United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QA
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
-------------
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. 9,202,193 common shares as of
April 2, 2000.
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
The undersigned registrant hereby amends the following items of its Quarterly
Report on Form 10-QA for the fiscal quarter ended April 2, 2000, as set forth in
the pages attached hereto (see Note A to the Financial Statements):
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
April 2, 2000 and December 31, 1999
(as restated) 3
Consolidated Statements of Operations
for the Three Months ended
April 2, 2000 and April 4, 1999
(as restated) 4
Consolidated Statements of Cash Flows
for the Three Months ended
April 2, 2000 and April 4, 1999
(as restated) 5
Notes to Consolidated Financial Statements 6-12
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
ITEM 3. Quantitative and Qualitative Disclosures
about Market Risks 18
PART II - OTHER INFORMATION
ITEM 4: Submission of Matters to a vote by
Security Holders 19
ITEM 6: Exhibits and Reports on Form 8-K 20
2
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
(As restated
see Note A)
April 2, Dec. 31,
In thousands except par value 2000 1999 *
------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $1,899 $1,917
Accounts receivable (less allowance 33,169 39,700
for doubtful accounts and reserve for
returns: 2000 - $4,963; 1999 - $2,300)
Inventories 25,544 22,827
Prepaid expenses and other current
assets 6,109 7,633
---------------------------------------------------------------------
Total current assets 66,721 72,077
Property - net 18,864 19,458
Goodwill 10,409 11,207
Deferred tax asset - net 15,163 11,980
Other assets 19,473 18,352
---------------------------------------------------------------------
Total assets $130,630 $133,074
=====================================================================
------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $12,231 $15,135
Accrued payroll and related expenses 2,374 2,652
Other accrued liabilities 3,409 4,575
Current maturities of debt 1,262 471
---------------------------------------------------------------------
Total current liabilities 19,276 22,833
Long-term debt 28,440 31,795
Deferred tax liability 2,641 2,622
Other long-term liabilities 5,949 4,216
--------------------------------------------------------------------
Total liabilities 56,306 61,466
Commitments and contingent liabilities
(see Note I) - -
---------------------------------------------------------------------
Stockholders' equity
Common stock ($0.01 par value) and
paid-in capital (Authorized 30,000
shares; issued shares: 2000 - 9,202;
1999 - 8,940) 119,000 116,626
Treasury Stock (1,236) (1,237)
Accumulated deficit (43,440) (43,781)
---------------------------------------------------------------------
Total stockholders' equity 74,324 71,608
Total liabilities and stockholders'
equity $130,630 $133,074
=====================================================================
* Condensed from audited financial statements.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - (Unaudited)
In thousands except per share amounts
-----------------------------------------------------------
Three Months Ended
(As restated
see Note A)
April 2, April 4,
2000 1999
-----------------------------------------------------------
Net sales $31,608 $31,864
Cost of goods sold 17,651 19,163
--------------------------------------------------------
Gross profit 13,957 12,701
Operating expenses
Selling, general & administrative 10,471 8,611
Engineering, research
& development 1,697 2,086
Goodwill amortization expense 799 784
-------------------------------------------------------
Operating income 990 1,220
Other expense
Interest expense 607 382
Miscellaneous expenses - net 31 129
-------------------------------------------------------
Income before income taxes 352 709
Income tax expense 11 321
--------------------------------------------------------
Net income $341 $388
========================================================
Earnings per share:
Basic $0.04 $0.04
Diluted $0.04 $0.04
Weighted average shares outstanding:
Basic 9,099 8,939
Diluted 9,444 8,987
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
Three Months Ended
(As restated
see Note A)
April 2, April 4,
In thousands 2000 1999
----------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers $39,588 $31,197
Other cash received 2,229 167
Interest received 22 1
Cash paid to suppliers and employees (39,341) (35,524)
Interest paid on debt (495) (397)
Income taxes paid (54) (52)
----------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,949 (4,608)
----------------------------------------------------------------------
Cash flows from investing activities:
Acquisition costs for Array - (1)
Proceeds received from ePHONE from the sale
of assets 648 -
Proceeds from the sale of equipment 1 -
Capital expenditures (1,227) (976)
----------------------------------------------------------------------
Net cash used in investing activities (578) (977)
----------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under revolver (3,473) 5,774
Proceeds from issuance of common stock 2,129 12
Principal payments on capital lease
obligations (45) (4)
----------------------------------------------------------------------
Net cash provided by (used in)
financing activities (1,389) 5,782
----------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (18) 197
Cash and cash equivalents at
beginning of year 1,917 1,599
