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Previous: CHUBB CORP, 13F-HR, 1999-11-12 |
Next: CIT GROUP INC, 8-A12B/A, 1999-11-12 |
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For the Quarter Ended September 30, 1999 |
|
Commission File Number 1-9014 |
|
Chyron Corporation |
|
(Exact name of registrant as specified in its charter) |
|
New York |
|
11-2117385 |
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(State or other jurisdiction of Incorporation or organization) |
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(IRS Employer Identification No.) |
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5 Hub Drive, Melville, New York |
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11747 |
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(Address of principal executive offices) |
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(Zip Code) |
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(516) 845-2000 |
||
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(Registrant's telephone number including area code) |
||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
|
Yes |
X |
No |
__ |
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Common Stock $.01 Par Value - 32,088,039 as of
November 9, 1999
This document consists of 16 pages
CHYRON CORPORATION
INDEX
|
PART I |
FINANCIAL INFORMATION |
Page |
|
Item 1. |
Financial Statements |
|
|
|
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 |
3 |
|
|
Consolidated Statements of Operations (unaudited) for the Three Months ended September 30, 1999 and 1998 |
4 |
|
|
Consolidated Statements of Operations (unaudited) for the Nine Months ended September 30, 1999 and 1998 |
5 |
|
|
Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 1999 and 1998 |
6 |
|
|
Notes to Consolidated Financial Statements (unaudited) |
7 |
|
|
|
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
10 |
|
|
|
|
|
Item 3. |
Quantitative and Qualitative Disclosure about Market Risk |
14 |
|
|
|
|
|
PART II |
OTHER INFORMATION |
|
|
|
|
|
|
Item 1. |
Legal Proceedings |
15 |
|
Item 2. |
Changes in Securities |
15 |
|
Item 3. |
Defaults Upon Senior Securities |
15 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
15 |
|
Item 5. |
Other Information |
15 |
|
Item 6(a) |
Exhibits |
15 |
|
Item 6(b) |
Reports on Form 8-K |
15 |
|
Signatures |
|
16 |
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
|
ASSETS |
||
|
|
(Unaudited) September 30, 1999 |
December 31, 1998 |
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ 2,817 |
$ 1,585 |
|
Accounts receivable, net |
15,621 |
18,396 |
|
Inventories, net |
14,241 |
19,378 |
|
Deferred tax assets |
|
4,726 |
|
Prepaid expenses and other current assets |
2,448 |
1,982 |
|
Total current assets |
35,127 |
46,067 |
|
|
|
|
|
Property and equipment |
11,486 |
12,545 |
|
Excess of purchase price over net tangible assets acquired |
4,699 |
5,104 |
|
Investments |
1,286 |
2,286 |
|
Software development costs |
2,231 |
4,458 |
|
Deferred tax assets |
|
8,343 |
|
Other assets |
4,722 |
4,313 |
|
TOTAL ASSETS |
$59,551 |
$83,116 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||
|
|
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued expenses |
$12,977 |
$14,136 |
|
Current portion of long-term debt |
528 |
1,512 |
|
Capital lease obligations |
462 |
383 |
|
Total current liabilities |
13,967 |
16,031 |
|
|
|
|
|
Long-term debt |
19,777 |
13,486 |
|
Capital lease obligations |
459 |
515 |
|
Other liabilities |
3,722 |
3,314 |
|
Total liabilities |
37,925 |
33,346 |
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
Preferred stock: par value without designation |
|
|
|
Authorized - 1,000,000 shares, Issued - none |
|
|
|
Common stock: par value $.01 |
|
|
|
Authorized - 150,000,000 shares |
|
|
|
Issued and outstanding - |
|
|
|
32,088,033 at September 30, 1999 and 32,058,020 at December 31, 1998 |
321 |
321 |
|
Additional paid-in capital |
44,073 |
44,021 |
|
Accumulated deficit/retained earnings |
(23,212) |
4,790 |
|
Accumulated other comprehensive income |
444 |
638 |
|
Total shareholders' equity |
