as discussed in Note (b) (excludes amortization related to Husky acquisition, which is reflected in discontinued operations segment) .............................. 8,204 12,640 ------- ------- 48,762 75,934 Tax benefit related to incremental amortization of intangible assets other than goodwill............. (2,750) (3,667) ------- ------- Net impact to continuing operations............ $46,012 $72,267 ======= ======= Incremental depreciation for fixed assets step-up.. $ 1,250 $ 1,667 Tax benefit related to incremental depreciation.... (500) (667) ------- ------- Net impact to continuing operations............ $ 750 $ 1,000 ======= =======
f. Restructuring of debt Upon consummation of the WWG merger, Dynatech refinanced the existing debt of both Dynatech and WWG, as follows:
Deferred Debt Issuance Debt Costs Interest Expense ------------ ------------- ------------------------- For the For the As of As of 9 Months Ended Year Ended December 31, December 31, December 31, March 31, 1999 1999 1999 1999 ------------ ------------- -------------- ---------- Existing debt to be paid: Dynatech bank debt...... $(290,000) $ -- $ 15,267 $ 19,874 Dynatech debt issuance costs for bank debt.... -- (10,800) 1,409 1,566 WWG senior subordinated debt, bank debt and other debt, current and long-term ......... (225,000) -- 15,892 19,903 WWG debt issuance costs for bank and other debt......... -- 677 902 --------- -------- -------- -------- (515,000) (10,800) 33,245 42,245 --------- -------- -------- -------- New debt: $860,000 Senior Credit Facility: 6 year amortizing term loan at an assumed interest rate of 2.75% plus LIBOR (8.85%)..... 175,000 -- (11,616) (15,488) Debt issuance costs (6 year amortization)..... -- 5,109 (639) (852) 7.5 year term loan at an assumed interest rate of 3.25% plus LIBOR (9.35%).......... 510,000 -- (35,763) (47,684) Debt issuance costs (7.5 year amortization)..... -- 14,891 (1,489) (1,985) --------- -------- -------- -------- 685,000 20,000 (49,507) (66,009) --------- -------- -------- -------- Net addition to debt, current and long-term.... $ 170,000 ========= Net addition to debt issuance costs........... $ 9,200 ======== Net addition to interest expense.................. $(16,262) $(23,764) ======== ========
15 NOTES TO UNAUDITED PRO FORMA STATEMENTS--CONTINUED Upon the consummation of the merger, Dynatech borrowed approximately $685,000 of the facility, leaving $175,000 available to be drawn under a 6 year revolving credit facility, with an assumed interest rate of LIBOR plus 2.5% (8.7%). In accordance with the terms of the WWG subordinated debt agreement, Dynatech will be obligated to pay a penalty of approximately $9,000 due to the early termination of the WWG debt. Such amount has been excluded from the pro forma statements of operations as it is non-recurring in nature. For historical financial statement purposes, this $9,000 ($5,400 on an after tax basis) penalty will be presented as an extraordinary item on Dynatech's statement of operations (see Note (h) for impact to cash). For historical financial statement purposes, the $10,800 ($6,480 on an after tax basis) of debt issuance costs of Dynatech at December 31, 1999 will be written off and presented as extraordinary item on Dynatech's statement of operations. For pro forma purposes, this charge has been excluded from the pro forma statement of operations, as it is non-recurring in nature. g. Tax benefit on interest expense
For the For the 9 Months Ended Year Ended December 31, March 31, 1999 1999 --- --- -------------- ---------- Tax benefit on interest expense at effective statutory rate of 40% (see Note (f))............................. $(6,505) $(9,506) ======= =======
h. Proceeds from sale of stock Sale of 12,500 shares of Dynatech common stock to CD&R Fund V at $4.00 per share............................... $ 50,000 Sale of 30,625 shares of Dynatech common stock to CD&R Fund VI at $4.00 per share.............................. 122,500 Sale of 4,983 shares of Dynatech common stock in Rights Offering to stockholders of record on April 20, 2000 (other than CD&R Fund V) at $4.00 per share (assumes the Rights Offering is fully subscribed)(i)................................ 19,932 -------- Gross cash proceeds.............................................. 192,432 Transaction fees and expenses(ii)................................ 40,000 Payment, net of tax, for early retirement of WWG senior subordinated debt (see Note f).................................. 5,400 -------- Net cash proceeds................................................ $147,032 ========
-------- (i) The record date for the Rights Offering is April 20, 2000. As the WWG merger was consummated after the record date, neither CD&R Fund VI nor the WWG stockholders will be entitled to receive any Rights by virtue of the shares of Dynatech common stock acquired in connection with the consummation of the WWG merger. (ii) In connection with the WWG merger and the concurrent establishment of Dynatech's new credit facility, the company incurred approximately $40 million of transaction related fees and expenses (as discussed in Notes (d) and (f)), including $6 million payable to Clayton, Dubilier & Rice, Inc., an investment firm that directs the management of Clayton, Dubilier & Rice Fund V Limited Partnership and Clayton, Dubilier & Rice Fund VI Limited Partnership, Dynatech's controlling shareholders. 16 (c) Exhibits: 2.1 Agreement and Plan of Merger, dated as of February 14, 2000, among Dynatech, MergerCo and WWG. 23.1. Consent of Arthur Andersen LLP, independent accountants. 99.1. Press Release of Dynatech, dated May 23, 2000. 99.2 Audited financial statements of WWG as of September 30, 1999 and September 30, 1998 and for the three years ended September 30, 1999. 99.3 Unaudited financial statements of WWG as of March 31, 2000 and for the six-month periods ended March 31, 2000 and March 31, 1999. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYNATECH CORPORATION (Registrant) /s/ Mark V.B. Tremallo Date: May 31, 2000 ---------------------------------------------- Name: Mark V.B. Tremallo Title: Corporate Vice President, General Counsel and Secretary 18 EXHIBIT INDEX Exhibit Description ------- ----------- 2.1 Agreement and Plan of Merger, dated as of February 14, 2000, among Dynatech, MergerCo and WWG. 23.1 Consent of Arthur Andersen LLP, independent accountants. 99.1 Press Release of Dynatech, dated May 23, 2000. 99.2 Audited financial statements of WWG as of September 30, 1999 and September 30, 1998 and for the three years ended September 30, 1999. 99.3 Unaudited financial statements of WWG as of March 31, 2000 and for the six-month periods ended March 31, 2000 and March 31, 1999. 19