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 June 30, 1996
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.
8,577,635 common shares as of June 30, 1996.
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three and Six Months ended
June 30, 1996 and July 2, 1995 4
Consolidated Statements of Cash Flows
for the Six Months ended
June 30, 1996 and July 2, 1995 5
Notes to Consolidated Financial Statements 6-12
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-22
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 23
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
June 30, December 31,
In thousands except par value 1996 1995
Assets
Current assets
Cash and cash equivalents $455 $4,144
Accounts receivable - net 9,142 8,976
Inventories 19,246 17,925
Prepaid expenses and
other current assets 1,998 2,695
Total current assets 30,841 33,740
Property - net 14,625 13,943
Deferred tax asset - net 7,425 6,694
Goodwill 18,359 210
Other assets 2,207 2,105
Total assets $73,457 $56,692
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $7,213 $7,988
Accrued payroll and related
expenses 1,868 1,518
Other accrued liabilities 3,220 4,060
Current maturities of debt 7,770 1,903
Total current liabilities 20,071 15,469
Long-term debt 12,799 2,844
Deferred tax liability 2,187 2,191
Long-term employee benefit
obligations 2,069 1,894
Commitments and contingent liabilities
Total liabilities 37,126 22,398
Stockholders' equity
Common stock ($0.01 par value)
and paid-in "capital (Authorized
30,000 shares; issued shares:
1996 = 8,578; 1995 = 8,132) 114,142 111,625
Other (1,051) (1,014)
Accumulated deficit (76,760) (76,317)
Total stockholders' equity 33,331 34,294
Total liabilities and
stockholders' equity $73,457 $56,692
* Condensed from audited financial statements.
The accompanying notes are an integral part of these financial
statements.
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - (Unaudited)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
In thousands except per share amounts 1996 1995 1996 1995
Net sales $23,562 $25,442 $45,610 $47,758
Cost of goods sold 15,415 17,188 29,980 32,380
Gross profit 8,147 8,254 15,630 15,378
Operating expenses
Selling, general & administrative 6,432 4,836 11,746 9,180
Engineering, research & development 1,704 1,016 2,922 2,059
Operating income 11 2,402 962 4,139
Other expense
Interest expense 499 282 726 555
Goodwill amortization expense 868 - 959 23
Miscellaneous expense 200 197 362 368
Income (loss) before income taxes (1,556) 1,923 (1,085) 3,193
Income tax expense (benefit) 72 (4,426) (642) (4,386)
Net income (loss) (1,628) 6,349 (443) 7,579
Dividends on preferred stock - 142 - 285
Net income (loss) applicable to
common stock $(1,628) $6,207 $(443) $7,294
Earnings (loss) per common share and common equivalent share: (1)
Earnings (loss) per common share $(0.19) - $(0.05) -
Primary - $0.85 - $1.00
Fully diluted - $0.77 - $0.92
Weighted average common shares outstanding:
Weighted average per common share 8,566 - 8,378 -
Primary - 7,292 - 7,264
Fully diluted - 8,201 - 8,200
(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.
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
June 30, July 2,
In thousands 1996 1995
Cash flows from operating activities:
Cash received from customers $49,496 $47,451
Other cash received 464 428
Interest received 59 15
Cash paid to suppliers and employees (48,424) (47,554)
Interest paid on debt (369) (418)
Interest paid under capital lease obligations (56) (51)
Income taxes paid (44) (117)
Net cash provided (used) by
operating activities 1,126 (246)
Cash flows from investing activities:
Purchase of Key Voice Technologies ("KVT") (8,528) -
Purchase of Aurora Systems ("Aurora") (1,901) -
Acquisition costs for KVT and Aurora (726) -
Proceeds from the sale of equipment 9 1
Capital expenditures (2,127) (1,024)
Net cash used by investing activities (13,273) (1,023)
Cash flows from financing activities:
Proceeds from borrowings 5,619 -
Net borrowings under revolver agreement 4,000 1,282
Proceeds from issuance of common stock 44 80
Principal payments on debt (924) (1,064)
Principal payments under capital
lease obligations (281) (332)
Preferred dividends paid - (285)
Net cash provided (used) in
financing activities 8,458 (319)
Net decrease in cash and cash equivalents (3,689) (1,588)
Cash and cash equivalents at
beginning of year 4,144 1,679
Cash and cash equivalents at end of period $455 $91
Reconciliation of net income to net cash provided by operating activities:
Net income (loss) $(443) $7,579
Depreciation and amortization 2,921 1,814
Change in assets and liabilities (for 1996,
net of effects from the purchase of
KVT and Aurora):
Decrease (increase) in accounts receivable 661 (2,920)
Inventory provision 693 1,324
Increase in inventory (1,709) (2,358)
Decrease (increase) in other assets 875 (2,670)
Increase in deferred tax asset (736) (4,503)
Decrease in accounts payable (1,588) (18)
Increase (decrease) in other liabilities (606) 1,393
KVT asset value at acquisition 1,105 -
Aurora asset value at acquisition (121) -
Increase in paid-in capital and
other equity 74 113
Total adjustments 1,569 (7,825)
Net cash provided (used) by operating
activities $1,126 $(246)
The accompanying notes are an integral part of these financial statements.
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS_______________________
The financial information included as of June 30, 1996 and
for the six months ended June 30, 1996 and July 2, 1995 included
herein is unaudited. The financial information reflects all
normal recurring adjustments, except for Statement of Financial
Accounting Standards ("SFAS") No. 109 adjustments, 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, 1995. The
consolidated financial statements for 1996 should be read in
conjunction with the 1995 financial statements, including notes
thereto, contained in the Company's Annual Report to the
Stockholders for the year ended December 31, 1995. Certain
amounts in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation. The results of
operations for the six months ended June 30, 1996 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. Bank overdrafts of $1.8
million and $1.6 million are included in accounts payable at June
30, 1996 and December 31, 1995, respectively. Bank overdrafts
are outstanding checks that have not (1) cleared the bank and (2)
been funded by the revolving credit facility (see Note E). The
Company considers the outstanding checks to be a bank overdraft.
The Company is reporting the revolving credit facility activity
on a net basis on the Consolidated Statements of Cash Flows.
Note C: ACQUISITIONS____________________________________________
On March 20, 1996, the Company completed the acquisitions of
two companies involved in Computer Telephone Integration ("CTI")
applications: Aurora Systems, Inc. ("Aurora") and Key Voice
Technologies, Inc. ("KVT"). Aurora, based in Acton,
Massachusetts, is a leading provider of off-the-shelf CTI
products. Aurora provides easy-to-use and affordable CTI
solutions that enable companies to significantly increase
productivity and enhance customer service. The Fastcall family
of CTI solutions has become one of the leading CTI products.
