AMENDED 8-K MAY 31, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington DC 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): May 31, 1996
EXECUTONE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 0-11551 86-0449210
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
478 Wheelers Farms Road, Milford, Connecticut 06460
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 876-7600
Item 2. Disposition of Assets.
On May 31, 1996, the Company sold substantially all of the Direct
Sales and Services Group, including its network services division
and National Service Center to Clarity Telecom Holdings, Inc.
(Clarity), an acquisition company led by Bain Capital, Inc. The
purchase price consisted of $61.5 million in cash, a $5.9 million
note and warrants to purchase 8% of the common stock of the new
company issued as of the closing, for $1.1 million, exercisable
for three years. The attached pro forma condensed consolidated
financial statements are based upon a purchase price valuation of
$69.6 million, which includes the cash consideration and the fair
value of the note and warrants.
In addition to the transaction with Clarity, the pro forma
condensed financial statements also reflect the disposition of
the Company's Pittsburgh direct sales office and the impact of
dispositions that the Company believes are probable of occurring,
including the inmate calling business and the videoconferencing
division, which are being sold separately to different
purchasers. None of such businesses constituted a material
portion of the Company's assets, revenues or income.
Forward-Looking Statements
In connection with initial announcement of the reported sale, the
Company's management projected pro forma revenues in 1995 and pro
forma pretax income, assuming certain expense eliminations, which
was not intended to meet the requirements of Regulation S-X but
was intended to provide a forward-looking estimate. The pro
forma pretax income for 1995 included in this filing can be
reconciled to the previously provided forward-looking estimate as
follows (in millions of dollars):
1995 Pretax loss per pro forma $(21.1)
Add: Estimated interest income on
investment of sale proceeds 2.2
Add: Provision for restructuring 25.1
6.2
Forward-looking adjustments
not included in pro forma:
Acquisition costs 1.0
Goodwill amortization and other 0.8
1995 forward-looking pretax estimate $8.0
2
Item 7. Financial Statements and Exhibits. Page
(b) Pro forma condensed financial information 4
Pro forma consolidated balance sheet at March 31, 1996 5
Pro forma consolidated statement of operations for the
three-month period ended March 31, 1996 6
Pro forma consolidated statement of operations for the
year ended December 31, 1995 7
(c) Exhibits 9
(2) Asset Purchase Agreement by and among Tone Holdings, Inc.
and Tone Acquisition Corporation, Executone Network Services,
Inc. and Executone Information Systems, Inc. dated as of April 9,
1996 and Amendment No. 1 to Asset Purchase Agreement dated as of
May 31, 1996, by and among Clarity Telecom Holdings, Inc.
(formerly known as Tone Holdings, Inc.), Clarity Telecom, Inc.
(formerly known as Tone Acquisition Corporation), Executone
Network Services, Inc. and Executone Information Systems, Inc.
Incorporated by reference to the Company's Annual Report on Form
10-K/A filed June 4, 1996.
3
Executone Information Systems, Inc.
Unaudited Pro Forma Consolidated Financial Information
The historical consolidated financial statements of Executone
Information Systems, Inc. are as originally reported in its
reports on Forms 10-K and 10-Q. The balance sheet and statements
of operations of the telephony businesses sold to Clarity are
based upon the historical financial results of the Direct Sales
and Services Group, including the network services division, for
the respective periods. In addition, the Company previously
announced that is was negotiating an agreement to sell its
videoconferencing division. Although terms have not yet been
finalized, the pro forma condensed statements reflect a loss of
approximately $3.9 million as a result of the disposition. The
pro forma condensed statements also reflect the sale of the
Pittsburgh direct sales office at its approximate book value and
the disposal of the Company's inmate calling business which is
expected to result in a loss of approximately $1 million. Both
the videoconferencing and inmate losses were accrued as of March
31, 1996. Therefore, the March 31, 1996 pro forma balance sheet
reflects these amounts on an as reported basis.
The sale of the Direct Sales and Service offices (including the
separate sale of the Pittsburgh office) relates primarily to the
retail distribution channel of the Computer Telephony division
and includes the entire network services division. After the
sale, the Computer Telephony division will consist of telephony
product sales to independent distributors, of which Clarity will
be the largest distributor, along with the National Accounts and
Federal Systems marketing groups. The Company retains its
Healthcare Communications and Call Center Management businesses
and the Unistar business. As noted above, the videoconferencing
division will be sold.