21,626 |
49,770 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$59,551 |
$83,116 |
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands except per share amounts)
(Unaudited)
|
|
1999 |
1998 |
|
|
|
|
|
Net sales |
$16,756 |
$22,062 |
|
Cost of products sold |
8,650 |
11,612 |
|
Gross profit |
8,106 |
10,450 |
|
|
|
|
|
Operating expenses: |
|
|
|
Selling, general and administrative |
6,946 |
7,268 |
|
Research and development |
1,898 |
2,599 |
|
|
|
|
|
Total operating expenses |
8,844 |
9,867 |
|
Operating (loss) income |
(738) |
583 |
|
Gain on sale of Trilogy Broadcast, Limited |
|
1,194 |
|
Interest and other expense, net |
(236) |
(569) |
|
(Loss) income before provision for income taxes |
(974) |
1,208 |
|
Benefit for income taxes |
(113) |
|
|
Net (loss) income |
$ (974) |
$ 1,321 |
|
Net (loss) income per common share - basic and diluted |
$ (.03) |
$ .04 |
|
Weighted average shares used in computing net (loss) income per common share - basic and diluted |
32,087 |
32,072 |
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands except per share amounts)
(Unaudited)
|
|
1999 |
1998 |
|
|
|
|
|
Net sales |
$47,953 |
$64,683 |
|
Cost of products sold |
27,936 |
33,831 |
|
Gross profit |
20,017 |
30,852 |
|
|
|
|
|
Operating expenses: |
|
|
|
Selling, general and administrative |
21,586 |
23,953 |
|
Research and development |
5,737 |
7,615 |
|
Restructuring and other nonrecurring charges |
6,681 |
3,979 |
|
|
|
|
|
Total operating expenses |
34,004 |
35,547 |
|
Operating loss |
(13,987) |
(4,695) |
|
Gain on sale of Trilogy Broadcast, Limited |
|
1,194 |
|
Interest and other expense, net |
(765) |
(1,405) |
|
Loss before provision for income taxes |
(14,752) |
(4,906) |
|
Provision (benefit) for income taxes |
13,250 |
(1,429) |
|
Net loss |
$(28,002) |
$(3,477) |
|
Net loss per common share - basic and diluted |
$ (.87) |
$ (.11) |
|
Weighted average shares used in computing net loss per common share - basic and diluted |
32,083 |
32,072 |
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands)
(Unaudited)
|
|
1999 |
1998 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
Net loss |
$(28,002) |
$(3,477) |
|
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
Gain on sale of Trilogy Broadcast, Limited |
|
(1,194) |
|
Restructuring and other nonrecurring charges |
6,283 |
3,370 |
|
Depreciation and amortization |
3,802 |
3,897 |
|
Deferred income tax (benefit) |
13,334 |
(1,539) |
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
2,652 |
3,608 |
|
Inventories |
3,556 |
5,665 |
|
Prepaid expenses and other assets |
(885) |
(85) |
|
Accounts payable and accrued expenses |
(1,944) |
(3,521) |
|
Other liabilities |
191 |
60 |
|
Net cash (used in) provided by operating activities |
(1,013) |
6,784 |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
Gross proceeds from sale of Trilogy Broadcast, Limited |
|
2,746 |
|
Acquisitions of property and equipment |
(266) |
(1,793) |
|
Capitalized software development |
(2,519) |
(2,474) |
|
Net cash used in investing activities |
(2,785) |
(1,521) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
Paydown of expiring credit facility |
(8,493) |
|
|
Net proceeds from new credit facility |
8,688 |
|
|
Payments of term loan |
(500) |
(3,000) |
|
Payments on revolving credit agreements, net |
(839) |
(2,116) |
|
Proceeds from issuance of convertible debt |
6,611 |
|
|
Payments of capital lease obligations |
(440) |
(260) |
|
Net cash provided by (used in) financing activities |
5,027 |
(5,376) |
|
|
|
|
|
Effect of foreign currency rate fluctuations on cash and cash equivalents |
3 |
2 |
|
Change in cash and cash equivalents |
1,232 |
(111) |
|
Cash and cash equivalents at beginning of period |
1,585 |
2,968 |
|
Cash and cash equivalents at end of period |
$ 2,817 |
$ 2,857 |
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
On August 19, 1998, the Company sold Trilogy Broadcast, Limited. The proceeds included cash and an interest bearing note for 300,000 British Pounds Sterling. The Company retained a 19% interest in the newly formed Company.
