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 29, 1998
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.
8,717,473 common shares as of March 29, 1998.
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
March 29, 1998 and December 31, 1997 3
Consolidated Statements of Operations
for the Three Months ended
March 29, 1998 and March 30, 1997 4
Consolidated Statements of Cash Flows
for the Three Months ended
March 29, 1998 and March 30, 1997 5
Notes to Consolidated Financial Statements 6-11
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by
Security Holders 18
ITEM 6: Exhibits and Reports on Form 8-K 19
_________________________________________________________________________
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
_________________________________________________________________________
March 29, Dec. 31,
In thousands except par value 1998 1997 *
_________________________________________________________________________
Assets
Current assets
Cash and cash equivalents $461 $5,673
Accounts receivable - net 14,655 11,278
Inventories 18,307 18,487
Prepaid expenses and other
current assets 1,567 1,669
Total current assets 34,990 37,107
Property - net 15,921 16,334
Goodwill 12,479 13,142
Deferred tax asset - net 8,176 8,164
Other assets 4,862 4,517
Total assets $76,428 $79,264
==========================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $9,666 $9,229
Accrued payroll and related expenses 3,136 2,659
Accrued promotional allowances 1,309 1,915
Other accrued liabilities 2,249 2,927
Current maturities of debt 4,222 3,701
Total current liabilities 20,582 20,431
Long-term debt 5,191 9,922
Deferred tax liability 2,388 2,705
Other long-term liabilities 1,400 1,371
Commitments and contingent liabilies - -
Total liabilities 29,561 34,429
Stockholders' equity
Common stock ($0.01 par value) and
paid-in capital (Authorized 30,000
shares; issued shares: 1998 =
8,717; 1997 = 8,697) 115,055 114,663
Other (1,238) (1,039)
Accumulated deficit (66,950) (68,789)
Total stockholders' equity 46,867 44,835
Total liabilities and
stockholders' equity $76,428 $79,264
============================================================================
The accompanying notes are an integral part of these financial statements.
____________________________________________________________________________
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - (Unaudited)
___________________________________________________________________________
Three Months Ended
March 29, March 30,
In thousands except per share amounts 1998 1997
___________________________________________________________________________
Net sales $29,281 $26,834
Cost of goods sold 17,394 15,796
Gross profit 11,887 11,038
Operating expenses
Selling, general & administrative 7,615 7,198
Engineering, research & development 1,551 1,603
Operating income 2,721 2,237
Other expense
Interest expense 275 427
Goodwill amortization expense 663 1,037
Miscellaneous expense - net 180 213
Income before income taxes 1,603 560
Income tax benefit (236) (111)
Net income applicable to common stock $1,839 $671
==========================================================================
Earnings per common share and common
equivalent share:
Basic $0.21 $0.08
Diluted $0.20 $0.08
Weighted average common shares outstanding:
Basic 8,779 8,654
Diluted 8,980 8,711
____________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
____________________________________________________________________________
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
__________________________________________________________________________
Three Months Ended
March 29, March 30,
In thousands 1998 1997
___________________________________________________________________________
Cash flows from operating activities:
Cash received from customers $26,900 $26,262
Other cash received 357 343
Interest received 27 1
Cash paid to suppliers and employees (26,858) (25,960)
Interest paid on debt (636) (805)
Interest paid under capital lease obligations (2) (6)
Income taxes paid (45) (8)
Net cash used by operating activities (257) (173)
Cash flows from investing activities:
Acquisition costs for KVT and Aurora (1) (1)
Proceeds received for the sale of FastCall 80 -
Proceeds from the sale of equipment 31 -
Capital expenditures (911) (813)
Net cash used by investing activities (801) (814)
Cash flows from financing activities:
Proceeds from borrowings - 1,900
Net borrowings under revolver agreement 1,193 1,422
Proceeds from issuance of common stock 56 -
Principal payments on debt (5,389) (1,909)
Principal payments under capital lease
obligations (14) (39)
Net cash provided by (used in)
financing activities (4,154) 1,374
Net increase (decrease) in cash and cash
equivalents (5,212) 387
Cash and cash equivalents at beginning of year 5,673 180
Cash and cash equivalents at end of period $461 $567
