SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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, 1996
------------------- ----------------------------
Common Stock, $.10 par value 18,715,082
Class B Stock, $.10 par value 2,137,443
Total Number of Pages in this Document is 27.
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
-------
Part I. Financial Information
---------------------
Consolidated Balance Sheets -
June 30, 1996 and September 30, 1995 3
Consolidated Statements of Operations and
Earnings Reinvested (Deficit) - For the Three and
Nine Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - For the
Nine Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II. Other Information
-----------------
Item 4 Submission of Matters to a Vote of Security-Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
- 2 -
PART I. FINANCIAL INFORMATION
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, September 30,
In thousands except shares 1996 1995
- -------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $8,357 $18,443
Accounts receivable, less allowance for doubtful
receivables of $1,757 in June and $1,704 in Sept. 39,684 43,033
Inventories 46,811 44,958
Deferred income taxes 3,612 3,612
Other current assets 7,501 6,054
- -------------------------------------------------------------------------------
Total current assets 105,965 116,100
===============================================================================
Property, plant and equipment, net 48,382 46,722
Capitalized software development costs, net of
accumulated amortization of $14,395 in June
and $13,577 in September 23,393 23,407
Other assets 11,473 12,159
- -------------------------------------------------------------------------------
$189,213 $198,388
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $6,446 $12,598
Accounts payable, trade 16,161 11,023
Accrued payroll and payroll-related costs 8,187 6,173
Deferred income 6,466 6,495
Other current liabilities 17,334 16,524
- -------------------------------------------------------------------------------
Total current liabilities 54,594 52,813
===============================================================================
Long-term debt, less current portion 22,798 23,435
Deferred income taxes 4,467 4,469
Other liabilities 579 586
- -------------------------------------------------------------------------------
Total liabilities 82,438 81,303
===============================================================================
Commitments and contingent liabilities - -
Stockholders' equity:
Capital stock, par value $.10
per share, issued: 21,380,010 shares in
June and 21,122,209 shares in September 2,138 2,112
Capital in excess of par value 129,586 128,076
Deficit (18,467) (6,153)
Cumulative foreign currency translation adjustment (2,577) (2,026)
Common stock held in treasury, at cost:
527,485 shares in June and 673,674 shares
in September (3,905) (4,924)
- -------------------------------------------------------------------------------
Total stockholders' equity 106,775 117,085
- -------------------------------------------------------------------------------
$189,213 $198,388
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
EARNINGS REINVESTED (DEFICIT)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
In thousands, except per share data 1996 1995 1996 1995
- -------------------------------------------------------------------------------
Revenues:
Net product sales $45,332 $37,222 $140,948 $131,130
Service revenue 9,541 9,444 29,081 27,441
Lease revenue 1,696 1,426 5,509 4,274
- -------------------------------------------------------------------------------
56,569 48,092 175,538 162,845
- -------------------------------------------------------------------------------
Costs and expenses:
Cost of product sales 22,771 18,450 67,690 62,586
Inventory write-down and other items -- 6,500 -- 6,500
Amortization of capitalized
software development costs 3,000 2,900 8,600 8,900
Cost of services 6,473 6,217 19,731 17,856
Cost of lease revenue 174 204 670 558
Selling, general and administrative 22,308 22,803 65,395 65,701
Research and product development 8,738 7,498 24,258 20,719
- -------------------------------------------------------------------------------
63,464 64,572 186,344 182,820
- -------------------------------------------------------------------------------
Operating loss (6,895) (16,480) (10,806) (19,975)
- -------------------------------------------------------------------------------
Other income (expense):
Interest (473) (458) (1,360) (1,764)
Other, net (99) 590 752 153
- -------------------------------------------------------------------------------
(572) 132 (608) (1,611)
- -------------------------------------------------------------------------------
Loss before income taxes (7,467) (16,348) (11,414) (21,586)
Income tax provision 300 250 900 850
- -------------------------------------------------------------------------------
Net loss (7,767) (16,598) (12,314) (22,436)
Earnings reinvested (deficit)
