SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8086
GENERAL DATACOMM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853856
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Middlebury, Connecticut 06762-1299
(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code: (203) 574-1118
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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Title of Each Class at June 30, 1994
Common Stock, $.10 par value 15,218,716
Class B Stock, $.10 par value 2,349,298
Total Number of Pages
in This Document is 107.
<PAGE 2>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets -
June 30, 1994 and September 30, 1993 3
Consolidated Statements of Income and
Earnings Reinvested - For the Three and Nine
Months ended June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
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<PAGE 3>
PART I. FINANCIAL INFORMATION
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
June 30, September 30,
1994 1993
------ --------
ASSETS:
Current assets:
Cash and cash equivalents $2,469 $2,594
Accounts receivable, less allowance
for doubtful receivables of $1,518 in June
and $1,575 in September 39,236 35,654
Inventories 40,674 34,522
Other current assets 6,595 6,711
------ ------
Total current assets 88,974 79,481
------ ------
Property, plant and equipment:
Land 1,758 1,745
Buildings and improvements 25,841 24,307
Test equipment, fixtures and field spares 45,540 43,183
Machinery and equipment 37,486 35,390
------ ------
110,625 104,625
Less: accumulated depreciation and amortization 70,853 67,384
------ ------
39,772 37,241
Capitalized software development costs, net
of accumulated amortization of $12,538 in
June and $10,582 in September 22,333 19,333
Other assets 11,975 5,621
-------- -------
$163,054 $141,676
LIABILITIES AND STOCKHOLDERS' EQUITY: ======== ========
Current liabilities:
Current portion of long-term debt $ 4,952 $3,489
Accounts payable, trade 15,758 10,563
Accrued payroll and payroll-related costs 5,860 6,962
Deferred income 6,640 5,672
Other current liabilities 13,397 14,550
------ ------
Total current liabilities 46,607 41,236
------ ------
Long-term debt, less current portion 31,888 28,402
Other liabilities 2,903 4,958
------ ------
Total liabilities 81,398 74,596
------ ------
Minority interest in consolidated subsidiary 49 52
Stockholders' equity: ------ ------
Capital stock, par value $.10 per share, issued:
18,464,975 shares in June and 16,980,581
shares in September 1,846 1,698
Capital in excess of par value 66,687 50,064
Earnings reinvested 20,500 23,805
Cumulative foreign currency translation adjustment (1,220) (1,077)
Common stock held in treasury, at cost:
896,961 shares in June and 1,082,058 shares
in September (6,206) (7,462)
------ ------
Total stockholders' equity 81,607 67,028
-------- --------
$163,054 $141,676
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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[TEXT]
4
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND EARNINGS REINVESTED
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------ ------------
1994 1993 1994 1993
----- ----- ----- -----
Revenues
Net product sales $44,510 $41,335 $120,664 $129,521
Service revenue 8,757 7,905 25,293 24,570
Lease revenue 1,636 2,027 5,028 5,743
----- ----- ----- -----
54,903 51,267 150,985 159,834
Costs and expenses
Cost of product sales 20,928 18,441 55,497 60,019
Amortization of capitalized
software development costs 2,400 2,000 6,900 6,300
Cost of services 5,777 5,505 16,728 16,849
Cost of lease revenue 235 245 689 768
Selling, general and administrative 20,078 18,554 58,958 54,374
Research and product development 4,910 4,569 14,091 14,534
----- ----- ----- -----
54,328 49,314 152,863 152,844
----- ----- ----- -----
Operating income (loss) 575 1,953 (1,878) 6,990
Other income (expense)
Interest (985) (407) (2,773) (1,413)
other, net 36 113 138 76
----- ----- ----- -----
(949) (294) (2,635) (1,337)
----- ----- ----- -----
Income (loss) before income taxes, minority
interest and cumulative effect of
accounting change (374) 1,659 (4,513) 5,653
Income tax provision (benefit) 122 366 (1,323) 885
Minority interest in consolidated subsidiary 6 10 (2) 16
----- ----- ----- -----
Income (loss) before cumulative effect
of accounting change (502) 1,283 (3,188) 4,752
Cumulative effect of change in accounting
for post-retirement benefits - - (117) -
----- ----- ----- -----
Net income (loss) (502) 1,283 (3,305) 4,752
Earnings reinvested at beginning of period 21,002 19,240 23,805 17,689
----- ----- ----- -----
Earnings reinvested at end of period $20,500 $20,523 $20,500 $22,441
===== ===== ===== =====
Earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change ($0.03) $0.07 ($0.19) $0.28
Cumulative effect of change in accounting
for post-retirement benefits - - (0.01) -
----- ----- ----- -----
Earnings (loss) per share ($0.03) $0.07 ($0.20) $0.28
===== ===== ===== =====
Average number of common and common
equivalent shares outstanding 16,790 17,315 16,317 16,747
