-----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, NrzNjP+rSLZpHQwQIrnsN0iOR6n1WUddhReHl+nfCsTJNtHc7NRPwS49xs1M9xNJ um7YPOHZD+nC/BM8cWQM9A== 0001047469-98-038961.txt : 19981103 0001047469-98-038961.hdr.sgml : 19981103 ACCESSION NUMBER: 0001047469-98-038961 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980819 ITEM INFORMATION: FILED AS OF DATE: 19981102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED DIGITAL INFORMATION CORP CENTRAL INDEX KEY: 0000770403 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 911618616 STATE OF INCORPORATION: WA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21103 FILM NUMBER: 98736343 BUSINESS ADDRESS: STREET 1: P O BOX 97057 STREET 2: 11431 WILLOWS RD CITY: REDMOND STATE: WA ZIP: 98073-9757 BUSINESS PHONE: 4258818004 MAIL ADDRESS: STREET 1: P.O. BOX 97057 STREET 2: P O BOX 97057 CITY: REDMOND STATE: WA ZIP: 98073-9757 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- FORM 8-K/A -------------------------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 19, 1998 COMMISSION FILE NUMBER 0-21103 ADVANCED DIGITAL INFORMATION CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------- WASHINGTON 91-1618616 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 11431 WILLOWS ROAD, P.O. BOX 97057 98073-9757 REDMOND, WASHINGTON (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 881-8004 --------------- ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial statements of business acquired. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- The following documents are filed as part of this report: (1) Audited Financial Statements: Report of Independent Accountants............................. 1-2 Consolidated Balance Sheets at December 31, 1996 and 1997..... 3 Consolidated Statements of Operations for the periods January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995 and for the years ended December 31, 1996 and 1997................................ 4 Consolidated Statements of Changes in Shareholders' Equity for the periods January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995 and for the years ended December 31, 1996 and 1997.......................... 5 Consolidated Statements of Cash Flows for the periods January 1, 1995 to May 1995, May 3, 1995 to December 31, 1995 and for the years ended December 31, 1996 and 1997... 6 Notes to Consolidated Financial Statements.................... 7-16 (2) Unaudited Financial Statements: Consolidated Balance Sheet at June 30, 1998................... 17 Consolidated Statements of Operations for the six months ended June 30, 1997 and 1998................................................. 18 Consolidated Statement of Changes in Shareholders' equity for the six months ended June 30, 1998............ 19 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1998............................................ 20 Notes to Consolidated Financial Statements.................... 21-22 (b) Pro forma financial information The following documents are filed as part of this report: Unaudited Pro forma Combined Condensed Balance Sheets at July 31, 1998 ................................. 24 Unaudited Pro forma Combined Condensed Statements of Income for the year ended October 31, 1997................................... 25 Unaudited Pro forma Combined Condensed Statement of Incomes for the nine months ended July 31, 1998............................... 26 Notes to Unaudited Pro forma Condensed Combined Financial Statements..................................... 27-29
REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholder and Board of Directors of EMASS, Inc. We have audited the accompanying consolidated statements of operations, of shareholder's equity and of cash flows of EMASS, Inc. for the periods from January 1, 1995 to May 2, 1995 and May 3, 1995 to December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. In our opinion, the consolidated financial statements audited by us present fairly, in all material respects, the consolidated results of the Company's operations and their cash flows for the periods from January 1, 1995 through May 2, 1995 and May 3, 1995 through December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the financial statements for the period from May 3, 1995 (date of acquisition) through December 31, 1995 have been adjusted to reflect the acquisition of EMASS, Inc. by Raytheon Company, Inc. PricewaterhouseCoopers LLP Dallas, Texas October 21, 1998 1 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholder and Board of Directors of EMASS, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholder's equity and of cash flows present fairly, in all material respects, the financial position of EMASS, Inc. and its subsidiary at December 31, 1996 and 1997 and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Seattle, Washington October 21, 1998 2 EMASS, INC. CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, 1996 1997 ASSETS Current assets: Cash and cash equivalents $ 718,000 $ 1,990,000 Accounts receivable, less allowance for doubtful accounts of $1,621,000 and $1,276,000, respectively 14,032,000 9,959,000 Other receivables 2,394,000 199,000 Inventories 22,278,000 17,224,000 Prepaid expenses and other assets 1,135,000 1,053,000 ------------ ------------ Total current assets 40,557,000 30,425,000 Property and equipment, net 15,364,000 10,737,000 Other assets 921,000 528,000 ------------ ------------ Total assets $ 56,842,000 $ 41,690,000 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 4,966,000 $ 4,164,000 Due to parent company 8,472,000 11,735,000 Due to related party 85,000 88,000 Other accrued liabilities 7,053,000 4,441,000 Short-term obligations and current portion of long-term debt 19,990,000 15,288,000 Deferred revenue 2,741,000 868,000 ------------ ------------ Total current liabilities 43,307,000 36,584,000 ------------ ------------ Long-term debt 2,401,000 1,806,000 ------------ ------------ Minority interest - - ------------ ------------ Commitments and contingencies (Notes 3 and 12) Shareholder's equity Common stock, $200,000 par value, stated value $.01; 100 shares authorized; 90 shares issued and outstanding Additional paid-in-capital 40,406,000 40,406,000 Retained deficit (29,277,000) (37,543,000) Cumulative foreign currency translation adjustment 5,000 437,000 ------------ ------------ Total shareholder's equity 11,134,000 3,300,000 ------------ ------------ Total liabilities and shareholder's equity $ 56,842,000 $ 41,690,000 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 EMASS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