===========================================================================
Reconciliation of net income to net cash provided by operating
activities:
Net income $1,839 $671
Depreciation and amortization 1,883 2,461
Increase in accounts receivable (3,377) (1,580)
Inventory provision 602 535
Increase in inventory (422) (45)
Decrease (increase) in other assets (249) 130
Increase in deferred tax asset (330) (220)
Increase (decrease) in accounts payable 437 (406)
Decrease in other liabilities (778) (1,816)
Increase in paid-in capital and other equity 138 97
Total adjustments (2,096) (844)
Net cash used by operating activities ($257) ($173)
===========================================================================
___________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
___________________________________________________________________________
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 29, 1998 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS_______________________
The financial information included as of March 29, 1998, and
for the three months ended March 29, 1998 and March 30, 1997 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, 1997. The consolidated
financial statements for 1998 contained herein should be read in conjunction
with the 1997 financial statements, including notes thereto, contained in
the Company's Annual Report to Stockholders for the year ended December 31,
1997. Certain amounts in thee 1997 consolidated financial statements have
been reclassified to conform to the 1998 presentation. The results of
operations for the three months ended March 29, 1998, are not necessarily
indicative of 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
as of March 29, 1998. 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 $3.2 million and $1.9 million are included
in accounts payable at March 29, 1998 and December 31, 1997, 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 E). The
Company considers the outstanding checks to be a bank overdraft. The Company
reports revolving credit facility activity on a net basis in the
Consolidated Statements of Cash Flows.
Note C: DISPOSAL OF ASSETS _____________________________________
As of December 31, 1997, Aurora Systems, Inc. ("Aurora"),
wholly-owned subsidiary of the Company, sold all of its rights,
title and interest in the FastCall product, Aurora's primary asset, to Spanlink
Communications, Inc. Aurora may receive, over a five-year period, royalties
totaling up to $1.1 million with a minimum guarantee of $0.6 million at the
end of that period.
Note D: INVENTORIES__________________________________________________________
Inventories consist of the following:
_________________________________________________________________
March 29, Dec. 31,
In thousands 1998 1997
_________________________________________________________________
Finished goods $7,133 $6,336
Work-in-process 3,770 4,101
Materials and supplies 7,404 8,050
Total $18,307 $18,487
=================================================================
_________________________________________________________________
Note E: 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 29, Dec. 31,
In thousands 1998 1997
_________________________________________________________________
Loans payable to Fleet
Acquisition loan (1) $3,344 $5,543
Equipment loan I (2) - 139
Equipment loan II (3) - 1,647
Revolving credit (4) 1,193 -
Promissory note (5) 4,200 5,600
Other debt (6) 613 617
Capitalized leases (7) 63 77
Total debt 9,413 13,623
Less current maturities on debt 4,222 3,701
Total long-term debt $5,191 $9,922
=================================================================
_________________________________________________________________
In 1994, the Company and Fleet entered into a loan and
security agreement (the "Loan Agreement") which was amended on
March 13, 1996 to provide additional lending for acquisitions that
were made during that period. The Loan Agreement provided the
Company with a $10.0 million acquisition loan (the "Acquisition
Loan"), a $3.5 million equipment loan (the "Equipment Loan"), and
a $12.5 million revolving credit loan facility (the "Revolver").
(1) On March 20, 1996, the Company borrowed $8.5 million under
the Acquisition Loan which was used to acquire Aurora and Key Voice
Technologies ("KVT"). The Acquisition Loan is payable in equal
monthly principal installments of $142,142, with the balance due on
February 1, 2001. In January 1998, the Company paid an additional
$1,773,000 against the Acquisition Loan along with the required monthly
payments of $426,000. Based on the present monthly principal payment the
loan balance should be paid in full by March 2000.
(2) A portion of the monies loaned to the Company under the
Equipment Loan I, was payable in equal monthly principal
installments of $27,000, with the balance due on June 1, 1998.