===== ===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
[TEXT] -4-
5
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Increase (Decrease) in Cash
and Cash Equivalents
----------------
Nine Months Ended
June 30, June 30,
1994 1993
----- -----
Cash flows from operating activities:
Net income (loss) before cumulative effect
of accounting change ($3,188) $ 4,752
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 14,408 12,970
Deferred income amortization - (1,059)
(Increase) decrease in accounts receivable (3,125) 1,502
(Increase) decrease in inventories (5,259) 2,668
Increase (decrease) in accounts payable
and accrued expenses (2,085) (4,457)
Decrease in other net current assets 907 1,081
(Increase) decrease in other net long-term assets (3,370) 810
------- -------
Net cash provided by operating activities 2,458 18,267
------- -------
Cash flows from investing activities:
Acquisition of property, plant & equipment (7,395) (5,776)
Capitalized software development costs (9,900) (7,549)
Purchase of companies acquired-1) (5,852) (24)
------- -------
Net cash used for investing activities (23,147) (13,349)
------- -------
Cash flows from financing activities:
Revolver borrowings, net 6,550 (5,373)
Proceeds from notes payable 10,702 2,639
Principal payments on notes and mortgages (10,968) (2,263)
Proceeds from issuing common stock-1) 16,170 1,692
Payments of escrow deposits (1,867) (750)
------- --------
Net cash provided (used) by financing activities 20,587 (4,055)
------- -------
Effect of exchange rates on cash (23) (281)
------- -------
Net increase (decrease) in cash and cash equivalents (125) 582
Cash and cash equivalents at beginning of period-2) 2,594 2,018
------- ------
Cash and cash equivalents at end of period-2) $2,469 $2,600
======= =======
<FN>
(1 - Excluded from the fiscal 1994 Consolidated Statement of Cash Flow is
the issuance of common stock in the amount of $1,846 related to the
acquisition of a company.
(2 - The Corporation considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
The accompanying notes are an integral part of these consolidated financial
statements.
[TEXT]
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6
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to fairly present
the financial position of General DataComm Industries, Inc. and subsidiaries
(the "Corporation") as of June 30, 1994, the results of operations for the
three and nine months ended June 30, 1994 and 1993, and the cash flows for
the nine months ended June 30, 1994 and 1993. Such adjustments are
generally of a normal recurring nature, and include adjustments to reduce
certain expense accruals and asset reserves to appropriate levels.
The consolidated financial statements contained herein should be read in
conjunction with the consolidated financial statements and related notes
thereto filed with Form 10-K for the year ended September 30, 1993 and
with Form 10-Q for the quarter ended December 31, 1993.
Certain reclassifications were made to the prior year's financial
statements to conform to the current year's presentation.
NOTE 2. BUSINESS ACQUISITION
Effective November 24, 1993, the Corporation acquired Netcomm Limited,
a leader in Asynchronous Transfer Mode (ATM) technology, located
in England. Refer to Note 2 in Form 10-Q for the quarter ended
December 31, 1993.
NOTE 3. INVENTORIES
Inventories consist of (in thousands):
June 30, 1994 September 30, 1993
Raw materials $18,853 $13,024
Work-in-process 5,092 5,033
Finished goods 16,729 16,465
-------- -------
Total $40,674 $34,522
-------- -------
[TEXT]
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7
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
June 30, 1994 September 30, 1993
Revolving credit loan $ 7,000 $ 450
Notes payable 16,823 18,283
Mortgages payable 11,909 11,825
Capital lease obligations 1,108 1,333
------- -------
36,840 31,891
Less: current portion 4,952 3,489
------- -------
$31,888 $28,402
------- -------
[TEXT]
Revolving Credit Loan
On June 1, 1994, the Corporation entered into an amended agreement
with The Bank of New York, as lender and agent for other
institutions that are also lenders, to provide a revolving credit
facility maturing on November 30, 1996 in the amount of
$25,000,000. The amended agreement provides for interest on
outstanding borrowings to be charged at .75% plus the higher
of either (1) the prime rate or (2) the federal funds rate plus
1/2 of 1% (on June 30, 1994, the prime rate was 7.25% and the
federal funds rate was 5.96%). Alternately, the Corporation may
elect to borrow at 2.625% over LIBOR for terms of 1,2,3 or 6
months (on June 30, 1994, these LIBOR rates ranged from 4.59%
to 5.13%).
Notes Payable
On June 1, 1994, the Corporation refinanced $8,000,000 of a note
payable, previously maturing January 2, 1995, with The Bank of
New York. Quarterly principal payments of $250,000, $375,000 and
$500,000 are required in the first, second and third (partial)
years, respectively, with the final payment due November 30, 1996.