The pro forma condensed consolidated balance sheet as of March
31, 1996 has been prepared to reflect the use of a portion of the
proceeds from these transactions to repay the Company's bank
borrowings, assuming the transaction had taken place at that
date. The pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 and for the three-
month period ended March 31, 1996 have been prepared assuming
these transactions occurred January 1, 1995 and January 1, 1996,
respectively. The condensed statements of operations also
reflect the impact of reductions in force which have already been
made related to these dispositions.
The pro forma information does not purport to represent the
Company's actual results of operations if the transactions
described above would have occurred at the beginning of the
respective periods. In addition, the information may not be
indicative of future results.
4
Executone Information Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1996
Unaudited
DSOs Incl.
Long Distance
(000s) Businesses Pro Forma EISI
EISI Sold Adjustments Pro Forma
ASSETS
Current Assets:
Cash and cash equivalents $ 6,278 $ 0 $39,188 (a) $ 45,466
Accounts receivable, net 43,291 (16,746) (1,000) (c) 25,545
Inventories 35,399 (14,543) (4,000) (c) 16,856
Prepaid expense and other current assets 2,241 (1,922) 0 319
Total Current Assets 87,209 (33,211) 34,188 88,186
Property & Equipment, Net 16,522 (5,918) (2,000) (c) 8,604
Intangibles, Net 19,990 0 0 19,990
Deferred Taxes 33,327 0 (18,284) (d) 15,043
Other Assets 4,497 (961) 7,774 (a) 11,310
Total Assets $161,545 $(40,090) $21,678 $143,133
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 30,824 $ (6,545) $ 0 $ 24,279
Deferred revenue and customer deposits 20,127 (19,270) 0 857
Other current liabilities 19,143 (4,969) 1,728 (b) 15,902
Total Current Liabilities 70,094 (30,784) 1,728 41,038
Long-Term Debt 28,879 (387) (15,312) (a) 13,180
Long-Term Deferred Revenue 2,780 (2,469) 0 311
Total Liabilities 101,753 (33,640) (13,584) 54,529
Stockholders Equity:
Common stock 519 0 0 519
Preferred stock 7,300 0 0 7,300
Additional paid-in capital 79,716 0 100 (b) 79,816
Retained earnings (deficit) (27,743) (6,450) 35,162 (d) 969
Total Stockholders' Equity 59,792 (6,450) 35,262 88,604
Total Liabilities and Stockholders'
Equity $161,545 $(40,090) $21,678 $143,133
(a) To reflect total cash and noncash proceeds of $69.6
million for the sale of all of the Company's direct sales
and services offices, net of $15.3 million repayment of the
Company's revolving credit facility and audit, legal and
other cash expenses directly related to the sale. Other
asset adjustment includes writeoff of debt issue costs
relating to the credit facility.
(b) Adjustments for additional legal, sales tax, consulting and
insurance costs related to the separation of the businesses sold
from the Company.
(c) Adjustments to estimate additional assets sold but not
reflected on direct sales office books and inventory adjustments
for potential losses as a result of the transitional split.
(d) Deferred tax asset reduction due to utilization of NOLs for
gain on sale. Adjustments to retained earnings, net of amount
applicable to DSOs sold, reflect estimated net after tax impact
of sale of approximately $28.7 million.
5
Executone Information Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
Three-Month Period Ended March 31, 1996
Unaudited
Executone
Executone Businesses Sold Pro Information
Information DSO's incl. Forma Systems, Inc.