----------------------------------------------------------------------
Cash and cash equivalents at end of period $1,899 $1,796
======================================================================
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income $341 $388
----------------------------------------------------------------------
Depreciation and amortization 2,620 2,218
Decrease (increase) in accounts receivable 6,531 (1,362)
Inventory provision 51 353
Decrease (increase) in inventory (2,768) 1,009
Increase in other assets (2,548) (2,802)
Decrease (increase) in deferred tax asset (944) 140
Decrease in accounts payable (2,904) (2,688)
Increase (decrease) in other liabilities 1,327 (2,264)
Increase in paid-in capital and
other equity 243 400
----------------------------------------------------------------------
Total adjustments 1,608 (4,996)
----------------------------------------------------------------------
Net cash provided by (used in)
operating activities $1,949 ($4,608)
======================================================================
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 2, 2000 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS
The financial information included as of April 2, 2000, and for the three
months ended April 2, 2000 and April 4, 1999 is unaudited. The financial
information reflects all normal recurring adjustments necessary for a fair
statement of results for such periods. Accounting policies followed by Comdial
Corporation ("Comdial") are described in Note 1 to the consolidated financial
statements in its Annual Report to Stockholders for the year ended December 31,
1999. The consolidated financial statements for accounting periods in 2000
contained herein should be read in conjunction with the 1999 financial
statements, including notes thereto, contained in Comdial's Annual Report to
Stockholders for the year ended December 31, 1999. Certain amounts in the 1999
consolidated financial statements have been reclassified to conform to the 2000
presentation. The results of operations for the three months ended April 2,
2000, are not necessarily indicative of results for the full year.
Restatement
Subsequent to the issuance of Comdial's financial statements as of and for
the three months ended April 2, 2000, the Company's management determined that
an appropriate provision for sales returns was not recorded for a special return
agreement entered into in connection with a sale that occurred in the first
quarter of 2000. As a result, the financial statements as of and for the three
months ended April 2, 2000 have been restated from amounts previously reported
to appropriately recognize such provision for sales returns. A summary of the
significant effects of the restatement is as follows:
--------------------------------------------------------------------------------
As Previously
Reported As Restated
In thousands, except earnings per share
--------------------------------------------------------------------------------
For the three months ended April 2, 2000:
Net sales $34,308 $31,608
Cost of goods sold 19,440 17,651
Income tax expense 340 11
Net income 923 341
Earnings per share: basic and diluted 0.10 0.04
As of April 2, 2000
Accounts receivable 35,869 33,169
Inventories 23,755 25,544
Prepaid expense & other current assets 8,222 6,109
Deferred tax asset - net 12,708 15,163
Accumulated deficit (42,858) (43,440)
--------------------------------------------------------------------------------
6
<PAGE>
Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements to conform with generally
accepted accounting principles ("GAAP") requires management to make certain
estimates and assumptions that affect reported amounts of assets, liabilities,
revenues, and expenses, as well as disclosure of contingent assets and
liabilities as of April 2, 2000. Actual results may differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are defined as short-term liquid investments
with maturities, when purchased, of less than 90 days that are readily
convertible into cash. Under Comdial's current cash management policy,
borrowings from the revolving credit facility are used for operating purposes.
The revolving credit facility is reduced at management's option by cash receipts
that are deposited daily. Bank overdrafts of $3.4 million and $2.2 million are
included in accounts payable as of April 2, 2000 and December 31, 1999,
respectively. Bank overdrafts consist of outstanding checks that have neither
(1) cleared the bank nor (2) been funded by the revolving credit facility (see
Note E). The revolving credit facility activity is reported on a net basis in
the Consolidated Statements of Cash Flows.
Revenue Recognition
The majority of Comdial's revenue is recognized when products are shipped
and title has passed to the customer. Comdial's management records a provision
for all anticipated returns that is constantly monitored and updated as
required. This provision is recognized as a reduction of revenues. All actual
returns are charged against the allowance for returns as received. National
account customer revenues are not recognized until the customer takes title to
the equipment, which may be either at shipment or at installation depending on
the terms of the contract. Embedded software revenues are recognized when
Comdial activates a code at the request of the customer enabling the software to
be used. Management believes that these policies are in accordance with Staff
Accounting Bulletin No. 101 ("Revenue Recognition").
Other Long-lived Assets
Long-lived assets are amortized based on the assets' useful lives.