KVT, based in Sarasota, Florida, develops, assembles, markets,
and sells voice processing systems and related products for
business application. As a result of the acquisitions, Aurora
and KVT have become wholly-owned subsidiaries of the Company.
The acquisitions have been accounted for by using the purchase
method of accounting and, accordingly, the results of operations
of Aurora and KVT have been included with those of the Company
since the date of the acquisitions.
The consideration paid for Aurora was approximately $2.8
million, which consisted of $1.9 million in cash, and $1.4
million of the Company's Common Stock (147,791 shares).
The consideration paid for KVT totaled approximately $19.0
million which included the net book value of certain KVT assets
as of the closing date. Cost associated with the acquisition
consisted of $8.5 million in cash, $7.0 million evidenced by a
promissory note, and approximately $2.2 million of the Company's
Common Stock (243,097 shares). The remaining $2.0 million of the
consideration is contingent upon KVT's performance after the
acquisition, and may be paid at the Company's option in either
cash or the Company's Common Stock.
In accordance with the purchase method of accounting, the
purchase price has been allocated to the underlying assets and
liabilities based on their respective fair values at the date of
the acquisitions. The purchase price and the associated
acquisition costs for both acquisitions exceeded the net assets
acquired by approximately $19.1 million. This excess is
amortized on a straight-line basis over one to eight years
depending on the nature of the intangible assets acquired.
To complete the acquisitions of KVT and Aurora, the Company
obtained additional funds from its credit facility. The Company
and Fleet Capital Corporation ("Fleet"), formerly known as
Shawmut Capital Corporation and prior to that as Barclays
Business Credit, Inc., amended the Loan Agreement to permit the
Company to borrow additional funds and modified some of its terms
and covenants. The amendment to the Loan Agreement provided an
increased borrowing capacity of $13.5 million under acquisition
and equipment loans, and a revolving credit facility of $12.5
million (see Note E).
Note D: INVENTORIES_____________________________________________
Inventories consists of the following:
_________________________________________________________________
June 30, December 31,
In thousands 1996 1995
Finished goods $6,975 $3,808
Work-in-process 3,900 4,202
Materials and supplies 8,371 9,915
Total $19,246 $17,925
_________________________________________________________________
Note E: BORROWINGS______________________________________________
Since February 1, 1994, Fleet has held substantially all of
the Company's indebtedness.
Long-term Debt. Long-term debt consists of the following:
_________________________________________________________________
June 30, December 31,
In thousands 1996 1995
Notes payable to Fleet
Term notes I & II $ - $4,030
Acquisition note 8,102 -
Equipment note 625 -
Revolving credit 4,000 -
Promissory note 7,000 -
Capitalized leases 529 717
Other debt 313 -
Total debt 20,569 4,747
Less current maturities on debt 7,770 1,903
Total long-term debt $12,799 $2,844
_________________________________________________________________
On February 1, 1994, the Company and Fleet entered into a
loan and security agreement ("Loan Agreement") pursuant to which
Fleet agreed to provide the Company with a $6.0 million term note
("Term Note I") and a $9.0 million revolving credit loan
facility. In April 1994, the Company borrowed an additional $1.3
million under the term note ("Term Note II"). The Fleet Term
Notes I and II carried interest rates of 1.50% over Fleet's prime
rate and are payable in equal monthly principal installments of
$110,334, with the balance due on February 1, 1998. The original
Fleet revolving credit facility carries an interest rate of 1.00%
over Fleet'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
Fleet (term notes plus revolving credit facility) must not exceed
$14.0 million. Fleet's prime rate was 8.25% and 8.50% at March
31, 1996 and December 31, 1995, respectively.
On March 13, 1996, the Company and Fleet amended the Loan
Agreement to provide the Company with a $10.0 million acquisition
loan ("Acquisition Loan"), $3.5 million equipment loan
("Equipment Loan"), and $12.5 million revolving credit loan
facility ("Revolver"). The remaining balance of $2.9 million and
$0.7 million on Term Notes I and II, were paid by advances from
the new Revolver and Equipment Loan, respectively.
On March 20, 1996, the Company borrowed $8.5 million from
the
Acquisition Loan which was used for the purchase of Aurora and
KVT.
The Acquisition Loan is payable in equal monthly principal
installments of $142,142, with the balance due on February 1,
2001.
The Equipment Loan is payable in equal monthly principal
installments of $27,000, with the balance due on June 1, 1998.
The Acquisition Loan, Equipment Loan, and Revolver carry
interest rates at either Fleet's prime rate or London Interbank
Offered Rate ("LIBOR") at the Company's option. The interest
rates can be adjusted annually based on a debt to earnings ratio
which will vary the rates from minus 0.50% to plus 0.50% of the
Fleet Prime Rate and from plus 1.50% to 2.50% of LIBOR. As of
June 30, 1996, the prime interest rate was 8.25% and LIBOR rates
were 5.44%, 5.47%, and 5.48% with approximately 94% of the loans
based on LIBOR. As of June 30, 1996, the Company's borrowing
rate for prime was 8.25%, and the LIBOR borrowing rates were
7.43%, 7.47%, and 7.48%.
The Fleet revolving credit facility availability is based on
eligible accounts receivable and inventory, less funds already
borrowed.
On June 28, 1996, the Company and Fleet amended the Loan
Agreement to adjust availability under the Revolver by
establishing a special availability reserve of $4.0 million and
to modify certain covenants.
The Company's Promissory Note of $7.0 million, the proceeds
of which were used to purchase KVT, carries an interest rate
equal to the prime rate with annual payments of $1.4 million plus
all accumulated interest for five years starting on March 20,
1997.
Capital leases are with various financing facilities which
are payable based on the terms of each individual lease.
Other debt consists of a mortgage acquired in conjunction
with the KVT acquisition which requires a monthly mortgage
payment of $2,817 including interest at a rate of 8.75%. The
final payment is due on August 01, 2005.
Scheduled maturities of Acquisition and Equipment Loans
(current and long-term debt) as defined in the Loan Agreement are
as follows:
_________________________________________________________________
Principal
In thousands Fiscal Years Installments
Loans payable 1996 $1,015 *
1997 2,030
1998 1,845
1999 1,706
2000 2,132
__* The remaining aggregate for 1996.___________________________
Debt Covenants. The Company's indebtedness to Fleet is secured
by liens on the Company's accounts receivable, inventories,
intangibles, land, and other property. Among other restrictions,
the amended Loan Agreement contains certain financial covenants
that require specified levels of consolidated tangible net worth,
profitability, debt service coverage ratio, and current ratio.
The amended Loan Agreement also contains certain limits on
additional borrowings. The Company is in compliance with all the
covenants and terms, set forth in the amended Loan Agreement at
June 30, 1996.
