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 March 30, 1997
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.
8,592,865 common shares as of March 30, 1997.
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
March 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the Three Months ended
March 30, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows
for the Three Months ended
March 30, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6-11
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-21
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by Security
Holders 22
ITEM 6: Exhibits and Reports on Form 8-K 23
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
March 30, December 31,
In thousands except par value 1997 1996
Assets
Current assets
Cash and cash equivalents $567 $180
Accounts receivable - net 11,240 9,660
Inventories 19,096 19,586
Prepaid expenses and other current
assets 1,050 1,341
Total current assets 31,953 30,767
Property - net 14,806 15,317
Deferred tax asset - net 7,528 7,469
Goodwill 15,816 16,852
Other assets 4,008 3,947
Total assets $74,111 $74,352
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $7,738 $8,144
Accrued payroll and related expenses 2,861 2,926
Other accrued liabilities 2,216 3,746
Current maturities of debt 7,119 5,343
Total current liabilities 19,934 20,159
Long-term debt 11,207 11,713
Deferred tax liability 2,069 2,230
Long-term employee benefit obligations 1,569 1,686
Commitments and contingent liabilities
Total liabilities 34,779 35,788
Stockholders' equity
Common stock ($0.01 par value) and
paid-in capital (Authorized
30,000 shares; issued shares:
1997 = 8,593; 1996 = 8,580) 114,214 114,118
Other (1,045) (1,046)
Accumulated deficit (73,837) (74,508)
Total stockholders' equity 39,332 38,564
Total liabilities and stock-
holders' equity $74,111 $74,352
* 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
March 30, March 31,
In thousands except per share amounts 1997 1996
Net sales $26,855 $22,048
Cost of goods sold 15,796 14,565
Gross profit 11,059 7,483
Operating expenses
Selling, general & administrative 7,219 5,314
Engineering, research & development 1,603 1,218
Operating income 2,237 951
Other expense (income)
Interest expense 427 227
Goodwill amortization expense 1,037 91
Miscellaneous expense 213 162
Income before income taxes 560 471
Income tax expense/(benefit) (111) (714)
Net income applicable to common stock $671 $1,185
Earnings per common share and common equivalent share:
Net income per common share $0.08 $0.14
Weighted average common shares outstanding: 8,582 8,191
The accompanying notes are an integral part of these financial statements.
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
March 30, March 31,
In thousands 1997 1996
Cash flows from operating activities:
Cash received from customers $26,262 $22,961
Other cash received 343 209
Interest received 1 47
Cash paid to suppliers and employees (25,960) (24,281)
Interest paid on debt (805) (153)
Interest paid under capital lease
obligations (6) (30)
Income taxes paid (8) -
Net cash used by operating activities (173) (1,247)
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 (1) (14)
Capital expenditures (813) (992)
Net cash used by investing activities (814) (11,435)
Cash flows from financing activities:
Proceeds from borrowings 1,900 5,619
Net borrowings under revolver agreement 1,422 3,932
Proceeds from issuance of common stock - 10
Principal payments on debt (1,909) (414)
Principal payments under capital lease
obligations (39) (140)
Net cash provided in financing
activities 1,374 9,007
Net increase (decrease) in cash and
cash equivalents 387 (3,675)
Cash and cash equivalents at beginning
of year 180 4,144
Cash and cash equivalents at end of period $567 $469
Reconciliation of net income to net cash provided by operating activities:
Net income $671 $1,185
Depreciation and amortization 2,461 1,026
Change in assets and liabilities (for
1996, net of effects from the purchase
of KVT and Aurora):
Increase in accounts receivable (1,580) (1,091)
Inventory provision 535 230
Increase in inventory (45) (716)
Decrease in other assets 130 1,153
Increase in deferred tax asset (220) (736)
Decrease in accounts payable (406) (2,596)
Decrease in other liabilities (1,816) (999)
KVT asset value at acquisition - 1,468
Aurora asset value at acquisition - (241)
Increase in paid-in capital and other
equity 97 70
Total adjustments (844) (2,432)
Net cash used by operating activities ($173) ($1,247)
The accompanying notes are an integral part of these financial statements.
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 1997 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS_______________________
The financial information included as of March 30, 1997 and
for the three months ended March 30, 1997 and March 31, 1996
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 Corporation (the "Company") are described in Note 1 to
the consolidated financial statements in its Annual Report to
Stockholders for the year ended December 31, 1996. The
consolidated financial statements for 1997 should be read in
conjunction with the 1996 financial statements, including notes
thereto, contained in the Company's Annual Report to the
Stockholders for the year ended December 31, 1996. Certain
amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation. The results of
operations for the three months ended March 30, 1997 are not
necessarily indicative of the results for the full year. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES______________
The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires
management to make certain estimates and assumptions that affect
reported amounts of assets, liabilities, revenues, and expenses.
GAAP also requires disclosure of contingent assets and
liabilities at March 30, 1997. Actual results may differ from
those estimates.
Cash and cash equivalents are defined as short-term liquid
investments that are readily convertible into cash with
maturities, when purchased, of less than 90 days. 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 $1,822,000 and $1,935,000
are included in accounts payable at March 30, 1997 and December
31, 1996, respectively. Bank overdrafts consist of outstanding
checks that have not (1) cleared the bank and (2) been funded by
the revolving credit facility (see Note D). The Company
considers the outstanding checks to be a bank overdraft. The
Company reports the revolving credit facility activity on a net
basis on the Consolidated Statements of Cash Flows.
