SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): February 6, 1998
IFR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-14224 [48-1197645]
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10200 West York, Wichita, Kansas 67215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 522-4981
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 6, 1998, Registrant acquired for cash all of the issued and
outstanding capital stock of Marconi Instruments Limited., Hertfordshire,
England (collectively with its subsidiaries "Marconi") from The General
Electric Company, p.l.c. ("GEC"). The purchase price for Marconi was
$64,350,000 plus L26,000,000 or a total purchase price of approximately
$107,000,000. The purchase was made pursuant to a Share Sale and Purchase
Agreement, dated as of February 6, 1998, between IFR Systems, Inc.
("Registrant" or "IFR"), IFR Systems Limited, and GEC (the "Purchase
Agreement"). IFR Systems Limited is a wholly owned subsidiary of Registrant
formed for the purpose of making the acquisition. Registrant has changed the
name of Marconi Instruments Limited to IFR Instruments Limited and has
changed the name of Marconi's United States subsidiary to IFR Instruments of
Texas, Inc. When used herein, the term "IFR-UK" refers collectively to IFR
Instruments Limited and its subsidiaries.
The purchase price was negotiated on an arms' length basis. There is no
material relationship between GEC and Registrant or any of Registrant's
affiliates, directors, or officers or any associate of any such director or
officer. Registrant used funds borrowed under the Credit Agreement described
below to pay the purchase price.
A copy of the Purchase Agreement is filed as Exhibit 2.01 to this Form
8-K. The following description of the Purchase Agreement is intended to be
only a summary of the Purchase Agreement. Reference is hereby made to the
Purchase Agreement for a full statement of its terms which are hereby
incorporated by reference.
In addition to containing typical provisions relating to a purchase of a
corporate subsidiary for cash, the Purchase Agreement provides that IFR-UK
and GEC and its subsidiaries grant each other non-exclusive, irrevocable,
non-transferable, royalty-free perpetual worldwide licenses to use all
intellectual property belonging to any of them and being used by the other
prior to the date of the acquisition for the purpose of developing,
manufacturing, and selling existing products and any improvement,
modification or adaption of products manufactured or in the course of
development at such date. IFR-UK may not make any use of the Marconi trade
names after the expiration of nine months from the date of the transaction.
The Purchase Agreement also provides for GEC to assume the responsibility for
certain pending patent litigation and to retain any recovery received and for
GEC to assume the responsibility of bringing additional patent enforcement
proceedings with any net proceeds to be divided equally by GEC and IFR.
The Purchase Agreement contains certain representations and warranties
of GEC and provides that IFR's maximum recovery for breach of such warranties
and representations (other than with respect to GEC's title to the shares of
Marconi) may not exceed L40,000,000 (L10,000,000 in the case of environmental
matters) after reaching various threshold amounts. Claims for breach of GEC
warranties and representations must be made by December 31, 1999 except
environmental claims may be asserted prior to the expiration of five or seven
years depending on the nature of the claim.
The parties also entered into a "Deed of Tax Covenant" in connection
with the Purchase Agreement. The Tax Covenant provides generally for
indemnification by GEC for tax liabilities that might be incurred by IFR (and
in certain cases for indemnification by IFR for certain losses that may be
incurred by GEC) and for the manner in which GEC and IFR will prepare various
tax returns. Claims under the Tax covenant must be asserted within seven
years.
A copy of the Tax Covenant is filed as Exhibit 2.02 to this Form 8-K.
The preceding description of the Tax Covenant is intended to be only a
summary of the Tax Covenant. Reference is hereby made to the Tax Covenant for
a full statement of its terms which are hereby incorporated by reference.
IFR-UK is engaged in the design, manufacture, distribution, and sale of
test and measurement equipment. Such equipment is sold primarily to the
telecommunications and electronics industries. IFR-UK participates in four
market sectors of the global electronic test and measurement industry: (i)
Test Instruments, (ii) Automated Test Equipment, (iii) Service, and (iv)
Solutions. IFR-UK's test equipment products sell in prices ranging from
approximately $2,000 to $40,000.
Test Instruments are items of equipment which test and measure the
performance of a broad range of electronic and telecommunications products.
The Test Instrument market is divided into a number of segments based on
products and applications. Within the Test Instruments area, IFR-UK primarily
competes in the mobile radio, signal analyzers, signal sources, lab/system
power supplies and communications test equipment markets. Customers include
telecommunications equipment producers, installers and operators, the
military and the aviation industry.
Automated Test Equipment tests and verifies the construction and
performance of assembled printed circuit boards, electronic subassemblies or
products. Customers include automotive component manufacturers and producers
of electronics.
Service entails the calibration and repair of test and measurement
equipment and third party testing facilities management.
Solutions represents customized test and measurement systems and is
currently principally undertaken by customers in-house. IFR-UK is one of the
industry pioneers in providing this service on a third party basis.
IFR-UK sales by category for the year ended March 31, 1997 were as follows:
$ MILLION %
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i) Test Instruments 77.3 73.7
ii) Automated Test Equipment 6.0 5.7
iii) Service 15.3 14.6
iv) Solutions 6.2 6.0
104.8 100.0
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IFR-UK's headquarters are at Longacres House, Norton Green Road,
Stevenage, United Kingdom, which it leases under a lease expiring in 2020.
IFR-UK owns three manufacturing facilities located in Stevenage containing an
aggregate of 144,000 square feet of manufacturing facilities and leases three
other facilities in the United Kingdom used for service, repair and
engineering development activities. IFR-UK leases its sales and support
facilities which are located in the United States, Germany, France,
Netherlands, Spain, Hong Kong and China.