Note F: EARNINGS PER SHARE______________________________________
For the three and six months ended June 30, 1996, earnings
per share were computed by dividing net income by the weighted
average number of common shares outstanding. Stock options were
antidulitive for the three and six months of 1996. For the three
and six months ended July 2, 1995, primary earnings per share
were 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 a dilutive effect) the effect of common shares
contingently issuable, primarily from stock options.
Note G: 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 by SFAS No. 109, prior years'
financial statements have not been restated. The components of
income tax expense (benefit) for the six months ended are as
follows:
_________________________________________________________________
June 30, July 2,
In thousands 1996 1995
Current - Federal $ 34 $94
State 60 23
Deferred - Federal (714) (4,374)
State ( 22) (129)
Total provision ($642) ($4,386)
_________________________________________________________________
The income tax provision reconciled to the tax computed at
statutory rates for the six months are summarized as follows:
_________________________________________________________________
June 30, July 2,
In thousands 1996 1995
Federal tax (benefit) at statutory
rate (35% in 1996 and 1995) ($397) $1,376
State income taxes (net of federal
tax benefit) 39 15
Nondeductible charges 67 22
Alternative minimum tax 15 90
Utilization of operating loss carryover 370 (1,386)
Adjustment of valuation allowance (736) (4,503)
Income tax provision ($642) ($4,386)
_________________________________________________________________
Net deferred tax assets of $7.4 million and $6.7 million
have
been recognized in the accompanying Consolidated Balance Sheets
at June 30, 1996 and December 31, 1995, respectively. The
components of the net deferred tax assets are as follows:
_________________________________________________________________
June 30, December 31,
In thousands 1996 1995
Total deferred tax assets $27,904 $28,091
Total valuation allowance (20,479) (21,397)
Total deferred tax asset - net 7,425 6,694
Total deferred tax liabilities (2,187) (2,191)
Total net deferred tax asset $5,238 $4,503
_________________________________________________________________
The valuation allowance decreased $918,000 during the six
month period ended June 30, 1996 and this decrease was primarily
related to (1) the re-evaluation of the future utilization of
deferred tax assets of operating loss carryforwards of $366,000,
and (2) the change in temporary differences of deferred tax
assets and liabilities of $552,000. 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. Management believes that it is more likely
than not that the Company will realize these tax benefits.
The Company has net operating loss carryforwards and tax
credit carryovers of approximately $66.3 million and $2.8
million, respectively, which, if not utilized, will expire at
various years up until 2007.
Based on the Company's interpretation of Section 382 of the
Internal Revenue Code, the reduction of the valuation allowance
was calculated assuming a 50% ownership change, which could limit
the utilization of the tax net operating loss and tax credit
carryforwards in future periods starting at the time of the
change. An ownership change could occur if changes in the
Company's stock ownership exceeds 50% of the value of the
Company's stock during any three year period. As of June 30
1996, an ownership change has not occurred.
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 statements and accompanying notes.
This analysis attempts to identify trends and material changes
that occurred during the periods presented. Prior years have
been reclassified to conform to the 1996 reporting basis (see
Note A to the Consolidated Financial Statements).
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, distribution,
and sale of advanced telecommunications products and system
solutions. The Company's Common Stock is traded over-the-counter
and is quoted on the National Association of Security Dealers
Automated Quotation National Market System ("Nasdaq National
Market") under the symbol: CMDL.
The Company designs, manufactures, and markets small to
medium sized business telecommunications systems which support up
to approximately 500 telephones. The Company believes that it is
a leading supplier to this market, with an installed base
estimated to be approximately 250,000 telephone systems and
2,500,000 telephones. The Company's products include digital and
analog telephone switches and telephones, as well as a wide range
of product enhancements to the Company's telephone systems. The
Company's growth since 1992, has occurred principally as a result
of digital telephone systems introduced by the Company in 1992.
These digital products provide end users with the ability to
utilize evolving telecommunications technologies, including those
arising from the convergence of telephone systems and computers,
known as Computer-Telephony Integration ("CTI").
In recent years, advances in telecommunications have
facilitated the development of technologically advanced telephone
systems and applications. Spurred by the significant
deregulation of the telephone industry that began in the 1970's,
electronic telephone systems began displacing the traditional
electromechanical key sets that served as the basic office
telephone system since the 1930's. New telephone applications
are being introduced continuously, permitting business users to
improve communications within their organizations and with their
customers by using conference calls, speaker phones, voice mail,
automated attendant, and voice processing applications, such as
speech recognition.
A recent major industry advancement is the development of
CTI. CTI applications merge the power of modern telephone
systems with that of computers to provide integrated solutions to
broad communications problems, such as proper queuing in call
communications centers, and specific vertical market applications
(such as the real estate, law firm, and food service markets).
Because of the technological advances that have arisen with
digitization and open systems, more flexible and useful telephone
applications are being developed to solve current communications
problems.
In order to integrate computers and telecommunications
equipment, several standards have been developed. The Company
was among the first telephone manufacturing companies to commit
to the Novell standard, called Telephony Services Application
Programming Interface ("TSAPI"). The TSAPI standard provides a
stable platform for a Novell NetWare network to integrate with
the features and functionality of a telephone switch.
The Company distributes its products through a network of
approximately 7,500 independent dealers, of which approximately
1,500 have written agreements with the Company. This enables the
Company to achieve broad geographic penetration, as well as
access to some of the fastest growing markets in the country.
Comdial markets its products through both direct and
indirect
channels. About 80% of Comdial sales flow through wholesale
supply houses. These customers purchase and stock Comdial
products then resell to dealers. Accordingly, Comdial's reported
sales can be greatly influenced by supply house inventory levels
and stocking decisions. Sales may be strong at the end user
level, but week to supply houses. And the opposite can also be
true.
The Company's strategy of selling through supply houses
enables it to virtually eliminate bad debt exposure and minimize
administration, credit checking, and sales expense, as well as
inventory levels. Wholesale supply houses in turn are able to
sell related products such as cable, connectors, and installation
tools. Dealers have the benefits of competitive sourcing and
reduced inventory carrying costs. These dealers market the
Company's products to small and medium sized organizations and
divisions of larger organizations.
Comdial's primary marketing emphasis is on the reseller who
buys from the supply house. The goal is to create street sales,
so the supply houses will have to continue to place orders on
Comdial.