Note C: INVENTORIES_____________________________________________
Inventories consist of the following:
_________________________________________________________________
March 30, December 31,
In thousands 1997 1996_____
Finished goods $6,530 $6,529
Work-in-process 3,903 3,681
Materials and supplies _ 8,663 __9,376
Total $19,096 $19,586
_________________________________________________________________
Note D: BORROWINGS______________________________________________
Since February 1, 1994, Fleet Capital Corporation ("Fleet")
has held substantially all of the Company's indebtedness.
Long-term Debt. Long-term debt consists of the following:
_________________________________________________________________
March 30, December 31,
In thousands 1997 1996______
Loans payable to Fleet
Acquisition loan $6,823 $7,249
Equipment loans I & II 2,282 463
Revolving credit 3,171 1,749
Promissory note 5,600 7,000
Capitalized leases 141 284
Other debt _ 309 311
Total debt 18,326 17,056
Less current maturities on debt _7,119 5,343
Total long-term debt $11,207 $11,713
_________________________________________________________________
In 1994, the Company and Fleet entered into a loan and
security agreement (the "Loan Agreement") pursuant to which
Fleet agreed to provide the Company with two term loans evidenced
by notes in the original principal amounts of $6.0 million and
$1.3 million and a $9.0 million revolving credit loan facility.
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 balance of the existing term loans
totaling $3.6 million were paid by advances from the Revolver of
$2.9 million and Equipment Loan ("Equipment Loan I") of $706,000.
The Equipment Loan I is payable in equal monthly principal
installments of $27,000, with the balance due on June 1, 1998.
On March 20, 1996, the Company borrowed $8.5 million under
the Acquisition Loan which was used to purchase Aurora Systems,
Inc. ("Aurora") and Key Voice Technologies, Inc. ("KVT"). The
Acquisition Loan is payable in equal monthly principal
installments of $142,142, with the balance due on February 1,
2001.
On February 5, 1997, the Company borrowed an additional $1.9
million under the Equipment Loan ("Equipment Loan II") which was
used to purchase surface mount technology ("SMT") equipment to
further expand the Company's SMT line capacity. Equipment Loan
II is payable in equal monthly principal installments of $31,667,
with the balance due on February 1, 2001.
Availability under the Revolver is based on eligible accounts
receivable and inventory, less funds already borrowed, and may be
as much as $12.5 million. 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
modified certain covenants.
The Acquisition Loan, Equipment Loans I and II, and the
Revolver carry interest rates at either Fleet's prime rate or
London's Interbank Offering 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% above LIBOR. As of March 30, 1997 and December 31, 1996,
the prime interest rates were 8.50% and 8.25%, respectively. The
LIBOR rates as of March 30, 1997, were 5.50%, 5.53%, and 5.67%
with approximately 98% of the loans based on LIBOR. The LIBOR
rate as of December 31, 1996, was 5.66% with approximately 79% of
the loans based on LIBOR. As of March 31, 1996, the Company's
borrowing rate for prime was 8.50%, and the LIBOR borrowing rates
were 7.50%, 7.53%, and 7.67%.
The Company's Promissory Note of $7.0 million, which was part
of the purchase price for KVT, carries an interest rate equal to
the prime rate with annual payments of $1.4 million plus
accumulated interest for five years which started 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 acquisition of KVT. The mortgage requires a monthly
payment of $2,817, including interest at a rate of 8.75%. The
final payment is due on August 1, 2005.
Scheduled maturities of current and long-term debt for the
Fleet Loans (as defined in the Loan Agreement), the Promissory
Note, and other debt (excluding the Revolver and leasing
agreements) are as follows:
_________________________________________________________________
Principal
In thousands Fiscal Years Installments_
Loans payable 1997 $1,783 *
1998 3,632
1999 3,494
2000 3,495
2001 2,343
Beyond 2001 267
__* The remaining aggregate for 1997.___________________________
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 with Fleet also contains certain
financial covenants that relate to specified levels of
consolidated tangible net worth, profitability, and other
financial ratios. The Loan Agreement also contains certain
limits on additional borrowings.
On March 27, 1997, the Company and Fleet amended the Loan
Agreement to modify certain Loan Agreement covenants. As of
March 30, 1997, the Company is in compliance with all the
covenants and terms as defined in the Loan Agreement.
Note E: EARNINGS PER SHARE______________________________________
For the three months ended March 30, 1997 and March 31, 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 first three months of 1997 and
1996.
