United States
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 October 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number: 0-9023
COMDIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2443673
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 7266
1180 Seminole Trail; Charlottesville, Virginia 22906-7266
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(804) 978-2200
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of latest practicable date. 8,087,629 common shares as of
October 1, 1995.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
October 1, 1995 and December 31, 1994 3
Consolidated Statements of Operations
for the Three and Nine Months ended
October 1, 1995 and October 2, 1994 4
Consolidated Statements of Cash Flows
for the Nine Months ended
October 1, 1995 and October 2, 1994 5
Notes to Consolidated Financial Statements 6-11
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities 20
ITEM 6: Exhibits and Reports on Form 8-K 20
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
*
October 1, December 31,
In thousands except par value 1995 1994
[S] [C] [C]
Assets
Current assets
Cash and cash equivalents $1,746 $1,679
Accounts receivable - net 10,788 6,637
Inventories 17,802 16,869
Prepaid expenses and other current assets 1,552 1,014
Total current assets 31,888 26,199
Property - net 13,106 13,668
Deferred tax asset - net 6,484 -
Other assets 2,329 2,393
Total assets $53,807 $42,260
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $6,356 $6,977
Accrued payroll and related expenses 1,486 1,373
Accrued promotional allowances 1,401 1,592
Other accrued liabilities 1,985 2,160
Current maturities of debt 2,262 2,466
Total current liabilities 13,490 14,568
Long-term debt 3,137 4,737
Deferred tax liability 1,981 -
Long-term employee benefit obligations 1,810 1,912
Commitments and contingent liabilities
Total liabilities 20,418 21,217
Stockholders' equity
Series A 7-1/2% preferred stock ($10.00 par
value),(Authorized shares 2,000; issued 0
shares) - 7,500
Common stock ($0.01 par value) and paid-in
capital(Authorized 30,000 shares; issued
shares: 1995 = 8,088; 1994 = 6,984 (1)) 111,208 100,320
Other (1,366) (942)
Accumulated deficit (76,453) (85,835)
Total stockholders' equity 33,389 21,043
Total liabilities and stockholders' equity $53,807 $42,260
* Condensed from audited financial statements.
(1) Changed to reflect 1 for 3 reverse stock split.
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - (Unaudited)
Three Months Ended Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
In thousands except per share amounts 1995 1994 1995 1994
[S] [C] [C] [C] [C]
Net sales $25,235 $20,660 $72,993 $57,318
Cost of goods sold 17,181 14,277 49,561 38,947
Gross profit 8,054 6,383 23,432 18,371
Operating expenses
Selling, general & administrative 4,707 3,653 13,887 11,055
Engineering, research & development 1,048 1,008 3,107 2,989
Operating income 2,299 1,722 6,438 4,327
Other expense (income)
Interest expense 242 301 797 1,012
Miscellaneous expense 216 159 607 436
Income before income taxes and
extraordinary item 1,841 1,262 5,034 2,879
Income tax expense (benefit) 37 17 (4,349) 77
Income before extraordinary item 1,804 1,245 9,383 2,802
Extraordinary item, write-off of debt
issuance cost - - - 389
Net income 1,804 1,245 9,383 2,413
Dividends on preferred stock 65 162 350 429
Net income applicable to common stock $1,739 $1,083 $9,033 $1,984
Earnings per common share and common equivalent share: (1)
Primary:
Income before extraordinary item $0.22 $0.15 $1.21 $0.32
Extraordinary item - - - (0.05)
Net income per common share $0.22 $0.15 $1.21 $0.27
Fully diluted $0.22 $0.15 $1.14 $0.27
Weighted average common shares outstanding:
Primary 7,910 7,231 7,482 7,246
Fully diluted 8,307 7,231 8,239 7,246
(1) All periods presented have been adjusted to reflect the 1 for 3 reverse
stock split.
