Exhibit 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
In re: Chapter 11 Case Nos.
ACTERNA CORPORATION, et al., 12836 (BRL) through 12843 (BRL)
(Jointly Administered)
Debtors.
- --------------------------------------------x
MONTHLY OPERATING REPORT FOR THE PERIOD
FROM MAY 1, 2003 TO JUNE 30, 2003
DEBTOR'S ADDRESS: Acterna Corporation
12410 Milestone Center Drive
Germantown, Maryland 20876
DEBTORS' ATTORNEYS: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
The undersigned has reviewed the attached report and is familiar with
the Debtors' financial affairs and verifies under penalty of perjury that the
information contained herein is complete, accurate, and truthful to the best of
his knowledge as of the below date.
By: /s/ Grant Barber Date: August 21, 2003
---------------------------------------------------
Grant Barber
Corporate Vice President, Chief Financial Officer
ACTERNA CORPORATION
(DEBTORS-IN-POSSESSION)
INDEX TO MONTHLY OPERATING REPORT AND SCHEDULE
Page Number
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2003..........................................3
Unaudited Condensed Consolidated Statement of Operations for the period
May 1, 2003 to June 30, 2003................................................................................4
Unaudited Condensed Consolidated Statement of Cash Flows for the period
May 1, 2003 to June 30, 200.................................................................................5
Schedule of Disbursements Paid for the period May 6, 2003 to June 30, 2003
.............................................................................................................6
Notes to unaudited Financial Statements.....................................................................7
2
ACTERNA CORPORATION
(DEBTORS-IN-POSSESSION)
Condensed Consolidated Balance Sheet
June 30, 2003
(unaudited, amounts in thousands)
Assets
Current assets:
Cash and cash equivalents $ 52,971
Accounts receivable, net 77,148
Inventory, net 60,570
Income tax receivable 13,459
Prepaid and other current assets 26,305
----------------
Total current assets 230,453
Property, plant and equipment, net 86,631
Goodwill and intangible assets, net 33,538
Deferred debt issuance costs, net 16,431
Other non-current assets 13,320
----------------
Total assets $ 380,373
================
Liabilities and Stockholders' deficit
Current Liabilities:
Notes payable $ 693
Current portion of long-term debt 3,415
Accounts payable 28,183
Accrued expenses 104,253
Accrued income taxes 2,311
----------------
Total current liabilities not subject to compromise 138,855
Long term debt 16,711
Deferred income taxes 4,296
Other long-term liabilities 74,150
----------------
Total liabilities not subject to compromise 234,012
Liabilities subject to compromise 1,035,838
Stockholders' deficit (889,477)
----------------
Total liabilities and stockholders' deficit $ 380,373
================
3
ACTERNA CORPORATION
(DEBTORS-IN-POSSESSION)
Condensed Consolidated Statement of Operations
For the period May 1, 2003 through June 30, 2003
(unaudited, amounts in thousands)
Revenue $ 89,014
Cost of goods sold 49,544
--------------
Gross margin 39,470
Selling, general and administrative expenses 32,762
Product development expense 10,710
Amortization of intangibles 196
--------------
Total operating expenses 43,668
--------------
Operating loss (4,198)
Interest expense (contractual interest of $12,457) (3,249)
Interest income 218
Other income, net 118
--------------
Loss from continuing operations before reorganization items and income taxes (7,111)
Reorganization items 21,754
--------------
Loss from continuing operations before income taxes (28,865)
Provision for income taxes 354
--------------
Net loss $ (29,219)
==============
4
ACTERNA CORPORATION
(DEBTORS-IN-POSSESSION)
Condensed Consolidated Statement of Cash Flows For the
period May 1, 2003 through June 30, 2003
(unaudited, amounts in thousands)
Operating Activities:
Net loss $ (29,219)
Adjustment for non-cash items included in net loss:
Depreciation 3,523
Bad debt expense (62)
Amortization of intangibles 196
Amortization of unearned compensation 1,026
Amoritzation of deferred debt issuance costs 760
Loss on disposal of fixed assets 724
Change in deferred income taxes (411)
Changes in operating assets and liabilities, net 28,153
-----------------