at beginning of period (10,700) 15,639 (6,153) 21,477
- -------------------------------------------------------------------------------
Earnings reinvested (deficit)
at end of period ($18,467) ($959) ($18,467) ($959)
===============================================================================
Loss per share ($0.37) ($0.82) ($0.60) ($1.15)
===============================================================================
Weighted average number of common and
common equivalent shares outstanding 20,797 20,332 20,656 19,562
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- 4 -
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
and Cash Equivalents
--------------------------
Nine Months Ended
June 30,
In thousands 1996 1995
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) ($12,314) ($22,436)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 18,978 17,634
Gain on sale of real estate (1,000) --
Inventory write-down and other items -- 6,500
Decrease in accounts receivable 2,829 13,206
(Increase) in inventories (2,247) (13,480)
Increase in accounts payable and accrued expenses 7,629 367
(Increase)in other net current assets (1,175) (5,412)
(Increase)in other net long-term assets (301) (751)
- ------------------------------------------------------------------------------
Net cash provided by(used in) operating activities 12,399 (4,372)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant, and
equipment (10,666) (13,606)
Capitalized software development costs (8,586) (9,595)
Sale of real estate 1,000 --
- -------------------------------------------------------------------------------
Net cash used in investing activities (18,252) (23,201)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Revolver borrowings -- 21,400
Revolver repayments -- (37,600)
Proceeds from notes and mortgages 4,740 5,479
Principal payments on notes and mortgages (11,445) (5,178)
Proceeds from issuing common stock 2,556 60,475
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (4,149) 44,576
- -------------------------------------------------------------------------------
Effect of exchange rates on cash (84) (348)
- -------------------------------------------------------------------------------
Net increase(decrease) in cash and cash equivalents (10,086) 16,655
Cash and cash equivalents at beginning of period -(1) 18,443 2,939
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period -(1) $8,357 $19,594
===============================================================================
(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.
-5-
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, 1996, the results of
operations for the three and nine months ended June 30, 1996 and 1995, and
the cash flows for the nine months ended June 30, 1996 and 1995. 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):
June 30, 1996 September 30, 1995
------------- ------------------
Raw materials $ 18,515 $ 19,466
Work-in-process 7,105 5,801
Finished goods 21,191 19,691
-------- --------
Total $ 46,811 $ 44,958
========= ========
NOTE 3. LONG-TERM DEBT
Long-term debt consists of (in thousands):
June 30, 1996 September 30, 1995
------------- ------------------
Notes payable $ 16,085 $ 22,179
Mortgages payable 12,522 13,018
Capital lease obligations 637 836
-------- ---------
29,244 36,033
Less: current portion 6,446 12,598
-------- ---------
$ 22,798 $ 23,435
========= =========
-6-
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 3. LONG-TERM DEBT (continued)
Revolving Credit Loan Agreement, and Related Amendments
-------------------------------------------------------
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. 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. The agreement also requires conformity with various
financial covenants. Please reference the Company's consolidated financial
statements and related notes thereto, filed with Form 10-K for the year
ended September 30, 1995, for further agreement details, including optional
rates of interest available to the Company.
No borrowings were outstanding as of June 30, 1996. There were, however,
$750,000 of letters of credit outstanding as of June 30, 1996.
NOTE 4. UNIQUE TRANSACTIONS
Other income for the nine months ended June 30, 1996 includes a $1 million
gain from the sale of rights to acquire a parcel of land in Connecticut.
Selling, general and administrative expenses for the nine months ended June
30, 1995 includes a $650,000 gain resulting from the early termination of a
lease obligation. Other income for the nine months ended June 30, 1995
includes an insurance claim reimbursement of $457,000.
-7-
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
- ------------------
Total revenues for the third fiscal quarter ended June 30, 1996 showed growth of
$8.5 million, or 17.6%, from the same quarter one year ago. ATM (Asynchronous
Transfer Mode) product line shipments amounted to $9.4 million for the quarter
ended June 30, 1996, versus $3 million achieved in the corresponding quarter of
fiscal 1995.