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
October 1, October 2,
In thousands 1995 1994
[S] [C] [C]
Cash flows from operating activities:
Cash received from customers $72,522 $57,450
Other cash received 591 1,092
Interest received 21 50
Cash paid to suppliers and employees (72,344) (54,831)
Interest paid on debt (585) (822)
Interest paid under capital lease obligations (141) (227)
Income taxes paid (154) (163)
Net cash provided (used) by operating activities (90) 2,549
Cash flows from investing activities:
Proceeds from the sale of equipment 1 206
Capital expenditures (1,498) (1,968)
Net cash used by investing activities (1,497) (1,762)
Cash flows from financing activities:
Proceeds from borrowings - 7,300
Net borrowings under revolver agreement 198 1,444
Proceeds from issuance of common stock 11,308 184
Preferred stock redemption (7,500) -
Principal payments on debt (1,520) (14,060)
Principal payments under capital lease obligations (482) (429)
Preferred dividends paid (350) (627)
Net cash provided (used) in financing activities 1,654 (6,188)
Net increase (decrease) in cash and cash equivalents 67 (5,401)
Cash and cash equivalents at beginning of year 1,679 5,474
Cash and cash equivalents at end of period $1,746 $73
Reconciliation of net income to net cash provided by operating activities:
Net Income $9,383 $2,413
Depreciation and amortization 2,728 2,997
Increase in accounts receivable (4,151) (3,227)
Inventory provision 1,990 970
Increase in inventory (2,923) (1,461)
Increase in other assets (1,143) (1,176)
Increase in deferred tax asset (6,484) -
Increase (decrease) in accounts payable (621) 1,245
Increase in other liabilities 1,626 634
Increase (decrease) in paid-in capital and other equity (495) 154
Total adjustments (9,473) 136
Net cash provided (used) by operating activities $(90) $2,549
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED OCTOBER 1, 1995 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS_____________________________________
The financial information included as of October 1, 1995 and for the three
and nine months ended October 1, 1995 and October 2, 1994 included herein is
unaudited. The financial information reflects all normal recurring adjustments
except for Statement of Financial Accounting Standards ("SFAS") No. 109 which
are, in the opinion of management, necessary for a fair statement of results
for such periods. Accounting policies followed by Comdial (the "Company") are
described in Note 1 to the consolidated financial statements in its Annual
Report to the Stockholders for the year ended December 31, 1994. The
consolidated financial statements for 1995 should be read in conjunction with
the 1994 financial statements, including notes thereto, contained in the
Company's Annual Report to the Stockholders for the year ended December 31,
1994. Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform to the 1995 presentation. The results of operations
for the nine months ended October 1, 1995 are not necessarily indicative of the
results to be expected for the full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES____________________________
Under the Company's current cash management policy, borrowings from the
revolving credit facility are used for operating purposes. The revolving
credit facility is reduced by cash receipts that are deposited daily. The
Company is reporting the revolving credit facility activity on a net basis on
the Consolidated Statements of Cash Flows. The Company considers outstanding
checks to be a bank overdraft. Bank overdrafts are outstanding checks that
have not cleared the bank or been funded by the revolving credit facility (see
Note D). At October 1, 1995 and December 31, 1994, bank overdrafts increased
accounts payable by $2,186,000 and $1,099,000, respectively.
Note C: INVENTORIES___________________________________________________________
Inventories consisted of the following:
__________________________________________________________________
October 1, December 31,
In thousands 1995 1994
Finished goods $3,055 $2,936
Work-in-process 4,085 4,455
Materials and supplies 10,662 9,478
Total $17,802 $16,869
_________________________________________________________________
Note D: BORROWINGS____________________________________________________________
Since February 1, 1994, Shawmut Capital Corporation ("Shawmut"), formerly
known as Barclays Business Credit, Inc., held substantially all of the Com-
pany's indebtedness. Prior to February 1, 1994, PacifiCorp, through its in-
direct subsidiary, PacifiCorp Credit, Inc. ("PCI"), held substantially all of
the Company's indebtedness.
Long-term Debt. Long-term debt consisted of the following:
_________________________________________________________________
October 1, December 31,
In thousands 1995 1994
Notes payable to Shawmut
Term notes I and II $4,334 $5,854
Revolving credit 198 -
Capitalized leases 867 1,349
Total debt 5,399 7,203
Less current maturities on debt _2,262 2,466
Total long-term debt $3,137 $4,737
_________________________________________________________________
On December 23, 1993, the Company and PCI entered into an agreement (the
"Equity Agreement"), pursuant to which, among other things, PCI agreed to ac-
cept 850,000 shares of a newly designated Series A 7 1/2% Cumulative Conver-
tible Redeemable Preferred Stock ("Series A Preferred Stock") of the Company
in exchange for the cancellation of $8,500,000 of the Company's existing
indebtedness to PCI (which was a non-cash transaction).
