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 March 31, 1999
Commission File Number 1-9014
Chyron Corporation
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of Incorporation or organization)
11-2117385
(IRS Employer Identification No.)
5 Hub Drive, Melville, New York
(Address of principal executive offices)
11747
(Zip Code)
(516) 845-2000
(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
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 - 32,058,020 as of
May 10, 1999
This document consists of 11 pages
CHYRON CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations
(unaudited) for the Three Months ended
March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
(unaudited) for the Three Months ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6(a) Exhibits 11
Item 6(b) Reports on Form 8-K 11
Signatures 11
CHYRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
ASSETS
(Unaudited)
March 31,December 31,
1999 1998
Current assets:
Cash and cash equivalents $ 1,130 $ 1,585
Accounts receivable, net 15,201 18,396
Inventories, net 19,610 19,378
Deferred tax assets 4,940 4,726
Prepaid expenses and other current assets 2,277 1,982
Total current assets 43,158 46,067
Property and equipment 11,839 12,545
Excess of purchase price over net tangible
assets acquired 4,982 5,104
Investments 2,286 2,286
Software development costs 5,050 4,458
Deferred tax assets 8,856 8,343
Other assets 4,474 4,313
TOTAL ASSETS $80,645 $83,116
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $13,321 $14,136
Current portion of long-term debt 678 1,512
Capital lease obligations 393 383
Total current liabilities 14,392 16,031
Long-term debt 14,463 13,486
Capital lease obligations 493 515
Other liabilities 3,654 3,314
Total liabilities 33,002 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 -
32,058,020 at March 31, 1999 and
December 31, 1998 321 321
Additional paid-in capital 44,021 44,021
Retained earnings 2,940 4,790
Accumulated other comprehensive income 361 638
Total shareholders' equity 47,643 49,770
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $80,645 $83,116
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands except per share amounts)
(Unaudited)
1999 1998
Net sales $14,998 $21,525
Cost of products sold 8,251 10,803
Gross profit 6,747 10,722
Operating expenses:
Selling, general and administrative 7,277 7,718
Research and development 1,844 2,510
Total operating expenses 9,121 10,228
Operating (loss) income (2,374) 494
Interest and other expense, net 302 359
(Loss) income before provision for income taxes (2,676) 135
(Benefit) provision for income taxes (826) 101
Net (loss) income $(1,850) $ 34
Net (loss) income per common share basic
and diluted $ (.06) $ .00
Weighted average shares used in computing net
(loss) income per common share - basic
and diluted 32,058 32,606
See Notes to Consolidated Financial Statements
CHYRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands)
(Unaudited)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,850) $ 34
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,327 920
Deferred income tax (benefit) (715) (157)
Changes in operating assets and liabilities:
Accounts receivable 2,933 2,183
Inventories (467) 1,669
Prepaid expenses and other assets (484) (558)
Accounts payable and accrued expenses (629) (2,765)
Other liabilities 345 168
Net cash provided by operating activities 460 1,494
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (551)
Capitalized software development (1,078) (763)
Net cash used in investing activities (1,078) (1,314)
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) (500)
Borrowings from revolving credit agreements, net 415 115
Proceeds from issuance of convertible debt 159
Payments of capital lease obligations (107) (136)
Net cash provided by (used in) financing activities 162 (521)
Effect of foreign currency rate fluctuations on
cash and cash equivalents 1 (5)
Change in cash and cash equivalents (455) (346)
Cash and cash equivalents at beginning of period 1,585 2,968
Cash and cash equivalents at end of period $1,130 $ 2,622
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 March 31, 1999
and the consolidated results of its operations and its cash flows for the
periods ended March 31, 1999 and 1998. The results of operations for such
interim periods are not necessarily indicative 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 31, 1998. The 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 $3,948,000 and $3,881,000 at March 31, 1999 and December 31,
1998, respectively.
3. INVENTORIES
Inventories, net of obsolescence reserves, consist of the following
(in thousands):
March 31,December 31,
1999 1998
Finished goods $ 8,299 $ 7,266
Work-in-process 3,444 3,048
Raw material 7,867 9,064
$19,610 $19,378
4. LONG-TERM DEBT
On March 29, 1999, the Company entered into a new $12 million credit
facility which extends through 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 paydown the outstanding
balance under the expiring credit facility of $8.5 million, including
$500,000 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% (6.85% at March 31, 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 daily unused portion of the
facility.
The entire facility is secured by Chyron's accounts receivable and
inventory and the Common Stock of Pro-Bel. The agreement contains
requirements for levels of operating income and prohibits the Company from
paying dividends in excess of 25% of net income in any fiscal year.
