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, 1995
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
incorporation or organization) Identification 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, 1995
Common Stock, $.10 par value 18,407,120
Class B Stock, $.10 par value 2,193,983
Total Number of Pages in This Document is 14.
2
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets -
December 31, 1995 and September 30, 1995 3
Consolidated Statements
of Operations and
Earnings Reinvested - For the Three
Months Ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows - For the
Three Months Ended December 31, 1995 and 1994 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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3
PART I. FINANCIAL INFORMATION
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, September 30,
In thousands except shares 1995 1995
ASSETS:
Current assets:
Cash and cash equivalents $14,157 $18,443
Accounts receivable, less allowance for doubtful
receivables of $1,746 in December and
$1,704 in September 40,626 43,033
Inventories 43,174 44,958
Deferred income taxes 3,612 3,612
Other current assets 6,897 6,054
----- -----
Total current assets 108,466 116,100
------- -------
Property, plant and equipment 126,258 126,959
Less: accumulated depreciation and amortization 79,500 80,237
------- -------
Total property, plant and equipment 46,758 46,722
Capitalized software development costs, net
of accumulated amortization of $15,637 in December
and $13,577 in September 23,407 23,407
Other assets 12,263 12,159
------ -------
$190,894 $198,388
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $5,455 $12,598
Accounts payable, trade 14,055 11,023
Accrued payroll and payroll-related costs 8,338 6,173
Deferred income 5,251 6,495
Other current liabilities 16,295 16,524
------ ------
Total current liabilities 49,394 52,813
------ ------
Long-term debt, less current portion 22,205 23,435
Deferred income taxes 4,467 4,469
Other liabilities 459 586
------ ------
Total liabilities 76,525 81,303
------ ------
Commitments and contingent liabilities - -
Stockholders' equity:
Capital stock, par value $.10 per share,
issued: 21,263,509 shares in December and
21,122,209 shares in September 2,126 2,112
Capital in excess of par value 128,626 128,076
Deficit (9,044) (6,153)
Cumulative foreign currency translation
adjustment (2,435) (2,026)
Common stock held in treasury, at cost:
662,406 shares in December and 673,674
shares in September (4,904) (4,924)
-------- -------
Total stockholders' equity 114,369 117,085
------- -------
$190,894 $198,388
-------- --------
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 (DEFICIT)
(Unaudited)
Three Months Ended
December 31,
In thousands, except per share data 1995 1994
Revenues:
Net product sales $48,217 $47,788
Service revenue 9,956 8,987
Lease revenue 1,626 1,447
------ ------
59,799 58,222
------ ------
Costs and expenses:
Cost of product sales 22,918 22,265
Amortization of capitalized
software development costs 2,600 2,800
Cost of services 6,964 5,800
Cost of lease revenue 216 168
Selling, general and administrative 21,445 20,583
Research and product development 7,690 5,887
------ ------
61,833 57,503
------ ------
Operating income (loss) (2,034) 719
------ ------
Other income (expense):
Interest (437) (986)
Other, net (120) (238)
------ ------
(557) (1,224)
------- ------
Loss before income taxes (2,591) (505)
Income tax provision 300 300
------- ------
Net loss ($2,891) ($805)
------- ------
Earnings reinvested (deficit) at beginning of
period (6,153) 21,477
------- ------
Earnings reinvested (deficit) at end of period ($9,044) $20,672
======= =======
Loss per share ($0.14) ($0.04)
======= =======
Weighted average number of common and
common equivalent shares outstanding 20,499 18,198
======= ======
The accompanying notes are an integral part of these consolidated
financial statements.