Interest is payable either at 3.25% over LIBOR terms of 1, 2, 3 or
6 months or at 1.25% over the prime rate, at the Corporation's
election.
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8
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Nine months ended June 30,
1994 1993
Cash paid (received) during the
period for (in thousands):
Interest $2,324 $966
Income taxes, net $ 66 $361
[TEXT]
NOTE 6. INCOME TAXES
For the nine-month period ended June 30, 1994, the Corporation
recorded a net income tax benefit of $1,323,000, comprised of
tax provisions for state and foreign income taxes of $377,000,
offset by an income tax benefit of $1,700,000 resulting from
the settlement of a foreign tax issue.
NOTE 7. ACCOUNTING CHANGES
Effective October 1, 1993, the Corporation adopted the
provisions of Statements of Financial Accounting Standards Nos.
106, "Employer's Accounting for Post-Retirement Benefits Other
Than Pensions," and 109, "Accounting for Income Taxes." Refer
to Notes 6 and 7 in Form 10-Q for the quarter ended December
31, 1993.
NOTE 8. COMMON STOCK OFFERING
On May 27, 1994, the Corporation completed the sale of 1,250,000
shares of common stock through a private placement offering.
The sale price was $12.375 per common share for total proceeds
of $15,468,750 before expenses. Net proceeds were used to
reduce debt and to provide additional working capital.
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9
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
The capture of the positive market momentum for the Corporation's new APEX
ATM (Asynchronous Transfer Mode) family of products has required incremental
investments in such areas as research and development, production
engineering, marketing and inventories. The Corporation also continues to
expand its international sales operations. To achieve a greater measure of
financial flexibility, in the quarter ended June 30, 1994, the Corporation
raised $15.5 million, before expenses, through a private offering of
1,250,000 shares of common stock.
Revenues for the quarter increased 7.1% on a year-to-year basis and 14.3%
on a sequential quarter basis. This growth is attributed to solid
performance from the Corporation's APEX ATM products as well as from the
core Transport Management System (TMS) and digital access product lines.
RESULTS OF OPERATIONS
Total revenues for the quarter ended June 30, 1994 increased by $3,636,000
to $54,903,000, a 7.1% improvement from the same period one year ago,
with much of the growth in international markets and a strong performance
in the domestic carrier market. New products, such as ATM, high-speed
analog (V.fast) and state-of-the-art digital products, have attributed
to the increased product revenue but continue to be partially offset by
a reduction in traditional analog modem shipments. New products,
especially ATM, continue to be shipped to customer sites for evaluation and
may result in future sales. However, total revenues for the nine months
ended June 30, 1994 decreased by $8,849,000, or 5.5%, as compared to the
corresponding period of fiscal 1993, as the improvement in the current
quarter did not offset lower sales earlier in the year.
Gross margins declined from 48.9% to 46.6% in the June quarter comparison.
Without amortization of capitalized software, gross margins fell from
52.8% to 50.9% On a nine-month basis, gross margins declined from 47.5%
to 47.1%; however, without amortization of capitalized software, gross
margins improved from 51.4% to 51.7%. In addition to the effect of higher
software amortization, margins in the quarter were also reduced by the
effect of foreign currencies and higher volumes of certain core
products that carry lower margins.
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10
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, general and administrative expenses for the three months ended
June 30, 1994 rose $1,524,000, or 8.2%, over the comparable prior year's
quarter principally due to strategic investments made in international
selling organizations and domestic ATM marketing operations. Despite the
increase in revenues, the growth in selling, general and administrative
expenses resulted in such expenses rising to 36.6% of fiscal 1994 revenue
from 36.2% of fiscal 1993 revenue. On a nine-month basis, selling, general,
and administrative expenses for fiscal 1994 increased $4,584,000, or 8.4%.
The higher spending levels reflected the impact of additions to headcount,
especially in international operations and domestic marketing operations,
and increased costs associated with the launch of new products. As a
percentage of nine-month revenue, selling, general and administrative
expenses rose to 39.0% of fiscal 1994 revenue as compared to 34.0% of
revenue in fiscal 1993.
Gross engineering, research and product development expenditures for the
quarter ended June 30, 1994 rose to $8,111,000 from $7,269,000, an increase
of 11.6% from the same period one year ago. As a percentage of total
revenue, gross research and development spending rose to 14.8% of fiscal
1994 revenue from 14.2% of fiscal 1993 revenue. The increase in research
and development spending, including the effect of additions to engineering
headcount, was related to the development of new products for future
release with emphasis on the new ATM product line. On a nine-month basis,
gross engineering, research and product development expenditures increased
$1,907,000, or 8.6%, from the same period in fiscal 1993. As a percentage
of total revenues, gross research and development spending for the nine
months of fiscal 1994 was 15.9% as compared to 13.8% in the same period
one year ago. In the quarter ended June 30, 1994, the effect of higher
software cost capitalization resulted in net research and product
development expense increasing just 7.5% from the same period one year ago,
and in the nine-month period, net research and product development expense
activity decreasing $443,000, or 3.0%, as compared to the same period in
the prior fiscal year. This represented 8.9% and 9.3% of sales respectively,
compared to 8.9% and 9.1%, respectively, in the prior year's three- and
nine-month periods.