Note F: INCOME TAXES____________________________________________
The components of the income tax expense (benefit) based on
the liability method for the three months are as follows:
_________________________________________________________________
March 30, March 31,
In thousands 1997 1996___
Current - Federal $ 50 $17
State 58 5
Deferred - Federal (214) (714)
State ( 5) _( 22)
Total provision ($111) $714
_________________________________________________________________
The income tax provision reconciled to the tax computed at
statutory rates for the three months are summarized as follows:
_________________________________________________________________
March 30, March 31,
In thousands 1997 1996 _
Federal tax (benefit) at statutory
rate (35% in 1997 and 1996) $196 $165
State income taxes (net of federal
tax benefit) 38 3
Nondeductible charges 96 33
Alternative minimum tax 17 16
Utilization of operating loss carryover (239) (195)
Adjustment of valuation allowance (219) _(736)
Income tax provision ($111) ($714)
_________________________________________________________________
Net deferred tax assets of $5,459,000 and $5,239,000 have
been recognized in the accompanying Consolidated Balance Sheets
at March 30, 1997 and December 31, 1996, respectively. The
components of the net deferred tax assets are as follows:
_________________________________________________________________
March 30, December 31,
In thousands 1997 1996____
Total deferred tax assets $27,211 $27,709
Total valuation allowance (19,683) (20,240)
Total deferred tax asset - net 7,528 7,469
Total deferred tax liabilities (2,069) (2,230)
Total net deferred tax asset $5,459 $5,239
_________________________________________________________________
The valuation allowance decreased $557,000 during the three
month period ended March 30, 1997. This decrease was primarily
related to the re-evaluation of the future utilization of
deferred tax assets of $219,000, and the utilization of deferred
tax assets and liabilities, and operating loss carryforwards of
$338,000. The Company periodically reviews the requirements for
a valuation allowance and makes adjustments to such allowance
when changes in circumstances result in changes in management's
judgment about the future realization of deferred tax assets.
Based on a continual evaluation of the realization of the
deferred tax assets, the valuation allowance was reduced and a
net tax benefit of $219,000 was recognized in the quarter ended
March 30, 1997. Management believes that it is more likely than
not that the Company will realize these tax benefits. However,
the tax benefits could be reduced in the near term if estimates
of future taxable income during the carryforward periods are
reduced.
The Company has net operating loss carryforwards ("NOLs")
and tax credit carryovers of approximately $62,834,000 and
$3,075,000, respectively. If not utilized, the NOLs and tax
credit carryovers will expire in various years through 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. The amount of net
operating loss carryforwards expected to be utilized resulting in
the reduction of the valuation allowance of $5,459,000 assumes an
ownership change will take place.
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 Comdial Corporation and its subsidiaries (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 1997 reporting basis (see Note A to the
Consolidated Financial Statements).
General Development of the Business
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
was originally incorporated in Oregon in 1977. In 1982, the
Company was reincorporated in Delaware. The Company's Common
Stock is traded over-the-counter and is quoted on the National
Association of Security Dealers Automated Quotation System
("Nasdaq National Market") under the symbol: CMDL.
The Company's products accommodate the needs of organizations
requiring 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
3,000,000 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 has occurred principally as a result of sales of
digital telephone systems introduced by the Company since 1992 and
Computer-Telephony Integration ("CTI") products intorduced since 1993.
CTI is an emerging industry, consisting of connectivity and
applications software for various hardware platforms such as
switching units, private branch exchanges ("PBX") and automatic
call distributors ("ACD"). CTI products and applications merge
the power of modern telephone systems with that of computers to
provide integrated solutions to broad communications problems.
he power of modern telephone systems with that of computers to
provide integrated solutions to broad communications problems.
Using CTI, calls can be placed from the computer, and users can
scan their computer screens for information on incoming voice and
fax messages.
An example of a vertical market application for CTI products
is the Company's E-911 emergency dispatch systems ("E-911"). E-911
systems use caller identification technology in conjunction with
computer databases in order to access information such as the street
address and profile of an emergency caller. This information is
displayed on the dispatcher's computer thereby putting the dispatcher
in a position to send help quickly to the correct address and to
provide emergency personnel with caller specific information needed
to respond appropriately to the situation.
This growing industry and growing user interest in CTI has
added a new dimension to the business telecommunications market.
In addition to the proprietary products offered by the Company
and others, the acceptance of industry standards now makes it
possible for independent software developers to market software
applications geared toward solving or simplifying a myriad of
common business communication problems.
Initially, implementation of CTI was limited to specialized
applications written to the proprietary interfaces of individual
switch makers. This yielded a small number of expensive
products. With the broad acceptance of de facto standards from
major computer software suppliers, it is now possible to
implement CTI on a much broader scale and at a substantially
lower cost. In a local area network ("LAN") environment, major
computer software suppliers provide software instructions
(service provider interfaces or "SPIs") to telephone system
manufacturers committed to producing the connectivity software
and hardware required to communicate with the telephony server.
The telephone switch effectively becomes another node on a
client-server network.
For users not on a network, the desktop approach promoted by
Microsoft Corporation is an alternative solution. In this case,
telephone system manufacturers design special software links to
Microsoft's SPI. Telephony software is available as an option on
current Windows@TM operating systems and is standard on
Windows95TM and Windows NT.
The Company focuses its distribution of products primarily
through a network of approximately 1700 independent dealers that
sell the Company's products. This enables the Company to achieve
broad geographic penetration, as well as access to some of the
fastest growing markets in the country. The Company's
distribution network centers around a key group of wholesale
supply houses, through which the Company's products are made
available to dealers. These dealers market the Company's
products to small and medium sized organizations and divisions of
larger organizations. The Company's strategy 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.
