FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ý | | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: September 30, 2001
or
o | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ________ to ________
Commission file number: 00029758
DATALINK CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA | | 41-0856543 |
(State or other jurisdiction of Incorporation) | | (IRS Employer Identification Number) |
| | |
| | |
8170 UPLAND CIRCLE, CHANHASSEN, MINNESOTA | | 55317 |
(Address of Principal Executive Offices) | | (Zip code) |
| | |
(952) 944-3462 |
(Registrant's Telephone Number, Including Area Code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
As of November 8, 2001, 8,947,968 shares of the registrant’s common stock, $.001 par value, were outstanding.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This report on Form 10-Q contains forward-looking statements, which reflect the Company's views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words "aim," "believe," "expect," "anticipate," "intend," "estimate" and other expressions which indicate future events and trends identify forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending upon a variety of factors, including, but not limited to: the level of continuing demand for data storage, including the effect of current economic conditions; competition and pricing pressures that may adversely affect our revenues and profits; our ability to hire and retain key technical and other personnel; our dependence on key suppliers; the strain placed on our resources by growth and expansion; our ability to adapt to rapid technological change; risks associated with possible future acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Datalink Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share data)
| | September 30, | | December 31, | |
| | 2001 | | 2000 | |
| | (Unaudited) | | | |
Assets |
Current assets | | | | | |
Cash and cash equivalents | | $ | 1,902 | | $ | 4,542 | |
Accounts receivable, net | | 15,567 | | 16,255 | |
Inventories | | 3,747 | | 8,162 | |
Inventories shipped but not installed | | 2,943 | | 6,790 | |
Other current assets | | 409 | | 744 | |
Deferred income taxes, current portion | | 1,794 | | 2,401 | |
Total current assets | | 26,362 | | 38,894 | |
Property and equipment, net | | 6,441 | | 6,434 | |
Intangibles, net | | 9,263 | | 10,811 | |
Other assets | | 145 | | 333 | |
Total assets | | $ | 42,211 | | $ | 56,472 | |
Liabilities and Stockholders' Equity |
Current liabilities | | | | | |
Accounts payable | | $ | 9,854 | | $ | 19,664 | |
Accrued expenses | | 2,337 | | 4,021 | |
Income taxes payable | | - | | 518 | |
Note payable to former stockholder, current portion | | 705 | | 705 | |
Deferred revenue | | 2,031 | | 2,291 | |
Total current liabilities | | 14,927 | | 27,199 | |
Note payable to former stockholder, less current portion | | - | | 704 | |
Obligation for construction in progress | | - | | 1,968 | |
Deferred income taxes | | - | | 464 | |
Deferred rent | | 80 | | - | |
Total liabilities | | 15,007 | | 30,335 | |
Commitments and contingencies | | | | | |
Stockholders' equity | | | | | |
Common stock, $.001 par value, 50,000,000 shares authorized, 8,928,824 and 8,895,850 shares issued and outstanding as of September 30, 2001 and December 31, 2000, respectively | | 9 | | 9 | |
Additional paid in capital | | 20,047 | | 19,723 | |
Retained earnings | | 7,148 | | 6,405 | |
Total stockholders' equity | | 27,204 | | 26,137 | |
Total liabilities and stockholders' equity | | $ | 42,211 | | $ | 56,472 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Datalink Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2001 | | 2000 | | 2001 | | 2000 | |
| | (Unaudited ) | | (Unaudited) | |
Net sales: | | | | | | | | | |
Products | | $ | 24,324 | | $ | 31,136 | | $ | 78,084 | | $ | 85,632 | |
Services | | 7,920 | | 5,156 | | 22,051 | | 13,569 | |
| | 32,244 | | 36,292 | | 100,135 | | 99,201 | |
Cost of sales: | | | | | | | | | |
Cost of products | | 17,410 | | 23,846 | | 56,705 | | 63,174 | |
Cost of services | | 5,565 | | 3,807 | | 15,620 | | 9,862 | |
| | 22,975 | | 27,653 | | 72,325 | | 73,036 | |