The Company is pursuing three fundamental business
strategies: (1) maintaining a leadership position in its core
business of delivering advanced telecommunications systems to the
U.S. domestic market through wholesale supply house distribution
channels, (2) achieving growth through expansion into
international markets, and (3) maintaining a leadership position
in the emerging market for systems solutions based on CTI. The
Company seeks to support these strategies through the following
approaches: (1) maintaining a broad and efficient distribution
network; (2) targeting small to medium sized organizations; (3)
offering a broad range of products; (4) developing strategic
alliances; (5) pursuing international opportunities; (6)
promoting computer telephony applications; (7) promoting industry
accepted interface standards; and (8) developing open application
interfaces ("OAI").
The market for the Company's products is highly competitive.
The Company competes with approximately 20 companies, many of
which, such as Lucent Technologies, Inc., Nortel Inc., and
Toshiba Corp., have significantly greater resources than the
Company. Key competitive factors in the sale of telephone
systems and related applications include performance, features,
reliability, service and support, name recognition, distribution
capability, place of operation, and price. The Company believes
that it competes favorably in its market with respect to the
performance, features, reliability, distribution capability, and
price of its systems, as well as the level of service and support
that the Company provides. In marketing its telephone systems,
the Company also emphasizes quality, as evidenced by its ISO 9001
certification, and high technology features. In addition, the
Company often competes to attract and retain dealers for its
products. The Company expects that competition will continue to
be intense in the markets it serves, and there can be no
assurance that the Company will be able to continue to compete
successfully in the marketplace or that the Company will be able
to maintain its current dealer network.
During the first quarter of 1996, the Company introduced
wideopen.office, the first universal CTI server designed for
local area networks ("LANS") as well as standalone personal
computers ("PCs"). The new server provides linkages between
desktop computers and Comdial's DXP switch users and also permits
interfacing with PCs on a LAN. Also in the first quarter, the
Company announced that it has signed an agreement with Danvers,
Massachusetts-based Pro CD, Inc. to market Pro CD's Select Phone
for Networks. This CD-ROM data base contains over 100 million
residential and business names, addresses, and phones numbers, is
available for use in a network environment. Comdial will bundle
Select Phone with FastCall, a middleware product, which enables
users to integrate Select Phone easily with existing data bases.
On March 20, 1996, the Company completed the acquisition of
two companies involved in CTI applications: Aurora Systems, Inc.
("Aurora") and Key Voice Technologies, Inc. ("KVT"). Aurora,
based in Acton, Massachusetts, is a leading provider of off-the-
shelf CTI products. KVT, based in Sarasota, Florida, develops,
assembles, markets, and sells voice processing systems and
related products for business applications. As a result of the
acquisitions, Aurora and KVT have become wholly-owned
subsidiaries of the Company (see Note C to the Consolidated
Financial Statements).
The consideration paid for the acquisition of Aurora was
approximately $2.8 million in cash and common stock. The
consideration paid for the acquisition of KVT totaled
approximately $19.0 million in cash, common stock, and a
promissory note.
In accordance with the purchase method of accounting, the
purchase price has been allocated to the underlying assets and
liabilities based on their respective fair values at the date of
the acquisitions. Any excess of purchase price over the value of
the net assets is allocated to goodwill. The purchase price
including acquisition costs for both acquisitions exceeded met
assets acquired by approximately $19.1 million. Such excess is
being amortized on a straight-line basis over one to eight years.
Such allocations have been based on asset evaluation performed by
outside consultants.
Management anticipates that these two acquisitions will have
a positive effect on revenues and profitability for all of 1996
and enhance the Company's position for future development
relating to the CTI market.
Results of Operations
Revenue and Earnings
Second Quarter 1996 vs 1995
The Company reported a loss before taxes for the second
quarter of 1996 of $1.6 million as compared with net income
before taxes of $1.9 million for the same period in 1995. The
loss of the Company was primarily attributable to the declining
sales of the Company's older analog telephone systems and the
continued weakness in federal government sales.
Net sales for the second quarter of 1996 decreased 7% to
$23.6 million, compared with $25.4 million in the second quarter
of 1995. CTI product sales increased substantially but was
offset with a drop in sales of analog telephone systems and
custom manufacturing sales.
Gross profit as a percent to sales increased to 34.5%,
compared with 32.4% in the second quarter of 1995. This increase
was primarily attributable to higher sales of CTI products which
have a higher product margin.
Selling, general and administrative expenses increased 33% to
$6.4 million, compared with $4.8 million in the second quarter of
1995. This increase was primarily due to: (1) an increase in
expenses due to the Aurora and KVT acquisitions of $849,000; (2)
an increase in personnel associated with domestic and
international sales, customer support, and the development and
marketing of CTI products; and (3) an increase in marketing
efforts which resulted in increased costs for travel, telephone,
and trade shows.
Engineering, research and development expenses increased 68%
to $1.7 million, compared with $1.0 million in the second quarter
of 1995. This increase was primarily due to increased expenses
relating to the Aurora and KVT acquisitions of $266,000 and an
increase in engineering personnel to support additional product
development.
Interest expense increased by 77% to $499,000, compared with
$282,000 in the second quarter of 1995. This increase was
primarily attributable to additional borrowings used to acquire
Aurora and KVT.
Goodwill amortization expense amounted to $868,000 for the
second quarter which relates directly to the acquisitions of
Aurora and KVT.
Income tax expense (benefit) in the second quarter of 1996
increased to $72,000 compared with a net tax benefit of ($4.4)
million for the same period of 1995, primarily due to the
recognition of a tax benefit in the second quarter of 1995 of
$4.5 million (see Note G to the Consolidated Financial
Statements).
Six Months 1996 vs 1995
The Company reported a loss before taxes for the six months
of 1996 of $1.1 million as compared with income of $3.2 million
for the comparable period in 1995. The weaker performance of the
Company was primarily attributable to the declining sales of the
Company's older analog telephone systems, supply house inventory
reductions, and continued weakness in federal government sales.
Net sales for the first six months of 1996 decreased 4% to
$45.6 million, compared with $47.8 million in 1995. Business
system sales increased by 4% or $1.6 million, compared with the
same period of 1995. CTI and DXP product sales increased
substantially but were primarily offset with a decline in sales
of analog products. The Company expected the decline in sales in
analog telephone systems but not at its current level. Some of
the sales decline can be attributed to the inclement weather
during the first quarter of 1996 and the budget related
government slowdown. Other product sales declines were terminals
and custom manufacturing. Custom manufacturing was higher in
1995 primarily due to special projects which were completed by
the end of 1995. The acquisitions (Aurora and KVT) accounted for
approximately 7% of the Company's sales during the period.
Management anticipates that the sales of analog telephone
systems and custom manufacturing will continue to decrease for
the second half of 1996 when compared to 1995. It is anticipated
that this decline could be partially offset by the continued
sales growth of digital and CTI products. The Company also plans
to improve sales by: (1) the planned introduction of a fully-
featured telephone system in the third quarter which small
dealers can sell in place of the analog telephone systems; and
(2) the reduction of certain expenses which will not affect
sales, growth, or customer service.
