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 December 31, 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
incorporation or organization No.)
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 December 31, 1994
Common Stock, $.10 par value 17,865,680
Class B Stock, $.10 par value 2,226,250
Total Number of Pages in This Document is 15.
<PAGE 2>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets -
December 31, 1994 and September 30, 1994 3
Consolidated Statements of Operations and
Earnings Reinvested - For the Three
Months Ended December 31, 1994 and 1993 4
Consolidated Statements of Cash Flows - For the
Three Months Ended December 31, 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 4. Submission of Matters to a Vote of
Security Holders 13
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)
December 31, September 30,
1994 1994
In thousands except shares
ASSETS:
Current assets:
Cash and cash equivalents $41,801 $2,939
Accounts receivable, less allowance for doubtful
receivables of $1,768 in December and $1,618 42,706 49,581
Inventories 47,731 42,162
Deferred income taxes 3,808 4,062
Other current assets 5,834 5,288
------- -------
Total current assets 141,880 104,032
======= =======
Property, plant and equipment:
Land 1,761 1,764
Buildings and improvements 26,516 27,058
Test equipment, fixtures and field spares 47,162 47,012
Machinery and equipment 40,285 38,522
------ ------
115,724 114,356
Less: accumulated depreciation and amortization 74,263 73,248
------- ------
41,461 41,108
Capitalized software development costs, net
of accumulated amortization of $16,703 in December
and $14,008 in September 23,407 22,712
Other assets 13,003 12,412
------ ------
$219,751 $180,264
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $6,871 $5,238
Accounts payable, trade 17,378 15,317
Accrued payroll and payroll-related costs 6,743 5,415
Deferred income 5,573 6,548
Other current liabilities 12,098 15,101
------ ------
Total current liabilities 48,663 47,619
====== ======
Long-term debt, less current portion 24,497 42,118
Deferred taxes 4,765 4,997
Other liabilities 427 1,043
------ ------
Total liabilities 78,352 95,777
====== ======
Commitments and contingent liabilities - -
Stockholders' equity:
Capital stock, par value $.10 per share, issued:
20,924,772 shares in December and 18,733,739
shares in September 2,092 1,873
Capital in excess of par value 126,593 68,027
Earnings reinvested 20,672 21,477
Cumulative foreign currency translation adj. (1,972) (901)
Common stock held in treasury, at cost:
832,842 shares in December and 841,773
shares in September (5,986) (5,989)
------- ------
Total stockholders' equity 141,399 84,487
------ ------
$219,751 $180,264
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND EARNINGS REINVESTED
(Unaudited)
Three Months
December 31,
1994 1993
In thousands, except per share data
Revenues:
Net product sales $47,788 $37,977
Service revenue 8,987 8,254
Lease revenue 1,447 1,819
------ ------
58,222 48,050
------ ------
Costs and expenses:
Cost of product sales 22,265 17,327
Amortization of capitalized
software development costs 2,800 2,200
Cost of services 5,800 5,488
Cost of lease revenue 168 229
Selling, general and administrative 20,583 19,368
Research and product development 5,887 4,289
------ ------
57,503 48,901
------ ------
Operating income (loss) 719 (851)
------ -------
Other income (expense):
Interest (986) (895)
Other, net (238) 15
------ ------
(1,224) (880)
------ ------
Loss before income taxes
and cumulative effect of
accounting changes (505) (1,731)
Income tax provision 300 145
----- ------
Loss before cumulative effect
of accounting changes (805) (1,876)
Cumulative effect of changes in accounting
for post-retirement and post-employment
benefits - (433)
----- -------
Net loss-1) (805) (2,309)
----- -------
Earnings reinvested at beginning of period 21,477 23,805
------ -------
Earnings reinvested at end of period $20,672 $21,496
======= =======
Loss per share:
Loss before cumulative effect
of accounting changes ($0.04) ($0.11)
Cumulative effect of changes in accounting
for post-retirement and post-
employment benefits - (0.03)
------ ------
Loss per share ($0.04) ($0.14)
====== ======
Weighted average number of common and common
equivalent shares outstanding 18,198 15,978
________________ ====== ======
(1-First quarter 1994 net loss includes charges totaling $(433),
resulting from the adoption of Financial Accounting Standards
Nos. 106 and 112, effective October 1, 1993. As originally
reported, net loss for the first quarter was $(1,993), or
$(0.12) per share.