On a year-to-date basis, total revenues for the nine months ended June 30, 1996
increased by $12.7 million, or 7.8%, from the corresponding period of fiscal
1995. ATM product revenues have grown by $14.8 million, or 80% as compared to
fiscal 1995. ATM product revenue comprised 23.6% of total product revenue for
the nine months ended June 30, 1996, as compared to only 14.0% for the same
period one year ago. The increase in ATM revenue, supplemented with growth in
royalty revenues, more than offset reductions in our legacy analog transmission
business. Service and lease revenues also showed growth on a year-to-date basis.
The Company is continuing to pursue royalty revenue opportunities by licensing
certain transmission product technologies. Royalty revenues have averaged $1.3
million for each of the last two fiscal quarters.
The net loss for the three and nine-month periods ended June 30, 1996 amounted
to $7.8 million and $12.3 million, respectively. The year-to-date net loss
includes a one-time $1.0 million gain from the sale of real estate. Although
improvement is necessary, it should be noted that both amounts reflect
improvement over the prior year's performance, where we recognized losses of
$16.6 million and $22.4 million for the three and nine-month periods ended June
30, 1995, respectively. More detailed discussion of our financial results,
including comparison to prior year results, will follow later in this
discussion.
The Corporation continues to invest heavily in marketing and engineering
resources to promote and develop products for the emerging ATM technology
applications. An expansion of our contract with Lucent Technologies was executed
during the quarter. The original contract with Lucent Technologies, which
covered European and Asian regions, has now been expanded to provide full global
coverage. The expanded agreement with Lucent Technologies, as well as existing
agreements with Ericsson Business Networks, DSC Communications Corp., and
others, are examples of why the Company believes its ATM business has the
potential to deliver substantially higher revenues on a longer term basis.
Cash flows from operations were positive in each of the first three quarters of
fiscal 1996, amounting to $12.4 million for the nine months ended June 30, 1996.
The Corporation reduced long-term debt by $6.7 million during the nine months
ended June 30, 1996, and had cash balances of $8.4 million in place as of June
30, 1996.
-8-
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth selected consolidated financial data stated as
a percentage of total revenues (unaudited):
Three months ended Nine months ended
June 30, June 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------
Revenues:
Net product sales 80.1% 77.4 % 80.3% 80.5%
Service revenue 16.9 19.6 16.6 16.9
Leasing revenue 3.0 3.0 3.1 2.6
- -------------------------------------------------------------------------------
100.0 100.0 100.0 100.0
- -------------------------------------------------------------------------------
Costs and expenses:
Cost of revenues 52.0 51.7 50.2 49.7
Inventory write-down and
other items -- 13.5 -- 4.0
Amortization of capitalized
software development costs 5.3 6.0 4.9 5.5
Selling, general and
administrative 39.5 47.5 37.3 40.4
Research and product
development 15.4 15.6 13.8 12.7
- ------------------------------------------------------------------------------
Operating (loss) (12.2) (34.3) (6.2) (12.3)
- ------------------------------------------------------------------------------
Net (loss) (13.7)% (34.5)% (7.0)% (13.8)%
==============================================================================
Noteworthy items from the table above include: year-to-date research and product
development expense has grown to 13.8% of total revenues versus 12.7% in the
prior year, despite a much larger revenue base in fiscal 1996 (revenue growth of
$12.7 million or 7.8%), reflecting the Company's continued strategic investment
in the ATM business; the current quarter research and product development
spending rate was at 15.4% of revenues; fiscal 1996 margins have deteriorated
slightly, due to strategic pricing on larger contracts and reduced service
margins; net loss as a percent of revenue has decreased from the prior year.
Separately, product revenues were at an extremely low level in the quarter ended
June 30, 1995, thereby elevating expenses when displayed as a percent of
revenue.