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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,
In thousands 1995 1994
Cash flows from operating activities:
Net (loss) ($2,891) ($805)
Adjustments to reconcile loss to net
cash provided by operating activities:
Depreciation and amortization 6,098 5,499
Decrease in accounts receivable 2,247 5,997
(Increase) decrease in inventories 1,573 (5,986)
Increase in accounts payable
and accrued expenses 4,854 2,612
(Increase) in other net current assets (2,018) (3,470)
(Increase) in other net long-term assets (577) (1,170)
------- ------
Net cash provided by operating activities 9,286 2,677
------- ------
Cash flows from investing activities:
Acquisition of property, plant & equipment (3,170) (2,782)
Capitalized software development costs (2,600) (3,495)
------- -------
Net cash (used) by investing activities (5,770) (6,277)
Cash flows provided by financing activities:
Revolver borrowings 0 19,000
Revolver repayments 0 (35,200)
Proceeds from notes and mortgages 28 1,650
Principal payments on notes and mortgages (8,375) (1,435)
Proceeds from issuing common stock 584 58,788
------ ------
Net cash provided (used) by financing activities (7,763) 42,803
------ ------
Effect of exchange rates on cash (39) (341)
------ ------
Net increase (decrease) in cash and cash equivalents (4,286) 38,862
Cash and cash equivalents at beginning of period-1) 18,443 2,939
------ ------
Cash and cash equivalents at end of period-1) $14,157 $41,801
======= =======
(1 - 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, 1995, the results of operations for the
three months ended December 31, 1995 and 1994 and the cash flows
for the three months ended December 31, 1995 and
1994.
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 for the year ended
September 30, 1995.
NOTE 2. INVENTORIES
Inventories consist of (in thousands):
December 31, 1995 September 30, 1995
Raw materials $17,715 $19,466
Work-in-process 5,784 5,801
Finished goods 19,675 19,691
------- -------
Total $43,174 $44,958
======= =======
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31, 1995 September 30, 1995
Notes payable $14,070 $22,179
Mortgages payable 12,848 13,018
Capital lease obligations 742 836
------ ------
27,660 36,033
Less: current portion 5,455 12,598
------- ------
$ 22,205 $23,435
======== =======
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GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 3. LONG-TERM DEBT (continued)
Revolving Credit Loan
On November 30, 1995, the Corporation entered into an amended
agreement with The Bank of New York Commercial Corporation to
provide a revolving credit facility maturing in November 1998 in
the amount of $25,000,000 with availability subject to a
borrowing base formula. The facility provides for a sub-limit
of $5,000,000 for letters of credit. The amended agreement
provides for interest on outstanding borrowings to be charged,
at the Corporation's option, at either (1) the prime rate plus
3/4 of 1% (on December 31, 1995, the prime rate was 8.5%), or
(2) 2.75% over LIBOR for terms of 1, 2, 3 or 6 months (on
December 31, 1995, these LIBOR rates ranged from 5.38% to 5.56%).
The agreement also requires conformity with various financial
covenants, the most restrictive of which includes minimum
tangible net worth and a fixed charge coverage ratio. Certain
assets of the Corporation, including most accounts receivable
and inventories, are pledged as collateral. The amount of
borrowing is predicated on satisfying a borrowing base formula
related to levels of certain accounts receivable and
inventories. This amended agreement replaced the prior
revolving credit agreement that also provided for borrowings of
up to $25,000,000 and a sub-limit of $5,000,000 for letters of
credit. Although there were no borrowings outstanding, there
were $957,000 of letters of credit outstanding as of December
31, 1995.
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. In conjunction with the amended revolving credit
loan mentioned above, this note, in the amount of $6,625,000, was
paid in its entirety on November 30, 1995.
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8
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in
thousands):
December 31, 1995 September 30, 1995
Land $1,759 $ 1,764
Buildings and improvements 28,067 27,894
Test equipment, fixtures and
field spares 50,296 50,632
Machinery and equipment 46,137 46,669
------ -----
126,258 126,959
Less: accumulated depreciation
and amortization 79,500 80,237
------ ------
$ 46,758 $ 46,722
======== ========
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GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
Total revenues for the first fiscal quarter were $1.5 million
higher than the preceding fourth fiscal quarter and $1.6 million
higher than the same quarter one year ago, but did not achieve
anticipated levels. Shipments of ATM products, more than double
the level in the same quarter one year ago, were in line with
expectations. The Transmission product segment recorded the
largest decline compared to the first quarter of fiscal 1995 due
primarily to lower sales of private-line analog modems, although
such sales have not declined significantly in more recent
quarters. The Transmission product segment is also experiencing
the initial adverse effects of a sales organization
restructuring designed to shift focus toward distributors and
value-added resellers. Transmission product sales should
improve as the new organization becomes more effective.