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE 5>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
December 31,
1994 1993
In thousands
Cash flows from operating activities:
Loss before cumulative
effect of accounting changes ($805) ($1,876)
Adjustments to reconcile loss to net
cash provided by operating activities:
Depreciation and amortization 5,499 4,649
Decrease in accounts receivable 5,997 5,796
(Increase) in inventories (5,986) (2,283)
Incrase (decrease) in accounts payable
and accrued expenses 2,612 (1,727)
(Increase) decrease in other net current
assets (3,470) 630
(Increase) in other net long-term assets (1,170) (1,252)
------- -------
Net cash provided by operating activities 2,677 3,937
------- -------
Cash flows from investing activities-1):
Acquisition of property, plant & equipment (2,782) (2,361)
Capitalized software development costs (3,495) (3,500)
Purchase price of companies acquired - (5,847)
------- ------
Net cash (used for) investing activities (6,277) (11,708)
------- -------
Cash flows provided by financing activities-1):
Revolver borrowings 19,000 67,623
Revolver repayments (35,200) (60,823)
Proceeds from notes payable 1,650 1,383
Principal payments on notes and mortgages (1,435) (986)
Proceeds from issuing common stock 58,788 57
Payments of escrow deposits - (250)
------- -------
Net cash provided by financing activities 42,803 7,004
------- -------
Effect of exchange rates on cash (341) (22)
------- -------
Net increase (decrease) in cash and cash equivalents 38,862 (789)
Cash and cash equivalents at beginning of period-2) 2,939 2,594
------- -------
Cash and cash equivalents at end of period-2) $41,801 $1,805
======= ======
(1 - Excluded from the Consolidated Statement of Cash Flows for
the three months ended December 31, 1993, is the issuance of common stock
with a fair market value 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.
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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 December 31, 1994, the results
of operations for the three months ended December 31, 1994 and 1993 and
the cash flows for the three months ended December 31, 1994 and
1993. Such adjustments are generally of a normal recurring nature and
include adjustments to certain 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/A for the year ended September 30, 1994.
Certain reclassifications were made to the prior year's financial statements
to conform to the current year's presentation.
NOTE 2. INVENTORIES
Inventories consist of (in thousands):
December 31,1994 September 30, 1994
Raw materials $20,422 $18,313
Work-in-process 8,298 7,249
Finished goods 19,011 16,600
------- -------
Total $47,731 $42,162
======= =======
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<PAGE 7>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31, 1994 September 30, 1994
Revolving credit loan $ - $ 16,200
Notes payable 18,721 18,318
Mortgages payable 11,698 11,809
Capital lease obligations 949 1,029
------ --------
31,368 47,356
Less: current portion 6,871 5,238
------ -------
$ 24,497 $42,118
======== =======
Revolving Credit Loan
Effective January 15, 1995, the Corporation's revolving credit
loan was amended to provide for interest on outstanding borrowings to be
charged at the higher of either (1) the prime rate or (2) the federal
funds rate plus 1/2 of 1% (on December 31, 1994, the prime rate was
8.5% and the federal funds rate was 4.94%). Alternately, the Corporation
may elect to borrow at 1.00% to 2.00% over LIBOR (depending upon a financial
ratio test) for terms of 1, 2, 3 or 6 months (on December 31, 1994, these
LIBOR rates ranged from 5.88% to 6.88%).