Three Months Ended June 30, 1996 vs. Three Months Ended June 30, 1995
- ---------------------------------------------------------------------
Total revenues increased by $8.5 million, or 17.6% from the corresponding
quarter of the previous year. Product revenue, including royalties, comprised
$8.1 million of the gain; service and lease revenue comprised the remaining $0.4
million of revenue gain. From a product mix perspective, very strong revenue
growth in our ATM product line (approximately $6.4 million, or 212%), and
moderate growth in our Transmission product lines, including royalty revenues,
were partially offset with a reduction in Internetworking product line revenue.
Geographically, a 63.9% increase in international revenues more than offset a
6.4% reduction in domestic revenues. Sales activity through our network of
international distributors comprised most of the revenue gain. Our Canadian
subsidiary also posted higher revenues. Service revenue growth in the
international marketplace offset a decline in domestic service revenue. Leasing
revenues increased by $0.3 million, or 18.9%.
-9-
Three Months Ended June 30, 1996 vs. Three Months Ended June 30, 1995
(continued)
- ---------------------------------------------------------------------
Gross margin as a percent of revenues (excluding the amortization of capitalized
software development costs) improved by 13.2 percentage points, from 34.8% in
the third quarter of the prior fiscal year to 48.0% in the quarter ended June
30, 1996. However, prior year margins include the impact of a $6.5 million
charge for an inventory write-down and other items, which reduced gross margins
by 13.5%. Excluding this adjustment, margins show slight erosion (0.3%) from the
corresponding quarter of the prior fiscal year. This margin erosion is
principally attributable to some high dollar, low margin infrastructure sales in
the international marketplace, and reduced service margins. Amortization of
capitalized software development costs increased slightly from $2.9 million in
the quarter ended June 30, 1995 to $3.0 million in the quarter ended June 30,
1996.
Selling, general and administrative expenses decreased from $22.8 million
in the third quarter of fiscal 1995 to $22.3 million in the third quarter of
fiscal 1996, a reduction of $495,000 or 2.2%. The reduction reflects the net
effect of reductions in general and administrative costs (approximately 15%),
partially offset with higher selling and marketing costs. The Company has been
making a conscious effort to reduce general and administrative costs to support
higher selling, marketing, and product development costs associated with our ATM
product line. As noted in the above chart, selling, general and administrative
expenses as a percent of revenue decreased by 8.0 percentage points.
Research and product development spending, before consideration of capitalized
software development costs, increased to $11.7 million in the third quarter of
fiscal 1996, from $10.4 million in the same quarter one year ago. This 12.9%
spending increase reflects the Company's continued commitment to aggressively
pursue product development and revenue growth opportunities in the ATM and other
product lines. As of June 30, 1996, the Company was supporting research and
development operations in the U.S., Canada, and U.K.. However, due to the 17.6%
revenue gain achieved as compared to the third quarter of fiscal 1995, gross
research and product development spending reflects a decline when expressed as a
percent of revenue, or 20.7% and 21.6% for the quarters ended June 30, 1996 and
1995, respectively. Capitalized software costs equaled $3.0 million for the
third quarter of fiscal 1996, versus $2.9 million for the corresponding period
one year ago.
Other income for the third quarter of fiscal 1995 includes $457,000 for an
insurance claim reimbursement.
Tax provisions recorded by the Company, principally for state and foreign taxes,
amounted to $300,000 and $250,000 in the quarters ended June 30, 1996 and 1995,
respectively.
-10-
Nine Months Ended June 30, 1996 vs. Nine Months Ended June 30, 1995
- -------------------------------------------------------------------
On a year-to-date basis, total revenues increased by $12.7 million, or 7.8%.