PREDECESSOR COMPANY --------------- --------------------------------------------------- FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 Revenues $ 25,662,000 $ 58,915,000 $ 73,989,000 $ 64,471,000 Cost of goods sold (11,630,000) (48,355,000) (48,079,000) (38,553,000) ------------ ------------ ------------ ------------ 14,032,000 10,560,000 25,910,000 25,918,000 ------------ ------------ ------------ ------------ Operating expenses: Research and development 4,133,000 8,267,000 11,437,000 10,432,000 Selling, general and administrative 14,115,000 15,382,000 28,655,000 22,762,000 ------------ ------------ ------------ ------------ Total operating expenses 18,248,000 23,649,000 40,092,000 33,194,000 ------------ ------------ ------------ ------------ Other income (expense): Foreign exchange gain 1,000 2,000 43,000 54,000 Interest expense (787,000) (748,000) (1,302,000) (976,000) Other (expense) (131,000) (9,000) ------------ ------------ ------------ ------------ (786,000) (746,000) (1,390,000) (931,000) ------------ ------------ ------------ ------------ Loss from before income taxes (5,002,000) (13,835,000) (15,572,000) (8,207,000) Income tax expense (53,000) (2,000) (56,000) (59,000) ------------ ------------ ------------ ------------ (5,055,000) (13,837,000) (15,628,000) (8,266,000) Minority interest (188,000) 188,000 -- -- ------------ ------------ ------------ ------------ Net loss $ (5,243,000) $(13,649,000) $(15,628,000) $ (8,266,000) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 EMASS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY - --------------------------------------------------------------------------------
CUMULATIVE FOREIGN ADDITIONAL CURRENCY Common Stock PAID-IN RETAINED TRANSLATION SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL PREDECESSOR Balance at December 31, 1994 90 $ -- $40,355,000 $ (4,443,000) $ 218,000 $ 36,130,000 Net loss for the period January 1, 1995 to May 2, 1995 (5,243,000) (5,243,000) Translation adjustment 22,000 22,000 Capital contributions 17,842,000 17,842,000 ----------- ---------- ----------- ------------ ------------ ------------ Balance at May 2, 1995 90 $ -- $58,197,000 $ (9,686,000) $ 240,000 $ 48,751,000 ----------- ---------- ----------- ------------ ------------ ------------ ----------- ---------- ----------- ------------ ------------ ------------ COMPANY Balance at May 3, 1995 90 $ -- $22,003,000 $ $ $ 22,003,000 Exercise of stock options 10,000 10,000 Net loss for the period May 3, 1995 to December 31, 1995 (13,649,000) (13,649,000) Translation adjustment 658,000 658,000 Capital contributions 19,451,000 19,451,000 Effect of EMASS acquisition and subsequent contingent consideration (1,058,000) (1,058,000) ----------- ---------- ----------- ------------ ------------ ------------ Balance at December 31, 1995 90 -- 40,406,000 (13,649,000) 658,000 27,415,000 Net loss for the year ended December 31, 1996 (15,628,000) (15,628,000) Translation adjustment (653,000) (653,000) ----------- ---------- ----------- ------------ ------------ ------------ Balance at December 31, 1996 90 -- 40,406,000 (29,277,000) 5,000 11,134,000 Net loss for the year ended December 31, 1997 (8,266,000) (8,266,000) Translation adjustment 432,000 432,000 ----------- ---------- ----------- ------------ ------------ ------------ Balance at December 31, 1997 90 $ -- $40,406,000 $(37,543,000) $ 437,000 $ 3,300,000 ----------- ---------- ----------- ------------ ------------ ------------ ----------- ---------- ----------- ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 EMASS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
PREDECESSOR COMPANY --------------- ----------------------------------------------- FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (5,243,000) $(13,649,000) $(15,628,000) $(8,266,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Loss on sale of property and equipment 8,000 Depreciation and amortization 1,905,000 4,104,000 6,513,000 6,095,000 Change in operating assets and liabilities Accounts receivable (6,591,000) (1,999,000) 5,865,000 4,431,000 Other receivables (926,000) (2,358,000) (2,394,000) 2,195,000 Inventories (13,520,000) (7,839,000) 14,360,000 4,697,000 Prepaid expenses and other assets (285,000) (294,000) 387,000 83,000 Other assets 784,000 (89,000) (46,000) 393,000 Accounts payable 1,275,000 304,000 (7,513,000) (803,000) Due to related party 94,000 112,000 (765,000) 3,000 Accrued liabilities 3,795,000 (2,915,000) 562,000 (2,612,000) Deferred revenue 2,309,000 (1,874,000) Other liabilities (1,111,000) 215,000 (437,000) ------------ ------------ ------------ ----------- Net cash provided by (used in) operating activities (19,823,000) (24,408,000) 3,221,000 4,342,000 ------------ ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (5,142,000) (4,907,000) (3,213,000) (1,493,000) Contingent payments under purchase agreement (803,000) (1,058,000) Proceeds from sale of property and equipment 1,003,000 25,000 ------------ ------------ ------------ ----------- Net cash used in investing activities (5,945,000) (5,965,000) (2,210,000) (1,468,000) ------------ ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions from parent company 17,842,000 19,451,000 Proceeds from exercise of stock options 10,000 Net borrowings from parent company 6,750,000 (50,000) 8,472,000 3,263,000 Proceeds from long-term debt 648,000 11,196,000 466,000 Principal payment on long-term debt (9,138,000) (5,763,000) ------------ ------------ ------------ ----------- Net cash provided by (used in) financing activities 25,240,000 30,607,000 (666,000) (2,034,000) ------------ ------------ ------------ ----------- Effect of foreign currency fluctuations on cash 22,000 658,000 (653,000) 432,000 ------------ ------------ ------------ ----------- Net (decrease) increase in cash and cash equivalents (506,000) 892,000 (308,000) 1,272,000 Cash, and cash equivalents at beginning of period 640,000 134,000 1,026,000 718,000 ------------ ------------ ------------ ----------- Cash, and cash equivalents at end of period $ 134,000 $ 1,026,000 $ 718,000 $ 1,990,000 ------------ ------------ ------------ ----------- ------------ ------------ ------------ ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for taxes $ -- $ 20,000 $ 58,000 $ 51,000 Cash paid during period for interest $ 511,000 $ 1,022,000 $ 1,302,000 $ 976,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 6 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION EMASS, Inc. ("EMASS" or the "Company"), including its 80% owned