5. 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 integrated organization
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)
Media
Graphics Management
Three months ended March 31, 1999
Net sales $ 6,232 $ 8,766
Operating (loss) (1,310) (1,064)
Depreciation and amortization 539 788
Three months ended March 31, 1998
Net sales 9,722 11,803
Operating (loss) income (36) 530
Depreciation and amortization 309 611
Geographic Areas
United States Europe Other
Three months ended March 31, 1999
Net sales $ 6,887 $ 7,415 $ 696
Operating (loss) (1,616) (693) (65)
Three months ended March 31, 1998
Net sales 11,198 7,579 2,748
Operating income 224 198 72
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 safe harbor,
the 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, but are not limited to, the
following: product concentration in a mature market, dependence on the
emerging digital market and the industry's transition to DTV and HDTV,
consumer acceptance of DTV 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, expansion into new markets and
the Company's ability to successfully implement its acquisition and
strategic alliance strategy.
Results of Operations
Overview
This discussion should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto:
Comparison of the Three Months Ended March 31, 1999 and 1998
Sales for the quarter ended March 31, 1999 were $15 million. This
represents a decrease of $6.5 million, or 30%, compared to the $21.5 million
reported for the first quarter of 1998. This decrease was primarily due to
lower levels of volume associated with the U.S. graphics and Pro-Bel
products and the loss of $1.3 million in revenues associated with the
Trilogy division which was sold in August, 1998. The industry transition to
DTV and HDTV continues to evolve slowly as broadcasters cautiously upgrade
and replace equipment. In addition, the first quarter has historically been
weak since broadcasters typically postpone capital expenditures awaiting new
product introductions at the annual National Association of Broadcasters
Convention (NAB) held in April.
Gross profit declined to $6.7 million for the quarter ended March 31,
1999. The decrease of $4.0 million from the $10.7 million reported for the
first quarter of 1998 was primarily attributable to the loss in sales volume
for the first quarter of 1999. Gross margins as a percentage of sales
decreased to 44.9% in 1999 as compared to 49.8% in 1998. The decrease in
gross profit as a percentage of sales is attributable to a lower level of
absorption of overhead costs due to lower sales volumes.
Selling, general and administrative (SG&A) expenses decreased by $.4
million, or 6%, to $7.3 million in the quarter ended March 31, 1999 compared
to $7.7 million for the first quarter of 1998. Research and development
(R&D) costs, net of amounts capitalized, decreased by $.7 million during the
first quarter of 1999 as compared to the same period in 1998. These
reductions were primarily due to the elimination of operating costs
associated with the Trilogy and Concerto divisions.
Interest and other expense, net, decreased slightly in the first
quarter of 1999 as compared to the first quarter of 1998. Included in this
amount is an increase in foreign exchange gains due to favorable rates
between the U.S. dollar and British pounds sterling, offset by an increase
in interest expense due to the write-off of debt issuance costs related to
the credit agreement that was replaced during the quarter. Interest rates
and average borrowings were fairly consistent quarter to quarter.
The Company recorded a tax benefit of $826,000 for the quarter ended
March 31, 1999 as compared to a tax provision of $101,000 in the comparable
quarter in 1998. The effective rate in 1999 of 31% results from the
proportion of losses derived in the U.K. and U.S. which are taxed at
statutory rates between 30-34%.
Liquidity and Capital Resources
At March 31, 1999, the Company had cash on hand of $1.1 million and
working capital of $28,766.
As set forth in the Consolidated Statements of Cash Flows, the Company
generated $.5 million in cash from operations during the three months ended
March 31, 1999 as compared to $1.5 million for the comparable period in
1998. The reduction in cash flows from operations is principally due to the
realization of the net loss and reductions in accounts payable, offset by
lower accounts receivable balances. Increased levels of spending related to
software development were incurred as the Company devoted efforts to new
product introductions to be shown in April at NAB.
On March 29, 1999, the Company entered into a new $12 million credit
facility which extends through 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 paydown the outstanding
balance under the expiring credit facility of $8.5 million, including
$500,000 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% (6.85% at March 31, 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 daily unused portion of the
facility.
The entire facility is secured by Chyron's accounts receivable and
inventory and the Common Stock of Pro-Bel. The agreement contains
requirements for levels of operating income and prohibits the Company from
paying dividends in excess of 25% of net income in any fiscal year.
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
has 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 has also established a Year 2000 Committee whose members include
senior management and functional area leaders.
The Company has 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 not
found any significant readiness problems with respect to such internal
systems and procedures. The Company has also completed its product review
and is engaged in remediation efforts, where appropriate, including
upgrading and retiring of systems and components. The Company believes the
remediation efforts required are not significant and are expected to be
completed by June 1, 1999. All products being shipped currently have been
extensively tested and found to be compliant. The Company is in the process
of assessing Year 2000 readiness of its critical suppliers by means of
surveys and visits. These assessments are expected to be completed during
the first half of 1999 and contingency plans will be prepared, as needed,
during the second half of the year.
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.
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
On February 4, 1999, the Company filed a report on Form 8-K pertaining
to the fourth quarter and year end operating results and the issuance of
$1.1 million aggregate principal amount of 8% five year convertible notes.
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.
CHYRON CORPORATION
(Registrant)
May 13, 1999 /s/ Edward Grebow
(Date) Edward Grebow
President and
Chief Executive Officer
May 13, 1999 /s/ Dawn Johnston
(Date) Dawn Johnston
Senior Vice President and
Chief Financial Officer
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This schedule contains summary financial information extracted from the
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