As a result of the acquisition, Registrant acquired the foreign
subsidiaries of Marconi which do business in France, Germany, Spain, and the
United States. IFR-UK also has branches in the Netherlands, Singapore, Hong
Kong, and China. IFR-UK also has distribution relationships and service
centers worldwide.
In connection with the Marconi transaction, on February 5, 1998,
Registrant entered into a Credit Agreement (the "Credit Agreement") with The
First National Bank of Chicago ("First Chicago") as agent for itself and
other lenders pursuant to which Registrant has the right, subject to certain
usual and customary conditions, to borrow a maximum of $130,000,000. Of such
amount, $100,000,000 is in the form of two term loans in the principal amount
of $50,000,000 each and the remaining $30,000,000 is in the form of a
revolving line of credit. As of the date hereof, Registrant has borrowed
$100,000,000 under the term loan provisions of the Credit Agreement and
$7,000,000 under the revolving loan provisions.
A copy of the Credit Agreement is filed as Exhibit 10.01 to this Form
8-K. The following description of the Credit Agreement is intended to be only
a summary of the Credit Agreement. Reference is hereby made to the Credit
Agreement for a full statement of its terms which are hereby incorporated by
reference.
Both of the term loans are payable in quarterly installments of
principal pursuant to a schedule contained in the Credit Agreement which
calls for such payments to increase over the term of the loan.
Subject to restrictions contained in the Credit Agreement, Registrant
may choose whether the loans will bear interest either at the "Alternate Base
Rate" (a fluctuating interest rate equal to the higher of First Chicago's
base rate or the sum of the reported "federal funds" rate plus 0.5% per
annum) or at the "Eurocurrency Base Rate" (the LIBOR rate for the applicable
currency for the relevant interest period). Both of such rates are increased
by an applicable "margin" which varies up to 2.5% per annum depending on the
type of loan, the interest rate basis chosen, and the Registrant's then
current "Leverage Ratio" as defined in the Credit Agreement.
The loans made under the Credit Agreement are secured by the pledge of
all of the capital stock of Registrant's United States subsidiaries, by a
pledge of 65% of the common stock of IFR Systems Limited, a United Kingdom
subsidiary of Registrant, and by the guaranties of all of Registrant's United
States subsidiaries. Registrant and all of its United States subsidiaries
also granted security interests on substantially all of their assets
excluding real estate and leasehold interests.
The Credit Agreement contains various affirmative and negative
covenants, among which
are covenants requiring the maintenance of specified financial ratios,
prohibiting dividends until Borrower's Leverage Ratio (as defined) is 2.0 or
less, restricting the incurrence of additional indebtedness, requiring the
maintenance of interest rate agreements, and certain restrictions on future
acquisitions.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following financial statements of IFR-UK are filed herewith:
Condensed consolidated balance sheets at December 31, 1997 and 1996 (UK
GAAP and unaudited).
Condensed consolidated statements of income for the twelve months ended
December 31, 1997 and 1996 (UK GAAP and unaudited).
The remaining financial statements required to be filed with this Form 8-K will
be filed by amendment no later than April 6, 1998.
(b) The PRO FORMA financial statements required to be filed with this
Form 8-K will be filed by amendment no later than April 6, 1998.
(c) The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
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2.01 Share Sale and Purchase Agreement, dated
February 6, 1998 among IFR Systems, Inc., IFR
Systems Limited, and The General Electric Company
p.l.c.
2.02 Deed of Tax Covenant, dated February 6, 1998, between
The General Electric Company, p.l.c., as Covenantor,
and IFR Systems Limited, as Purchaser
10.01 Credit Agreement, dated as of February 5, 1998, among
IFR Systems, Inc., The First National Bank of Chicago,
and various lenders.
10.02 Form of Security Agreement executed by Registrant
and its United States subsidiaries.
10.03 Form of Guaranty executed by each of Registrants
United States subsidiaries.
10.04 Pledge Agreement between Registrant and First
National Bank of Chicago.
10.05 Equitable Share Charge by Registrant to First
National Bank of Chicago.
10.06 Form of Copyright Security Agreement executed by
Registrant and each of its United States subsidiaries.
10.07 Form of Patent Security Agreements executed by
Registrant and each of its United States subsidiaries.
10.08 Form of Trademark Security Agreement executed by
Registrant and each of its United States subsidiaries.
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.
IFR SYSTEMS, INC.
By /s/ Alfred H. Hunt, III
-------------------------------------
Alfred H. Hunt, III
President and Chief Executive Officer
Date: February 20, 1998
IFR-UK
CONDENSED CONSOLIDATED BALANCE SHEETS
(UK GAAP - UNAUDITED)
DECEMBER 31,
1997 1996
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(000's omitted)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $(1,180) $ 120
Accounts receivable 22,828 23,510
Inventory 24,656 24,472
Prepaid and other 3,758 2,700
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TOTAL CURRENT ASSETS 50,062 50,802
Property, plant and equipment - net 17,584 16,879
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TOTAL ASSETS $67,647 $67,681
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $18,258 $16,505
Other liabilities 1,962 1,737
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CURRENT LIABILITIES 20,220 18,242
Shareholders' equity 47,426 49,439
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $67,647 $67,681
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UK GAAP - UNAUDITED)
TWELVE MONTHS ENDED
DECEMBER 31,
1997 1996
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(000's omitted)
SALES $111,762 $104,087
COST OF SALES 62,853 57,257
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GROSS PROFIT 48,908 46,830
OPERATING EXPENSES 41,731 39,381
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OPERATING INCOME 7,177 7,449
OTHER - NET 3,483 1,221
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INCOME BEFORE INCOME TAXES 10,660 8,670
INCOME TAXES 3,518 2,861
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NET INCOME $ 7,142 $ 5,809
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