subsidiary Grau Storage Systems GmbH & Co. KG (Grau), is an international developer, producer and distributor of mass storage products, such as robotics-based media libraries, data migration, archiving and backup software and system integration services, for the MVS and UNIX user environments. The principal markets are in North America and Europe. EMASS is a wholly owned subsidiary of Raytheon E-Systems, Inc. ("E-Systems"), a wholly owned subsidiary of Raytheon Company ("Raytheon"). Raytheon acquired E-Systems effective May 3, 1995. The purchase of E-Systems by Raytheon was accounted for by the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations". The acquisition costs were allocated among the assets acquired and liabilities assumed based on estimated fair values. The fair value of the net tangible assets acquired approximated the allocated purchase price and, accordingly, no goodwill was recorded. The fair value of the assets acquired, net of cash, was $65,686,000 and liabilities assumed were $43,683,000. The financial statements for the period from January 1, 1995 through May 2, 1995 represent the financial statements of EMASS prior to the acquisition by Raytheon ("Predecessor" financial statements). The financial statements for the period from May 3, 1995 through December 31, 1995 have been adjusted to reflect the acquisition of EMASS, Inc. by Raytheon. These financial statements reflect certain sales and expense items which were allocated between the two periods on a pro-rata basis. The financial statements of the Company and the Predecessor are not comparable in certain respects due to the differences between the cost bases of certain assets and liabilities. The consolidated statement of operations reflect certain expense items incurred by E-Systems which were allocated to the Company on a basis which management believes represents a reasonable allocation of such costs to present EMASS as a stand-alone company. These allocations consist primarily of corporate expenses such as executive and other compensation. Compensation has been allocated based on an estimate of the E-Systems personnel time dedicated to the operations and management of EMASS. A summary of these allocations is as follows: 7 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - --------------------------------------------------------------------------------
CORPORATE EXPENSES PREDECESSOR January 1, 1995 - May 2, 1995 $ 194,000 SUCCESSOR May 3, 1995 - December 31, 1995 $ 838,000 Year ended December 31, 1996 1,371,000 Year ended December 31, 1997 1,340,000
CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include short-term investments with an original maturity of three months or less. INVENTORIES Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to income as incurred. Additions, improvements and major replacements are capitalized. For financial reporting purposes, depreciation is provided using the straight-line method over the estimated useful lives of depreciable assets. Estimated useful lives of property and equipment range from three to ten years. RESEARCH AND DEVELOPMENT Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. REVENUE RECOGNITION Revenue from large library system sales is recognized upon customer acceptance. Revenue from software and other sales is recognized upon shipment. Revenue from sales of services is recognized when services are performed and billable, except for extended service agreements. Revenue under extended service agreements is deferred and recognized ratably over the life of the service agreement. INCOME TAXES Provision for income taxes has been recorded in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability method of SFAS 109, deferred tax assets and liabilities are determined based on differences 8 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to be recovered or settled. The Company filed consolidated tax returns with its parent company during the periods presented in these financial statements. However, income taxes in the accompanying consolidated financial statements have been computed assuming the Company filed separate income tax returns worldwide. Deferred taxes result primarily from the use of accelerated depreciation for tax purposes and the timing of tax deductions for allowances and accrued expenses. FOREIGN CURRENCY TRANSLATIONS The financial statements of Grau have been translated into U.S. dollars in accordance with FASB Statement No. 52 "Foreign Currency Translation." Under the provisions of this Statement, all assets and liabilities in the balance sheets of Grau, whose functional currency is the German deutsche mark, are translated at year-end exchange rates, and translation gains and losses are accumulated in a separate component of shareholder's equity. Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency, including U.S. dollars. Gains and losses on those functional currency transactions are included in determining net income or loss for the period in which exchange rates change. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents and other current assets and liabilities such as accounts receivable, accounts payable and accrued liabilities as presented in the consolidated financial statements approximates fair value based on the short-term nature of these instruments. CONCENTRATION OF CREDIT RISK The Company sells product to a wide variety of industries on a worldwide basis. In countries or industries where the Company is exposed to material credit risk, sufficient collateral, including cash deposits and/or letter of credit, is required prior to the completion of a transaction. The Company does not believe there is a material credit risk beyond that provided in the consolidated financial statements in the ordinary course of business. WARRANTY For standard Company products, parts and labor are covered under warranty which range between three months and one year. With respect to drives and tapes used in the Company's products but manufactured by a third party, the Company passes on to the customer the warranty on such drives and tapes provided by the manufacturer. EARNINGS PER SHARE Given the Company's historical capital structure as a wholly owned subsidiary of E-Systems, historical earnings per share amounts are not presented as they are not considered to be meaningful. 9 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVENTORIES Inventories consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1997 Raw materials and supplies $ 14,842,000 $ 14,581,000 Work-in-process 4,986,000 2,848,000 Finished goods 11,213,000 8,919,000 ------------ ------------ 31,041,000 26,348,000 Less: Allowance for obsolete inventory (8,763,000) (9,124,000) ------------ ------------ $ 22,278,000 $ 17,224,000 ------------ ------------ ------------ ------------