(3) 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
was payable in equal monthly principal installments of $31,667,
with the balance due on February 1, 2001.
In January 1998, the Company paid the remaining balances of
both Equipment Loan I and II of $1,786,000.
(4) Availability under the Revolver of up to $12.5 million 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. On
March 13, 1998, the Company and Fleet amended the Loan Agreement to
eliminate the reserve requirement.
Loans made pursuant to the Loan Agreement bear interest rates
at either Fleet's prime rate or the London Interbank Offered Rate
("LIBOR") at the Company's option. 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% under or
above Fleet's prime rate and from plus 1.50% to 2.50% above LIBOR.
As of March 29, 1998, Fleet's prime interest rate was 8.50% and the
LIBOR rate was 5.68% with approximately 66% of the loans based on
LIBOR. As of March 29, 1998, the Company's borrowing rate for
loans based on the prime and LIBOR rates was 8.00% and 7.18%,
respectively. For December 31, 1997, the Company's borrowing rate
for loans based on the prime and LIBOR rates were 9.00% and 8.47%,
respectively, with approximately 96% of the loans based on LIBOR.
(5) The Company's promissory note (the "Promissory Note"),
which was issued in connection with the purchase of KVT, carries an
interest rate equal to the prime rate with annual payments of $1.4
million plus accumulated interest payments with the balance due on
March 20, 2001. As of March 29, 1998 and December 31, 1997, the interest
rate on the Promissory Note was 8.50%.
(6) Other debt consists of a mortgage acquired in conjunction
with the acquisition of KVT and another mortgage entered into by
KVT in order to acquire an adjacent building for expansion. The
mortgages require monthly payments of $2,817 and $2,869, including
interest at fixed rates of 8.75% and 9.125%, respectively. Final
payments are due on August 1, 2005 and June 27, 2007, respectively.
(7) Capital leases are with various financing entities and are
payable based on the terms of each individual lease.
Scheduled maturities of current and long-term debt for the
Fleet Notes (as defined in the Loan Agreement), the Promissory
Note, and other debt (excluding the Revolver and leasing agreements
of $1,256,000) are as follows:
_____________________________________________________________________
Principal
In thousands Fiscal Years Installments
_____________________________________________________________________
Notes payable 1998 * $1,290
1999 3,121
2000 1,775
2001 1,418
2002 19
2003 21
Beyond 2003 513
Total $8,157
=====================================================================
* The remaining aggregate for 1998.
_____________________________________________________________________
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 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 and March 13, 1998, the Company and Fleet
amended the Loan Agreement to modify and eliminate certain
covenants. As of March 29, 1998, the Company is in compliance with
all the covenants and terms of the Loan Agreement.
Note F: EARNINGS PER SHARE______________________________________
For the three months ended March 29, 1998 and March 30, 1997,
earnings per common share ("EPS") were computed for both basic and
diluted EPS to conform to Statement of Financial Accounting
Standards ("SFAS") No. 128. Basic EPS for the three months
presented were computed by dividing net income applicable to common
shares by the weighted average number of common shares outstanding and
common equivalent shares including any possible contingent shares. For
the three months ending March 29, 1998 and March 30, 1997, diluted EPS
were computed by dividing income attributable to common shareholders by
the weighted average number of common and common equivalent shares
outstanding during the period plus (in periods in which they had a
dilutive effect) the effect of common shares contingently issuable,
primarily from stock options.