(000) Systems, Inc. LD Reseller Inmate Video Adjustments Pro Forma
Revenues 66,966 (45,329) (1,385) (916) 13,568 (a) 32,904
Cost of Revenues 40,446 (29,568) (1,330) (684) 12,984 (a) 21,848
Gross Profit 26,520 (15,761) (55) (232) 584 11,056
Operating Expenses:
Product development and
engineering 3,764 0 0 0 0 3,764
Selling, general and
administrative 26,256 (15,421) (328) (886) (293) (c) 9,328
Total Operating Expenses 30,020 (15,421) (328) (886) (293) 13,092
Operating Income/(Loss) (3,500) (340) 273 654 877 (2,036)
Interest and Other Expenses, Net 592 66 (65) 0 (340) (b) 253
Loss on Sale of Businesses (e) (4,877) 0 0 0 0 (4,877)
Income Before Income Taxes (8,969) (406) 338 654 1,217 (7,166)
Provision for Income Taxes (3,611) (162) 135 262 487 (d) (2,890)
Net Income/(Loss) (5,358) (244) 203 392 730 (4,276)
Earnings/(Loss) Per Share ($0.10) ($0.08)
Weighted Average Shares Outstand'g 51,853 51,853
(a)To addback revenue and cost impact of sales from Executone to the DSO's
which originally were eliminated in consolidation.
(b)To reflect the reduction of interest expense due to debt repayment using
sale proceeds. Estimated interest income of $550 generated by the investment
of remaining proceeds is not reflected in the pro forma statement.
(c)Impact of reduction in force associated with business dispositions.
(d)To reflect the tax impact of pro forma adjustments at a 40% effective rate.
(e)Loss accrued for Videoconferencing and Inmate sales and reported in
Statement of Operations for the three-month period ended March 31, 1996.
6
Executone Information Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
Year-ended December 31, 1995
Unaudited
Executone
Executone Businesses Sold Pro Information
Information DSO's incl. Forma Systems, Inc.
(000) Systems, Inc. LD Reseller Inmate Video Adjustments Pro Forma
Revenues 296,393 (193,454) (6,544) (2,050) 60,475 (a) 154,820
Cost of Revenues 173,536 (122,266) (5,622) (1,790) 59,287 (a) 103,145
Gross Profit 122,857 (71,188) (922) (260) 1,188 51,675
Operating Expenses:
Product development and
engineering 14,703 0 0 0 0 14,703
Selling, general and
administrative 100,520 (63,621) (1,454) (2,005) (1,173)(c) 32,267
Provision for restructuring
and unusual items 44,042 (18,907) 0 0 0 25,135
Total Operating Expenses 159,265 (82,528) (1,454) (2,005) (1,173) 72,105
Operating Income/(Loss) (36,408) 11,340 532 1,745 2,361 (20,430)
Interest and Other Expenses, Net 2,813 101 (337) 0 (1,861)(b) 716
Income Before Income Taxes (39,221) 11,239 869 1,745 4,222 (21,146)
Provision for Income Taxes (2,287) (2,281) 348 698 1,689 (d) (1,834)
Net Income(Loss) (36,934) 13,520 521 1,047 2,533 (19,312)
Earnings(Loss) Per Share ($0.79) ($0.41)
Weighted Average Shares Outstand'g 46,919 46,919
(a)To addback revenue and cost impact of sales from Executone to the DSO's
which originally were eliminated in consolidation.
(b)To reflect the reduction of interest expense due to debt repayment using
sale proceeds. Estimated interest income of $2,200 generated by the
investment of remaining proceeds is not reflected in the pro forma statement.
(c) Impact of reduction in force associated with business dispositions.
(d) To reflect the tax impact of pro forma adjustments at a 40% effective rate.
(e) Refer to "Forward-Looking Statements" in Item 2.
7
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.
EXECUTONE INFORMATION SYSTEMS, INC.
By:__________________________________
Anthony R. Guarascio
Vice President, Finance and
Chief Financial Officer
Date: February 18, 1997
EXHIBIT INDEX
Exhibit
Number Document
2 Asset Purchase Agreement by and among Tone
Holdings, Inc. and Tone Acquisition Corporation,
Executone Network Services, Inc. and Executone
Information Systems, Inc. dated as of April 9,
1996 and Amendment No. 1 to Asset Purchase
Agreement dated as of May 31, 1996, by and among
Clarity Telecom Holdings, Inc. (formerly known as
Tone Holdings, Inc.), Clarity Telecom, Inc.
(formerly known as Tone Acquisition Corporation),
Executone Network Services, Inc. and Executone
Information Systems, Inc. Incorporated by
reference to the Registrant's Annual Report on
Form 10-K/A for the year ended December 31, 1995,
filed June 4, 1996.