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management of Chyron Corporation (the "Company"), the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 1999 and the consolidated results of its operations and its cash flows for the periods ended September 30, 1999 and 1998. The results of operations for such interim periods are not nec cative of the results that may be expected for the year ending December 31, 1999. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December December 31, 1998 figures included herein were derived from such audited consolidated financial statements. Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 method of presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable is stated net of an allowance for doubtful accounts of $3,471,000 and $3,881,000 at September 30, 1999 and December 31, 1998, respectively.
3. INVENTORIES
Inventories, net of obsolescence reserves, consist of the following (in thousands):
|
|
September 30, 1999 |
December 31, 1998 |
|
|
|
|
|
Finished goods |
$ 6,269 |
$ 7,266 |
|
Work-in-process |
2,058 |
3,048 |
|
Raw material |
5,914 |
9,064 |
|
|
$14,241 |
$19,378 |
4. LONG-TERM DEBT
During the third quarter of 1999, the Company raised $6.5 million through the issuance of 8% subordinated convertible debentures due December 31, 2003, to certain of its existing shareholders, some of whom are directors of the Company. The debentures are convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $1 5/8 per share. The debentures may be redeemed by the Company, commencing one year from issue date, f o al to the principal and accrued but unpaid interest at the redemption date. Interest is payable quarterly. Interest may be paid in the form of additional debentures until July 15, 2001. These funds will be used to build the restructured operations and to fund research and development, particularly for certain Internet initiatives. The notes have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the reg uirements. In addition, in order for the debentures purchased by funds managed by Weiss Peck & Greer LLC to be converted into shares of common stock, under the rules of the New York Stock Exchange, shareholder approval is required. In the event that shareholder approval is not given, the debentures owned by such funds will not be convertible. The Company intends to seek such shareholder approval.
5. RESTRUCTURING AND OTHER NONRECURRING CHARGES
The delay in the rollout of HDTV by broadcasters and their reluctance to purchase analog equipment has significantly impacted the Company's ability to achieve desired levels of operating results. To weather this difficult time and to better position itself for the future, the Company has critically evaluated its product lines and its position in the industry. The results of this evaluation are a more focused strategy on products that serve a broader spectrum of delivery option mination of certain non-producing products which will allow the Company to be in a better position to remain competitive through the difficult times facing the industry. During the second quarter of 1999, the Company recorded nonrecurring charges totaling $6.7 million, of which $5.0 million was directly related to this change in strategy. These primarily non-cash restructuring and nonrecurring charges included the write-down of certain capitalized software of $3.6 million, inventory write-downs due to chang strategy of $1.0 million, severance costs of $0.4 million resulting from staff reductions, the write-down of $1 million of an equity investment and other charges related to an adjustment to deferred maintenance revenue totaling $0.7 million. The only component of the charge that required a cash outlay was severance paid to employees of approximately $0.4 million. Operating costs in the third quarter of 1999 were reduced by approximately $0.8 million as a result of the restructuring.
6. INCOME TAXES
In the second quarter of 1999, the Company established a full valuation allowance of $14 million against its net deferred tax assets. The Company's net deferred tax assets include substantial amounts of net operating loss carryforwards. Inability to generate taxable income within the carryforward period would affect the ultimate realization of such assets. Consequently, management determined that sufficient uncertainty exists regarding the realization of these assets to warran shment of the allowance.
7. NYSE CONTINUED LISTING STATUS
In late August 1999, the Company received a notice from the New York Stock Exchange ("NYSE") indicating that it does not currently meet the new continued listing standards issued in July 1999. The new criteria revised and raised the minimum requirement of stockholder's equity to $50 million from $12 million of net tangible assets and global market capitalization to $50 million from $12 million. Companies below these levels must submit a business plan to the NYSE demonstrating ny anticipates meeting the new standards within an eighteen month period. On October 14, 1999 the Company submitted its plan to the NYSE and is currently awaiting the NYSE decision regarding acceptance of the plan which is expected on or about November 30, 1999. An acceptance of the plan will allow the Company to continue to list its common stock on the NYSE.