Product, service, and leasing revenues increased by $9.8 million (7.5%), $1.7
million (6.0%), and $1.2 million (28.9%), respectively. Regarding product
revenue, ATM product revenues have grown $14.8 million, or 80% as compared to
fiscal 1995. The increase in ATM revenue, supplemented with growth in royalty
revenues, more than offset revenue reductions in legacy analog transmission
products and various Internetworking product lines. Geographically,
international revenues increased by 28.9% over fiscal 1995, more than offsetting
a domestic revenue decline of approximately 7.9%. The international revenue
growth was achieved through our international distributor network, and our
French and German subsidiaries. Domestically, sales of business systems directly
to end users accounted for most of the decline, with revenues down almost $8
million from the prior year. Company efforts to shift from direct sell activity
to domestic channels of distributors and value-added sellers have taken longer
than anticipated. The Company does continue to believe, however, that pursuit of
this strategy will be beneficial on a long-term basis, resulting in both a more
cost-effective means of selling products, and an opportunity to increase sales
volume. Year-to-date service revenues followed a similar geographic trend, with
gains in international markets offsetting declines in our domestic service
business.
Gross margin as a percent of revenue, excluding amortization of capitalized
software development costs, increased by 3.5% from the corresponding period one
year ago. However, excluding the impact of a fiscal 1995 $6.5 million charge for
an inventory write-down and other items, current year margin reflects a decline
of 0.5%. The primary causes of our year-to-date margin decline were strategic
lower pricing on specific larger contracts, and reduced service margins. Total
gross margin rates achieved for the first nine months of fiscal 1996 were 49.8%,
as compared to fiscal 1995 margins of 46.3% with the $6.5 million charge (50.3%
excluding $6.5 million charge). Amortization of capitalized software development
costs declined slightly, from $8.9 million in the nine months ended June 30,
1995 to $8.6 million in the corresponding period of fiscal 1996.
Year-to-date selling, general and administrative expenses decreased by $306,000,
or 0.5%. However, selling, general and administrative costs for fiscal 1995
includes a $650,000 gain resulting from the early termination of a lease
obligation. Excluding the prior year $650,000 gain, current year expenses
reflect a reduction of $956,000, or 1.4%. This reduction represents the net
effect of increased selling and marketing costs and reduced general and
administrative expenses. Due to both revenue growth and general and
administrative cost containment efforts, year-to-date selling, general and
administrative costs declined as a percent of revenue, from 40.3% in fiscal 1995
to 37.3% in fiscal 1996, representing a 3 percentage point productivity gain.
Research and product development spending, before consideration of capitalized
software development costs, increased $2.5 million, or 8.3% from the same
nine-month period one year ago. Current year-to-date spending as a percent of
revenue increased to 18.7%, as compared to 18.6% in the prior year, despite
revenue growth of $12.7 million or 7.8%. The amount of capitalized software
costs was $8.6 million (or 26.1% of research and development spending) for the
nine months ended June 30, 1996, as compared to $9.6 million (or 31.7% of
research and development spending) for the same period one year ago, down $1.0
million (or 5.6% of research and development spending). The 8.3% increase in
spending and the reduced rate of capitalization had the combined impact of
increasing net research and development expense by $3.5 million, or 17.1% as
compared to the first nine months of fiscal 1995.
-11-
Nine Months Ended June 30, 1996 vs. Nine Months Ended June 30, 1995 (continued)
- -------------------------------------------------------------------------------
Year-to-date net interest expense reflects a reduction of $404,000, or 22.9%
from the prior year, principally due to lower levels of outstanding debt. Fiscal
1996 year-to-date other income includes a $1.0 million gain on the sale of real
estate. Fiscal 1995 year-to-date other income includes $457,000 for an insurance
claim reimbursement. Tax provisions for the nine month periods ended June 30,
1996 and 1995 amounted to $900,000 and $850,000, respectively, principally for
state and foreign taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Corporation's cash and cash equivalents were $8.4 million at June 30, 1996,
as compared to $18.4 million at September 30, 1995. Bank debt was reduced by
$6.8 million during the nine-month period ended June 30, 1996, from $36.0
million at September 30, 1995 to $29.2 million at June 30, 1996.