On February 1, 1994, the Company and Shawmut entered into a loan and
security agreement ("Loan Agreement") pursuant to which Shawmut agreed to
provide the Company with a $6,000,000 term loan ("Term Note I") and a
$9,000,000 revolving credit loan facility. The Company's principal balance of
its indebtedness on February 1, 1994 to PCI was $21,209,453, which was paid
by using cash generated from operations of $6,000,000, cash borrowed from
Shawmut of $6,709,453, and the cancellation of the remaining debt of
$8,500,000 with the issuance of Preferred Stock. In December 1994, the
Company received proceeds of $1,000,000 from Cortelco International, Inc.
("Cortelco") relating to the sale of the electromechanical product line in
1992. The Company used the proceeds to repurchase 100,000 shares of the
Redeemable Preferred Stock.
On April 29, 1994, the Company and Shawmut amended the Loan Agreement to
permit the Company to borrow an additional $1,300,000 under the Term Note
("Term Note II") to finance the purchase of additional surface mount technology
equipment. The Company is repaying the additional advance in 44 consecutive
monthly payments of $27,000. The Company began making payments on June 1, 1994
with the balance due on February 1, 1998.
The Shawmut Term Notes I and II carry interest rates of 1 1/2% over
Shawmut's prime rate and are payable in equal monthly principal installments
of $152,000 for the next four months, and 23 equal monthly principal
installments of $110,334, with the balance due on February 1, 1998.
The Shawmut revolving credit facility carries an interest rate of 1% over
Shawmut's prime rate. Availability under the revolving credit facility is
based on eligible accounts receivable and inventory, less funds already
borrowed. The Company's total indebtedness to Shawmut (term notes plus
revolving credit facility) may not exceed $14,000,000. Shawmut's prime rate
was 8.5% and 8.75% at December 31, 1994 and October 1, 1995, respectively.
Capital leases are with various financing facilities which are payable
based on the terms of each individual lease.
Scheduled maturities of Shawmut Term Notes (current and long-term debt) as
defined in the Loan Agreement are as follows:
_________________________________________________________________
Principal
In thousands Fiscal Years Installments
Term Notes payable 1995 $304 *
1996 1,407
1997 1,324
1998 1,299
__* The remaining aggregate for 1995.___________________________
Debt Covenants. The Company's indebtedness to Shawmut is secured by liens on
the Company's accounts receivable, inventories, intangibles, land, and other
property. Among other restrictions, the Loan Agreement with Shawmut also
contains certain financial covenants that relate to specified levels of
consolidated tangible net worth, profitability, debt service ratio, and current
ratio. The Loan Agreement also limits additional borrowings and payment of
dividends, except for payments that were made to PCI for its Series A Preferred
Stock. On March 31, 1995, the Company and Shawmut amended the Loan Agreement
(the third amendment) to take into account the creation of certain new
subsidiaries of the Company. The Company is currently in compliance with all
the covenants and terms as defined in the Loan Agreement.
Note E: EARNINGS PER SHARE____________________________________________________
Primary earnings per share are computed by dividing income attributable to
common shareholders (net income less preferred stock dividend requirements) by
the weighted average number of common and common equivalent shares outstanding
during the period plus (in periods in which they have dilutive effect) the
effect of common shares contingently issuable, primarily from stock options.
The fully diluted earnings per share computation reflects the effect of
the conversion of Series A Preferred Stock in periods in which such exercise
would cause dilution. Fully diluted earnings per share also reflect additional
dilution related to stock options due to the use of the market price at the end
of the period, when higher than the average price for the period.