Net cash flows provided by operating activities before reorganization items paid 4,690
Reorganization items paid (871)
-----------------
Net cash flows provided by operating activities 3,819
Investing Activitites:
Purchases of property, plant and equipment (514)
-----------------
Net cash flows used in investing activities (514)
Financing Activities:
Borrowings under revolving credit facility 4,682
Net change in bank overdrafts 577
Repayment of term loan debt (1,927)
Net borrowings of notes payable 33
-----------------
Net cash provided by financing activities 3,365
effect of exchange rate change on cash and cash equivalents 573
-----------------
Increase in cash and cash equivalents 7,243
Cash and cash equivalents at April 30, 2003 45,728
-----------------
Cash and cash equivalents at June 30, 2003 $ 52,971
=================
Change in operating asset and liability components:
Decrease in trade accounts receivable $ 10,032
Decrease in inventory 9,771
Decrease in other assets 4,150
Decrease in accounts payable (182)
Increase in accrued expenses 4,382
-----------------
Change in operating assets and liabilities $ 28,153
=================
5
ACTERNA CORPORATION
(DEBTORS-IN-POSSESSION)
SCHEDULE OF DISBURSEMENTS PAID
FOR THE PERIOD MAY 6, 2003 TO JUNE 30, 2003
(unaudited)
Total
Case # Company Disbursements
- ---------------- ----------------------------------- -------------------
12837 Acterna Corporation $ - (1)
12838 Acterna LLC 28,365,516
12840 Itronix Corporation 8,562,834
12839 da Vinci Systems, Inc. 2,645,645
12843 TTC Federal Systems, Inc. - (2)
12841 TTC Interational Holding, Inc. - (2)
12836 Acterna WG International - (2)
12842 Acterna Business Trust - (2)
-------------------
Total Disbursements $ 39,573,995
===================
Notes:
(1) Acterna Corporation is the parent holding company with no operating
activities.
(2) These companies are dormant operating companies or holding companies with
no operating activities.
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ACTERNA CORPORATION
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BACKGROUND AND ORGANIZATION
Acterna Corporation (the "Company" or "Acterna", formerly Dynatech
Corporation) was founded in 1959 and is a global communications equipment
company focused on network technology solutions. The Company's operations are
conducted by wholly owned subsidiaries located principally in the United States
of America and Europe with other operations, primarily sales offices, located in
Asia and Latin America. The Company is managed in three business segments:
communications test, industrial computing and communications ("Itronix") and
digital color enhancement systems ("da Vinci").
The communications test segment develops, manufacturers and markets
instruments, systems, software and services used to test, deploy, manage and
optimize communications networks, equipment and services. The industrial
computing and communications segment provides computer products to the
ruggedized computer market and consists of the Itronix business. Itronix sells
ruggedized portable communications and computing devices used by field service
workers. da Vinci provides digital color enhancement systems. da Vinci's
products are sold to post-production and video production professionals and
producers of content for the standard-and high-definition television markets.
BANKRUPTCY FILINGS
On May 6, 2003, (the "Filing Date") Acterna Corporation and its seven
United States subsidiaries and affiliates ("the Debtors") filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court") (such filing, the "Filing"). The
Debtors' Chapter 11 cases were consolidated for the administrative purpose of
joint administration and were assigned case number 03-12836 (BRL) through
03-12843 (BRL) (the "Chapter 11 Cases"). The Company's non-U.S. subsidiaries
were not included in the filing.
Under Chapter 11, the Debtors are operating their businesses as
debtors-in-possession under court protection from their creditors and claimants
and intend to use Chapter 11 to substantially reduce their debt obligations and
implement a plan of reorganization. As a debtor-in-possession, the Debtors may
not engage in any transactions outside the ordinary course of business without
the approval of the Bankruptcy Court, after notice and an opportunity for a
hearing.