Gross profit | | 9,269 | | 8,639 | | 27,810 | | 26,165 | |
Operating expenses: | | | | | | | | | |
Sales and marketing | | 4,158 | | 2,825 | | 12,299 | | 10,258 | |
General and administrative | | 2,855 | | 2,142 | | 8,642 | | 6,257 | |
Engineering | | 918 | | 978 | | 3,658 | | 2,424 | |
Amortization of intangibles | | 550 | | 128 | | 1,724 | | 537 | |
Offering costs | | - | | - | | - | | 381 | |
| | 8,481 | | 6,073 | | 26,323 | | 19,857 | |
Income from operations | | 788 | | 2,566 | | 1,487 | | 6,308 | |
Interest income, net | | 35 | | 80 | | 104 | | 279 | |
Income before income taxes | | 823 | | 2,646 | | 1,591 | | 6,587 | |
Income tax expense | | 533 | | 1,085 | | 848 | | 2,701 | |
Income before cumulative effect of a change in accounting principle | | 290 | | 1,561 | | 743 | | 3,886 | |
Cumulative effect of change in accounting principle, net of income taxes | | - | | - | | - | | (753 | ) |
Net income | | $ | 290 | | $ | 1,561 | | $ | 743 | | $ | 3,133 | |
| | | | | | | | | |
Net income per share:
Basic: | | | | | | | | | |
Income per share before cumulative effect of a change in accounting principle | | $ | 0.03 | | $ | 0.18 | | $ | 0.08 | | $ | 0.44 | |
Loss per share from the cumulative effect of a change in accounting principle | | - | | - | | - | | (0.08 | ) |
Net income per share | | $ | 0.03 | | $ | 0.18 | | $ | 0.08 | | $ | 0.36 | |
Fully diluted: | | | | | | | | | |
Income per share before cumulative effect of a change in accounting principle | | $ | 0.03 | | $ | 0.17 | | $ | 0.08 | | $ | 0.42 | |
Loss per share from the cumulative effect of a change in accounting principle | | - | | - | | - | | (0.08 | ) |
Net income per share | | $ | 0.03 | | $ | 0.17 | | $ | 0.08 | | $ | 0.34 | |
Weighted average shares outstanding: | | | | | | | | | |
Basic | | 8,925 | | 8,800 | | 8,914 | | 8,783 | |
Fully diluted | | 8,927 | | 9,178 | | 8,966 | | 9,157 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Datalink Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
| | Nine Months Ended, September 30, | |
| | 2001 | | 2000 | |
| | (Unaudited) | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 743 | | $ | 3,133 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Provision for bad debts | | 105 | | - | |
Depreciation | | 2,058 | | 1,050 | |
Amortization of intangibles | | 1,724 | | 537 | |
Deferred income taxes | | 143 | | (1,122 | ) |
Cumulative effect of a change in accounting principle | | - | | 753 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | 583 | | (9,407 | ) |
Inventories | | 4,415 | | 3,537 | |
Inventories shipped but not installed | | 3,847 | | (1,926 | ) |
Other current assets | | 335 | | 31 | |
Other assets | | 262 | | 2 | |
Accounts payable | | (9,977 | ) | 2,492 | |
Accrued expenses | | (1,684 | ) | 610 | |
Income taxes payable | | (518 | ) | 766 | |
Deferred revenue | | (260 | ) | 727 | |
Deferred rent | | 80 | | - | |
Net cash provided by operating activities | | 1,856 | | 1,183 | |
Cash flows from investing activities: | | | | | |
Net assets acquired, net of cash acquired | | (176 | ) | - | |
Purchase of property and equipment | | (3,866 | ) | (2,468 | ) |
Net cash used in investing activities | | (4,042 | ) | (2,468 | ) |
Cash flows from financing activities: | | | | | |
Proceeds from issuance of common stock | | 250 | | 381 | |
Distributions paid | | - | | (884 | ) |
Payments on note payable to former stockholder | | (704 | ) | (705 | ) |
Principal payments on capital lease obligations | | - | | (13 | ) |
Net cash used in financing activities | | (454 | ) | (1,221 | ) |
Decrease in cash and cash equivalents | | (2,640 | ) | (2,506 | ) |
Cash and cash equivalents, beginning of period | | 4,542 | | 6,515 | |
Cash and cash equivalents, end of period | | $ | 1,902 | | $ | 4,009 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Datalink Corporation
Notes To Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
1. Basis of Presentation
The interim condensed consolidated financial statements included in this Form 10-Q have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted, pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s 2000 Annual Report on Form 10-K.