The following table presents certain relevant net sales
information concerning Comdial's principal product lines for the
periods indicated:
_________________________________________________________________
June 30, July 2,
In thousands 1996 1995
Sales
Business Systems
Digital $19,544 $20,467
DXP 7,950 6,031
CTI 8,169 3,552
Analog 7,686 11,663
Sub-total 43,349 41,713
Proprietary and Specialty Terminals 2,122 3,261
Custom Manufacturing 763 3,444
Gross Sales 46,234 48,418
Sales discount and allowances 624 660
Net Sales $45,610 $47,758
_________________________________________________________________
Gross profit increased 2% to $15.6 million, compared with
$15.4 million for the first six months of 1995. Gross profit as
a percent of sales increased to 34.4%, compared with 32.1% for
the same period of 1995. This increase was primarily
attributable to the higher sales of digital and CTI products
which have a higher product margin.
Selling, general and administrative expenses during the
period increased 28% to $11.7 million, compared with $9.2 million
for the first six months of 1995. This increase was primarily
due to: (1) an increase in expenses associated with the Aurora
and KVT acquisitions of $922,000; (2) an increase in personnel
associated with domestic and international sales, customer
support, and the development and marketing of CTI products; and
(3) the increased marketing efforts also resulted in increased
costs for travel, telephone, promotional literature, and trade
shows.
Engineering, research and development expenses during the
period increased 42% to $2,922,000, compared with $2,059,000 for
the first six months of 1995. This increase was primarily due to
the increase in expenses of $293,000 associated with the Aurora
and KVT acquisitions and the increase in engineering personnel
and special contract personnel to support additional product
development.
Goodwill amortization expense during the period increased to
$959,000, compared with $23,000 for the first six months of 1995.
The increase in goodwill was attributable to the acquisitions of
Aurora and KVT.
Income tax expense (benefit) in the first six months of 1996
a net tax benefit of ($642,000) was recognized in 1996 compared
with ($4.4) million for the same period of 1995. The tax
benefits were a result of reductions in the valuation allowance
relating to its federal net operating loss carryforwards
("NOLS")(see Note G to the Consolidated Financial Statements).
Dividends on preferred stock represent quarterly dividends
payable to the holder of Series A 7 1/2% Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock").
Dividends for the first six months of 1996 were zero, compared
with $285,000 for the same period of 1995. On August 11, 1995,
Comdial paid PacifiCorp Credit, Inc. ("PCI") all dividends
associated with the Series A Preferred Stock and redeemed their
remaining 750,000 shares. Comdial will no longer have any
dividend payments associated with the Series A Preferred Stock.
Liquidity
The Company is indebted to Fleet 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 Fleet entered into a loan and security agreement
(the "Loan Agreement") on February 1, 1994. Under the Loan
Agreement Fleet provided the Company with a $6.0 million term
loan (the "Term Note I") and a revolving credit loan facility in
an amount up to $9.0 million (the "Revolver") (see note E to
Financial Statements). The Company and Fleet amended the
original agreement in April 1994, to allow the Company to borrow
an additional $1.3 million (the "Term Note II").
The Fleet Term Notes and Revolver on the original Loan
Agreement carried interest rates of 1.50% and 1.00% over Fleet's
prime rate, respectively. Fleet's prime rate was 8.25% and 8.50%
at June 30, 1996 and December 31, 1995, respectively.
On March 13, 1996, the Company and Fleet amended the Loan
Agreement to provide the Company with a $10.0 million acquisition
loan ("Acquisition Loan"), $3.5 million equipment loan
("Equipment Loan"), and $12.5 million revolving credit loan
facility ("Revolver"). The remaining balances on Term Notes I
and II were paid by advances from the Revolver and Equipment
Loan, respectively (see Note E to Financial Statements).
On March 20, 1996, the Company borrowed $8.5 million from the
Acquisition Loan which was used in connection with the purchase
of Aurora and KVT. The Acquisition Loan is payable in equal
monthly principal installments of $142,142, with the balance due
on February 1, 2001. The Fleet Equipment Loan is payable in
equal monthly principal installments of $27,000, with the balance
due on June 1, 1998.
The Acquisition Loan, Equipment Loan, and Revolver bear
interest at rates based on either Fleet's prime rate or the
London Interbank Offered Rate ("LIBOR"). The interest rates may
be adjusted annually based on the Company's debt to earnings
ratio. Depending on the ratio, the interest rates vary from
minus 0.50% to plus 0.50% of the Fleet prime rate and from plus
1.50% to 2.50% of LIBOR. Current interest rate margins on the
Company's indebtedness to Fleet are 0.00% and 2.00% for prime and
LIBOR, respectively.
Availability under the Revolver is based on eligible
accounts receivable and inventory, less funds already borrowed.
The Company's indebtedness to Fleet is secured by liens on
the Company's assets and also contains certain financial
covenants (see Note E to the Financial Statements).
On June 28, 1996, the Company and Fleet amended the Loan
Agreement to adjust the Revolver availability by setting a
special availability reserve of $4.0 million and also modified
certain covenants.
The Company is in compliance with all the covenants and
terms of the amended Loan Agreement as of June 30, 1996.
The Company's Promissory Note of $7.0 million, the proceeds
of which were used to acquire KVT, carries an interest rate based
on prime with yearly payments of $1.4 million over five years
starting on March 20, 1997.
Capital leases are with various financing facilities which
are payable based on the terms of each individual lease. Other
debt consists of a mortgage that was acquired as part of the KVT
acquisition and has a monthly mortgage payment of $2,817 which
includes interest at a rate of 8.75%. The final payment under
the mortgage is due on August 01, 2005.
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 June 30, 1996 December 31 ,1995
Cash and cash equivalents $455 $4,144
Current maturities on debt 7,770 1,903
Working capital 10,770 18,271
_________________________________________________________________
All operating cash requirements are currently being funded
through the Revolver. Cash decreased primarily due to the
acquisition of Aurora and KVT. Current maturities on debt
include the Revolver balance and the current portion of the
promissory note of $4.0 million and $1.4 million, respectively,
which were zero at December 31, 1995. Working capital decreased
by $7.5 million due primarily to the decrease in available cash
and an increase in current maturities on debt which relate
directly to the acquisitions of Aurora and KVT that occurred at
the end of the first quarter of 1996.
Inventory increases are primarily due to additional finished
goods inventory which was a result of slower than expected sales
for the first six months and the additions of Aurora and KVT.
The inventory provision for 1996 compared with 1995 is lower
primarily due to lower obsolescence and shrinkage.