8. SEGMENT INFORMATION
Chyron's businesses are organized, managed and internally reported as two segments. The segments, which are based on differences in products and technologies, are Graphics Products and Media Management Systems. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" included in the Company's Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 1998. The Company is an rganization characterized by interdivisional cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these segments, if operated independently, would report the financial information shown below.
|
Business Segment Information (In thousands) |
|||
|
Graphics |
Media Management |
||
|
Three months ended September 30, 1999 |
|||
|
Net sales |
$ 8,361 |
$ 8,395 |
|
|
Operating loss |
(507) |
(231) |
|
|
Depreciation and amortization |
395 |
736 |
|
|
Three months ended September 30, 1998 |
|||
|
Net sales |
9,960 |
12,102 |
|
|
Operating profit |
274 |
309 |
|
|
Depreciation and amortization |
599 |
2,001 |
|
|
September 30, 1999 |
|||
|
Identifiable assets |
23,166 |
36,385 |
|
Geographic Areas |
|||
|
United States |
Europe |
Other |
|
|
Three months ended September 30, 1999 |
|||
|
Net sales |
$ 10,129 |
$ 6,299 |
$ 328 |
|
Operating profit (loss) |
141 |
(835) |
(44) |
|
Three months ended September 30, 1998 |
|||
|
Net sales |
13,711 |
8,176 |
175 |
|
Operating profit |
468 |
113 |
2 |
|
September 30, 1999 |
|||
|
Identifiable assets |
26,167 |
33,324 |
60 |
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From time to time, including in this Quarterly Report on Form 10-Q, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, changes in the industry, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. In order to comply with the terms of the s he Company notes that a variety of factors could cause the Company's actual results to differ from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, without limitation, the following: product concentration in a mature market, dependence on the emerging digital market and the industry's transition to DTV and HDTV, consumer accep and HDTV, resistance within the broadcast or cable industry to implement DTV and HDTV technology, rapid technological changes, new technologies that could render certain Chyron products to be obsolete, a highly competitive environment, competitors with significantly greater financial resources, new product introductions by competitors, seasonality, fluctuations in quarterly operating results, ability to maintain adequate levels of working capital, ability to maintain its NYSE listing, expansion into new mar Company's ability to successfully implement its acquisition and strategic alliance strategy.
Results of Operations
This discussion should be read in conjunction with the Consolidated Financial Statements including the Notes thereto.
Comparison of the Three and Nine Months Ended September 30, 1999 and 1998
Sales for the quarter ended September 30, 1999 were $16.8 million, a decrease of $5.3 million, or 24%, over the $22.1 million reported for the third quarter of 1998. Sales for the nine months ended September 30, 1999 were $48.0 million, a decrease of $16.7 million, or 26%, over the $64.7 million reported for the first nine months of 1998. The decrease in both the three and nine month levels of sales resulted from the lower volume of U.S. and international graphics and Pro-Bel resulting from the industry-wide softness in equipment purchases by broadcasters, primarily as a result of the delay in the rollout of HDTV and their reluctance to purchase analog equipment. Sales in international markets have also been lower in 1999 than 1998 primarily due to weak economic conditions in Eastern Europe and Asia. Like their American counterparts, many international broadcasters have postponed purchases of equipment. Sales in the nine month period of 1999 were also impacted by the loss of $3 evenues associated with the Trilogy division which was sold in August 1998.
Gross margins as a percentage of sales increased to 48.4% in the third quarter of 1999 versus 47.4% in the third quarter of 1998. Gross margins as a percentage of sales decreased to 41.7% for the nine month period in 1999 versus 47.7% for the nine month period in 1998. The improvement in the quarterly margins results from improved margins on Pro-Bel hardware products that have been redesigned, greater absorption of graphics overhead costs resulting from the improved levels of volume a facturing costs resulting from the restructuring in Q2 1999. The margins in the nine month period of 1999 were not as favorable as the comparable margins in 1998 primarily due to the inventory write-downs taken in the second quarter of 1999, as well as product mix.