The condensed consolidated financial statements presented herein as of September 30, 2001, and for the three and nine months ended September 30, 2001 and 2000, reflect, in the opinion of management, all adjustments (which, other than the first quarter 2000 cumulative effect of a change in accounting principle, consist only of normal, recurring adjustments) necessary for a fair presentation of the consolidated financial position and the consolidated results of operations and cash flows for the periods presented. The consolidated results of operations for any interim period are not necessarily indicative of results for the full year.
In December 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which clarified the SEC staff's views regarding the recognition and reporting of revenues in certain transactions. In consideration of the views expressed in SAB No. 101 and effective as of January 1, 2000, the Company modified its revenue recognition policy related to products when the Company provides any installation or configuration services in connection with the sale. The Company now recognizes revenue from hardware and software product sales when it completes its installation and configuration services or after the customer has accepted products under evaluation. Under the transition provisions outlined in SAB No. 101, the Company accounted for this change in accounting policy prospectively as of January 1, 2000 and recorded a charge to earnings on that date of $753,000 representing the cumulative effect, net of income taxes, of the change in accounting policy. Prior to January 1, 2000, the Company recognized product revenue when the hardware and software was shipped to its customers or after they accepted products under evaluation.
2. Inventories
Inventories, including inventories shipped but not installed, principally consist of data storage products and components, valued at the lower of cost or market with cost determined on a first–in, first–out (FIFO) method.
3. Net Income Per Share
Basic net income per share has been computed using the weighted average number of shares outstanding. The diluted net income per share includes the effect of common stock equivalents for each period. The number of shares utilized in the denominator of the diluted net income per share computation, as compared to the basic net income per share computation, has been increased by 2,000 and 378,000 equivalent shares for the three month period ended September 30, 2001 and 2000, respectively, and 52,000 and 374,000 equivalent shares for the nine month period ended September 30, 2001 and 2000, respectively. For the three and nine months ended September 30, 2001, there were 1,500,000 and 921,000 outstanding stock options that were not included in the computation of diluted net income per share because their effect would have been anti-dilutive.
4. Comprehensive Income
The Company’s comprehensive income is equal to its net income for all periods presented.
5. New Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board (FASB) approved for issuance Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. For all business combinations initiated after June 30, 2001, these Statements require the use of the purchase, rather than the pooling, method of accounting. Intangible assets acquired in a business combination are recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability.
The Statements also provide that effective January 1, 2002, goodwill is no longer amortized. Instead, goodwill and intangible assets with indefinite lives are generally tested for impairment annually and whenever there is an impairment indicator. All acquired goodwill is assigned to reporting units for purposes of impairment testing and segment reporting.
Management is reviewing the Statements and their impact on the Company’s results of operations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and with the “Forward-Looking Statements” section in this filing and other Company filings with the U.S. Securities and Exchange Commission.
We are an independent architect of enterprise-class information storage infrastructures.
We derive our revenues principally from designing and installing data storage systems. Our solutions can include hardware products, such as disk arrays, tape systems, interconnection components and storage management software products. We recognize revenue from hardware and software product sales when we complete our installation and configuration services or after a customer has accepted products under evaluation.