3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1996 1997 Buildings and land $ 5,391,000 $ 4,611,000 Computer equipment 7,620,000 4,784,000 Leasehold improvements 362,000 313,000 Office furniture and equipment 3,681,000 2,884,000 Machinery and equipment 14,804,000 10,293,000 Vehicles 164,000 103,000 ------------ ------------ 32,022,000 22,988,000 Less: Accumulated depreciation (16,658,000) (12,251,000) ------------ ------------ $ 15,364,000 $ 10,737,000 ------------ ------------ ------------ ------------
10 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- Future minimum rental commitments under operating leases for years ending December 31, are as follows: 1998 $ 932,000 1999 642,000 2000 76,000 2001 37,000 2002 - Thereafter - ---------- $1,687,000 ---------- ----------
Rent expense for the period January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995, and for the years ended December 31, 1996 and 1997 was $330,000, $759,000, $1,036,000 and $1,094,000, respectively. 4. MAJOR CUSTOMERS Revenues from major customers approximate the following:
PREDECESSOR COMPANY --------------- -------------------------------------------------------- FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 E-Systems $ 4,138,000 $ 7,645,000 $ 5,894,000 $ 6,479,000 Customer A $ 4,891,000 $11,320,000 $12,909,000 $ 7,174,000 Customer B $ 4,893,000 $ 6,763,000 $ 4,889,000 $ 2,300,000
5. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1997 Compensation $3,962,000 $3,139,000 Taxes, other than income 43,000 143,000 Other accrued items 3,048,000 1,159,000 ---------- ---------- $7,053,000 $4,441,000 ---------- ---------- ---------- ----------
11 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- 6. DEBT Short-term obligations of $19,990,000 and $15,288,000 at December 31, 1996 and 1997, respectively, comprise local borrowings by Grau. Of the balances outstanding, $18,847,000 and $15,008,000, respectively, represent amounts borrowed against lines of credit. Amounts borrowed on the line of credit become fixed term loans outstanding with specific due dates. Interest rates on the line of credit funds ranged from 3.53% to 3.62% at December 31, 1996 and 4.22% and 4.25% at December 31, 1997. Amounts available under the lines of credit at December 31, 1997 were $7,225,000. Amounts outstanding under the line of credit agreements are due in January 1998. Long-term debt, comprising local borrowings by Grau, at December 31, 1996 and 1997 is comprised of various notes payable to banks in Germany with interest rates ranging from 6.7% to 7.75% at December 31, 1996 and 4.05% to 6.7% at December 31, 1997. As of December 31, 1997, the maturities of long-term debt were as follows: 1998 $ 280,000 1999 295,000 2000 312,000 2001 326,000 2002 225,000 Thereafter 648,000 ---------- 2,086,000 LESS: Current maturities (280,000) ---------- $1,806,000 ---------- ----------
12 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- 7. INCOME TAXES Loss before provision (benefit) for income taxes was taxed under the following jurisdictions:
PREDECESSOR COMPANY --------------- -------------------------------------------------------- FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 Current: Federal $ - $ - $ - $ - State 53,000 2,000 56,000 59,000 Foreign - - - - ----------- ----------- ----------- ----------- 53,000 2,000 56,000 - ----------- ----------- ----------- ----------- Deferred: Federal - - - - State - - - - ----------- ----------- ----------- ----------- Foreign - - - - ----------- ----------- ----------- ----------- Total $ 53,000 $ 2,000 $ 56,000 $ 59,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net pre-tax operating results from the foreign subsidiary were $39,000, ($3,458,000), $2,333,000 and $1,025,000 for the period January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995, and for the years ended December 31, 1996 and 1997, respectively. The provision (benefit) for income tax differs from the amount computed by applying the statutory federal income tax rate to income (loss) before provision (benefit) for income taxes for the following reasons:
PREDECESSOR COMPANY --------------- -------------------------------------------------------- FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 Income tax expense (benefit) at statutory rates $(1,783,000) $(4,641,000) $(5,314,000) $(2,810,000) Operating losses used by Raytheon 2,023,000 2,657,000 4,214,000 1,445,000 Net change in valuation allowance (381,000) 1,984,000 1,310,000 1,295,000 State income taxes 53,000 2,000 56,000 59,000 Other 141,000 (210,000) 70,000 ----------- ----------- ----------- ----------- Total income tax expense $ 53,000 $ 2,000 $ 56,000 $ 59,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
13 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- The tax effect of temporary differences that give rise to significant portions of the deferred tax asset and liabilities are as follows:
PREDECESSOR COMPANY --------------- -------------------------------------------------------- FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 DEFERRED TAX ASSETS: Net operating losses $ 3,571,000 $ 8,304,000 $ 2,046,000 $ 1,357,000 Allowances - 1,508,000 1,518,000 1,850,000 ----------- ----------- ----------- ----------- 3,571,000 9,812,000 3,564,000 3,207,000 ----------- ----------- ----------- ----------- DEFERRED TAX LIABILITIES: Property and equipment, excess tax depreciation over book (245,000) (340,000) (1,167,000) (1,333,000) ----------- ----------- ----------- ----------- VALUATION ALLOWANCE (3,326,000) (9,472,000) (2,397,000) (1,874,000) ----------- ----------- ----------- ----------- NET DEFERRED TAX ASSET $ - $ - $ - $ - ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8. SHAREHOLDERS EQUITY The Company has a Stock Option Plan available to grant stock options to employees. The plan provides for a maximum of 2,000,000 options to purchase stock. During 1994 and 1995, the Board of Directors granted approximately 1,800,000 options at $2 per share. As a result of the Raytheon purchase of E-Systems in May 1995, substantially all stock options became 100% vested. In April 1998, the Company declared a 200,000 for one reverse stock split. All share amounts included in these financial statements have been retroactively restated to reflect the reverse stock split. As a result of the stock split, all options outstanding resulted in options to purchase fractional shares. As a result of the reverse stock split and a determination by the Company's Board of Directors of the fair value of common stock, all options outstanding were determined to have no value and were cancelled. 