Prepaid expenses and other current assets decreased by 26%
or $697,000, primarily due to a miscellaneous receivable which was
paid regarding custom manufacturing inventory that had been
returned to the original vendor.
Other accrued liabilities decreased by $840,000, primarily
due to promotional costs paid during the first quarter of 1996
which related to 1995.
During 1996 and 1995, all of the Company's sales, net
income, and identifiable net assets were attributable to the
telecommunications industry except sales relating to custom
manufacturing.
The Company plans to fund all future costs through working
capital from Fleet and cash generated by operations. Management
expects these sources to provide the cash necessary for the near-
term future operations and future development of the Company.
Capital Resources
Capital expenditures in the first six months of 1996 and for
the comparable period of 1995 were $1.5 million and $838,000,
respectively. Capital additions for 1996 and 1995 were provided
by funds from operations, capital leasing, and borrowings from
Fleet. The Company anticipates spending approximately $4.0
million on capital expenditures during 1996 which includes
equipment for manufacturing and technology.
The Company plans to fund all future capital expenditure
additions through working capital from Fleet and long-term lease
arrangements. Management expects these sources to provide the
capital assets necessary for near-term future operations and
future product development.
The Company has a commitment from Crestar Bank for the
issuance of letters of credit in amounts not to exceed $500,000
at any one time. At June 30, 1996, the amount of available
commitments under the letter of credit facility with Crestar Bank
was $288,000.
COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(10) Material Contracts:
10.1 Amendment No. 2 to the Loan And Security Agreement
dated June 28, 1996 among the Registrant and Fleet
Capital Corporation.
10.2 Amendment No. 2 to the Registrant's 1992 Stock
Incentive Plan and 1992 Non-employee Directors Stock
Incentive Plan.
10.3 Amendment No. 3 to the Registrant's 1992 Stock
Incentive Plan and 1992 Non-employee Directors Stock
Incentive Plan.
(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.
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: August 12, 1996 By: /s/ Wayne R. Wilver
Wayne R. Wilver
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
<TABLE> <S> <C>
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<NAME> COMDIAL CORP
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 9142
<ALLOWANCES> 67
<INVENTORY> 19246
<CURRENT-ASSETS> 30841
<PP&E> 41406
<DEPRECIATION> 26781
<TOTAL-ASSETS> 73457
<CURRENT-LIABILITIES> 20071
<BONDS> 20569
0
0
<COMMON> 87
<OTHER-SE> 36244
<TOTAL-LIABILITY-AND-EQUITY> 73457
<SALES> 45253
<TOTAL-REVENUES> 45610
<CGS> 29943
<TOTAL-COSTS> 29980
<OTHER-EXPENSES> 16005
<LOSS-PROVISION> (16)
<INTEREST-EXPENSE> 726
<INCOME-PRETAX> (1085)
<INCOME-TAX> (642)
<INCOME-CONTINUING> (443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (443)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
(Amendment), dated this 28th day of June, 1996, mad by
and between
FLEET CAPITAL CORPORATION (formerly known as SHAWMUT Capital
Corporation and successor by assignment from Barclays
Business Credit, Inc.), a Rhode Island corporation (the
Lender); and
COMDIAL CORPORATION (Patent) and its wholly-owned
subsidiaries AMERICAN TELECOMMUNICATIONS CORPORATION
(ATC), AMERICAN PHONE CENTERS, INC. (APC), COMDIAL
ENTERPRISE SYSTEMS, INC. (CES), COMDIAL
TELECOMMUNICATIONS INTERNATIONAL, INC. (CTii), SCOTT
TECHNOLOGIES CORPORATION (STC), COMDIAL CUSTOM
MANUFACTURING, INC. (CCM), COMDIAL VIDEO TELEPHONY, INC.
(CVT), COMDIAL TECHNOLOGY CORPORATION (CTC), COMDIAL
TELECOMMUNICATIONS, INC. (CTI), AURORA SYSTEMS, INC.
(ASI), KEY VOICE TECHNOLOGIES, INC. (KVTI), and CTI'S
wholly-owned subsidiaries, COMDIAL BUSINESS COMMUNICATIONS
CORPORATION (CBCC), and COMDIAL CONSUMER COMMUNICATIONS
CORPORATION (CCCC; Parent, ATC, APC, CES, CTii, STC,
CCM, CVT, CTC, CTI, ASI, KVTI, CBCC and CCCC being
hereinafter referred to collectively as the Borrowers
and, individually, as a Borrower), each a Delaware
corporation,
to the Loan and Security Agreement, dated February 1, 1994
(as amended, modified, restated or supplemental from time to
time, the Loan Agreement). All capitalized terms used
herein without definition shall have the meanings ascribed
to such terms in the Loan Agreement.
RECITALS
A. Pursuant to the Loan Agreement, the Lender has
agreed to make loans and extend credit to the Borrowers
secured by the Collateral and the Realty.
B. The Loan Agreement was previously amended by a
certain Consolidated Amendment No. 1 thereto, dated March
13, 1996.
C. The Borrowers and the Lender now desire to
further amend the Loan Agreement.
D. To accomplish the foregoing, the Borrowers and
the Lender have agreed to amend the Loan Agreement as set
forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the
Borrowers and the Lender hereby agree as follows:
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
The Loan Agreement is hereby amended as follows:
1.1 Definitions. Section 1.1 is hereby amended by making
the following changes:
(a) The following definitions are added:
Adjusted Availability - at the time of computation
means the difference between (I) the Borrowing Base after
adding back the Special Availability Reserve subtracted
therefrom for the purpose of determining Availability, and
(ii) the amount of Revolving Credit Loans outstanding.
Special Availability Reserve - $3,000,000.
(b) The definition of Borrowing Base is
amended as follows:
(i) By deleting the period at the end of
subparagraph (c) and substituting in lieu thereof a comma;
and
(ii) By adding the following at the end of
subparagraph (c):
MINUS
(D) the Special Availability Reserve.
1.2 Acquisition Loans. Section 2.1(C) is amended in
its entirety to read as follows:
(C) Acquisition Loans. Lender may, in its sole and
absolute discretion, subject to the provisions of Section 10
below, make Acquisition Loans to borrowers, as requested by
Borrowers in the manner set forth in Section 3.2 hereof, so
long as the aggregate4 amount of all Acquisition Loans
outstanding and the requested Acquisition Loan does not
exceed the Acquisition Loan commitment. Each Acquisition
Loan approved and made by Lender shall be evidenced by an
Acquisition Note, with blanks suitable filled and dated the
date of the Acquisition Loan Borrowing Date. Each
Acquisition Loan approved and made by Lender shall, at the
option of Borrowers, be made or continued as, or converted
into, a Base Rate Advance or a LIBOR Rate Advance, upon the
terms set forth herein.