Selling, general and administrative (SG&A) expenses decreased by $0.32 million or 4%, to $6.9 million in the quarter ended September 30, 1999 compared to $7.3 million for the third quarter of 1998. SG&A expenses decreased by $2.4 million, or 10.0%, to $21.6 million in the first nine months of 1999 compared to $24.0 million for the first nine months of 1998. SG&A expenses in both the three and nine month periods were lower due to the elimination of operating costs as the Trilogy and Concerto divisions and the reduced level of expenses as a result of the restructuring that occurred in the second quarter of 1999.
Gross research and development (R&D) costs decreased by $0.7 million during the third quarter of 1999 as compared to the same period in 1998. Gross R&D costs decreased during the first nine months of 1999 compared to the same period in 1998 by $1.9 million. The decreases in both the three and nine month levels of R&D expenses are directly related to the elimination of costs associated with the Trilogy and Concerto divisions and the expense reduction that resulted from the r 1999 restructuring. The expense reduction in the three month period was offset somewhat by the additional effort associated with product enhancements that were demonstrated at the IBC Show in Amsterdam in September 1999.
In the second quarter, the Company adopted a more focused strategy on products that serve a broader spectrum of delivery options and eliminated certain non-producing products. Consequently, included in the results for the nine months ended September 30, 1999 were nonrecurring charges totaling $6.7 million, of which $5.0 million was directly related to this change in strategy. These primarily non-cash restructuring and nonrecurring charges included the write-down of certain capitalized ventory write-downs due to changes in product strategy, severance costs resulting from staff reductions and the write-down of an equity investment. The only component of the charge that required a cash outlay was severance of approximately $0.4 million. Operating costs in the third quarter of 1999 were reduced by approximately $0.8 million as a result of the restructuring.
During the nine months ended September 30, 1998, management determined that it would be in the Company's best interest to implement a restructuring plan and refocus its efforts on its core products of graphics, routing and automation for television broadcast, cable and post production industries. This product line restructuring included the sale of Trilogy; the modification of the Company's investment in RT-SET; the reorganization of Chyron's sales and marketing organization; and the f the Concerto Division. As a result, the Company recorded restructuring and other nonrecurring charges of $3,979,000 during the second quarter of 1998.
During the nine months ended September 30, 1998, the Company completed the sale of Trilogy to its management. This transaction resulted in an overall gain of approximately $1.2 million.
Interest and other expense, net, decreased by $0.33 million in the third quarter of 1999 as compared to the second quarter of 1998. There was also a decrease of $.64 million in the nine month net expense in 1999 as compared to 1998. These decreases are primarily due to foreign exchange gains included in the three and nine months periods ending September 30, 1999 as a result of favorable rates between the U.S. dollar and the British pound sterling. Interest expense during the nine mont d September 30, 1999 also declined primarily as a result of lower average borrowings.
In the second quarter of 1999, the Company established a full valuation of $14 million against its net deferred tax assets. Consequently, in the third quarter of 1999, based on management's assessment of the ultimate realization of such assets, no additional tax benefit was recorded. The Company recorded a tax benefit of $113,000 for the quarter ended September 30, 1998. This is primarily due to a foreign tax loss resulting from an overall reduced gain on the sale of Trilogy and the t r taxable transactions. The Company's effective tax (benefit) rate was 29% for the nine month period ended September 30, 1998. This rate, which is lower than the U.S. statutory rate, reflects the benefit recorded in the third quarter of 1998 discussed above and the effects of foreign income (losses) taxed at lower rates.
Liquidity and Capital Resources
At September 30, 1999, the Company had cash on hand of $2.8 million and working capital of $21.2 million.
As set forth in the Consolidated Statements of Cash Flows, the Company used $1 million in cash from operations during the nine months ended September 30, 1999 as compared to generating $6.8 million in cash for the comparable 1998 period. The reduction in cash flows from operations is principally due to the realization of the cumulative net loss. Cash receipts were also reduced in the 1999 nine month period as compared to 1998 due to the lower sales volume. Inventory levels decreased i s from their respective year end balances. These reductions are driven by a greater effort toward managing inventory. Corresponding levels of accounts payable were also reduced primarily as a result of the reduced inventory levels.