Note F: INCOME TAXES__________________________________________________________
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as required
by SFAS No. 109, "Accounting for Income Taxes". As permitted under the rules
of the statement, prior years' financial statements have not been restated. The
components of the income tax expense (benefit) based on the liability method
for the nine months are as follows:
_________________________________________________________________
October 1, October 2,
In thousands 1995 1994
Current - Federal $123 $62
State 31 15
Deferred - Federal (4,374) -
State (129) _-_
Total provision ($4,349) $77
_________________________________________________________________
The income tax provision reconciled to the tax computed at statutory rates
for the months are summarized as follows:
_________________________________________________________________
October 1, October 2,
In thousands 1995 1994
Federal tax (benefit) at statutory
rate (35% in 1995 and 1994) $1,762 $1,008
State income taxes (net of federal
tax benefit) 20 16
Nondeductible charges 28 27
Alternative minimum tax 116 73
Utilization of operating loss carryover (1,772) (1,047)
Adjustment of valuation allowance (4,503) _-_
Income tax provision ($4,349) $77
_________________________________________________________________
There is no tax benefit for 1994 of the extraordinary item due to the
presence of tax operating loss carryovers.
Net deferred tax assets of $4,503,000 and $0 have been recognized in the
accompanying Consolidated Balance Sheets at October 1, 1995 and December 31,
1994, respectively. The components of the net deferred tax assets are as
follows:
_________________________________________________________________
October 1, December 31,
In thousands 1995 1994
Total deferred tax assets $28,080 $29,852
Total valuation allowance (21,596) (27,871)
Total deferred tax asset - net 6,484 1,981
Total deferred tax liabilities (1,981) (1,981)
$4,503 $ -
_________________________________________________________________
The valuation allowance decreased $6,275,000 during the nine month period
ended October 1, 1995 and this decrease was primarily related to (1) the re-
evaluation of the future utilization of deferred tax assets of $4,503,000, and
(2) the utilization of operating loss carryforwards of $1,772,000. The Company
periodically reviews the requirements for a valuation allowance and makes
adjustments to such allowance when changes in circumstances result in changes
in judgment about the future realization of deferred tax assets. Based on a
re-evaluation of the realizability of the deferred tax assets, the valuation
allowance was reduced and a tax benefit of $4,503,000 was recognized in the
quarter ended July 2, 1995. Management believes that it is more likely than
not that the Company will realize this tax benefit.
The Company has net operating loss carryforwards and tax credit carryovers
of approximately $67,134,000 and $3,029,000, respectively, which, if not
utilized, will expire at various years up until 2007.
If the Company undergoes an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code, the Company's right to use its then
existing net operating losses ("NOLs") is limited during each future year to a
percentage of the fair market value of the Company's stock immediately before
the ownership change. In general, there is an ownership change under Section
382 of a corporation if over a three-year period certain stockholders
percentage ownership changes by more than 50%.
Note G: Capital Stock ____________________________________________________
In August 1995, the Company completed a public offering of 3,000,000
shares of Common Stock (the "Offering") at $12.00 per share. Of the
3,000,000 shares of Common Stock, 2,000,000 were offered by PCI and 1,000,000
newly issued shares by the Company.
The net proceeds to the Company from the Offering were $11,200,000. A
portion of the proceeds were used to redeem all of the Series A Preferred
Stock, pay accumulated dividends, and pay offering cost. The remaining
proceeds were used for general corporate and working capital purposes.
Concurrent with the Offering, the Company declared a one-for-three reverse
stock split of the Company's Common Stock. The effect of the Offering and
reverse stock split was a decrease in the number of outstanding shares from
approximately 21.3 million to 8.1 million. All per share data has been
adjusted for the reverse stock split.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist the reader in understanding
and evaluating the financial condition and results of operations of the
Company. This review should be read in conjunction with the financial state-
ments and accompanying notes. This analysis attempts to identify trends and
material changes that occurred during the periods presented.
General Development of the Business
Comdial Corporation (the "Company") is a Delaware corporation based in
Charlottesville, Virginia. The Company is engaged in the design, development,
manufacture, and distribution of advanced telecommunications products for
general business and hospitality markets, and a leading participant in the
emerging market for system solutions based on computer-telephony integration
("CTI"). The Company was originally incorporated in Oregon in 1977. In 1982,
the Company reincorporated in Delaware.
The Company's core business is designing, manufacturing, and marketing a
broad line of voice communication products and software based product system
solutions to small and medium sized business organizations. These products are
sold through a network of approximately 1500 affiliated dealers, and several
thousand independent contractors, who purchase the Company's products from
authorized wholesale distributors. End users served through this channel are
typically small businesses (under 100 employees), but may also include large
businesses, government agencies, and universities who are served by a host PBX
or telephone company supplied Centrex system. When a Comdial system is
installed behind the host system, it is commonly configured to serve specific
departments or call centers.