The Company is pursuing five 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, (3) expanding its National Accounts
program, (4) strengthening our Government Resellers program, and
(5) maintaining a leadership position in the emerging market for
systems solutions based on CTI. The Company seeks to support
these strategies by: (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 CTI applications; (7) promoting
industry accepted interface standards; and (8) developing open
application interface ("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. 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 1997, the Company introduced
several new products at the March Computer-Telephony Expo in Los
Angeles, California. One of the more notable products is the FX
Series, the first business telephone switch designed specifically
as a platform for CTI applications in employment environments of
25 to 100 employees. The FX Series is similar to a computer pre-
loaded with all the CTI application software such as voice mail,
automatic call distribution, "screen pops" of caller account
records, and voice over the internet. In addition, the Company
introduced the personal computer Interface Unit ("PCIU") that
extends CTI capability to smaller digital switches and makes the
Company one of only a handful of manufacturers able to
economically deliver CTI throughout an entire product family.
With these smaller platforms, the Company will be able to offer
CTI-based market solutions to the thousands of small businesses
who want an economical but sophisticated system.
In the first quarter of 1996, the Company acquired two
companies involved in CTI: 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. The purchases of Aurora and KVT have
expanded the Company's CTI product base, distribution channel,
and market niches. For the first three months of 1997, the
acquisitions of Aurora and KVT positively affected consolidated
revenues by $3.7 million and profitability by $1.8 million
(excluding any acquisition and corporate allocation costs). Both
companies are wholly-owned subsidiaries of the Company.
Results of Operations
Revenue and Earnings
First Quarter 1997 vs 1996
The Company's performance for the first quarter of 1997 was
approximately the same when compared with 1996. However, the
Company continues to show growth in sales as well as improvement
in gross profit margin. Income before income taxes for the first
three months of 1997 increased by 19% to $560,000 as compared
with $471,000 for the comparable period in 1996. Aurora and KVT
had a full quarter effect on the first quarter of 1997, but only
a nominal effect on the first quarter of 1996 due to the fact
that the acquisitions did not occur until March 20, 1996.
Net sales for the first quarter of 1997 increased 22% to
$26,855,000, compared with $22,048,000 in the first quarter of
1996. Digital, DXP, and CTI product sales increased
substantially but were offset slightly with a drop in analog and
custom manufacturing sales.
The following table presents certain relevant net sales
information concerning the Company's principal product lines for
the periods indicated: (Reference product information by sales
category in the Company's 1996 Form 10-K).
_________________________________________________________________
March 30, March 31,
In thousands 1997 1996
Sales
Business Systems
Digital $10,953 $8,558
CTI 6,219 3,744
DXP 5,457 4,940
Analog 3,171 3,526
Sub-total 25,800 20,768
Proprietary and Specialty Terminals 1,182 1,036
Sub-total 26,982 21,804
Custom Manufacturing 175 529
Gross Sales 27,157 22,333
Less: Sales Discount and Allowances 302 285
Net Sales $26,855 $22,048
_________________________________________________________________
Gross profit increased for the first quarter of 1997 by 48%
to $11,059,000 or 41% of sales, compared with $7,483,000 or 37%
of sales in the first quarter of 1996. This increase was
primarily attributable to higher sales of digital and CTI
products which have a higher product margin, and higher margins
that Aurora and KVT products added to the business.
Selling, general and administrative expenses increased for
the first quarter of 1997 by 36% to $7,219,000, compared with
$5,314,000 in the first quarter of 1996. This increase was
primarily due to: (1) increased personnel associated with
domestic and international sales, customer support, and the
development and marketing of CTI products; (2) increased
marketing efforts resulted in increased costs for travel,
telephone, and trade shows, (3) higher promotional costs
associated with increased sales through Preferred Dealers, (4)
additional administrative, marketing, and sales expenses of
$919,000 associated with Aurora and KVT, and (5) a one time
charge of $312,000 associated with an international project.
Engineering, research and development expenses increased for
the first quarter of 1997 by 32% to $1,603,000, compared with
$1,218,000 in the first quarter of 1996. This increase was
primarily due to (1) increased engineering personnel to support
additional product development (2) additional costs of $86,000
associated with new product prototypes, and (3) additional
expenses of $317,000 associated with Aurora and KVT.
Interest expense increased for the first quarter of 1997 by
88% to $427,000, compared with $227,000 in the first quarter of
1996. This increase was primarily due to the additional debt
incurred by the Company to acquire Aurora and KVT (see Note D to
the Consolidated Financial Statements).
Goodwill amortization expense increased for the first quarter
of 1997 to $1,037,000, compared with $91,000 in the first quarter
of 1996. This increase was primarily due to (1) goodwill
associated with the acquisitions of Aurora and KVT of $782,000
and (2) the write-off of the remaining goodwill of $164,000
associated with a 1984 acquisition.
Miscellaneous expenses increased for the first quarter of
1997 by 32% to $213,000, compared with $162,000 in the first
quarter of 1996. This increase was primarily due to additional
cash discounts that were given to three of the Company's largest
distributors because of increased sales volume.
Income tax expense (benefit) decreased in the first quarter
of 1997 to ($111,000) compared with ($714,000) for the first
quarter of 1996. This decrease was primarily due to the
recognition of a tax benefit of $219,000 for 1997 and $736,000
for 1996. The tax benefits, recognized in 1997 and 1996, were a
result of a reduction in the valuation allowance relating to the
Company's federal net operating loss carryforwards ("NOLS") (see
Note F to the Consolidated Financial Statements). Tax expense
increased for the first three months of 1997 increased to
$108,000 compared with $22,000 for the first quarter of 1996.