The lower-than-planned revenues contributed to a loss of $(2.9)
million in the first fiscal quarter.
In addition, the Corporation continues to increase investments
in marketing and engineering resources to promote and develop
products for the emerging ATM technology applications. The
Corporation expects ATM business will continue to grow and in
the longer-term has the potential to deliver substantially
higher revenues.
Cash flows from operations were positive in the quarter and the
Corporation was able to repay a $6.3 million term loan, while
maintaining cash deposits of $14.2 million and an additional
$3.2 million in escrow cash deposits available to satisfy future
real estate lease payments.
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RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial
data stated as a percentage of total revenues (unaudited):
Three months ended
December 31,
1995 1994
Revenues:
Net product sales 80.6% 82.1%
Service revenue 16.7 15.4
Leasing revenue 2.7 2.5
---- ----
100.0 100.0
===== =====
Costs and expenses:
Cost of revenues 50.3 48.5
Amortization of capitalized software
development costs 4.3 4.8
Selling, general and administrative 35.9 35.4
Research and product development 12.9 10.1
---- ----
Operating income (loss) (3.4) 1.2
---- ----
Net (loss) (4.8)% (1.4)%
===== ====
For the first quarter of fiscal 1996 as compared to the first
quarter of fiscal 1995, net product sales increased slightly by
$429,000, or 0.9%, service revenue was up $969,000, or 10.8%,
and leasing revenue increased $179,000, or 12.4%. The
composition of product shipments changed both geographically,
where a 27% increase in international shipments was largely
offset by a 14% decline in domestic shipments, and in product
mix, where ATM product shipment growth offset declines primarily in
private line analog products. Service revenues increased on certain
foreign orders requiring installation and training.
Gross margin as a percent of revenues (which excludes
amortization of capitalized software development costs) declined
1.8%, from 51.5% in the first quarter of fiscal 1995 to 49.7% in
the first quarter of fiscal 1996. Service margins accounted for
0.9% of the decline due to utilizing subcontract service
providers at certain foreign locations. In addition, high
startup costs associated with the APEX ATM product family and
reduced sales prices, particularly on certain private line
analog products, contributed to the further 0.9% decline.
Amortization of capitalized software development costs declined
slightly from $2.8 million in the quarter ended December 31,
1994 to $2.6 million in the quarter ended December 31, 1995.
This decline in amortization increased operating income by 0.5%.
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11
Selling, general and administrative expenses increased from
$20.6 million in the first quarter of fiscal 1995 to $21.4
million in the first quarter of fiscal 1996. This net increase
of $862,000 million, or 4.2%, is primarily due to a growing APEX
ATM marketing organization and related product launch expenses,
expansion of international sales activities and normal
compensation increases. Selling, general and administrative expenses
increased to 35.9% of revenues in the fiscal 1996 quarter from
35.4% of revenues in the fiscal 1995 quarter.
Research and product development spending, before consideration
of capitalized software development costs, increased to $10.3
million, or 17.2% of revenues, in the first quarter of fiscal
1996 from $9.4 million, or 16.1% of revenues, in the comparable
quarter one year ago. This increase of $908,000, or 9.7%,
reflects continued investment in ATM development in three
research centers: the Montreal Research Center (Canada);
Advanced Research Centre (UK); and the domestic ATM Product
Development Group (CT, USA). The timing, technical complexity
and nature of ATM software development projects contributed to a
reduction in the capitalization of software development costs to
$2.6 million in the first quarter of fiscal 1996 compared to
$3.5 million in the same quarter one year ago and, as a
percentage of total research and development spending, such
capitalized costs fell to 25.3% of total spending in the first
quarter of fiscal 1996 from 37.3% of total spending in the same
quarter one year ago.