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 as lender and agent for other institutions by incorporating term
loan provisions and additional collateral into the previous revolving credit
agreement. 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. Effective
January 15, 1995, this note was amended to provide for interest on the
outstanding principal balance to be charged at the higher of either (1)
the prime rate or (2) the federal funds rate plus 1/2 of 1% (on December
31, 1994, the prime rate was 8.5% and the federal funds rate was 4.94%).
Alternately, the Corporation may elect to borrow at 1.00% to 2.00% over
LIBOR (depending upon a financial ratio test) for terms of 1, 2, 3 or 6
months (on December 31, 1994, these LIBOR rates ranged from 5.88% to
6.88%). At December 31, 1994, the outstanding balance on this note was
$7,250,000.
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GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Three months ended December 31,
1994 1993
Cash paid (received) during the
period for (in thousands):
Interest $ 825 $ 626
Income taxes, net $ 64 $(269)
NOTE 5. COMMON STOCK OFFERING
On December 22, 1994, the Corporation completed the sale of
2,070,000 shares of common stock pursuant to an underwritten
public offering. The sales price was $29.875 per common share
before offering costs and commissions. Net proceeds of
approximately $58.1 million have been used to reduce debt and to
provide additional working capital for general corporate purposes.
NOTE 6. REAL ESTATE GAIN
Included in selling, general and administrative expenses for the
three months ended December 31, 1994 is a gain of $650,000 resulting
from the early termination of a lease obligation for an industrial
facility which had been vacated in 1988 as part of a cost reduction
program.
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<PAGE 9>
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
Revenues for the quarter ended December 31, 1994 increased $10.2
million, or 21.2%, over the same period one year ago. The
demand for the Corporation's ATM (Asynchronous Transfer Mode)
and digital transmission products, offset by a declining demand
for the Corporation's traditional analog products, continued to
drive this upward trend which began in the second half of fiscal
1994. The Corporation's fiscal 1995 first quarter revenues were
the second highest in its history, although a reduction of $1.8
million from the record fourth quarter of fiscal 1994.
Operating expenses, consisting of selling, general and
administrative and research and product development expenses,
grew by $2.8 million, over the same period one year ago, to
$26.5 million. This increased spending reflects the
Corporation's incremental investments in research and
development, marketing and the international sales operations.
In addition, the current quarter selling, general and
administrative expenses have been reduced by a real estate gain
of $650,000. Due to the revenue growth, operating expenses fell
to 45.5% of fiscal 1995 revenues from 49.2% of first quarter
fiscal 1994 revenues.
The net loss for the first quarter of fiscal 1995 was
$(805,000), or $(0.04) per share, compared to a net loss for the
first quarter of fiscal 1994 of $(2,309,000), or $(0.14) per
share.
In the first quarter of fiscal 1995, the Corporation completed
the sale of 2,070,000 shares of common stock at the price of
$29.875 per share through an underwritten public offering. The
net proceeds of the sale have been used to reduce debt and to
provide working capital. As a result of its improved financial
position, effective January 15, 1995, the Corporation has also
amended its revolving credit loan with The Bank of New York
providing more favorable credit terms.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial
data stated as a percentage of total revenues (unaudited):
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<PAGE 10>
Quarter ended December 31, 1994 1993
Revenues:
Net product sales 82.1% 79.0%
Service revenue 15.4 17.2
Leasing revenue 2.5 3.8
---- ----
100.0 100.0
===== =====
Costs and expenses:
Cost of revenues 48.5 48.0
Amortization of capitalized software
development costs 4.8 4.6
Selling, general and administrative 35.4 40.3
Research and product development 10.1 8.9
---- ----
Operating income (loss) 1.2 (1.8)
---- -----
Net (loss) (1.4)% (4.8)%
===== ======
Total revenues for the quarter ended December 31, 1994 increased
by $10.2 million to $58.2 million, a 21.2% improvement from the
same period one year ago. Growth markets in the fiscal first
quarter included the domestic carriers, which increased by $4.6
million or 40.3%, domestic end users and government agencies,
which increased by $2.5 million or 12.5%, and many international
areas, which increased by $3.1 million or 18.1%. New products
introduced during fiscal 1994, such as ATM cell switches, V.F.