Note G: INCOME TAXES______________________________________________________
The components of the income tax expense (benefit) based on the
liability method for the three months are as follows:
_________________________________________________________________
March 29, March 30,
In thousands 1998 1997
_________________________________________________________________
Current - Federal $35 $50
State 59 58
Deferred - Federal (322) (214)
State (8) (5)
Total benefit ($236) ($111)
=================================================================
_________________________________________________________________
The income tax provision reconciled to the tax computed at
statutory rates for the three months are summarized as follows:
_____________________________________________________________________
March 29, March 30,
In thousands 1998 1997
_____________________________________________________________________
Federal tax at statutory
rate (35% in 1998 and 1997) $561 $196
State income taxes (net of federal
tax benefit) 38 38
Nondeductible charges 33 96
Alternative minimum tax 52 17
Utilization of operating loss carryover (590) (239)
Adjustment of valuation allowance (330) (219)
Income tax benefit ($236) ($111)
=====================================================================
_____________________________________________________________________
Net deferred tax assets of $5.8 million and $5.5 million have
been recognized in the accompanying Consolidated Balance Sheets at
March 29, 1998 and December 31, 1997, respectively. The components
of the net deferred tax assets are as follows:
_____________________________________________________________________
March 29, Dec. 31,
In thousands 1998 1997
_____________________________________________________________________
Total deferred tax assets $24,404 $25,201
Total valuation allowance (16,228) (17,037)
Total deferred tax asset - net 8,176 8,164
Total deferred tax liabilities (2,388) (2,705)
Total net deferred tax asset $5,788 $5,459
=====================================================================
_____________________________________________________________________
The valuation allowance decreased by $809,000 during the three month
period ended March 29, 1998. This reduction was primarily related to the
re-evaluation of the future utilization of deferred tax assets of $330,000,
and the utilization of deferred tax assets and liabilities and operating
loss carryforwards of $479,000. 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 $330,000 was
recognized in the first quarter ended March 29, 1998. 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 $53.5 million and $2.9
million, 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 determination 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 a three year look back period.
____________________________________________________________________________
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 1998 reporting basis (see Note A to the
Consolidated Financial Statements).
The Company is a Delaware corporation based in Charlottesville, Virginia.
The Company was originally incorporated in Oregon in 1977 and was reincor-
porated in Delaware in 1982. 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."
Results of Operations
Revenue and Earnings
First Quarter 1998 vs. 1997
The Company's performance improved significantly for the first quarter
of 1998 when compared with the same period in 1997. The Company
continues to show growth in sales as well as improvement in net income
as a percent of sales when compared to previous quarters. Income before
income taxes for the first quarter of 1998 increased to $1.6 million as
compared with $560,000 for the comparable period in 1997.
Net sales increased by 9% for the first quarter of 1998 to
$29.3 million, compared with $26.8 million in the first quarter of
1997. Digital, DXP, and CTI product sales increased substantially
but were offset slightly with a drop in sales of analog,
proprietary and specialty terminals, and custom manufacturing
products.
The following table presents certain relevant net sales
information concerning the Company's principal product lines for
the first three months of 1998 and 1997.
_________________________________________________________________________
March 29, March 30,
In thousands 1998 1997
_________________________________________________________________________
Sales
Business Systems
Digital $13,020 $10,591
CTI 8,091 7,285
DXP 5,686 4,753
Analog 2,074 3,171
Sub-total 28,871 25,800
Proprietary and Specialty Terminals 666 1,182
Custom Manufacturing 85 175
Gross Sales 29,622 27,157
Sales discount and allowances 341 323
Net Sales $29,281 $26,834
___________________________________________________________________________
Gross profit increased by 8% for the first quarter of 1998 to $11.9
million, compared with $11.0 million in the first quarter of 1997 with both
quarters at 41% of sales. This increase was primarily attributable to
higher sales of digital, DXP, and CTI products which have higher product
margins.
Selling, general and administrative expenses increased by 6%for the
first quarter of 1998 to $7.6 million, compared with $7.2 million in the
first quarter of 1997. This increase was primarily attributable to the
increase in sales personnel to support the growth of national accounts and
higher promotional allowance costs associated with increased sales through
Preferred Dealers.
Interest expense decreased by 36% for the first quarter of 1998 to
$275,000, compared with $427,000 in the first quarter of 1997. This decrease
is due to lower average debt levels with Fleet Capital Corporation ("Fleet").
In January 1998, the Company paid an additional $3.5 million against its debt
with Fleet (see Note E to the Consolidated Financial Statements).