During the third quarter of 1999, the Company raised $6.5 million through the issuance of 8% subordinated convertible debentures due December 31, 2003, to certain of its existing shareholders, some of whom are directors of the Company. The debentures are convertible, at any time, at the option of the holders thereof, into common stock of the Company at a conversion price of $1 5/8 per share. The debentures may be redeemed by the Company, commencing one year from issue date, for a pric e principal and accrued but unpaid interest at the redemption date. Interest is payable quarterly. Interest may be paid in the form of additional debentures until July 15, 2001. These funds will be used to build the restructured operations and to fund research and development, particularly for certain Internet initiatives. The notes have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registratio s. In addition, in order for the debentures purchased by funds managed by Weiss Peck & Greer LLC to be converted into shares of common stock, under the rules of the NYSE, shareholder approval is required. In the event that shareholder approval is not given, the debentures owned by such funds will not be convertible. The Company intends to seek such shareholder approval.
On March 29, 1999, the Company entered into a new $12 million credit facility which expires March 31, 2002. Under this facility, the Company borrowed $2 million in the form of a term loan and can obtain revolving credit loans based on its eligible accounts receivable and inventory for the balance of the facility. Total borrowings at closing were $8.7 million. These borrowings were used primarily to pay down the outstanding balance under the expiring credit facility of $8.5 million, in million outstanding on a term loan.
The term loan requires no principal payments through September 30, 1999, $25,000 per month for the period October 1, 1999 through September 30, 2000, $75,000 per month for the period October 1, 2000 through September 30, 2001 and $133,333 per month from October 1, 2001 through March 31, 2002. Interest is payable monthly at LIBOR plus 1.875% (6.03% at September 30, 1999), or at a rate based on Prime. The Company must pay a monthly commitment fee equal to one half of 1% per annum on the portion of the facility.
The Year 2000
The Company has taken actions to ensure that its products, internal systems and procedures are Year 2000 Compliant. To this end, the Company established a plan to assess the Year 2000 impact in order to minimize any interruption of its operations or its ability to serve its customers. The Company also established a Year 2000 Committee whose members include senior management and functional area leaders.
The Company structured its plan to address internal systems, infrastructure, facilities, suppliers and vendors as well as products and services. In this regard, the Company has completed the assessment of its critical internal information technology (IT) and non-IT systems and has determined that it needs to replace a portion of its business system in the UK. The Company believes that this replacement of existing software will enable the Company to operate effectively after December 3 Company has also completed its product review and is engaged in remediation efforts, where appropriate, including upgrading and retiring of systems and components, which is expected to continue through the fourth quarter of 1999. All products being shipped currently have been extensively tested and found to be compliant. The Company has surveyed vendors and suppliers and is reviewing their remediation efforts to ensure uninterrupted operations. Contingency plans will be prepared, as needed, during the remai ear. The Company is primarily utilizing internal resources in its efforts and the associated costs are being expensed as incurred. Total costs are expected to be less than $0.5 million.
The Company is taking what it considers to be reasonable steps to prevent major interruptions in its business due to Year 2000 issues. The inability of the Company or significant third parties to adequately address Year 2000 issues could cause inefficiencies in the Company's business operations. At this time, the Company has not encountered any Year 2000 issues which it believes could have a material adverse effect on its business or current products.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
The Company is exposed to currency risk in the normal course of business related to investments in its foreign subsidiaries and the level of sales to foreign customers. For the three months ended September 30, 1999 and 1998, sales to foreign customers were 40% and 38% of total sales, respectively. Substantially all sales generated outside of the U.S. are denominated in British pounds sterling. The net impact of foreign exchange transactions for the three months ended September 1998 was a gain of $77,000 and a loss of $153,000, respectively. Foreign currency hedging activity is not material to the Company's consolidated financial position, results of operations, or its cash flow.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company from time to time is involved in routine legal matters incidental to its business. In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6(a). Exhibits
(27) Financial Data Schedule
ITEM 6(b). Reports on Form 8-K
The Company did not file any current reports on Form 8-K during its fiscal quarter ended September 30, 1999.
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.
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CHYRON CORPORATION |
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(Registrant) |
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November 12, 1999 |
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/s/ Roger Henderson |
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(Date) |
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Roger Henderson |
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President and Chief Executive Officer |
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November 12, 1999 |
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/s/ Dawn Johnston |
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(Date) |
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Dawn Johnston |
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Senior Vice President and Chief Financial Officer |
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