1.3 Minimum Consolidated Adjusted Tangible Net Worth.
Section 9.3(A) is amended in its entirety to read as
follows:
(A) Minimum Consolidated Adjusted Tangible Net
Worth. Maintain a Consolidated Adjusted Tangible Net Worth
of not less than the amount shown below at all times during
the period corresponding thereto:
Consolidated Adjusted
Period Tangible Net Worth
First fiscal quarter of fiscal year $21,500,000
ending December 31, 1996
Second fiscal quarter of fiscal year $21,000,000
ending December 31, 1996
Third fiscal quarter of fiscal year $24,200,000
ending December 31, 1996
Fourth fiscal quarter of fiscal year $24,700,000
ending December 31, 1996
First fiscal quarter of fiscal year $24,950,000
ending December 31, 1997
Second fiscal quarter of fiscal year $26,500,000
ending December 31, 1997
Third fiscal quarter of fiscal year $28,300,000
ending December 31, 1997
Fourth fiscal quarter of fiscal year $28,750,000
ending December 31, 1997
First fiscal quarter of fiscal year $29,000,000
ending December 31, 1998
Second fiscal quarter of fiscal year $30,500,000
ending December 31, 1998
Third fiscal quarter of fiscal year $32,350,000
ending December 31, 1998
Fourth fiscal quarter of fiscal year $32,750,000
ending December 31, 1998 and at all
time thereafter
1.4 Profitability. Section 9.3(B) is amended in its
entirety to read as follows:
(B) Profitability. Achieve a Consolidated Adjusted
Earnings From operations of not less than the amount shown
below for the period corresponding thereto:
Consolidated Adjusted
Period Earnings From Operations
First fiscal quarter of fiscal year ($1,000,000)
ending December 31, 1996
First, second and third fiscal quarters ($1,500,000)
of fiscal year ending December 31, 1996
First and second fiscal quarters of $3,425,000
fiscal year ending December 31, 1996
Fiscal year ending December 31, 1996 $4,025,000
First fiscal quarter of fiscal year $ 350,000
ending December 31, 1997 and first
quarter of each fiscal year thereafter
First and second fiscal quarter of fiscal $2,250,000
year ending December 31, 1997 and the first
and second fiscal quarters of each fiscal
year thereafter
First, second and third fiscal quarters $4,500,000
of fiscal year ending December 31, 1997
and the first, second and third fiscal
quarters of each fiscal year thereafter
Fiscal year ending December 31, 1997 $5,000,000
and each fiscal year thereafter
1.5 Consolidated Debt Service Coverage Ratio. Section
9.3(C) is amended in its entirety to read as follows:
(C) Consolidated Debt Service Coverage Ratio.
Maintain a Consolidated Debt Service Coverage Ratio of not
less than the ratio shown below for the period corresponding
thereto:
Consolidated Debt
Period Service Coverage Ratio
First fiscal quarter of fiscal year .75 to 1.0
ending December 31, 1996 and first
quarter of each fiscal year thereafter
First and second fiscal quarter of fiscal .75 to 1.0
year ending December 31, 1996 and the first
and second fiscal quarters of each fiscal
year thereafter
First, second and third fiscal quarters 1.7 to 1.0
of fiscal year ending December 31, 1996
and the first, second and third fiscal
quarters of each fiscal year thereafter
Fiscal year ending December 31, 1996 1.7 to 1.0
and each fiscal year thereafter
1.6 Minimum Adjusted Availability. A new Section 9.3(F),
Minimum Adjusted Availability, is added as follows:
(F) Minimum Adjusted Availability. Maintain Adjusted
Availability of not less than $4,000,000 as of the
close of business on each day that Lender makes a
Revolving Credit Loan as requested by Borrower
hereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Lender
that:
2.1 Compliance with the Loan Agreement and Other Loan
Documents. As of execution of this Amendment, each Borrower
is in compliance with all of the terms and provisions set
forth in the Loan Agreement and in other Loan Documents to
be observed or performed by such Borrower, except where the
failure of the Borrower to comply has been waived in writing
by the Lender.
2.2 Representations in Loan Agreement and other Loan
Documents. The representations and warranties of each
Borrower set forth in the Loan Agreement and the other Loan
Documents are true and correct in all material respects
except for any changes in the nature of any Borrower's
business or operations which have occurred in the ordinary
course of business that would render the information
contained in any exhibit attached to the Loan Agreement
either inaccurate or incomplete in any material respect, so
long as (a) Lender has consented to such changes, (b) such
changes are not expressly prohibited by the Loan Agreement,
or (c) with respect to matters Borrowers are required to
notify Lender of pursuant to Sections 4.9(E) or 9.1(A),
Borrowers have given notice as required by such sections.
2.3 No event of Default. After giving effect to this
Amendment, no Default or Event of Default exists.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS
3.1 Loan Documents. The Loan Agreement and each of the
other Loan Documents are amended to provide that any
reference to the Loan Agreement or any of the other Loan
Documents shall mean the Loan Agreement as amended by this
Amendment, and as it is further amended, restated,
supplemental or modified from time to time.
ARTICLE IV
GENERAL
4.1 Full Force and Effect. As expressly amended hereby,
the Loan Agreement shall continue in full force and effect
in accordance with the provisions thereof. As used in the
Loan Agreement, hereinafter, hereto or words of
similar import, shall, unless the context otherwise
requires, mean the Loan Agreement as amended by this
Amendment.
4.2 Applicable Law. This Amendment shall be governed by
and construed in accordance with the internal laws and
judicial decision of the State of North Carolina.
4.3 Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall constitute an
original, but all of which when taken together shall
constitute but one and the same instrument.
4.4 Expenses. Borrowers shall reimburse the Lender for all
reasonable fees and expenses (legal or otherwise) incurred
by the Lender in connection with the preparation,
negotiation, execution and delivery of this Amendment and
all other agreements and documents or contemplated hereby.
4.5 headings. The headings in this Amendment are the
purpose of reference only and shall not affect the
construction of this Amendment.
4.6 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, EACH BORROWER AND THE LENDER EACH WAIVES
THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING
OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO
THIS AMENDMENT, THE LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered on the date first
above written.
BORROWERS:
ATTEST: COMDIAL CORPORATION
\S\ Jimmy Ramsey AMERICAN TELECOMMUINCATIONS CORP.
Vice President AMERICAN PHONE CENTERS, INC.
COMDIAL ENTERPRISE SYSTEMS, INC.
COMDIAL TLECOMMUNICATIONS INT.
SCOTT TECHNOLOGIES CORP.
COMDIAL CUSTOM MANUFACTURING
COMDIAL VIDEO TELEPHONY, INC.