STATUS OF CHAPTER 11 PROCEEDINGS
The Debtors have received approval from the Bankruptcy Court to pay or
otherwise honor certain of its pre-petition obligations in the ordinary course
of business, including employee wages and benefits, customer programs, shipping
charges and a limited amount of claims of essential trade creditors.
On May 20, 2003, the office of the United States Trustee appointed a
creditors' committee to represent the interests of unsecured creditors.
On June 24, 2003 the Bankruptcy Court entered an order establishing a
bar date of July 31, 2003 for all pre-petition claims. Bankruptcy Services LLC.,
the court-approved claims agent is maintaining a register of all claims filed.
As of August 8, 2003, there were approximately 820 claims submitted for $943.4
million net of duplicate and amended claims. At this time, it is not possible to
estimate the value of the claims that will ultimately be allowed by the
Bankruptcy Court, due to the uncertainties of the Chapter 11 process, the
in-progress state of the Company's investigation of submitted claims and the
lack of full documentation submitted in support of any claims.
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On August 1, 2003, the Debtors filed their disclosure statement and
plan of reorganization with the Bankruptcy Court. Prior to the Filing Date, the
Company negotiated the salient terms of the plan (the "Plan") with certain key
lenders under the Senior Secured Credit Facility. The Company's Plan reflects:
o the conversion of the pre-petition debt held by the lenders under
the Senior Secured Credit Facility into a (i) secured $75 million
note and approximately EUR 83 million term loan and (ii) 100% of
the equity of the reorganized Acterna, subject to dilution in
connection with the warrants described below and a management
incentive plan;
o holders of the Senior Secured Convertible Notes and the Senior
Subordinated Notes will receive three year warrants to purchase
stock of reorganized Acterna having de minimis value in exchange
for the cancellation of these Notes;
o general unsecured creditors will receive a cash distribution of
approximately 10 percent of their claims, subject to certain
conditions; and
o the cancellation of the Company's existing class of common stock
and extinguishment of all rights there under, with no
distribution to the holders of the common stock and no recovery
for these holders in respect of their shares.
Substantially all of the Debtors' pre-petition debt is in default due to
the Filing, the failure to meet debt covenants and failure to pay interest on
the Senior Secured Credit Facility on March 31, 2003. The Company has certain
debt that is owed by foreign subsidiaries of the Company who are not part of the
Chapter 11 filing and to the extent that this debt has a long-term portion, it
is shown as such.
The bank steering committee and the creditor's committee have indicated
their support for the Company's plan of reorganization. The Company cannot
provide any assurance, however, as to the likelihood of its Plan being approved
by the Bankruptcy Court, nor can the Company provide any assurance that the Plan
will be successful, if approved. All of these factors raise substantial doubt as
to whether the Company can continue as a going-concern.
(2) BASIS OF PRESENTATION
The Company cautions readers not to place undue reliance upon the
information contained in this monthly operating report (the "Operating Report").
Further, the amounts reported in this Operating Report, when reported on a
quarterly basis, may differ materially due to adjustments to accruals, changes
in facts and circumstances, changes in estimates, further analysis, and other
factors. There can be no assurance that this Operating Report is complete and
the Company undertakes no obligation to update or revise the Operating Report.
The Condensed Consolidated Balance Sheet, the Condensed Consolidated
Statement of Operations and the Condensed Consolidated Statement of Cash Flows
(the "Consolidated Financial Statements"), included herein, are unaudited and
have been prepared in accordance with GAAP for interim financial reporting,
based on information currently known to us. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with GAAP have been condensed or omitted for purposes of this
Operating Report. All material intercompany transactions have been eliminated.
The results of operations for any interim period are not necessarily indicative
of the results that may be expected for the quarter, the full year, or any
future interim period.