In the early 1980's, the Company was known as a manufacturer and supplier
of industry standard and decorative residential telephones. In the mid-1980's,
the Company redirected its strategic focus to the small business market. In
the 1990's, the Company is broadening its market focus to encompass larger
organizations and software as well as hardware products.
In 1992, the Company introduced the Impact product, a high quality,
digital telephone family which functions on Comdial digital systems and
provides a variety of sophisticated yet user-friendly features. In 1993, the
Company introduced an Open Application Interface ("OAI") toolkit, known as the
Enterprise Developer's Toolkit, allowing third-party software developers to
create application packages for specialized markets.
In 1994, the Company introduced several new products including: The QuickQ
Automatic Call Distributor ("ACD") which automatically answers and directs
incoming calls; Inntouch DXP specifically for hotel/motel customers which
automatically places wake up calls and costs customer telephone calls; and the
Tracker premises based paging system which alerts users to incoming calls (via
an alphanumeric pager), and instructs users how to retrieve and answer the
messages. The Tracker was the result of a strategic alliance between the
Company and Motorola, Inc.
With the introduction of the Enterprise OAI on the DXP switch, the Company
was able to become an early participant in the CTI market. CTI merges the
power of advanced telephone systems and computers to provide integrated solu-
tions to common communication needs for various applications. The first
turnkey CTI product from the Company was the E911 emergency dispatch system.
During the second quarter of 1995, the Company began commercial shipments
of enterprise for telephony services ("ETS"). ETS is connectivity software
which links DXP digital switch to Novell NetWare (trademark of Novell
Corporation) local area networks ("LAN"). Later in 1995, Comdial will ship
special circuit cards to link personal computers ("PCs") running Microsoft
Windows (trademark of Microsoft Corporation) operating systems to Comdial's
Impact and DXP. These two products will enable users to utilize off-the-shelf
applications software to enhance productivity and improve customer service
using computer-enhanced telephony services. Also, the Company began shipping
Scout, a new digital wireless multiline telephone for use on the Company's
Impact and DXP systems. In the third quarter of 1995, the Company began
shipping the DXP Plus which doubles the CTI connectivity of current DXP
platforms. Also, the Company announced that it was accepting orders for the
PATI 3000 (PC And Telephone Interface). The PATI 3000 is a low cost CTI
product for a fast growing small and home office market. The PATI 3000 links
analog telephones to personal computers (PCs) that run Microsoft Windows or
Windows 95 operating systems.
The Company sells its products primarily through supply house channels.
Supply houses are able to warehouse and efficiently route the Company's
products to Comdial-authorized dealers, interconnect companies, major indepen-
dent telephone companies, and large end-users (e.g. universities, municipali-
ties, and federal government agencies). In marketing its telephone systems, the
Company emphasizes quality backed by the ISO-9001 certification, state-of-the-
art features, competitive pricing, and commitment to customer and dealer
support.
The Company's Common Stock is traded over-the-counter and is quoted in the
National Association of Security Dealers Automated Quotation System ("Nasdaq")
where Comdial's symbol is CMDL.
Results of Operations
Revenue and Earnings
Third Quarter 1995 vs 1994
The Company's performance for the third quarter of 1995 improved
significantly over the comparable period of 1994. Income before income taxes
and extraordinary item for 1995 increased by 46% to $1,841,000 as compared with
$1,262,000 for the comparable period in 1994. This increase was primarily
attributable to the increase in business systems sales.
Net sales for the third quarter of 1995 increased 22% to $25,235,000,
compared with $20,660,000 in the third quarter of 1994. This increase is
primarily due to the increase in sales of digital product lines such as the DXP
and Impact terminals, plus the increase in custom manufacturing and the
increased demand for CTI products.
Gross profit increased 26% to $8,054,000, compared with $6,383,000 in the
third quarter of 1994. This increase was primarily attributable to the higher
sales of digital product systems which have a higher product margin.
Selling, general and administrative expenses increased 29% to $4,707,000,
compared with $3,653,000 in the third quarter of 1994. This increase was
primarily due to: (1) an increase in sales allowances associated with higher
sales volume; and (2) an increase in personnel associated with international
sales, customer support, and the development and marketing of CTI products.