Income tax benefit increased in the first quarter of 1998 to ($236,000)
compared with ($111,000) for the first quarter of 1997. This increase is
primarily due to the higher tax benefit recognized in 1998 of ($330,000)
compared with ($219,000) in 1997.
Liquidity
Company is indebted to 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 a $10.0 million acquisition loan
(the "Acquisition Loan"), $3.5 million equipment loan (the "Equipment Loan"),
and $12.5 million revolving credit loan facility (the "Revolver"). For more
detailed information concerning the Company's debt refer to Note E to the
Consolidated Financial Statements.
The Acquisition Loan is payablle in equal monthly principal installments
of $142,142, with the balance due on February 1, 2001.
In January 1998, the Company paid Equipment Loans I and II in full in the
amount of $1,786,000. Together, the Equipment Loans had equal monthly
principal installments of $58,667.
At the Company's option, the Acquisition Loan, Equipment Loans, and
Revolver bear interest at rates based on either Fleet's prime rate or the
London Interbank Offered 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's prime rate and from plus
1.50% to 2.50% above LIBOR. As of March 29, 1998 and December 31, 1997, the
prime interest rate was 8.50%. The LIBOR rate as of March 28, 1998, was 5.68%
with approximately 66% of the loans based on LIBOR. The LIBOR rate as of
December 31, 1997, was 5.97% with approximately 96% of the loans based on
LIBOR. As of March 29, 1998, the Company's borrowing rate for prime was
8.00%, and the LIBOR borrowing rate was 7.18%.
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 substantially
all of the Company's assets and the Loan Agreement contains certain financial
covenants. From time to time, the Company and Fleet have amended both
covenants and terms of the Loan Agreement. The Company is currently in
compliance with all the covenants and terms of the amended Loan Agreement.
The Company's Promissory Note of $7.0 million, which was issued in
connection with the purchase of KVT, carries an interest rate based on prime.
The Promissory Note is paid annually 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 two
mortgages to which KVT is subject and have monthly mortgage payments of
$2,817 and $2,869, which includes interest at 8.75% and 9.13%,
respectively. The final payments are due on August 01, 2005 and June 27,
2007, respectively.
The following table sets forth the Company's cash and cash
equivalents, current maturities on debt and working capital at the dates
indicated:
____________________________________________________________________________
March 29, Dec. 31,
In thousands 1998 1997
____________________________________________________________________________
Cash and cash equivalents $461 $5,673
Current maturities on debt 4,222 3,701
Working capital 14,408 16,676
____________________________________________________________________________
All operating cash requirements are currently being funded
through the Revolver. Cash decreased primarily due to the
additional payment made of $3.5 million against the Company's debt.
Current maturities on debt increased primarily due to the increase
in the Revolver of $1,193,000 which was slightly offset by the repayment
of the Equipment Loans in January 1998 when compared to December 31, 1997.
Working capital decreased by $2.3 million primarily due to the decrease in
cash which was a direct result of the additional debt reduction.
Accounts receivable increased at the end of the first quarter
of 1998 by 30% or $3.4 million, compared with December 31, 1997.
This increase was primarily due to increased sales and the timing
of shipments in the first quarter of 1998.
Goodwill decreased at the end of the first quarter of 1998 by
5% or $663,000, compared with December 31, 1997. This decrease is
due to the amortization of goodwill.
Other promotional allowances decreased at the end of the first quarter
of 1998 by 32% or $606,000, compared with December 31, 1997. This decrease
is due primarily to the payment of volume discounts by the Company for 1997.
During the three months ending March 29, 1998 and March 30,
1997, 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 additions in the first three months of 1998 and for the
comparable period of 1997 were $366,000 and $278,000, respectively. The
Company anticipates spending approximately $5.0 million on capital additions
for fiscal year 1998, which includes equipment for manufacturing and advanced
technology.
Cash expenditures for capital additions for the first three
months of 1998 and for the comparable period of 1997 were $911,000
and $813,000, respectively. Capital expenditures for 1998 and 1997
were provided by funds from operations and borrowings from Fleet. The
Company plans to fund all future capital additions through funds from
operations, 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 29, 1998, the amount of available commitments under
the letter of credit facility with Crestar Bank was $274,000.