Long-lived assets are reviewed for impairment as circumstances change that might
impact the useful life of the asset. An impairment loss is not recognized unless
a portion of the carrying amount of an asset is no longer recoverable using a
test of recoverability, which is based on expected future undiscounted cash
flows.
7
<PAGE>
Note C: SALE OF FIXED ASSETS AND LICENSING AGREEMENTS
On March 31, 2000, Array Telecom Corporation ("Array"), a wholly-owned
subsidiary of Comdial, and Comdial entered into a Strategic Alliance agreement
with ePHONE Telecom, Inc. ("ePHONE"). Pursuant to the agreement, Array sold its
fixed assets, the 3000 family of products, and licensed its technology for a
five-year term to ePHONE. Comdial allowed ePHONE to utilize the name "Array" and
will provide ePHONE with access to its distribution channels. ePHONE paid Array
on the closing date $2.7 million and will pay royalty fees to Comdial based on
certain gross sales over a five-year period. Comdial will recognize the $2.7
million less any costs associated with the transaction and any proceeds received
for the assets sold to ePHONE into income over a five-year period.
Note D: INVENTORIES
Inventories consist of the following:
-----------------------------------------------------------------
April 2, Dec. 31,
In thousands 2000 1999
-----------------------------------------------------------------
Finished goods $13,318 $8,763
Work-in-process 3,223 4,556
Materials and supplies 9,003 9,508
----- -----
Total $25,544 $22,827
======= =======
-----------------------------------------------------------------
Comdial provides reserves to cover product obsolescence and those reserves
impact gross margins. Such reserves are dependent on management's estimates of
the recoverability of costs of all inventory, which is based on, among other
things, expected obsolescence of the products. Raw material obsolescence is
mitigated by the commonality of component parts and finished goods and by the
low level of inventory relative to sales. Also included in inventory is the
estimated amount for returns not yet received as of April 2, 2000, which is $3.0
million.
Note E: BORROWINGS
In the third quarter of 1998, Comdial and Bank of America, N.A. ("Bank of
America"), entered into a credit agreement (the "Credit Agreement"). The Credit
Agreement provides Comdial with a $50 million revolving credit facility ("the
Revolver") of which $5 million is a letter of credit subfacility. Long-term debt
consists of the following:
-----------------------------------------------------------------
April 2, Dec. 31,
In thousands 2000 1999
-----------------------------------------------------------------
Revolver (1) $26,123 $29,596
Capitalized leases (2) 3,579 2,670
------ -----
Total debt 29,702 32,266
Less current maturities on debt 1,262 471
------ ------
Total long-term debt $28,440 $31,795
======= =======
-----------------------------------------------------------------
(1) The Revolver, made pursuant to the Credit Agreement with Bank of
America, carries an interest rate based on the LIBOR daily rate plus a specified
margin. The interest rate can be adjusted quarterly based on Comdial's ratio of
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA"), which allows the rates to vary from 0.75% to 1.50% above the LIBOR
daily rate. As of April 2, 2000 and December 31, 1999, Comdial's borrowing rates
were 6.88% and 6.58%, respectively, which includes the additional applicable
margin of 0.75% for both periods.
Comdial can use the Revolver with Bank of America for working capital,
equipment purchases, to finance permitted acquisitions, and for other general
corporate purposes. Bank of America's Revolver (as defined in the Credit
Agreement) does not require payment until August 31, 2003 with the option of
possible credit extensions.
(2) Capital leases are with various financing entities and are payable
based on the terms of each individual lease.
Debt Covenants
Comdial's indebtedness to Bank of America is secured by liens on all of
Comdial's properties and assets. The Credit Agreement with Bank of America
contains certain financial covenants that relate to specified levels of
consolidated net worth and other financial ratios. As of April 2, 2000, Comdial
was in compliance with all of the covenants and terms of the Credit Agreement.
Note F: EARNINGS PER SHARE
Basic EPS for the three month periods presented was computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted EPS was computed by dividing net income by the weighted
average number of common 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. The following table discloses the
quarterly information for the three months ended April 2, 2000 and April 4,
1999.
-----------------------------------------------------------------
Numerator Denominator EPS
-----------------------------------------------------------------
Three Months
------------
2000
Basic EPS $341,000 9,098,999 $0.04
Diluted $341,000 9,443,564 $0.04
1999
Basic EPS $388,000 8,939,450 $0.04
Diluted $388,000 8,986,732 $0.04
For further detail of EPS see Exhibit 11.