COMDIAL TECHNOLOGY CORPORATION
COMDIAL TELECOMMUNICATIONS, INC.
AURORA SYSTEMS, INC.
KEY VOICE TECHNOLOGIES, INC.
COMDIAL BUSINESS COMMUNICATIONS
COMDIAL CONSUMER COMMUNICATIONS
By: \s\ Wayne R. Wilver
Wayne R. Wilver
Senior Vice President
LENDER:
FLEET CAPITAL CORPORATION
By: \s\ Jerry Monday
Title: VP
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
Statement re Computation of Per Share Earnings
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
PRIMARY
Net income (loss) applicable
to common shares: ($1,628,000) $6,207,000 ($443,000) $7,294,000
Weighted average number of
common shares outstanding
during the period 8,564,754 7,059,983 8,377,765 7,039,004
Add - common equivalent shares
(determined using the "
treasury stock" method)
representing shares issuable
upon exercise of
Stock options 165,177 232,182 152,585 225,355
Weighted average number of shares
used in calculation of primary
earnings per common share 8,729,931 7,292,165 8,530,350 7,264,359
Earnings per common share:
Net income (loss) ($0.19) $0.85 ($0.05) $1.00
FULLY DILUTED
Net income (loss) applicable
to common shares ($1,628,000) $6,207,000 ($443,000) $7,294,000
Adjustments for convertible
securities:
Dividends paid on convertible
preferred stock - 142,500 - 285,000
Net income (loss) applicable
to common shares, assuming
conversion of above
securities ($1,628,000) $6,349,500 ($443,000) $7,579,000
Weighted average number of
shares used in calculation
of primary earnings per
common share 8,729,931 7,292,165 8,530,350 7,264,359
Add (deduct) incremental
shares representing:
Shares issuable upon
exercise of stock options
included in primary
calculation (165,177) (232,182) (152,585) (225,355)
Shares issuable based on
period-end market price
or weighted average price:
Convertible preferred stocks - 856,933 - 856,933
Stock options 165,704 283,930 153,482 303,589
Weighted average number of
shares used in calculation of
fully diluted earnings
per common share 8,730,458 8,200,846 8,531,247 8,199,526
Fully diluted earnings (loss)
per common share ($0.19) $0.77 ($0.05) $0.92
SECOND AMENDMENT
TO
COMDIAL CORPORATION 1992 STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT to the Comdial Corporation 1992 Stock
Incentive Plan (the "Plan") is made effective as of August 7,
1995, pursuant to the authority under Section 13(a) of the Plan
for the Administrative Committee to amend the Plan to reflect the
change in capital structure resulting from the one-for-three
reverse split of the common stock of Comdial Corporation.
Section 4 of the Plan is amended by deleting the entirety
thereof and substituting the following:
4. Stock. Subject to Section 13 of the Plan, there shall
be reserved for issuance under the Plan an aggregate of 800,000
shares of Company Stock, which shall be authorized, but unissued
shares. The 800,000 shares reserved for issuance under the Plan
include (a) 21,230 shares allocable to options or portions thereof
granted under the 1979 Long-Term Incentive Plan of Comdial
Corporation (the 1979 Plan) that are expected to expire or
terminate unexercised, (b) 180,250 shares that are available for
the grant of options under the 1982 Long-Term Incentive Plan of
Comdial Corporation (the 1982 Plan) that will not be granted,
and (c) 388,738 shares allocable to options or portions thereof
granted under the 1982 Plan that expire or otherwise terminate
unexercised. Shares allocable to options awarded under the 1979
Plan, the 1982 Plan, or under this Plan, that expire or terminate
unexercised may be subjected to an Incentive Award under the Plan.
The Committee is expressly authorized to make an Incentive Award
to a Participant conditioned upon the surrender for cancellation
of an existing Incentive Award. For purposes of determining the
number of shares that are available for Incentive Awards under the
Plan, such number shall, if permissible under Rule 16b-3, include
the number of shares surrendered by an optionee or retained by the
Company in payment of federal and state income tax withholding
liabilities upon exercise of a Nonstatutory Stock Option, or the
award of Restricted Stock or Incentive Stock."
IN WITNESS WHEREOF, the Company has caused this amendment to the
Plan to be executed as of August 31, 1995, the date on which the
Board of Directors amended the Plan.
COMDIAL CORPORATION
BY: \S\ WAYNE R. WILVER
WAYNE R. WILVER
SENIOR VICE PRESIDENT
THIRD AMENDMENT
TO
COMDIAL CORPORATION 1992 STOCK INCENTIVE PLAN
THIS THIRD AMENDMENT to the Comdial Corporation 1992 Stock Incentive
Plan (the "Plan") is made effective as of February 6, 1996, pursuant to
the authority under Section 12 of the Plan for the Board of Directors to
amend the Plan.
Section 4 of the Plan is amended by deleting the entirety thereof
and substituting the following:
4. Stock. Subject to Section 13 of the Plan, there shall be
reserved for issuance under the Plan an aggregate of 1,550,000 shares of
Company Stock, which shall be authorized, but unissued shares. The
1,550,000 shares reserved for issuance under the Plan include (a) 21,230
shares allocable to options or portions thereof granted under the 1979
Long-Term Incentive Plan of Comdial Corporation (the 1979 Plan) that
are expected to expire or terminate unexercised, (b) 180,250 shares that
are available for the grant of options under the 1982 Long-Term
Incentive Plan of Comdial Corporation (the 1982 Plan) that will not be
granted, and (c) 388,738 shares allocable to options or portions thereof
granted under the 1982 Plan that expire or otherwise terminate
unexercised. Shares allocable to options awarded under the 1979 Plan,
the 1982 Plan, or under this Plan, that expire or terminate unexercised
may be subjected to an Incentive Award under the Plan. The Committee is
expressly authorized to make an Incentive Award to a Participant
conditioned upon the surrender for cancellation of an existing Incentive
Award. For purposes of determining the number of shares that are
available for Incentive Awards under the Plan, such number shall, if
permissible under Rule 16b-3, include the number of shares surrendered
by an optionee or retained by the Company in payment of federal and
state income tax withholding liabilities upon exercise of a Nonstatutory
Stock Option, or the award of Restricted Stock or Incentive Stock."
Section 8 of the Plan is amended by adding a new subparagraph (f)
at the end thereof, as follows:
(f) Except as provided in Section 8(e), the Committee may at
any time, in its sole discretion, accelerate the time at which any
Option shall become exercisable.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan
to be executed as of February 6, 1996, the date on which the Board of
Directors amended the Plan.
COMDIAL CORPORATION
BY: \S\ WAYNE R. WILVER
WAYNE R. WILVER
SENIOR VICE PRESIDENT