Other Financial Information
In early 1997, the Company established a team of people, to
evaluate whether, and to what extent, the Year 2000 issue would
impact the Company's business. The Year 2000 Team identified which of
the Company's products, devices, and computerized systems
contain embedded microprocessors that require remediation or
replacement because of potential Year 2000 problems. The Year 2000 Team
concluded that nearly all of the Company's products are
already Year 2000 compliant and those which are not will be
compliant by 1999 or before. On an ongoing basis, the Company has
been replacing existing in-house systems to improve efficiency and
to address the Year 2000 issue. Such replacements are projected to be
complete in the second half of 1998. The Company does not
expect to make any material expenditures solely to address Year
2000 issues.
Management believes that the Company is properly addressing the Year
2000 issue in order to mitigate any adverse operational or financial impacts.
Furthermore, the Company has implemented a requirement that its suppliers
certify that all products and supplier's purchased products provided to the
Company will not be adversely affected by the Year 2000 issues. Also, all
services provided to the Company by suppliers will not be affected or
hindered in anyway. Absent such certification or corrective
action, the Company will go to alternative vendors.
In February 1997, Financial Accounting Standards Board ("FASB") issued
of Financial Accounting Standards ("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 reconcilia-
tion of both basic and diluted EPS calculations. This statement was effective
for financial statements for both interim and annual periods ending after
December 15, 1997.
In June 1997, FASB issued SFAS No. 130, "Reporting
Comprehensive Income." The new standard requires businesses to
disclose comprehensive income and its components in their general-
purpose financial statements. This statement will be effective for the
Company's 1998 fiscal year. This standard will not have an impact on the
Company's disclosures.
In February 1997, FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The new standard requires
presentation disclosures about reportable operating segments of the Company.
This statement will be effective for the Company's 1998 fiscal year. This
new requirement is being discussed by management to determine how best to
meet this new disclosure requirement.
In April 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The new standard revises the
required disclosures for employee benefit plans, but it does not change the
measurement or recognition of such plans. This statement will be effective
for the Company's 1998 fiscal year.
"Safe Harbor" Statement Under The Private Securities Litigation
Reform Act Of 1995
The Company's Form 10-Q may contain 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 1998 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 28, 1998, 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 one to
three year terms: Robert P. Collins, Barbara P.
Dreyer, William G. Mustain, and John W. Rosenblum.
Directors whose term of office continued after the
meeting: A. M. Gleason, Michael C. Henderson, 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
Robert P. Collins 7,990,751 589,099
Barbara P. Dreyer 7,994,754 589,099
William G. Mustain 7,991,344 589,099
John W. Rosenblum 7,990,060 589,099
Item 2: (Selection of Independent Auditors)
For - 7,832,915
Against - 42,720
Abstain - 167,529
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(10) Material Contracts:
10.1 Amendment No. 5 to the Loan and Security Agreement
dated March 15, 1998 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 11, 1998 By: /s/ Christian L. Becken
Christian L. Becken
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
AMENDMENT NO. 5
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT
("Amendment"), dated the 13th day of March, 1998, 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, a certain Amendment No. 3 thereto, dated
as of September 27, 1996, and a certain Amendment No. 4 thereto, dated March
27, 1997.
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 Definitions. Section 1.1, Definitions, is amended by deleting the
definition of "Adjusted Availability" in its entirety.
1.2. Capital Expenditures. Section 9.2(L), Capital Expenditures, is
amended in its entirety to read as follows:
"(L) Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate, as
to all Borrowers and their Subsidiaries, exceed $4,500,000 during the fiscal
year ending December 31, 1997; and $5,000,000 during any fiscal year there-
after."