Miscellaneous expenses increased 36% to $216,000, compared with $159,000
in the third quarter of 1994. This increase was primarily due to the increase
in cash discounts which relates directly to the increase in sales to the
Company's main distributors.
Income tax expense (benefit) in the third quarter of 1995 increased to
$37,000 compared with $17,000 for the same period of 1994, primarily due to
additional taxable income.
Dividends on preferred stock represent quarterly dividends payable to the
holder of Series A Preferred Stock. Dividends for the third quarter of 1995
decreased 60% to $65,000, compared with $162,000 for the same period of 1994.
This decrease was due to the redemption of PacifiCorp Credit, Inc.'s ("PCI")
750,000 shares of Series A 7 1/2% Cumulative Convertible Redeemable Preferred
Stock ("Series A Preferred Stock"). On August 11, 1995, Comdial paid all
dividends associated with the Series A Preferred Stock and redeemed the 750,000
shares. Comdial will no longer have any dividend payments associated with the
Series A Preferred Stock.
Nine Months 1995 vs 1994
The Company reported, for the first nine months of 1995, a 75% increase
in net income before income taxes and extraordinary item of $5,034,000 as
compared with $2,879,000 for the comparable period in 1994. This increase was
primarily attributable to the increase in sales of digital products.
Net sales for the first nine months of 1995 increased 27% to $72,993,000,
compared with $57,318,000 in the same period of 1994. This increase is
primarily due to the increase in sales of digital product lines such as the DXP
and Impact terminals. The Company is seeing a strong trend toward digital
technology. For the first nine months, sales of digital terminals and systems
increased approximately 51%, while analog terminals and systems decreased
approximately 12% compared with the same period of 1994. In addition, net
sales from custom manufacturing increased to $5,103,000, compared with
$1,178,000 for the same period of 1995. Cost of goods sold increased 27% to
$49,561,000 compared with $38,947,000 in the same period of 1994, which is a
direct correlation to the sales increase.
Gross profit increased 28% to $23,432,000, compared with $18,371,000 in
the same period of 1994. Gross profit as a percentage of sales for the first
nine months of 1995 and 1994 was 32.1%. Again this increase was primarily
attributable to the increase in digital product sales.
Selling, general and administrative expenses increased 26% to $13,887,000,
compared with $11,055,000 in the first nine months of 1994. This increase was
primarily due to: (1) an increase in personnel associated with international
sales, customer support, and the development and marketing of CTI products; and
(2) an increase in sales allowances associated with higher sales volume.
Interest expense decreased 21% for the first nine months of 1995 to
$797,000, compared with $1,012,000 in the same period of 1994. This decrease
was primarily due to the continued reduction of the Company's indebtedness and
the Company's ability to generate enough funds to minimize its use of the
revolving credit facility with Shawmut Capital Corporation ("Shawmut"),
formerly known as Barclays Business Credit, Inc.
Miscellaneous expense for the first nine months of 1995, increased 39% to
$607,000, compared with $436,000 for the same period of 1994. This increase
was primarily due to higher cash discounts which is a direct result of higher
sales. In addition, the 1994 amount included interest income of ($93,000) from
a note issued to the Company in connection with the sale of the electro-
mechanical telephone line in 1992, which was repaid by December 31, 1994.
Income tax expense (benefit) in the first nine months of 1995, decreased
to a benefit of ($4,349,000) compared with an expense of $77,000 for the same
period of 1994. This decrease was primarily due to the recognition of a
deferred tax asset through a reduction of the valuation allowance.
As of July 2, 1995, the valuation allowance was reduced by $4,503,000
based on management's assessment of future taxable income and management's
belief that it is "more likely than not" that the Company will realize this
tax benefit.
Extraordinary item, write-off of debt issuance cost, represents debt
issuance costs that were written off during the first quarter of 1994 in
connection with the refinancing of the Company's indebtedness to PCI.
Dividends on preferred stock for the first nine months of 1995 was based
on 750,000 shares of Series A Preferred Stock. The Company originally issued
850,000 shares of Series A Preferred Stock to PCI on February 1, 1994, in
exchange for the cancellation of $8,500,000 of the Company's indebtedness to
PCI. In December 1994, the Company received proceeds of $1,000,000 from Cor-
telco International, Inc. ("Cortelco") relating to the sale of the electro-
mechanical product line in 1992. The Company used the proceeds to purchase
from PCI 100,000 shares of the Redeemable Preferred Stock.