9. RELATED PARTY TRANSACTIONS Other accrued liabilities at December 31, 1996 and 1997 include $1,063,000 and $791,000, respectively, due under an employment separation agreement with the minority interest stockholder of Grau. Sales to E-Systems totaled $4,138,000, $7,645,000, $5,894,000 and $6,479,000 for the period January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995, and for the years ended December 31, 1996 and 1997, respectively. 14 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- A company in which the Grau minority interest stockholder has an equity ownership provides certain MVS support services in Europe. Cost of these services totaled $919,000, $1,867,000, $2,586,000 and $881,000 for the period January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995, and for the years ended December 31, 1996 and 1997, respectively. 10. GEOGRAPHICAL SEGMENT INFORMATION Major operations outside the United States are comprised of a subsidiary in Germany, which has branch offices in both France and the United Kingdom. Certain information regarding operations in this geographic segment is presented in the table below. Transfers between geographic segment are made at arm's length prices consistent with rules and regulations of governing tax authorities. The profit on these transfers is not recognized until sales are made to non-affiliated customers. Included in U.S. sales are export sales to unaffiliated customers of $2,192,000, $1,886,000, $1,578,000, $1,623,000 for the period January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995 and for the years ended December 31, 1996 and 1997, respectively. Total international sales were $20,551,000, $39,067,000, $46,680,000, $36,414,000 for the period January 1, 1995 to May 2, 1995, May 3, 1995 to December 31, 1995 and for the years ended December 31, 1996 and 1997, respectively.
PREDECESSOR COMPANY --------------- ------------------------------------------------ FOR THE PERIOD FOR THE PERIOD JANUARY 1, 1995 MAY 3, 1995 YEAR ENDED YEAR ENDED TO MAY 2, TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1995 1996 1997 Net sales: United States $ 7,303,000 $ 21,734,000 $ 28,887,000 $ 29,680,000 Europe 18,359,000 37,181,000 45,102,000 34,791,000 -------------- ------------- ------------- ------------- $ 25,662,000 $ 58,915,000 $ 73,989,000 $ 64,471,000 -------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- Operating profit (loss): United States $ (4,255,000) $ (9,631,000) $ (12,353,000) $ (9,217,000) Europe 39,000 (3,458,000) (1,829,000) 1,941,000 -------------- ------------- -------------- ------------- $ (4,216,000) $(13,089,000) $ (14,182,000) $ (7,276,000) -------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- Identifiable assets: United States $ 29,633,000 $ 23,075,000 Europe 27,209,000 18,615,000 ------------- ------------- $ 56,842,000 $ 41,690,000 ------------- ------------- ------------- -------------
11. EMPLOYEE BENEFIT PLAN The Company sponsors a 401(k) savings plan, which provides for voluntary annual contributions at the discretion of management. The Company has made no contributions. 15 EMASS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 - -------------------------------------------------------------------------------- 12. COMMITMENTS AND CONTINGENCIES In connection the purchase of Grau in 1994, the Company entered into an agreement with the minority shareholder of Grau whereby the minority shareholder has the option to "put" their remaining 20% interest in Grau to the Company for $2,000,000. This option is effective for the period January 1, 2000 to March 31, 2000. The Company obtains insurance for workers' compensation, automobile, product and general liability, property loss, and medical claims. However, EMASS has elected to retain a significant portion of expected losses through the use of deductibles. Provisions for losses expected under these programs are recorded based upon estimates of the aggregate liability of claims incurred. These estimates utilize the Company's prior experience and actuarial assumptions that are provided by the Company's insurance carrier. EMASS is involved in other disagreements, which are in the ordinary course of the Company's business activities that are not expected to have a material adverse effect on EMASS's financial position. Management believes that if there is any impact on the Company's consolidated financial statements as a result of these matters, it will not be material. 13. SUBSEQUENT EVENT On August 19, 1998 EMASS was acquired by Advanced Digital Information Corporation for approximately $24,766,000 in cash. This acquisition will be accounted for under the purchase method of accounting. 16 EMASS, INC. BALANCE SHEET (UNAUDITED)
JUNE 30, 1998 ASSETS Current assets: Cash and cash equivalents $ 3,250,000 Accounts receivable, less allowance for doubtful accounts of $1,463,000 10,222,000 Other receivables 86,000 Inventories 16,064,000 Prepaid expenses and other assets 926,000 -------------- Total current assets 30,548,000 Other assets 75,000 Property and equipment, net 9,352,000 -------------- $ 39,975,000 -------------- -------------- LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 2,763,000 Due to parent company 14,335,000 Due to related party 88,000 Other accrued liabilities 6,618,000 Short-term obligations and current portion of long-term debt 11,370,000 Deferred revenue 1,551,000 -------------- Total current liabilities 36,725,000 -------------- Long-term debt 1,704,000 -------------- Minority interest 138,000 -------------- Shareholder's equity Common stock, stated value $200,000 par value, $.01: 100 shares authorized; 90 shares issued and outstanding - Additional paid-in capital 40,406,000 Retained deficit (39,711,000) Cumulative foreign currency translation adjustment 713,000 -------------- Total shareholder's equity 1,408,000 -------------- $ 39,975,000 -------------- --------------