1.3. Leases. Section 9.2(W), Leases, is deleted.
1.4. Consolidated Debt Service Coverage Ratio. Section 9.3(C),
Consolidated Debt Service Coverage Ratio, is amended to provide that for the
first fiscal quarter of the fiscal year ending December 31, 1997 and the
first fiscal quarter of each fiscal year thereafter, the Consolidated Debt
Service Coverage Ratio required to be maintained by the Borrowers shall be
.30 to 1.0.
1.5. Minimum Current Ratio. Section 9.3(D), Minimum Current Ratio, is
deleted.
1.6. Minimum Adjusted Availability. Section 9.3(F), Minimum Adjusted
Availability, is deleted.
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 counter-
parts, 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
executedand delivered on the date first above written.
BORROWERS:
ATTEST: COMDIAL CORPORATION
_\s\ Linda P> Falconer__ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President
[CORPORATE SEAL]
ATTEST: AMERICAN TELECOMMUNICATIONS
CORPORATION
_\s\ Linda P> Falconer________________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: AMERICAN PHONE CENTERS, INC.
_\s\ Linda P> Falconer___________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL ENTERPRISE SYSTEMS, INC.
_\s\ Linda P> Falconer__________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: COMDIAL TELECOMMUNICATIONS
INTERNATIONAL, INC.
_\s\ Linda P> Falconer_____________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: SCOTT TECHNOLOGIES CORPORATION
_\s\ Linda P> Falconer_____________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: COMDIAL CUSTOM MANUFACTURING, INC.
_\s\ Linda P> Falconer____________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: COMDIAL VIDEO TELEPHONY, INC.
_\s\ Linda P> Falconer___________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL TECHNOLOGY CORPORATION
_\s\ Linda P> Falconer_____________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: COMDIAL TELECOMMUNICATIONS, INC.
_\s\ Linda P> Falconer_____________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: AURORA SYSTEMS, INC.
_\s\ Linda P> Falconer______________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: KEY VOICE TECHNOLOGIES, INC.
_\s\ Linda P> Falconer_____________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
ATTEST: COMDIAL BUSINESS COMMUNICATIONS
CORPORATION
_\s\ Linda P> Falconer______________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL CONSUMER COMMUNICATIONS
CORPORATION
_\s\ Linda P> Falconer_______________ By: \s\ Christian L. Becken____
Assistant Secretary Title:_ Senior Vice President__
[CORPORATE SEAL]
LENDER:
FLEET CAPITAL CORPORATION
By: _\s\ Roland J. Robinson_____
Title: Senior Vice President__
6
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
March 29, March 30,
1998 1997
BASIC
- ------
Net income applicable to common shares: $1,839 $671
_____________________________________________________________________________
Weighted average number of common
shares outstanding during the period 8,707,098 8,581,572
Add - contingency shares 72,029 72,029
Weighted average number of shares used in cal-
culation of basic earnings per common share 8,779,127 8,653,601
Basic earnings per common share: $0.21 $0.08
_____________________________________________________________________________
DILUTED
Net income applicable to common shares - basic $1,839 $671
Weighted average number of shares used in cal-
culation of basic earnings per common share 8,779,127 8,653,601
Add (deduct) incremental shares representing:
Shares issuable based on period-end market
price or weighted average price:
Stock options " 200,503 " " 57,613 "
_______________________________________________________________________________
Weighted average number of shares used in calcula-
tion of diluted earnings per common share 8,979,630 8,711,214
Diluted earnings per common share $0.20 $0.08
____________________________________________________________________________
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-29-1998
<CASH> 461
<SECURITIES> 0
<RECEIVABLES> 14,756
<ALLOWANCES> 101
<INVENTORY> 18,307
<CURRENT-ASSETS> 34,990
<PP&E> 45,345
<DEPRECIATION> 29,424
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<BONDS> 9,413
0
0
<COMMON> 88
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<TOTAL-LIABILITY-AND-EQUITY> 76,428
<SALES> 28,554
<TOTAL-REVENUES> 29,281
<CGS> 17,132
<TOTAL-COSTS> 17,394
<OTHER-EXPENSES> 10,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275
<INCOME-PRETAX> 1,603
<INCOME-TAX> (236)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,839
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