This increase is primarily attributable to the higher quarterly
tax estimate the Company calculated which was based on an
anticipated year end result.
Management anticipates that the factors which led to increase
sales and net income for the first three months of 1997, will
continue to affect the overall performance of the second quarter.
The Company plans to continue to improve sales by (1) continual
growth in digital, DXP, and CTI product sales, (2) ongoing growth
in international and national account sales, and (3) introduction
of new products which are scheduled to begin shipping in the second
and third quarters.
Liquidity
The Company is indebted to Fleet Capital Corporation
("Fleet") which holds 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 term
loans aggregating $7.3 million and a revolving credit loan
facility in an amount up to $9.0 million.
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 term loan balances were
paid by advances from the Revolver and the Equipment Loan
("Equipment Loan I"), respectively (see Note D to the
Consolidated Financial Statements). Equipment Loan I is payable
in equal monthly principal installments of $27,000, with the
balance due on June 1, 1998.
On March 20, 1996, the Company borrowed $8.5 million under
the Acquisition Loan which was used to purchase Aurora and KVT.
The Fleet Acquisition Loan is payable in equal monthly principal
installments of $142,142, with the balance due on February 1,
2001.
On February 5, 1997, the Company borrowed an additional $1.9
million under the Equipment Loan ("Equipment Loan II") which was
used to purchase surface mount technology ("SMT") equipment to
further expand its SMT line capacity. Equipment Loan II is
payable in equal monthly principal installments of $31,667, with
the balance due on February 1, 2001.
At the Company's option, the Acquisition Loan, Equipment
Loans, and Revolver bear interest at rates based on either
Fleet's prime rate or London's Interbank Offering Rate ("LIBOR").
The interest rates can be adjusted annually based on the
Company's 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% above LIBOR. As of March 30, 1997 and December
31, 1996, the prime interest rates were 8.50% and 8.25%,
respectively. The LIBOR rates as of March 30, 1997, were 5.50%,
5.53%, and 5.67% with approximately 98% of the loans based on
LIBOR. The LIBOR rate as of December 31, 1996, was 5.66% with
approximately 79% of the loans based on LIBOR. As of March 31,
1996, the Company's borrowing rate for prime was 8.50%, and the
LIBOR borrowing rates were 7.50%, 7.53%, and 7.67%.
Availability under the Revolver is still 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 D to the Consolidated Financial Statements).
From time to time, the Company and Fleet have amended the Loan
Agreement to adjust both covenants and terms. The Company is
currently in compliance with all the covenants and terms as
defined in the amended Loan Agreement.
The Company's Promissory Note of $7.0 million, which was
part of the purchase price for KVT, carries an interest rate
based on prime. The Promissory Note is paid yearly in the amount
of $1.4 million over five years with the final payment due on March
20, 2001.
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 8.75%. The final payment 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 March 30, 1997 December 31 ,1996
Cash and cash equivalents $567 $180
Current maturities on debt 7,119 5,343
Working capital 12,019 10,608
_________________________________________________________________
All operating cash requirements are currently being funded
through the Revolver. Cash increased primarily due to the timing
of receipts. Current maturities on debt increased primarily due
to an increase in the Revolver of $1.4 million and the additional
portion relating to the new Equipment Loan II of $348,000 when
compared to December 31, 1996. Working capital increased by $1.4
million primarily due to an increase in accounts receivable.
Accounts receivable increased by 16% or $1.6 million,
compared to December 31, 1996. This increase was primarily due
to the timing of shipments in the first quarter of 1997.
Prepaid expenses and other current assets decreased by 28% or $291,000,
primarily due to the decrease in miscellaneous receivables and various
prepaid accounts.
Other accrued liabilities decreased by 69% or $1.5 million,
primarily due to promotional costs paid during the first quarter
of 1997 which related to 1996.
In October 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." The
new standard defines a fair value method of accounting for stock
options and similar equity instruments. Pursuant to the new
standard, companies can either adopt the standard or continue to
account for such transactions under Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees." The Company has elected to continue to account for
such transactions under APB No. 25. The Company has disclosed in
its 1996 Annual Report pro forma net income and earnings per
share as if the Company had applied the new method of accounting.
Since the Company is going to continue to apply APB No. 25,
complying with the new standard will have no effect on earnings
or the Company's cash flow.
In February 1997, FASB issued SFAS No. 128, "Earnings Per
Share." The new standard requires dual presentation of both
basic and diluted earnings per share ("EPS") on the face of the
earnings statement and requires a reconciliation of both basic
and diluted EPS calculations. This statement is effective for
financial statements for both interim and annual periods ending
December 15, 1997. This statement will be effective for the
Company's 1997 fiscal year. Basic EPS will not be materially
different from diluted EPS since potential common shares in the
form of stock options are not materially dilutive.
During 1997 and 1996, 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 three months of 1997 and
for the comparable period of 1996 were $278,000 and $430,000,
respectively. Capital additions for 1997 and 1996 were provided
by funds from operations, and borrowings from Fleet. The Company
anticipates spending approximately $4,000,000 on capital
expenditures during 1997 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 an aggregate amount not to
exceed $500,000 at any one time. At March 30, 1997, the amount
of available commitments under the letter of credit facility with
Crestar Bank was $157,000.