Dividends for the first nine months of 1995, were $350,000 compared with
$429,000 for the same period of 1994. On August 11, 1995, Comdial paid all
dividends associated with the Series A Preferred Stock and redeemed the 750,000
shares. The Company will no longer have any dividend payments associated with
the Series A Preferred Stock.
Management anticipates that the factors which have led to significant
increases in sales, net income and earnings per share for the first nine months
of 1995 will continue to influence performance positively for the balance of
the year. The Company plans to continue to improve sales by: (1) introducing
and shipping new products and product enhancements; (2) increasing sales of
DXP, Impact, and digital products; and (3) increasing international sales.
Liquidity
The Company is indebted to Shawmut which holds substantially all of the
Company's indebtedness. Prior to February 1, 1994, PCI held substantially all
of the Company's indebtedness. The Company and Shawmut entered into a loan and
security agreement (the "Loan Agreement") on February 1, 1994. Under the Loan
Agreement Shawmut provided the Company with a $6,000,000 term loan (the "Term
Note I") and a revolving credit loan facility in an amount up to $9,000,000
(the "Revolver") (see note D to Financial Statements).
On April 29, 1994, the Company and Shawmut amended the Loan Agreement to
permit the Company to borrow an additional $1,300,000 under the term note
("Term Note II") to finance the purchase of additional surface mount
technology equipment.
The Shawmut Term Notes I and II carry an interest rate of 1 1/2% over
Shawmut's prime rate and are payable in equal monthly principal installments of
$152,000 up to February 1, 1996, and 23 equal monthly principal installments of
$110,334, with the balance due on February 1, 1998.
The Shawmut revolving credit facility carries an interest rate of 1% over
Shawmut's prime rate. As of October 1, 1995, the Company had borrowed $198,000
under the revolving credit facility and had approximately $8,802,000 of
additional borrowing capacity.
The Company's indebtedness to Shawmut is secured by liens on the Company's
accounts receivable, inventories, intangibles, land, and all other assets. The
Loan Agreement with Shawmut also contains certain financial covenants that
relate to specified levels of consolidated tangible net worth, profitability,
debt service coverage ratio, and current ratio. Among other restrictions, the
Loan Agreement limits additional borrowings and payment of dividends, except
for dividend payments which were paid to PCI for their Series A Preferred
Stock.
The following table sets forth the Company's cash and cash equivalents,
current maturities on debt and working capital at the dates indicated.
_________________________________________________________________
In thousands October 1, 1995 December 31 ,1994
Cash and cash equivalents $1,746 $1,679
Current maturities on debt 2,262 2,466
Working capital 18,398 11,631
_________________________________________________________________
All operating cash requirements are currently being funded through the
Shawmut Revolver. Current maturities on debt include the Revolver balance of
$198,000, which was zero at December 31, 1994. Working capital increased by
$6,767,000 due primarily to the increase in accounts receivable and inventory
which relates directly to the increase in sales during this period.
Accounts receivable increased by 63% or $4,151,000, compared to December
31, 1994. This increase was primarily due to the increase in sales and the
timing of shipments for the third quarter.
Prepaid expenses and other current assets is higher by 53% or $538,000,
primarily due to prepaid costs relating to insurance, rentals, and royalties.
Deferred tax asset and liability relates to the Company recognizing in
the second quarter of 1995, the expected utilization of net operating losses
("NOL's") for future periods (reference Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes"). Prior to July 2, 1995, the
Company did not recognize any reduction in the valuation allowance primarily
due to the uncertainty as to whether the Company would generate taxable income
during the carryforward period.
On July 28, 1995, the Company held a special shareholders meeting to amend
the Company's Restated Certificate of Incorporation to effect a one-for-three
reverse stock split. Also, the Company and underwriters in connection with the
stock split sold 3,000,000 shares (post-split) of Common Stock. 2,000,000 of
which were owned by PCI and another 1,000,000 new shares sold by the Company.