-------------------------------------------------------------------
8
<PAGE>
Note G: INCOME TAXES
The components of income tax expense based on the liability method for
the three months are as follows:
-----------------------------------------------------------------
April 2, April 4,
In thousands 2000 1999
-----------------------------------------------------------------
Current - Federal $42 $58
State 50 123
Deferred - Federal (47) 191
State (34) (51)
---- ----
Income tax provision $11 $321
==== ====
-----------------------------------------------------------------
The income tax provision reconciled to the tax computed at statutory
rates for the three months is summarized as follows:
-----------------------------------------------------------------
April 2, April 4,
In thousands 2000 1999
-----------------------------------------------------------------
Federal tax at statutory
rate (35% in 2000 and 1999) $123 $239
State income taxes (net of federal
tax benefit) 9 48
Nondeductible charges 7 20
Recognition of benefits for
subsidiary NOLs (87) -
Other adjustments (41) -
Adjustment of valuation allowance - 14
----- -----
Income tax provision $11 $321
===== =====
-----------------------------------------------------------------
Net deferred tax assets of $15.8 million and $14.8 million have been
recognized in the accompanying Consolidated Balance Sheets as of April 2, 2000
and December 31, 1999, respectively. The components of the net deferred tax
assets are as follows:
-----------------------------------------------------------------
April 2, Dec. 31,
In thousands 2000 1999
-----------------------------------------------------------------
Total deferred tax assets $18,508 $17,545
Total valuation allowance (114) (114)
---- ------
Total deferred tax asset - net 18,394 17,431
Total deferred tax liabilities (2,641) (2,622)
------ ------
Total net deferred tax asset $15,753 $14,809
======= =======
-----------------------------------------------------------------
Comdial periodically reviews the requirements for a valuation allowance
and makes adjustments when changes in circumstances result in changes in
management's judgment about the future realization of deferred tax assets.
Management currently believes that it is more likely than not that the deferred
tax assets will be realized.
9
<PAGE>
Comdial has net operating losses ("NOLs") and tax credit carryovers of
approximately $10.2 million and $1.6 million, respectively. If not utilized, the
NOLs and tax credit carryovers will expire in various years through 2010.
NOTE H. SEGMENT INFORMATION
During the first three months of 2000 and 1999, substantially all of
Comdial's sales, net income, and identifiable net assets were attributable to
the telecommunications industry with over 97% of sales occurring in the United
States.
Comdial is organized into several product segments that comprise the
majority of its sales to the telecommunications market. Comdial has three basic
product categories that contribute ten percent or more, to net sales. The
segments are Digital Systems, Solutions and Software, and Analog and Other
(which includes other miscellaneous products). Each of these categories is
considered a business segment, and with respect to their financial performance,
the costs associated with these segments can only be quantified and identified
to the gross profit level for each segment.
The Digital Systems segment is comprised of products such as Impact,
Impression series telecommunication systems, Impact Digital Expandable Systems
("DXP"), DXP Plus and the open digital switching platforms known as the "FX
Series." Digital Systems generally offer customers more features with superior
quality platforms. The distinguishing characteristic of this segment is that it
is designed for the small office up to 500 end users.
The Solutions and Software segment is comprised of all Comdial's software
and software application products. The products included are all of Comdial's
vertical market products such as Impact Concierge, QuickQ, Avalon, and voice
processing systems. These products are sold to specific industries such as
hospitality, call centers, and senior living centers.
The Analog and Other segment is comprised of Comdial's older analog products
(such as Unisyn), and other products such as ATC Terminals and Custom
Manufacturing. The Analog products are designed for the small office market,
which supports only a few users.
The information in the following tables is derived directly from the
segments' internal financial reporting used for management's purposes. The
expenses, assets and liabilities attributable to corporate activity are not
allocated to the operating segments. There are no operating assets located
outside the United States.
Unallocated costs include operating expenses, goodwill amortization,
interest expense, other miscellaneous expenses, and income tax expenses or
benefits. Comdial does not maintain information that would allow these costs to
be broken down into the various product segments and most of these costs are
universal in nature.
Unallocated assets include such items as cash, deferred tax assets, other
miscellaneous assets, and goodwill. Unallocated capital expenditures and
depreciation relate primarily to shared services assets. Unallocated liabilities
include such items as accounts payable, debt, leases, deferred tax liabilities,
and most other liabilities that do not relate to sales.
The information in the following tables is derived directly from the
segments' internal financial reporting used for management's purposes. The
following tables show segment information for the periods ended April 2, 2000
and April 4, 1999.