Interest expense in the quarter ended June 30, 1994 increased $578,000,
or 142%, from the comparable period one year ago. For the nine-month
period, interest expense increased $1,360,000, from $1,413,000 in fiscal
1993 to $2,773,000 in fiscal 1994. The Corporation purchased and mortgaged
two of its principal facilities in September 1993, adding $487,000 to
interest in the nine months of fiscal 1994, which was offset by lower
rental expense. Also, the higher interest levels reflected an increase
in the Corporation's level of borrowings, attributable in part to the
acquisition cost of Netcomm Limited in November 1993 and the related
start-up costs for ATM products.
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11
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the nine-month period ended June 30, 1994, the Corporation recorded a
net income tax benefit of $1,323,000 as compared to an income tax provision
of $885,000 in the same period of fiscal 1993. The benefit resulted from
the resolution of a foreign tax issue in the amount of $1,700,000.
The Corporation adopted Financial Accounting Standards No. 106, "Employers'
Accounting for Post-Retirement Benefits Other than Pensions," as of
October 1, 1993. The cumulative effect of the accounting change in fiscal
1994 was a charge to earnings of $117,000, or ($.01) per share. The
Corporation also adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of October 1, 1993, the effect of which
was not material.
LIQUIDITY AND CAPITAL RESOURCES
Financing
---------
Sale of common stock in the quarter resulted in a net $14.8 million cash
infusion. However, for the nine-month period ended June 30, 1994, debt
increased by $4.9 million to $36.8 million. This results from strategic
investments in manufacturing and engineering equipment, software
development and $5.9 million to acquire Netcomm and its ATM technology.
The Corporation believes that available financing under its revolving
credit loan combined with cash to be generated from operations will be
sufficient to meet its near-term cash requirements. In addition, the
Corporation may decide, as it did in May 1994, to sell common stock
to provide another funding source. On May 27, 1994, the Corporation
sold 1,250,000 shares at a negotiated price of $12.375 per share for a
total gross proceeds of $15.5 million in a private placement to an
institutional investor representing a group of fifteen investment
accounts. The net proceeds of $14.8 million have been used to reduce debt
and to provide working capital for funding new business development,
particularly in the ATM area.
On June 1, 1994, the Corporation also refinanced $8,000,000 of a note
payable, previously maturing January 2, 1995, on a long-term basis with
The Bank of New York.
Operations
----------
During the nine months ended June 30, 1994, the Corporation generated cash
of $2,458,000 from operating activities. This compares to cash provided by
operating activities of $18,267,000, in the prior year's nine-month period
when net income was $7.9 million more favorable. Also, inventories and
accounts receivable grew $8.4 million in fiscal 1994 to reflect and support
business growth.
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12
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIDARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investing
---------
Investments in capitalized software development rose 31.1% to $9,900,000
from $7,549,000 in the prior fiscal year. Spending on property, plant
and equipment for the fiscal 1994 period increased $1,619,000 to
$7,395,000 from $5,776,000 in the prior fiscal year's period, principally
for equipment to improve manufacturing and engineering processes.
On November 24, 1993, the Corporation acquired all of the outstanding stock
of Netcomm Limited for a cash commitment of $5.5 million and the issuance
of 184,627 shares of common stock valued at $1.8 million. The cash payment
was financed through the Corporation's revolving credit agreement.
Working capital increased to $42,367,000 at June 30, 1994 from $38,245,000
at September 30, 1993, due to increased inventory and accounts receivable
levels offset by an increase in accounts payable. Such increases are
attributable to both anticipated and actual increasing levels of business.
The Corporation's current ratio is 1.9:1 at both June 30, 1994 and September
30, 1993.
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13
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits
11. Calculation of Earnings Per Share for the three and
nine-month periods ended June 30, 1994 and 1993.
28.1 Second Amended and Restated Revolving Credit Term
Loan and Security Agreement between General DataComm
Industries, Inc. et al., and The Bank of New York
et al.
(b) Reports on Form 8-K
A report on Form 8-K on Item 5, Other Events, was filed
on June 14, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GENERAL DATACOMM INDUSTRIES, INC.
(Registrant)
__________________________________________
William S. Lawrence
Vice President and Principal Financial Officer
Dated: August 12, 1994
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