The Consolidated Financial Statements include the results of operations
and cash flows of debtor and non-debtor entities of the Company during the
period May 1, 2003 to June 30, 2003. The balance sheet includes all assets,
liabilities and stockholders' deficit of the Company as of June 30, 2003.
The unaudited Consolidated Financial Statements have also been prepared
in accordance with Statement of Position No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7
requires an entity's statement of operations to portray the results of
operations of the reporting entity during Chapter 11 proceedings. As a result,
any revenues, expenses, realized gains and losses, and provisions resulting from
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the reorganization and restructuring of the Company should be reported
separately as reorganization items, except those required to be reported as
discontinued and extraordinary items in conformity with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The Consolidated Financial Statements include the accounts of the Debtors
and non-debtor subsidiaries. Intercompany accounts and transactions between the
entities have been eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amount 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 reported
period. Significant estimates in these financial statements include allowances
for accounts receivable, net realizable value of inventories, carrying values of
long-lived assets, pension assets and liabilities, tax valuation reserves and
non-recurring charges. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers cash in banks and short-term investments with
original maturities of three months or less as cash and cash equivalents. Cash
equivalents represent highly liquid investment instruments with an original
maturity of three months or less at the time of purchase.
INVENTORIES:
Inventory values are stated at the lower of cost or market. Cost is
determined based on a currently adjusted standard basis, which approximates
actual cost on a first-in, first-out basis. The company's inventory includes raw
materials, work in process, and finished goods. The Company periodically reviews
its recorded inventory and estimates a reserve for obsolete or slow moving
items. The Company reserves the entire value of all obsolete items. The Company
determines excess inventory based upon current and forecasted usage, and a
reserve is provided for the excess inventory. Such estimates are difficult to
make under current economic conditions.
PROPERTY AND EQUIPMENT AND OTHER INTANGIBLES:
Property, plant and equipment is principally recorded at cost and
depreciated on a straight-line basis over the estimated useful lives of the
assets as follows:
Buildings...........................................30.years
Leasehold improvements..............................Remaining life of lease
Machinery and equipment.............................3 to 10 years
Furniture and fixtures..............................3 to 5 years
Computer software/hardware..........................3 years
Tooling.............................................3 years
Vehicles............................................3 years
When a fixed asset is disposed of, the cost of the asset and any related
accumulated depreciation is written off and any gain or loss is recognized.
Maintenance and repairs expenditures are expensed when incurred.
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REVENUE RECOGNITION:
The Company's revenues are primarily derived from product sales. The
Company recognizes revenue when it is earned. The Company considers revenue
earned when it has persuasive evidence of an arrangement, the product has been
shipped or the services have been provided to the customer, title and risk of
loss have passed to the customer, the sales price is fixed or determinable, and
collectibility is reasonably assured.
Revenue from product sales is generally recognized at the time the
products are shipped to the customer. In certain cases where the Company has not
transferred the risks and rewards of ownership, revenue recognition is deferred.
Upon shipment, the Company also provides for estimated costs that may be
incurred for product warranties and sales returns. Service revenue is deferred
and recognized over the contract period or as services are rendered. Revenue on
multi-element arrangements is recognized among each of the deliverables based on
the relative fair value.
Revenue on long-term contracts is recognized using the completed contract
basis or the percentage of completion basis, as appropriate. Profit estimates on
long-term contracts are revised periodically based on changes in circumstances
and any losses on contracts are recognized in the period that such losses become
known. Generally, the terms of long-term contracts provide for progress billing
based on completion of certain phases of work.
Revenue from software sales is generally recognized upon delivery
provided that a contract has been executed, there are no uncertainties regarding
customer acceptance and that collection of the related receivable is probable.
When significant post-delivery obligations exist, revenue is deferred until such
obligations are fulfilled.