As indicated above, our customers usually engage us for assistance in the installation of our solutions. Occasionally, they also engage us for consulting services. We recognize revenues for this work when we have rendered these services.
We also sell service contracts to some of our customers. We arrange for fulfillment of these contracts primarily by purchasing maintenance service agreements for our customers from our hardware and software vendors or their designated third-party service providers. We defer revenues and direct costs resulting from these contracts, and amortize these revenues and expenses into operations, over the term of the contracts, which are generally twelve months.
In the past, we have experienced fluctuations in the timing of orders from our customers, and we expect to continue to experience these fluctuations in the future. These fluctuations have resulted from, among other things, the time required to design, test and evaluate our data storage solutions before customers deploy them, the size of customer orders, the complexity of our customers' network environments, necessary system configuration to deploy our solutions and new product introductions by suppliers. Completion of our installation and configuration services may also delay recognition of revenues. Current economic conditions and competition also affect our customers’ decisions to place orders with us. As a result, our net sales may fluctuate from quarter to quarter.
In November 2000, we acquired certain assets of the data storage and service business of OpenSystems.com, Inc., a Walpole, Massachusetts-based firm engaged in the resale and installation of data storage solutions.
RESULTS OF OPERATIONS
Net Sales. Our total net sales decreased $4.0 million, or 11.2%, to $32.2 million for the three months ended September 30, 2001, from $36.3 million for the comparable quarter in 2000. Our total net sales increased $934,000, or 0.9%, to $100.1 million for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. Our product sales decreased $6.8 million, or 21.9% to $24.3 million for the three months ended September 30, 2001, from $31.1 million for the comparable quarter in 2000. Our product sales decreased $7.5 million, or 8.8%, to $78.1 million for the nine months ended September 30, 2001 as compared to $85.6 million for the nine months ended September 30, 2000. During the third quarter of 2001, we continued to experience a very difficult and competitive operating environment. This uncertainty was further complicated by the world events such as the terrorist attacks on the United States in September. The high level of economic uncertainty has led to an overall reduction in capital spending by United States businesses, including spending for technology.
Our service sales increased $2.8 million, or 53.6%, to $7.9 million for the three months ended September 30, 2001, from $5.2 million for the comparable quarter in 2000. Our service sales increased $8.5 million, or 62.5%, to $22.1 million for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. The increase in service sales is due to an increase in maintenance contract renewals and product installation services.
Approximately 25% of our sales were derived from two customers during the three months ended September 30, 2001. Approximately 11% of our sales were derived from one customer during the nine months ended September 30, 2001. No other customer accounted for more than 5% of sales in either period. We cannot assure that these significant customers will account for any substantial portion of our future sales.
Gross Profit. Our total gross profit as a percentage of net sales increased to 28.7% for the quarter ended September 30, 2001, as compared to 23.8% for the comparable quarter in 2000. Our gross profit percentage for the nine months ended September 30, 2001 increased to 27.8% as compared to 26.4% for the nine months ended September 30, 2000. Product gross profit as a percentage of product sales increased to 28.4% in the third quarter of 2001 from 23.4% for the comparable quarter in 2000. Product gross profit as a percentage of product sales increased to 27.4% for the nine month period ended September 30, 2001, as compared to 26.2% for the nine months ended September 30, 2000. This increase in product margins is a result of several large transactions with higher gross margins in the third quarter of 2001 coupled with unusually low gross margins on product sales in the third quarter of 2000 and charges related to a decline in the value of excess and obsolete inventory in the third quarter of 2000.
Service gross profit as a percentage of service sales increased to 29.7% for the three month period ended September 30, 2001 from 26.2% for the comparable period in 2000. Service gross profit as a percentage of service sales increased to 29.2% for the nine month period ended September 30, 2001, as compared to 27.3% for the nine months ended September 30, 2000. The increase in gross profit rates for services is primarily due to a larger proportion of installations of and maintenance contracts for more complex solutions, which generally carry a higher margin.