Operating
- ---------
During the nine months ended June 30, 1996, the Corporation's operating
activities generated positive cash flow of $12.4 million, as compared to a
negative cash flow of $4.4 million for the same period one year ago--a
year-to-year improvement of $16.8 million. Non-debt working capital, excluding
cash and cash equivalents, decreased $8.0 million to $49.5 million at June 30,
1996. The decrease is principally comprised of $5.1 million of growth in trade
accounts payable, resulting from an abnormally low accounts payable balance as
of September 30, 1995. (Inventories showed strong growth in the first half of
fiscal 1995, and were subsequently reduced by $8.8 million in the six months
ended September 30, 1995. This $8.8 million inventory reduction resulted in
abnormally low levels of inventory purchases during the six months ended
September 30, 1995, and a corresponding reduction in trade accounts payable as
of September 30, 1995). Continued effective management of accounts receivable
and a slightly reduced level of quarterly revenues had the combined impact of
reducing accounts receivable by $3.3 million, from $43.0 million at September
30, 1995 to $39.7 million at June 30, 1996. Inventories have increased $1.9
million from year-end, reflecting the impact of product shipments not achieving
forecast.
Investing
- ---------
Net investments in property, plant and equipment for the nine months ended June
30, 1996 amounted to $10.7 million, as compared to $13.6 million for
corresponding period of fiscal 1995. Separately, investments in capitalized
software amounted to $8.6 million and $9.6 million for the nine months ended
June 30, 1996 and 1995, respectively.
Financing
- ---------
Financing activities during the nine-month period ended June 30, 1996 required
the use of $4.1 million in cash, representing the net effect of $6.7 million in
net debt reduction, and $2.6 million of cash proceeds received from the exercise
of stock options and stock sold through the employee stock purchase plan. The
net debt reduction has a favorable impact on interest expense.
-12-
Financing (continued)
- --------------------
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. Please reference Note 3 of the accompanying
financial statements for a more detailed description of the agreement. No
borrowings were outstanding as of June 30, 1996; there were, however, $750,000
of letters of credit outstanding as of June 30, 1996.
The above-referenced agreement requires conformity with various financial
covenants, the most restrictive of which include minimum tangible net worth
requirements, total liabilities to tangible net worth ratio requirements, and
net income performance requirements. To assure the future ability to access
funds available under the amended borrowing agreement, the Company anticipates
that amendments to such financial covenants will be necessary and will be
secured in the quarter ending September 30, 1996.
The Company believes that the combination of its existing cash balances, future
cash flows from operations, and available funds under its revolving credit
facility will be adequate to support the Corporation's cash requirements for the
near term. In addition, the Corporation considers its ability to offer for sale
its common stock, preferred stock, and/or warrants as viable alternative sources
of financing.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- -------------------------------------------------------------------------------
Portions of the foregoing discussion include descriptions of the Company's
expectations regarding future trends affecting its business. The forward-looking
statements made in this document, as well as all other forward-looking
statements or information provided by the Company or it's employees, whether
written or oral, are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements and
future results are subject to, and should be considered in light of risks,
uncertainties, and other factors which may affect future results including, but
not limited to: competition, rapid changing technology, regulatory requirements,
and uncertainties of international trade.
-13-
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
Part II. Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security-Holders
----------------------------------------------------
On February 1, 1996, at the Annual Meeting of Stockholders of the
Corporation, the stockholders elected Frederick R. Cronin as a Director
to a term of three (3) years:
Number of votes cast for: 15,924,995
Number of votes cast against: 204,589
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Index of Exhibits
10.15 Amendment No.1 To Third Amended and Restated Revolving Credit
and Security Agreement between General DataComm Industries, Inc.
and The Bank Of New York Commercial Corporation.
10.16 Amendment No. 2 To Third Amended and Restated Revolving Credit
and Security Agreement between General DataComm Industries, Inc.
and The Bank Of New York Commercial Corporation.
11. Calculation of Earnings Per Share for the three-month and nine-
month periods ended June 30, 1996 and 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
-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
Senior Vice President and
Principal Financial Officer
Dated: August 13, 1996
-15-