28.8 modems and additions to digital data set and multiplexer
product lines, sold higher volumes compared to the first quarter
of fiscal 1994, offset in part by a reduction in traditional
analog modem shipments. For the first quarter of fiscal 1995,
net product sales were up $9.8 million, or 25.8%, service
revenue was up $733,000, or 8.9%, and leasing revenue was down
$372,000, or 20.5%.
Gross margin (which includes amortization of capitalized
software development costs) declined 0.8% to 46.7% in the first
quarter of fiscal 1995 from 47.5% in the comparable quarter of
fiscal 1994. Amortization of capitalized software development
costs charged to product cost of sales increased to $2.8 million
in the quarter ended December 31, 1994 from $2.2 million in the
same quarter one year ago and had the effect of reducing gross
margin by 0.5%. Product margins were unfavorably impacted by
the effect of sales channel mix and product startup costs. The
Corporation is working to offset these effects, along with the
impact of sales price pressures, by negotiating lower material
component prices and improving manufacturing costs and
efficiencies. Specifically, the Corporation is expecting
delivery in the third fiscal quarter of new surface-mount
equipment to provide more efficent manufacturing of its new
generation products.
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<PAGE 11>
Selling, general and administrative expenses increased from
$19.4 million in the first quarter of fiscal 1994 to $20.6
million in the first quarter of fiscal 1995. This net increase
of $1.2 million, or 6.3%, is primarily due to the Corporation's
investments in the ATM marketing organization (an increase of
$258,000) and in its international operations (an increase of
$1.0 million). These and other increases were partially offset in the
first quarter of fiscal 1995 with a $650,000 gain from the early termination
of a real estate obligation. Due to the significant revenue
growth, selling, general and administrative expenses fell from
40.3% of revenues in fiscal 1994 to 35.4% in fiscal 1995.
Research and product development spending, before consideration
of capitalized software development costs, increased to $9.4
million, or 16.1% of revenues, in the first quarter of fiscal
1995 from $7.8 million, or 16.2% of revenues, in the comparable
quarter one year ago. This increase of $1.6 million, or 20.4%,
reflects the acquisition of Netcomm Limited ("Netcomm") and its
subsequent conversion to a dedicated ATM research facility
($277,000), the start-up of a new ATM product development
facility in Quebec, Canada ($199,000) and the strategic
repositioning and higher costs associated with the domestic
product development organization ($1.1 million). Capitalized
software development costs remained flat quarter-to-quarter at
$3.5 million but, as a percentage of total research and
development spending, fell to 37.3% of total spending in the
first quarter of fiscal 1995 from 44.9% of total spending in the
same quarter one year ago.
Interest expense in the quarter ended December 31, 1994
increased $91,000 from the comparable period one year ago. The
higher interest level reflected the Corporation's higher
borrowing levels attributable to the start-up investments
required to support the ATM product line and international sales
organizations. On December 22, 1994, the Corporation sold
2,070,000 shares of common stock pursuant to an underwritten
public offering. Net proceeds of approximately $58.1 million
have been used to reduce debt and to provide working capital.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's cash and cash equivalents were $41.8 million
at December 31, 1994, compared to $2.9 million at September 30,
1994.