The Company used its net proceeds to (1) redeem Series A Preferred Stock of
750,000 shares held by PCI, (2) pay the accumulated dividends relating to the
Series A Preferred Stock for the third quarter of $65,000 and (3) cover the
offering cost and future working capital needs. Management believes that this
has improved not only the Company's financial position but also increased the
shareholders value. The Company has benefited in the following ways: (1)
dividends on Series A Preferred Stock were eliminated, (2) the reverse stock
split has increased earnings per share because of the lower weighted average
of common outstanding shares, (3) Stockholders' Equity has increased by the
additional proceeds received from the offering, and (4) PCI's ability to dilute
the Common Stock by converting shares of the Preferred Stock to shares of
Common Stock was eliminated.
During 1995 and 1994, all of the Company's sales, net income, and
identifiable net assets were attributable to the telecommunications industry
except sales relating to custom manufacturing.
Capital Resources
Capital expenditures in the first nine months of 1995 and fiscal year 1994
were $1,331,000 and $2,367,000, respectively. Capital additions for 1995 and
1994 were provided by funds from operations, capital leasing, and borrowings
from Shawmut. The Company anticipates spending approximately $3,000,000 on
capital expenditures during 1995 which includes equipment for manufacturing
and technology.
The Company plans to fund all future capital expenditure additions through
working capital from Shawmut and long-term lease arrangements. Management
expects these sources to provide the capital assets necessary for near-term
future operations and future product development.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities
Reference is made to Note G of notes to the Consolidated financial
Statements.
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(11) Statement re Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant has not filed any Reports on Form 8-K during the
quarterly period.
__________________
Items not listed if not applicable.
<PAGE>
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.
Comdial Corporation
(Registrant)
Date: November 13, 1995 By: /s/ Wayne R. Wilver
Wayne R. Wilver
Senior Vice President,
Chief Financial Officer,
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
<TABLE>
Statement re Computation of Per Share Earnings
Three Months Ended Nine Months Ended
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
PRIMARY
Net income applicable to common shares:
Income before extraordinary item $1,739,000 $1,083,000 $9,033,000 $2,373,000
Extraordinary item
Net income $1,739,000 $1,083,000 $9,033,000 $1,984,000
Weighted average number of common
shares outstanding during the period
Add - common equivalent shares (determined
using the "treasury stock" method) repre-
senting shares issuable upon exercise of:
Stock options
Weighted average number of shares used in cal-
culation of primary earnings per common share
Earnings per common share:
Income before extraordinary item $0.22 $0.15 $1.21 $0.32
Extraordinary item
Net income $0.22 $0.15 $1.21 $0.27
FULLY DILUTED
Net income applicable to common shares $1,739,000 $1,083,000 $9,033,000 $1,984,000
Adjustments for convertible securities:
Dividends paid on convertible preferred stock
Net income applicable to common shares, assuming
conversion of above securities $1,804,000 $1,245,000 $9,383,000 $2,413,000
Weighted average number of shares used in cal-
culation of primary earnings per common share
Add (deduct) incremental shares representing:
Shares issuable upon exercise of stock options
included in primary calculation
Shares issuable based on period-end market price
or weighted average price:
Convertible preferred stocks
Stock options
Weighted average number of shares used in calcula-
tion of fully diluted earnings per common share
Fully diluted earnings per common share $0.22 $0.15 $1.14 $0.30
</TABLE>
Treasurer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-01-1995
<CASH> $1,746
<SECURITIES> 0
<RECEIVABLES> 10,788
<ALLOWANCES> 50
<INVENTORY> 17,802
<CURRENT-ASSETS> 31,888
<PP&E> 39,376
<DEPRECIATION> 26,270
<TOTAL-ASSETS> 53,807
<CURRENT-LIABILITIES> 13,490
<BONDS> 5,399
<COMMON> 81
0
0
<OTHER-SE> 33,308
<TOTAL-LIABILITY-AND-EQUITY> 53,807
<SALES> 72,993
<TOTAL-REVENUES> 72,993
<CGS> 49,561
<TOTAL-COSTS> 49,561
<OTHER-EXPENSES> 17,601
<LOSS-PROVISION> (48)
<INTEREST-EXPENSE> 797
<INCOME-PRETAX> 5,034
<INCOME-TAX> (4,349)
<INCOME-CONTINUING> 9,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,383
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.14
</TABLE>