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 17 EMASS, INC. STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 1998 Revenues $ 28,240,000 $ 32,554,000 Cost of goods sold (18,141,000) (21,252,000) ---------------- --------------- Gross profit 10,099,000 11,302,000 ---------------- --------------- Operating expenses: Research and development 4,486,000 3,754,000 Selling, general and administrative 9,124,000 9,231,000 ---------------- --------------- Total operating expenses 13,610,000 12,985,000 ---------------- --------------- Interest expense (466,000) (347,000) Other income - - ---------------- --------------- Loss before income taxes (3,977,000) (2,030,000) Income tax expense - ---------------- --------------- (3,977,000) (2,030,000) Minority interest (138,000) ---------------- --------------- Net loss $ (3,977,000) $ (2,168,000) ---------------- --------------- ---------------- ---------------
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 18 EMASS, INC. STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)
CUMULATIVE FOREIGN ADDITIONAL CURRENCY PAID-IN RETAINED TRANSLATION SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS TOTAL Balance at December 31, 1997 90 $ - $40,406,000 $ (37,543,000) $ 437,000 $ 3,300,000 Net loss for the period January 1, 1998 to June 30, 1998 (2,168,000) (2,168,000) Translation adjustment 276,000 276,000 ----------- ----------- ----------- -------------- -------------- ------------- Balance at June 30, 1998 90 $ - $40,406,000 $ (39,711,000) $ 713,000 $ 1,408,000 ----------- ----------- ----------- -------------- -------------- ------------- ----------- ----------- ----------- -------------- -------------- -------------
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 19 EMASS, INC. STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (3,977,000) $ (2,168,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 1,371,000 1,759,000 Gain on sale of property and equipment (147,000) Minority interest 138,000 Changes in operating assets and liabilities: Accounts receivable 1,771,000 1,010,000 Other receivables 1,465,000 113,000 Inventories 2,416,000 245,000 Prepaid expenses and other assets (423,000) (275,000) Other assets 877,000 453,000 Accounts payable (2,268,000) (1,401,000) Due to related party (85,000) Accrued liabilities (2,098,000) 2,177,000 Deferred revenue (1,627,000) 686,000 ----------------- --------------- Net cash provided by (used in) operating activities (2,725,000) 2,737,000 ----------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,020,000) (204,000) Proceeds from sale of property and equipment 1,077,000 ----------------- --------------- Net cash provided by (used in) investing activities 57,000 (204,000) ----------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings from parent company 4,831,000 2,471,000 Proceeds from long-term debt 530,000 Principal payment on long-term debt (2,609,000) (4,020,000) ---------------- ---------------- Net cash provided by (used in) financing activities 2,752,000 (1,549,000) ---------------- ---------------- Effect of foreign currency fluctuations on cash 190,000 276,000 ---------------- --------------- Net increase (decrease) in cash and cash equivalents 274,000 1,260,000 Cash and cash equivalents at beginning of period 718,000 1,990,000 ---------------- --------------- Cash and cash equivalents at end of period $ 992,000 $ 3,250,000 ---------------- --------------- ---------------- ---------------
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS. 20 EMASS, INC. NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 1.BASIS OF PRESENTATION The financial statements presented as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have not been audited. In the opinion of management, the unaudited interim balance sheet, statements of operations, changes in shareholder's equity and of cash flows include all normally recurring adjustments necessary to present fairly the financial position, results of operations and cash flows as of and for the periods presented of EMASS, Inc. EMASS, Inc. ("EMASS" or the "Company"), including its 80% owned subsidiary Grau Storage Systems GmbH & Co. KG (Grau), is an international developer, producer and distributor of mass storage products, such as robotics-based media libraries, data migration, archiving and backup software and system integration services, for the MVS and UNIX user environments. The principal markets are in North America and Europe. EMASS is a wholly-owned subsidiary of Raytheon E-Systems, Inc. ("E-Systems"), a wholly-owned subsidiary of Raytheon Company ("Raytheon"). Raytheon acquired E-Systems effective May 3, 1995. The purchase of E-Systems by Raytheon was accounted for by the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations". The consolidated statement of operations reflect certain expense items incurred by E-Systems which were allocated to the Company on a basis which management believes represents a reasonable allocation of such costs to present EMASS as a stand-alone company. These allocations consist primarily of corporate expenses such as executive and other compensation. Compensation has been allocated based on an estimate of the E-Systems personnel time dedicated to the operations and management of EMASS. A summary of these allocations is as follows:
CORPORATE EXPENSES -------- Six months ended June 30, 1997 $ 480,000 Six months ended June 30, 1998 352,000
21 2. INVENTORIES Inventories consist of the following:
JUNE 30, 1998 Raw materials and supplies $ 16,451,000 Work-in-progress 1,473,000 Finished goods 7,608,000 --------------- 25,532,000 LESS: Allowance for obsolete inventory (9,468,000) --------------- $ 16,064,000 --------------- ---------------
22 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA On August 19, 1998, Advanced Digital Information Corporation ("ADIC" or the "Company") acquired EMASS, Inc. ("EMASS"), a wholly owned subsidiary of Raytheon E-Systems, Inc. ("E-Systems") pursuant to a Stock Purchase Agreement with E-Systems dated July 21, 1998. Pursuant to this Stock Purchase Agreement, the Company made a cash payment of $24,766,000 to E-Systems and assumed approximately $2,000,000 in mortgage indebtedness in exchange for one hundred percent of the outstanding stock of EMASS ( the "Acquisition"). The Acquisition will be accounted for by the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations", ("APB 16"). The following unaudited pro forma condensed combined balance sheet as of July 31, 1998 was prepared as if the Acquisition occurred on such date. The following unaudited condensed combined statements of income give effect to the Acquisition as of the beginning of the periods presented. The unaudited pro forma condensed combined statements of income do not purport to represent what the Company's results of operations actually would have been if the Acquisition