"Safe Harbor" Statement Under The Private Securities Litigation
Reform Act Of 1995
The Company's Form 10-Q may contain some forward-looking
statements that are subject to risks and uncertainties,
including, but not limited to, the impact of competitive
products, product demand and market acceptance risks, reliance on
key strategic alliances, fluctuations in operating results,
delays in development of highly complex products, and other risks
detailed from time to time in the Company's filings with the
Securities and Exchange Commission. These risks could cause the
Company's actual results for 1997 and beyond to differ materially
from those expressed in any forward-looking statement made by, or
on behalf of, the Company.
COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a vote by Security Holders
(a) On April 29, 1997, the Company held its annual meeting of
shareholders in the Customer Conference Center within its
own facility located at 1180 Seminole Trail,
Charlottesville, Virginia 22901. The following matters
were voted upon:
1. The following directors were elected to serve
additional terms: A. M. Gleason and William E.
Porter.
Directors whose term of office continued after the
meeting: Michael C. Henderson, William G. Mustain,
John W. Rosenblum, and Dianne C. Walker.
2. The firm of Deloitte & Touche LLP was approved as the
independent public auditors of the Company.
Shares of Common Stock were voted as follows:
Item 1: (Election of Board of Directors)
Total Vote For Total Vote Withheld
A. M. Gleason 6,823,174 287,010
William E. Porter 6,823,174 287,010
Item 2: (Selection of Independent Auditors)
For - 6,991,315
Against - 105,170
Abstain - 13,699
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(10) Material Contracts:
10.1 Equipment Note dated February 5, 1997 among the
Registrant and Fleet Capital Corporation
10.2 Amendment No. 4 to the Loan And Security Agreement
dated March 27, 1997 among the Registrant and Fleet
Capital Corporation.
(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: May 13, 1997 By: /s/ Wayne R. Wilver
Wayne R. Wilver
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-30-1997
<CASH> 567
<SECURITIES> 0
<RECEIVABLES> 11,336
<ALLOWANCES> 96
<INVENTORY> 19,096
<CURRENT-ASSETS> 31,953
<PP&E> 42,866
<DEPRECIATION> 28,060
<TOTAL-ASSETS> 74,111
<CURRENT-LIABILITIES> 19,934
<BONDS> 18,326
0
0
<COMMON> 87
<OTHER-SE> 39,245
<TOTAL-LIABILITY-AND-EQUITY> 74,111
<SALES> 25,509
<TOTAL-REVENUES> 26,855
<CGS> 15,444
<TOTAL-COSTS> 15,796
<OTHER-EXPENSES> 10,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 560
<INCOME-TAX> (111)
<INCOME-CONTINUING> 671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 671
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
EXHIBIT 10.1
EQUIPMENT NOTE
$1,900,000.00 Charlotte, North Carolina
February 5, 1997
FOR VALUE RECEIVED, each of the undersigned (hereinafter
collectively called the Borrowers), hereby jointly and
severally promise to pay to the order of FLEET CAPITAL
CORPORATION, a Connecticut corporation (hereinafter Lender), in
such coin or currency of the United States which shall be legal
tender in payment of all debts and dues, public and private, at
the time of payment, at the offices of Lender or at such other
places as Lender may from time to time designate in writing, the
principal sum of one million nine hundred thousand dollars
($1,900,000.00), together with interest from and after the date
hereof on the unpaid principal balance outstanding at a rate per
annum as set forth in that certain Loan and Security Agreement,
dated February 1, 1994, among Borrowers and Lender (hereinafter,
as amended from time to time, the "Loan Agreement").
The Equipment Note ("Note") is one of the Equipment Notes
referred to in, and is issued pursuant to, the Loan Agreement,
and is entitled to all the benefits and security of the Loan
Agreement. All of the terms, covenants and conditions of the
Loan Agreement and all other instruments evidencing or securing
the indebtedness hereunder (including, without limitation, the
"Security Documents" as defined in the Loan Agreement) are hereby
made a part of this Note and are deemed incorporated herein in
full. All capitalized terms used herein, unless otherwise
specifically defined in this Note, shall have the meanings
ascribed to them in the Loan Agreement.
For so long as no Event of Default shall have occurred under
the Loan Agreement, the principal amount and accrued interest of
this Note shall be due and payable on the dates and in the manner
hereinafter set forth:
(a) Interest shall be due and payable monthly, in
arrears, on the first day of each month, commencing on the
first day of the month next following the date hereof, and
continuing until such time as the full principal balance,
together with all other amounts owing hereunder, shall have
been paid in full;
(b) Commencing on May 1, 1997 and continuing on the
first day of each month thereafter through and including
January 1, 2001, principal payments in the amount of
$31,666.67 each; and
(c) On February 1, 2001, a final payment equal to the
entire unpaid principal balance hereof, together with any
and all other amounts due hereunder.
Not withstanding the forgoing, the entire unpaid principal
balance and accrued interest on this Note shall be due and
payable immediately upon any termination of the Loan Agreement
pursuant to Section 3.6 thereof.
This Note shall be subject to mandatory prepayment in
accordance with the provisions of Section 3.9 of the Loan
Agreement. Borrowers may also, at their option, prepay this Note
in whole at any time or in part from time to time. All partial
prepayments, whether mandatory or voluntary, shall be applied to
principal in the inverse order of installments due on this Note
without relieving Borrowers from continuing to make the monthly
payments set forth above.