Operating
Non-debt working capital, excluding cash and cash equivalents,
decreased a modest $0.4 million to $58.3 million at December
31, 1994. This decrease resulted primarily from a decrease in
accounts receivable and increases in accounts payable, which was
partially offset by an increase in inventories combined with a
decrease in deferred income on maintenance contracts. Inventory
grew $5.5 million to $47.7 million, and related accounts payable
increased $2.1 million, in anticipation of increasing shipments
of ATM and other new products. Accounts receivable decreased
$6.9 million in the first quarter of fiscal 1995 to $42.7
million at December 31, 1994, due to the high volume of
shipments occurring at the end of the September 30, 1994 quarter,
along with lower revenues ($1.8 million) in the current quarter as
compared to the fourth quarter of fiscal 1994. During the
three months ended December 31, 1994, the Corporation generated
cash of $2,677,000 from operating activities, compared to cash
generation of $3,937,000 in the same period one year ago.
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12
Investing
Net investments in property, plant and equipment for the three
month period ended December 31, 1994 increased $421,000 to
$2,782,000 from $2,361,000 in the prior fiscal year's period,
principally for equipment to improve the manufacturing and
engineering processes. Investments in capitalized software
development were $3,495,000 in fiscal 1995 compared to
$3,500,000 in the same period one year ago. Investment
activities in the first quarter of fiscal 1994 included $5.9
million relating to the acquisition of Netcomm.
Financing
Financing activities during the quarter ended December 31, 1994
added $42.8 million in cash, representing $58.8 million from the
sale of stock, as previously described, and the exercise of
stock options, offset by the net repayment of the Corporation's
revolving credit loan of $16.2 million.
On December 22, 1994, the Corporation completed the sale of
2,070,000 shares of common stock pursuant to an underwritten
public offering. The sales price was $29.875 per share before
offering costs and commissions. The net proceeds of
approximately $58.1 million have been used to reduce debt and to
provide additional working capital for general corporate
purposes.
Effective January 15, 1995, the Corporation's revolving credit
loan and term loan ($7,250,000 outstanding at December 31, 1994)
were amended to provide for interest on outstanding borrowings
to be charged at the higher of either (1) the prime rate of (2)
the federal funds rate plus 1/2 of 1% (on December 31, 1994, the
prime rate was 8.5% and the federal funds rate was 4.94%).
Alternately, the Corporation may elect to borrow at 1.00% to
2.00% over LIBOR (depending upon a financial ratio test) for
terms of 1,2, 3 or 6 months (on December 31, 1994, these LIBOR
rates ranged from 5.88% to 6.88%).
Adoption of Financial Accounting Standards Nos. 106 and 112
Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-Retirement Benefits Other
Than Pensions", requiring the use of an accrual method of
accounting for post-retirement benefits. The Corporation
elected to recognize the transition obligation as a one-time
cumulative after-tax charge to income of $(117,000), or $(0.01)
per share. The increase in annual expense for retiree health
care was not material.
Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Post-Employment Benefits",
requiring the use of an accrual method of accounting for
post-employment benefits. The Corporation elected to recognize
the transition obligation as a one-time cumulative after-tax
charge to income of $(316,000), or $(0.02) per share. The
increase in annual expense for post-employment costs was not
material.
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<PAGE 13)
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On February 2, 1995, at the Annual Meeting of
Stockholders of the Corporation, the stockholders voted
on the following matters:
1. Elected two directors to terms expiring in 1998.
Votes For Votes Against
Charles P. Johnson 15,532,960 155,716
Howard S. Modlin 15,474,160 209,516
Elected one director, John L. Segall, to a term
expiring in 1997.
Number of votes cast for: 15,584,581
Number of votes cast against: 104,225
2. Approved the proposal to adopt an amendment to the
1991 Stock Option Plan by which an additional
500,000 shares of the Corporation's Common Stock,
$0.10 par value, were reserved for issuance
thereunder.
Number of votes cast for: 13,180,257
Number of votes cast against: 2,269,368
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits
11. Calculation of Earnings Per Share for the
three-month period ended December 31, 1994
and 1993.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter for which this report is filed.
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<PAGE 14>
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.
GENERAL DATACOMM INDUSTRIES, INC.
(Registrant)
__________________________________________
William S. Lawrence
Vice President and Principal Financial Officer
Dated: February 10, 1995
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