INCOME TAXES:
The provision for Income Taxes is based on the consolidated United
States entities estimated tax rates for the applicable year. Deferred taxes are
determined utilizing the asset and liability method based on the estimated
future tax effects of differences between the financial accounting and tax basis
of assets and liabilities under the applicable tax laws. Deferred income tax
provisions and benefits are based on the changes in deferred tax asset or
liability from period to period. These assets and liabilities are measured using
the enacted tax rates and laws that are expected to be in effect at the time the
differences are expected to reverse. The Company's deferred tax assets are
evaluated as to whether it is more likely than not they will be recovered from
future income. To the extent that the Company believes that recovery is not
likely, a valuation allowance is recognized against deferred tax assets.
INTEREST EXPENSE:
In accordance with SOP 90-7, the Debtors did not record interest
expense from May 6, 2003 through June 30, 2003, which resulted in the suspension
of $9.2 million in interest during the period.
CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash investments and accounts
receivable.
The Company maintains its cash accounts in various institutions worldwide
and places its cash investments in prime quality certificates of deposit,
commercial paper, or mutual funds.
Credit risk related to its accounts receivable is limited due to the
large number of customers and their dispersion across many business and
geographic areas. However, a significant amount of trade receivables are with
customers within the telecommunications industry, which is currently
experiencing a significant downturn. The Company extends credit to its customers
based upon an evaluation of the customer's financial condition and credit
history and generally does not require collateral. The Company has historically
incurred insignificant credit losses.
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RECENTLY ADOPTED ACCOUNTING STANDARDS:
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149 "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No.
149"). SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments and hedging activities, primarily as a result of
decisions made by the FASB Derivatives Implementation Group subsequent to the
original issuance of SFAS No. 133 and in connection with other FASB projects.
This standard is generally effective prospectively for contracts and hedging
relationships entered into or modified after June 30, 2003. The company is
currently evaluating the impact of SFAS No. 149.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS No. 150"). This standard improves the accounting for certain financial
instruments that issuers previously accounted for as equity, requiring such
instruments to be classified as liabilities in certain situations. SFAS No. 150
is effective for all financial instruments entered into or modified after May
31, 2003 and for interim periods beginning after June 15, 2003. The Company does
not expect its adoption of SFAS No. 150 in fiscal 2004 to have a material impact
on its financial position or results of operations.
(4) INSURANCE
Premiums to date for all insurance policies, including workers'
compensation and disability insurance, have been paid and are in full force and
effect.
(5) INCOME TAXES
The Debtors recognized approximately $8,000 of state and local tax
expense in the accompanying unaudited Consolidated Statement of Operations for
the period May 6, 2003 to June 30, 2003.
(6) DEBT
As a result of the Filing and in accordance with SOP 90-7, substantially
all of the Company's debt has been reflected as a component of liabilities
subject to compromise.
The Debtors have entered into a debtor-in-possession credit facility
(the "DIP" facility) with certain members of its pre-petition bank group, for
loans of up to $30 million, which has been approved by the Bankruptcy Court. The
DIP facility is a borrowing base facility that fluctuates based on cash on hand,
amount of eligible accounts receivable and inventory of the Debtors. Upon the
successful sale of certain non-core assets of the Company, an additional amount
under the DIP facility would become available to the Debtors as well. The DIP
facility also provides a sub-facility for letters of credit. As of June 30,
2003, the Debtors have $0 borrowings and $0 letters of credit issued under the
DIP facility.
(7) CONTINGENCIES
On April 16, 2003, Sik-Lin Huang commenced class action litigation, in
the United States District Court for the District of Maryland, against the
Company and certain of its officers and directors alleging that the Company and
certain of its officers and directors committed certain securities law
violations. The plaintiff seeks compensatory damages and payment of legal and
expert fees incurred. The Company is a party to several pending legal
proceedings and claims. Although the outcome of such proceedings and claims
cannot be determined with certainty, the Company believes that the final outcome
should not have a material adverse effect on the Company's business, operations
or financial position.
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