Sales and Marketing. Sales and marketing expenses include wages and commissions paid to sales and marketing personnel, travel costs and advertising, promotion and hiring expenses. Sales and marketing expenses totaled $4.2 million, or 12.9% of net sales for the quarter ended September 30, 2001, compared to $2.8 million, or 7.8% of net sales for the second quarter in 2000. Sales and marketing expenses totaled $12.3 million, or 12.3% of net sales for the nine months ended September 30, 2001 and were $10.3 million, or 10.3% of sales for the nine months ended September 30, 2000. The increase in sales expense as a percentage of sales results from our decline in sales for the quarter ended September 30, 2001 and our investment in our new regional structure. Under our new structure, we have added regional sales directors and additional sales representatives to provide for the growth and expansion of our business. Although sales decreased from the third quarter of 2000 to the third quarter of 2001, commissions were approximately the same due to lower gross margins in 2000.
General and Administrative. General and administrative expenses include wages for administrative personnel, professional fees, depreciation, communication expenses and rent and related facility expenses. General and administrative expenses were $2.9 million, or 8.9% of net sales for the quarter ended September 30, 2001, as compared to $2.1 million, or 5.9% of net sales for the third quarter in 2000. For the nine months ended September 30, 2001, general and administrative expenses were $8.6 million, or 8.6% of net sales as compared to $6.3 million, or 6.3% of sales for the nine months ended September 30, 2000. The increase in general and administrative expenses in both absolute dollars and as a percentage of net sales reflects the expanded costs of managing our business as well as sales office expansion during 2000. These increases include higher rents, communication expense and related facility charges for our regional offices and new headquarters. Also, depreciation expense has increased due to capital spending on new facilities and information systems.
Engineering. Engineering expenses include employee wages and travel, hiring and training expenses for our professional engineers and technicians. We allocate engineering costs associated with installation services to our cost of service sales. Engineering expenses were $918,000, or 2.8% of net sales for the third quarter ended September 30, 2001, as compared to $978,000, or 2.7% of net sales for the third quarter in 2000. Engineering expenses were $3.7 million, or 3.7% of net sales for the nine months ended September 30, 2001, as compared to $2.4 million, or 2.4% of net sales for the nine months ended September 30, 2000. The engineering expenses in the third quarter of 2001 have remained flat compared to the third quarter of 2000 due to an increase in the productivity of engineers. The increase in expenses during the first nine months of 2001 as compared to the first nine months of 2000 is primarily due to our investment in a new regional structure, including the hiring of regional engineering directors and additional field engineers. We also attribute the increase to competitive salary increases for our existing engineers, travel expenses related to the continued geographic expansion of our business and costs related to engineering laboratory equipment to support the testing and training needs of our engineering staff.
Goodwill and Other Intangible Amortization. Amortization of goodwill and other intangible assets was $550,000, or 1.7% of net sales for the quarter ended September 30, 2001, as compared to $128,000, or 0.4% of net sales for the second quarter in 2000. Amortization of goodwill and other intangible assets was $1.7 million, or 1.7% of net sales for the nine months ended September 30, 2001, as compared to $537,000, or 0.5% of net sales for the nine months ended September 30, 2000. The increase resulted from amortization of intangibles and goodwill related to our acquisition of the data storage and services business of OpenSystems.com, Inc. in November 2000.
Income Taxes. Our income tax expense for the three months ended September 30, 2001 and 2000 was $533,000 and $1.1 million, respectively. For the nine months ended September 30, 2001 and 2000, our income tax expense was $848,000 and $2.7 million, respectively. These figures represent an effective tax rate of 53% in 2001 and 41% in 2000. The rate increase in the current quarter is a result of our lowered income projections for the fourth quarter of 2001. These lower income projections increased the impact of the permanent differences between taxable income for reporting purposes and taxable income for income tax reporting, resulting in a rate increase.