--------------------------------------------------------------------------
April 2, April 4,
(Dollars in thousands) 2000 1999
--------------------------------------------------------------------------
Business Segment Net Revenues
Digital Systems $19,116 $18,503
Solutions and Software 10,846 10,413
Analog and Other 1,646 2,948
------- -----
Net sales $31,608 $31,864
======= =======
Business Segment Profit
Digital Systems $8,307 $6,234
Solutions and Software 5,386 5,802
Analog and Other 264 665
------ ------
Gross profit 13,957 12,701
Operating expenses 12,967 11,481
Interest expense 607 382
Miscellaneous expense - net 31 129
------ ------
Income before income taxes $352 $709
==== ======
============================================================================
April 2, December 31,
(Dollars in thousands) 2000 1999
----------------------------------------------------------------------------
Business Segment Assets
Digital Systems $52,937 $54,443
Solutions and Software 25,980 27,307
Analog and Other 3,947 5,335
Unallocated 47,766 45,989
------- -------
Total 130,630 $133,074
======= ========
Business Segment Liabilities
Digital Systems $1,314 $1,875
Solutions and Software 5,411 2,904
Analog and Other 136 202
Unallocated 49,445 56,485
------- -------
Total $56,306 $61,466
======= =======
----------------------------------------------------------------------------
10
<PAGE>
--------------------------------------------------------------------------
April 2, April 4,
(Dollars in thousands) 2000 1999
--------------------------------------------------------------------------
Business Segment Property, Plant and Equipment
Depreciation
Digital Systems $412 $469
Solutions and Software 99 35
Analog and Other 27 39
Unallocated 240 308
---- ----
Total $778 $851
==== ====
Additions
Digital Systems $248 $345
Solutions and Software 451 52
Analog and Other 36 49
Unallocated 80 425
---- ----
Total $815 $871
==== ====
---------------------------------------------------------------------------
Note I: COMMITMENTS AND CONTINGENT LIABILITIES
At this time, Comdial has not had any claims or losses relating to Year 2000
issues. Comdial cannot predict whether there will be any future litigation
against Comdial due to non-compliance relating to Year 2000 issues.
11
<PAGE>
COMDIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist the reader in understanding
and evaluating the financial condition and results of operations of Comdial
Corporation and its subsidiaries (the "Company"). This review should be read in
conjunction with the consolidated 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 2000 reporting basis (see Note A to the Consolidated Financial Statements).
Comdial is a Delaware corporation based in Charlottesville, Virginia. Comdial's
Common Stock is traded on the National Association of Security Dealers Automated
Quotation System ("Nasdaq(R)") in the National Market(R) under the symbol, CMDL.
Subsequent to the issuance of Comdial's financial statements as of and for
the three months ended April 2, 2000, the Company's management determined that a
provision for sales returns was not recorded for a special return agreement
entered into in connection with a sale that occurred in the first quarter of
2000. As a result, the financial statements as of and for the three months ended
April 2, 2000 have been restated from amounts previously reported to
appropriately recognize such provision for sales returns (see Note A to the
Consolidated Financial Statements).
Results of Operations
Selected consolidated statements of operations for the first three months
of 2000 and 1999 are as follows:
----------------------------------------------------------------------------
April 2, April 4,
In thousands 2000 1999
----------------------------------------------------------------------------
Business Segment Sales:
Digital Systems $19,116 $18,503
Solutions and Software 10,846 10,413
Analog and Other 1,646 2,948
------ ------
Net sales 31,608 31,864
Cost of sales 17,651 19,163
------ ------
Gross profit 13,957 12,701
Selling, general & administrative 10,471 8,611
Engineering, research & development 1,697 2,086
Goodwill amortization 799 784
Interest expense 607 382
Miscellaneous expense - net 31 129
----- ---
Income before income taxes 352 709
Income tax expense 11 321
----- ---
Net income $341 $388
===== =====
Earnings per share: basic and diluted $0.04 $0.04
===== =====
-----------------------------------------------------------------------------
12
<PAGE>
Revenue and Earnings
First Quarter 2000 vs. 1999
Comdial's net sales decreased by 1% for the first quarter of 2000 to
$31.6 million, compared with $31.9 million in the first quarter of 1999. This
decrease was primarily attributable to the decrease in Comdial's older analog
product sales.
Gross profit increased by 10% for the first quarter of 2000 to $14.0
million, compared with $12.7 million in the first quarter of 1999. Gross profit,
as a percentage of sales, increased from 40% for the first quarter of 1999 to
44% for the same period of 2000. This increase was primarily due to higher sales
of digital systems which produced higher margins.