had occurred as of such date or what such results will be for any future periods. The unaudited pro forma condensed combined financial statements are derived from the historical financial statements of the Company and EMASS and the assumptions and adjustments described in the accompanying notes. The Company and EMASS believe that all adjustments necessary to present fairly such unaudited financial information have been made. The unaudited pro forma financial data should be read in conjunction with the consolidated financial statements and the accompanying notes thereto of EMASS appearing elsewhere in this 8-K and the financial statements of the Company included in its Annual Report on Form 10-K for the year ended October 31, 1997. The unaudited pro forma condensed consolidated financial statements do not reflect any cost savings or other economic efficiencies resulting from the Acquisition nor do they include any adjustment for corporate allocations and infrastructure imposed by EMASS' parent company. 23 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JULY 31, 1998 (IN THOUSANDS)
PRO FORMA ADIC EMASS ADJUSTMENTS PRO FORMA ASSETS Current assets Cash and cash equivalents $ 22,291 $ 2,931 $ (5,050) (a) $ 20,172 Accounts receivable, net 20,262 10,584 30,846 Inventories 20,916 16,927 37,843 Prepaid expenses and other 3,477 1,551 5,028 ------------- -------------- ------------- ------------- Total current assets 66,946 31,993 (5,050) 93,889 Property, plant and equipment 4,136 9,239 (6,651) (b) 6,724 Intangible assets, net 3,700 (b) 3,700 Acquired in-process research and development 4,900 (b) (4,900) (b) Other long-term assets 4,284 4,284 ------------- -------------- ------------- ------------- $ 75,366 $ 41,232 $ (8,001) $ 108,597 ------------- -------------- ------------- ------------- ------------- -------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 7,230 $ 5,718 $ 12,948 Accrued and other current liabilities 2,642 8,348 $ 1,200 (c) 12,190 Due to parent company 23,750 (23,750) (d) ------------- -------------- ------------- ------------- Total current liabilities 9,872 37,816 (22,550) 25,138 ------------- -------------- ------------- ------------- Minority interest 1,100 (e) 1,100 ------------- ------------- Long-term debt 1,765 20,000 (a) 21,765 -------------- ------------- ------------- Shareholders' equity Common stock 46,237 40,406 (40,406) (f) 46,237 Retained deficit 19,526 (39,543) 39,543 (f) 14,626 (4,900) Cumulative translation adjustment (269) 788 (788) (f) (269) ------------- -------------- ------------- ------------- Total shareholders' equity 65,494 1,651 (6,551) 60,594 ------------- -------------- ------------- ------------- $ 75,366 $ 41,232 $ (8,001) $ 108,597 ------------- -------------- ------------- ------------- ------------- -------------- ------------- -------------
24 UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS NINE MONTHS ENDED JULY 31, 1998 (IN THOUSANDS EXCEPT SHARE AMOUNTS)
PRO FORMA ADIC EMASS ADJUSTMENTS PRO FORMA Net sales $ 72,986 $ 47,917 $ (400) (g) $ 120,503 Cost of sales 51,791 31,973 (400) (g) 83,364 ------------- -------------- ------------- ------------- Gross profit 21,195 15,944 - 37,139 ------------- -------------- ------------- ------------- Operating expenses Research and development 2,063 5,621 7,684 Selling, general and administrative 12,944 12,698 740 (h) 26,382 ------------- -------------- ------------- ------------- 15,007 18,319 740 34,066 ------------- -------------- ------------- ------------- Operating profit (loss) 6,188 (2,375) 740 3,073 Other income (expense) 1,238 375 (975) (i) 638 ------------- -------------- ------------- ------------- Income (loss) before provision for income taxes 7,426 (2,000) (1,715) 3,711 Provision (benefit) for income taxes 2,379 (332) (j) 2,047 Minority interest ------------- -------------- ------------- ------------- Net income (loss) $ 5,047 $ (2,000) $ (1,383) $ 1,664 ------------- -------------- ------------- ------------- ------------- -------------- ------------- ------------- Basic earnings per share $ .52 $ .17 ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding 9,730,086 9,730,086 ------------- ------------- ------------- ------------- Diluted earnings per share $ .51 $ .17 ------------- ------------- ------------- ------------- Weighted average number of common and common equivalent shares outstanding 9,904,897 9,904,897 ------------- ------------- ------------- -------------
25 UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS YEAR ENDED OCTOBER 31, 1997 (IN THOUSANDS EXCEPT SHARE AMOUNTS)
PRO FORMA ADIC EMASS ADJUSTMENTS PRO FORMA Net sales $ 93,204 $ 64,471 $ $ 157,675 Cost of sales 65,556 38,553 104,109 ------------- -------------- ------------- ------------- Gross profit 27,648 25,918 53,566 ------------- -------------- ------------- ------------- Operating expenses Research and development 2,910 10,432 13,342 Selling, general and administrative 13,556 22,762 987 (h) 37,305 ------------- -------------- ------------- ------------- 16,466 33,194 987 50,647 ------------- -------------- ------------- ------------- Operating profit (loss) 11,182 (7,276) (987) 2,919 Other income (expense) 1,481 (931) (1,300) (i) (750) ------------- -------------- ------------- ------------- Income (loss) before provision for income taxes 12,663 (8,207) (2,287) 2,169 Provision (benefit) for income taxes 4,166 59 (442) (j) 3,783 Minority interest ------------- -------------- ------------- ------------- Net income (loss) $ 8,497 $ (8,266) $ (1,845) $ (1,614) ------------- -------------- ------------- ------------- ------------- -------------- ------------- ------------- Basic earnings per share $ .94 $ (.18) ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding 9,084,274 9,084,274 ------------- ------------- ------------- ------------- Diluted earnings per share $ .92 $ (.18) ------------- ------------- ------------- ------------- Weighted average number of common and common equivalent shares outstanding 9,285,226 9,084,274 ------------- ------------- ------------- -------------