The occurrence of an Event of Default under the Loan
Agreement, including, without limitation, the failure to pay any
installment of principal or interest on this Note in full on the
due date thereof in accordance with the terms of this Note, shall
constitute an event of default under this Note and shall entitle
Lender, upon or at any time after the occurrence of any such
Event of Default to declare the then outstanding principal
balance and accrued interest hereof to be, and the same shall
thereupon become, immediately due and payable without notice to
or demand upon Borrowers, all of which Borrowers hereby expressly
waive. If this Note is collected by or through an attorney at
law, then Borrowers shall be obligated to pay, in addition to the
principal balance and accrued interest hereof, reasonable
attorneys fees, and court costs.
Borrowers shall pay a late payment fee equal to four percent
(4%) of the amount of any installment of principal or interest,
or both, required hereunder which is not paid within fifteen (15)
days after the due date thereof.
Time is of the essence of this Note. To the fullest extent
permitted by applicable law, each Borrower, for itself and its
legal representatives, successors and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of
prepayment, notice of maturity, notice of protest, presentment
for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be
interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Note shall be
prohibited or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of
Lender in the exercise of any right or remedy hereunder shall
operate as a waiver thereof, nor as a acquiescence in any
default, nor shall any single or partial exercise by Lender of
any right or remedy preclude any other right or remedy. Lender,
at its option, any enforce its rights against any collateral
securing this Note without enforcing its rights against the
Borrower, any guarantor of this indebtedness evidence hereby or
any other property or indebtedness due or to become due to any
Borrower. Each Borrower agrees, that without releasing or
impairing Borrowers liability hereunder, Lender may at any time
release, surrender, substitute or exchange any collateral
securing this Note and may at any time release any party
primarily or secondarily liable for the indebtedness evidence by
this Note.
This Note shall be governed by, and construed and enforced
in accordance with, the internal laws of the State of North
Carolina, and is intended to take effect as an instrument under
seal.
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/ Linda P. Falconer_ By: __/s/ Wayne R. Wilver__________
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
[Signatures continued on next page]
ATTEST: AMERICAN TELECOMMUNICATIONS
CORPORATION
_/s/ Linda P. Falconer__________ By: __/s/ Wayne R. Wilver_
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: AMERICAN PHONE CENTERS, INC.
_/s/ Linda P. Falconer_____ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL ENTERPRISE SYSTEMS, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL TELECOMMUNICATIONS
INTERNATIONAL, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: SCOTT TECHNOLOGIES CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL CUSTOM MANUFACTURING, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL VIDEO TELEPHONY, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL TECHNOLOGY CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL TELECOMMUNICATIONS, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver_
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL BUSINESS COMMUNICATIONS
CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL CONSUMER COMMUNICATIONS
CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
ATTEST: KEY VOICE TECHNOLOGIES, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
ATTEST: AURORA SYSTEMS, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
LENDER:
FLEET CAPITAL CORPORATION
By: /s/ Jimmy G. Ramsey_____
Title:_Vice President____
29
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
Statement re Computation of Per Share Earnings
Three Months Ended
March 30, March 31,
1997 1996
PRIMARY
Net income applicable to
common shares: $671,000 $1,185,000
Weighted average number of common
shares outstanding during the
period 8,581,572 8,191,299
Add - common equivalent shares
(determined using the "treasury
stock" method) representing
shares issuable upon exercise of:
Stock options 129,642 137,951
Weighted average number of shares used
in calculation of primary earnings
per common share 8,711,214 8,329,250
Earnings per common share:
Net income $0.08 $0.14
FULLY DILUTED
Net income applicable to common shares $671,000 $1,185,000
Adjustments for convertible securities:
Weighted average number of shares used in
calculation of primary earnings per
common share 8,711,214 8,329,250
Add (deduct) incremental shares representing:
Shares issuable upon exercise of stock options
included in primary calculation (129,642) (137,951)
Shares issuable based on period-end
market price or weighted average price:
Stock options 127,608 124,342
Weighted average number of shares used
in calculation of fully diluted earnings
per common share 8,709,180 8,315,641
Fully diluted earnings per common share $0.08 $0.14
AMENDMENT NO. 4
EXHIBIT 10.2
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
("Amendment"), dated the 27th day of March, 1997, made 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 ("Parent") 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
supplemented 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, a certain Amendment No. 2
thereto, dated June 28, 1996, and a certain Amendment No. 3 thereto,
dated September 27, 1996.
C. The Borrowers and the Lender now desire to further 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 Capital Expenditures. Section 9.2(L) is amended in its entirety to read as
follows:
(L) Capital Expendtiures. Make Capital Expenditures (including, without
limitation, by way of capitalized leases) which, in the aggregate, as to all
Borrowers and their Subsidiaries, exceed $4,000,000 during the fiscal year
ending December 31, 1996; $4,500,000 during the fiscal year ending December
31, 1997; and $4,000,000 during any fiscal year thereafter.