Net interest expense in the quarter ended December 31, 1995
decreased $547,000 from the comparable period one year ago.
This amount included $243,000 of interest income on a higher
level of short-term investments made in the quarter ended
December 31, 1995 as compared to interest income of $86,000 in
the quarter ended December 31, 1994. Lower debt levels
accounted for the additional reduction in net interest expense.
The Corporation recorded an income tax provision, principally
for state and foreign taxes, of $300,000 in the first quarter of
fiscal 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's cash and cash equivalents were $14.2 million
at December 31, 1995, compared to $18.4 million at September 30,
1995. Bank debt was reduced to $27.7 million at December 31,
1995, as compared to $36.0 million at September 30, 1995. Also,
the Corporation has accumulated $3.2 million ($2.9 million at
September 30, 1995) of cash on deposit in an escrow account,
which is available to pay certain real estate lease obligations
beginning in March 1996.
Operating
During the three months ended December 31, 1995, the Corporation's operating
activities generated cash of $9.3 million compared to $2.7 million in the
same period one year ago.
Non-debt working capital, excluding cash and cash equivalents,
decreased $7.0 million to $50.4 million at December 31, 1995.
This decrease resulted primarily from a decrease in accounts
receivable and inventory combined with an increase in current
liabilities. Accounts receivable
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decreased $2.4 million in the first quarter of fiscal 1996 to
$40.6 million at December 31, 1995 due to more favorable
collection activities. Inventory levels decreased by $1.8
million, while accounts payable and accrued payroll increased
$3.1 million and $2.1 million, respectively, due to the timing
of the related cash obligations.
Investing
Net investments in property, plant and equipment for the
three-month period ended December 31, 1995 increased $0.4
million to $3.2 million from $2.8 million in the prior fiscal
year's period, principally for equipment used in research and
development and for spare parts for the service organizations.
As mentioned above, investments in capitalized software
development were $2.6 million in fiscal 1996 compared to $3.5
million in the same period one year ago.
Financing
Financing activities during the three-month period ended
December 31, 1995 required the use of $7.8 million in cash, $6.3
million for the repayment of a term loan and $2.1 million for
principal payments on notes and mortgages offset by $0.6 million
of cash proceeds from the exercise of stock options.
On November 30, 1995, the Corporation entered into an amended
agreement with The Bank of New York Commercial Corporation to
provide a revolving credit facility maturing in November 1998 in
the amount of $25,000,000 with availability subject to a
borrowing base formula. The facility provides for a sub-limit
of $5,000,000 for letters of credit. The amended agreement
provides for interest on outstanding borrowings to be charged,
at the Corporation's option, at either (1) the prime rate plus
3/4 of 1% (on December 31, 1995, the prime rate was 8.5%), or
(2) 2.75% over LIBOR for terms of 1, 2, 3 or 6 months (on
December 31, 1995, these LIBOR rates ranged from 5.38% to 5.56%).
The agreement also requires conformity with various financial
covenants, the most restrictive of which includes minimum
tangible net worth and a fixed charge coverage ratio. Certain
assets of the Corporation, including most accounts receivable
and inventories, are pledged as collateral. The amount of
borrowing is predicated on satisfying a borrowing base formula
related to levels of certain accounts receivable and
inventories. This amended agreement replaced the prior
revolving credit agreement that also provided for borrowings of
up to $25,000,000 and a sub-limit of $5,000,000 for letters of
credit. Although there were no borrowings outstanding, there
were $957,000 of letters of credit outstanding as of December
31, 1995.
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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-month
periods ended December 31, 1995 and 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
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
Senior Vice President and
Principal Financial Officer
Dated: February 13, 1996
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