26 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The pro forma condensed combined balance sheet assumes that the Acquisition took place on July 31, 1998 and combines the Company's unaudited July 31, 1998 condensed consolidated balance sheet and EMASS' unaudited September 30, 1998 condensed consolidated balance sheet. The proforma condensed combined income statements assume the Acquisition took place as of the beginning of the periods presented and combine the Company's income statements for the year ended October 31, 1997 with EMASS' statement of operations for the year ended December 31, 1997 and the Company's unaudited income statements for the nine months ended July 31, 1998 with EMASS' unaudited statement of operations for the nine months ended September 30, 1998. All material transactions between ADIC and EMASS during the periods presented have been eliminated as a pro forma adjustment. There are no material differences between the accounting policies of ADIC and EMASS. 2. PRO FORMA ADJUSTMENTS The pro forma adjustments are based on the Company's estimates of the value of the tangible and identifiable intangible assets acquired. An independent third-party appraisal company has conducted a valuation of the identifiable intangible assets acquired. Under APB 16, the total acquisition cost will be allocated to EMASS' assets and liabilities based on their fair value. The final allocations may be different from the valuations reflected herein. The total market or appraisal values of identifiable tangible and intangible assets acquired less liabilities assumed exceeds the total purchase price. Accordingly, this excess will be allocated proportionately to all noncurrent assets. The Company's analysis, based on an independent appraisal, included a valuation of acquired in-process research and development. Under generally accepted accounting principles, any value associated with this acquired in-process research and development will be expensed immediately. The accompanying pro form condensed combined income statements exclude the effects of the charge due to its nonrecurring nature. As a result of the Acquisition, the Company expects to have certain duplicative assets. Any duplicative assets which are owned by ADIC will be expensed immediately. In addition, the Company expects to incur costs of integration subsequent to the consummation of the Acquisition which costs are not included in the proforma condensed combined income statements. (a) Represents the cash consideration of $24.8 million and estimated acquisition expenses of approximately $250 thousand related to the Acquisition which was financed from existing cash of the Company and a loan from Seafirst Bank. 27 (b) Represents estimated valuation of tangible and intangible assets, including acquired in-process research and development, resulting from the preliminary allocation of the purchase price. Valuation of the intangible assets acquired was conducted by an independent third-party appraisal company and consists of purchased developed technology, in-process research and development and assembled workforce. The table below is a summary of the estimated amounts allocated to intangible assets acquired (in thousands): Acquired in-process research and development $4,900 Acquired developed technology $2,900 Assembled workforce $ 650 Other $ 150
The intangible assets noted above will be amortized over periods ranging from one to five years. The acquired in-process research and development has not yet reached technological feasibility and has no alternative future use. The value assigned to this asset will be expensed as a non-recurring, non-tax deductible charge upon consummation of the Acquisition. This amount has been reflected as a reduction to shareholders' equity and has not been included in the pro forma condensed combined income statements due to its non-recurring nature. The existence of acquired in-process research and development and acquired developed technology was determined by a third-party independent appraisal. This appraisal identified a library storage product and associated software being developed as well as certain separate software products. The Company expects to incur significant costs to develop the acquired in-process research and development into commercially viable products. The value of the acquired in-process research and development and developed technology was determined by estimating future revenues and costs of the products, including cost of capital and taxes, to the estimated product life cycle then discounting the estimated projected cash flows. The estimated annual amortization charge to operations related to intangible assets approximated $987 thousand. This charge is reflected in the pro forma condensed combined income statements. (c) Pro forma adjustment to reflect liabilities associated with anticipated workforce and office changes. (d) Represents the payoff by E-Systems of the short-term obligations of EMASS" 80% owned subsidiary Grau Storage Systems GmbH & Co. KG ("Grau") and the forgiveness of the debt to parent company. (e) Reflects the minority interest associated with Grau. (f) Represents adjustments to reflect the elimination of common stock, retained deficit and cumulative translation adjustments of EMASS. (g) Adjustment to eliminate intercompany sales and cost of sales. 28 (h) Adjustment to reflect the amortization expense of acquired developed technology and assembled workforce. (i) Adjustment to reduce interest expense for the repayment of the short-term obligations of Grau and to reflect interest expense on the new loan associated with the Acquisition. (j) Pro forma adjustment for income taxes on expenses expected to be deductible for tax purposes. 3. DEFERRED TAXES There are significant deferred tax assets which the Company expects to recognize based on the net tax effect of book/tax differences in the acquired intangibles, excluding acquired in-process research and development, and differences created as a result of reducing property, plant and equipment. A valuation allowance is anticipated for 100% of such deferred tax asset. 29 EX-23.1 2 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Forms S-8 (Nos. 333-15111, 333-34103 and 333-61907) of Advanced Digital Information Corporation of our report dated October 21, 1998, relating to the consolidated financial statements of EMASS, Inc., which appears in the Current Report on Form 8-K of Advanced Digital Information Corporation dated November 2, 1998. PricewaterhouseCoopers LLP Dallas, Texas November 2, 1998 EX-23.2 3 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Forms S-8 (Nos. 333-15111,333-34103 and 333-61907) of Advanced Digital Information Corporation of our report dated October 21, 1998 relating to the consolidated financial statements of EMASS, Inc., which appears in the Current Report on Form 8-K of Advanced Digital Information Corporation dated November 2, 1998. PricewaterhouseCoopers LLP Seattle, Washington November 2, 1998 -----END PRIVACY-ENHANCED MESSAGE-----