1.2. 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 $18,750,000
ending December 31, 1996
Fourth fiscal quarter of fiscal year $20,200,000
ending December 31, 1996
First fiscal quarter of fiscal year $21,500,000
ending December 31, 1997
Second fiscal quarter of fiscal year $23,250,000
ending December 31, 1997
Third fiscal quarter of fiscal year $26,000,000
ending December 31, 1997
Fourth fiscal quarter of fiscal year $29,000,000
ending December 31, 1997
First fiscal quarter of fiscal year $30,000,000
ending December 31, 1998
Second fiscal quarter of fiscal year $31,000,000
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
times thereafter"
1.3 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 and second fiscal quarters of ($1,500,000)
fiscal year ending December 31, 1996
First, second and third fiscal quarters ($ 450,000)
of fiscal year ending December 31, 1996
Fiscal year ending December 31, 1996 $ 200,000
First fiscal quarter of fiscal year ending $ 250,000
December 31, 1997 and the first quarter of
each fiscal year thereafter
First and second fiscal quarters of fiscal $1,100,000
year ending December 31, 1997 and the
first and second fiscal quarters of each
fiscal year thereafter
First, second and third fiscal quarters of $2,750,000
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 and $4,500,000
each fiscal year thereafter:
1.4 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 ending .75 to 1.0
December 31, 1996
First and second fiscal quarters of fiscal .75 to 1.0
year ending December 31, 1996
First, second and third fiscal quarters of 1.5 to 1.0
fiscal year ending December 31, 1996
Fiscal year ending December 31, 1996 1.7 to 1.0
First fiscal quarter of fiscal year ending .40 to 1.0
December 31, 1997 and the first fiscal
quarter of each fiscal year thereafter
First and second fiscal quarters of fiscal .75 to 1.0
year ending December 31, 1997 and the
first and second fiscal quarters of each
fiscal year thereafter
First, second and third fiscal quarters of 1.5 to 1.0
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 and 1.7 to 1.0
each fiscal year thereafter:
1.5 Minimum Current Ratio. Section 9.3(D) is amended in its entirety to
read as follows:
(D) Minimum Current Ratio. Maintain a ratio of Consolidated Current
Assets to Consolidated Current Liabilities of not less than 1.4 to 1.0 for
each of the first and second fiscal quarters of each fiscal year; 1.45 to
1.0 for each of the third and fourth quarters of the fiscal year ending
December 31, 1996; and 1.50 to 1.0 for each of the third and fourth fiscal
quarters of the fiscal year ending December 31, 1997 and each fiscal year
thereafter.
1.6 Debt/EBITDA. Section 9.3(E) is amended in its entirety to read as
follows:
(E) Debt/EBITDA. Maintain for each period of four (4) consecutive fiscal
quarters, commencing with the fiscal quarter ending September 29, 1996, a
ratio of (a) Indebtedness for Money Borrowed of Parent and its Subsidiaries
at the end of such period calculated on a Consolidated basis to (b) the sum
of (i) EBITDA for such period less (ii) the greater of the amount of Capital
Expenditures made by Parent and its Subsidiaries during such period or
$1,500,000, of not greater than the ratio shown below for the period
corresponding thereto:
Four (4) Consecutive
Fiscal Quarters Ending With Debt/EBITDA Ratio
Third fiscal quarter of fiscal year ending 7.00 to 1.0
December 31, 1996
Fourth fiscal quarter of fiscal year ending 4.00 to 1.0
December 31, 1996
First fiscal quarter of fiscal year ending 3.95 to 1.0
December 31, 1997
Second fiscal quarter of fiscal year ending 3.20 to 1.0
December 31, 1997
Third fiscal quarter of fiscal year ending 3.00 to 1.0
December 31, 1997
Fourth fiscal quarter of fiscal year ending 3.00 to 1.0
December 31, 1997
First fiscal quarter of fiscal year ending 2.90 to 1.0
December 31, 1998 and each fiscal year
thereafter
Second fiscal quarter of fiscal year ending 2.75 to 1.0
December 31, 1998 and each fiscal year
thereafter
Third fiscal quarter of fiscal year ending 2.50 to 1.0
December 31, 1998 and each fiscal year
thereafter
Fourth fiscal quarter of fiscal year ending 2.5 to 1.0
December 31, 1998 and each fiscal year
thereafter:
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 the
execution of this Amendment, each Borrower is in compliance with all of the
terms and provisions set forth in the Loan Agreement and in the other Loan
Documents to be observed or performed by such Borrower, except where the
failure of such 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) the 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 in 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,
supplemented 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", "hereof" 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 decisions 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 for 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/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST AMERICAN TELECOMMUNICATIONS
CORPORATIONS
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST AMERICAN PHONE CENTERS, INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL ENTERPRISE SYSTEMS,
INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL TELECOMMUNICATIONS
INTERNATIONAL, INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST SCOTT TECHNOLOGIES
CORPORATION
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL CORPORATION
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL CUSTOM MANUFACTURING,
INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL VIDEO TELEPHONY, INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL TECHNOLOGY
CORPORATION
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL TELECOMMUNICATIONS,
INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST AURORA SYSTEMS, INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST KEY VOICE TECHNOLOGIES, INC.
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL BUSINESS
COMMUNICATIONS CORPORATION
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
ATTEST COMDIAL CONSUMER
COMMUNICATIONS CORPORATION
/s/ Keith Johnstone By: /s/ Wayne R. Wilver
Vice President Wayne R. Wilver
Senior Vice President
LENDER:
FLEET CAPITAL CORPORATION
BY: \S\ Jimmy G. Ramsey
Title: Vice President
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