Cumulative Impact of Change in Accounting Principle. In the first quarter of 2000, we incurred a one-time, non-cash charge of $753,000 representing the cumulative effect, net of income taxes, of the accounting changes we made effective as of January 1, 2000 to our revenue recognition policies.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.9 million for the nine months ended September 30, 2001. The cash provided in 2001 resulted primarily from our net income and a reduction in inventories of $8.3 million, mostly offset by a decrease in payables of $10.0 million. The reduction in inventories for the period is consistent with our increased efforts to optimize our inventory levels. Operating activities provided $1.2 million of cash during the nine months ended September 30, 2000. The cash provided during the first nine months of 2000 resulted primarily from our net income and a reduction in inventories partially offset by an increase in accounts receivable.
Net cash used in investing activities was $4.0 million for the nine months ended September 30, 2001. The use resulted primarily from the purchase of furniture and fixtures for our new corporate headquarters in Chanhassen, Minnesota and expenditures for information system software, a new phone system and engineering laboratory equipment. In the nine months ended September 30, 2000, we used $2.5 million primarily for purchases of engineering laboratory equipment and the purchase of land adjacent to our new corporate headquarters.
Net cash used in financing activities was $454,000 for the nine months ended September 30, 2001. We made a scheduled payment of $704,000 on a note due to a former S corporation stockholder. This use of cash was partially offset by $250,000 of cash received for stock sold under our employee stock purchase plan. During the nine months ended September 30, 2000, net cash used in financing activities was $1.2 million, primarily for final dividend distributions of $884,000 to the ten pre-initial public offering stockholders and another scheduled payment of $705,000 on the note due to a former S corporation stockholder.
Effective August 31, 2001, we amended our credit agreement with a commercial bank that provides for a $10 million revolving line of credit for financing potential business acquisitions and a $5 million revolving line of credit for financing our working capital needs. The amendment extended the term of the agreement through June 30, 2002. Borrowings under the lines of credit are subject to certain financial and operating covenants, including covenants that require us to maintain a minimum current ratio, debt-net worth ratio, tangible net worth and level of profitability. We had no outstanding borrowings as of September 30, 2001.
In November 2000, we purchased the data storage and service business of OpenSystems.com, Inc. for $7.0 million cash and 79,177 shares of our common stock. We agreed to pay an additional $2.5 million in cash if certain revenue targets are met in 2001. Based on current levels of revenues and our expectations for the remainder of 2001, we do not expect to reach the revenue targets necessary for the payment of any additional consideration.
We believe that funds generated from operations, together with the available credit under our revolving credit agreement, will be sufficient to finance our current operations and planned capital expenditures for at least the next twelve months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
All of our operations are based in the U.S. and all of our transactions are denominated in U.S. dollars. Our interest income is sensitive to changes in the general level of U.S. interest rates. However, due to the nature of our short-term investments, we have concluded that these are exposed to no material market risk.
The following discusses our exposure to market risk related to changes in interest rates, foreign exchange rates and equity prices.
Interest rate risk. As of September 30, 2001, we had $1.9 million of cash and money market accounts. A decrease in market rates of interest would have no material effect on the value of these assets. We have no short or long-term debt with variable interest rates. Therefore, an increase in market rates would not significantly affect our interest expense.
Foreign currency exchange rate risk. We market and sell all of our products in the United States. Therefore, we are not currently exposed to any direct foreign currency exchange rate risk.
Equity price risk. We do not own any equity investments. Therefore, we are not currently exposed to any direct equity price risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any material legal proceedings that were terminated during the third quarter of 2001.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) 10.16 Third amendment to credit agreement dated August 31, 2001 with Wells Fargo Bank, National Association.
(b) No reports on Form 8-K were filed during the third quarter of 2001.
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.
Dated: November 14, 2001 | | Datalink Corporation | |
| | | |
| | /s/ DANIEL J. KINSELLA | |
| | | |
| | Daniel J. Kinsella, Chief Financial Officer | |