Selling, general and administrative expenses increased for the first
quarter of 2000 by 22% to $10.5 million, compared with $8.6 million in the first
quarter of 1999. This increase was due to adding sales and marketing personnel
in the latter half of 1999 to support Comdial's planned future growth along with
some additional costs associated with the reorganization of Comdial into new
Strategic Business Units during the first quarter of 2000. Part of the
reorganization included a reduction in workforce, which resulted in some
severance cost of approximately $0.7 million.
Engineering, research and development expenses for the first quarter of
2000 decreased by 19% to $1.7 million, compared with $2.1 million for the first
quarter of 1999. This decrease was primarily due to the reduction in engineering
personnel because of the new strategic businesses. All costs associated with the
reduction or changes in personnel were recognized in selling, general and
administrative expenses.
Interest expense increased by 59% for the first quarter of 2000 to $0.6
million, compared with $0.4 million in the first quarter of 1999. This increase
was due to higher interest rates of approximately 120 basis points in 2000 and
an increase in capital leases, which is primarily associated with the
installation of new software.
Income tax expense decreased by 97% for the first quarter of 2000 to
$11,000, compared with $321,000 for 1999. This reduction was due to lower
taxable income and the recognition of subsidiary net operating losses ("NOLs").
Net income decreased by 12% for the first quarter of 2000 to $0.3
million, compared with $0.4 million for the same period in 1999. This decrease
was primarily attributable to the decrease in sales and additional operating
expenses. Income before income taxes for the first quarter of 2000 decreased to
$0.4 million compared with $0.7 million for the first quarter of 1999.
13
<PAGE>
Liquidity
In 1998, Comdial entered into a new financing arrangement with Bank of
America, N.A. ("Bank of America"), that provides a line of credit up to $50
million.
The following table sets forth Comdial's cash and cash equivalents, current
maturities on debt, and working capital at the dates indicated:
---------------------------------------------------------------------
April 2, December 31,
In thousands 2000 1999
---------------------------------------------------------------------
Cash and cash equivalents $1,899 $1,917
Current maturities on debt 1,262 471
Working capital 47,445 49,244
---------------------------------------------------------------------
As of October 1998, Comdial and Bank of America signed a Credit Agreement
(the "Credit Agreement") that is now funding all operational requirements as
needed. All operating cash requirements were funded through a $50 million
revolving credit facility (the "Revolver") provided by Bank of America. Comdial
reports the Revolver activity on a net basis in the Consolidated Statements of
Cash Flows. Comdial considers outstanding checks to be a bank overdraft.
Current maturities on debt as of April 2, 2000, increased by $0.8 million
due to increases in new leases of approximately $1.4 million when compared to
December 31, 1999.
Working capital as of April 2, 2000, decreased by $1.8 million when
compared to December 31, 1999. This decrease was primarily due to the reduction
of accounts receivable.
Capital additions per generally accepted accounting principles ("GAAP")
for the first three months of 2000 and 1999 were approximately $0.8 million and
$0.9 million, respectively. Capital additions were used to help Comdial
introduce new products as well as improve quality and reduce costs associated
with existing products. Capital additions were funded by cash generated from
operations and borrowing from the Revolver. Actual cash expenditures for capital
additions for the first three months of 2000 and 1999, were $1.2 million and
$1.0 million, respectively. Management anticipates that approximately $6 million
will be spent on capital additions for the year 2000. These additions will help
Comdial meet its commitments to its customers by developing new products as well
as increasing its capacity to produce high-tech products for the future. Comdial
plans to fund all additions primarily through cash generated by operations.
Comdial has a commitment from Bank of America for the issuance of letters
of credit in an aggregate amount not to exceed $5 million at any one time. On
April 2, 2000, the amount of commitments under the letter of credit facility
with Bank of America was $0.1 million.
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Accounts payable as of April 2, 2000, decreased by $2.9 million when
compared to December 31, 1999. This decrease was primarily due to the timing of
incoming material receipts for production.
Other accrued liabilities as of April 2, 2000, decreased by $1.2 million
partially due to Comdial paying promotional costs in 2000 that were incurred in
1999.
Other long-term liabilities as of April 2, 2000, increased by $1.7
million when compared to December 31, 1999. This increase was primarily due to
the recognition of deferred revenue that was received from ePHONE for the
five-year license agreement with Array Telecom Corporation ("Array").
Long-term Debt, Including Current Maturities
As of April 2, 2000, long-term debt decreased by $3.4 million, which was
a direct result of Comdial collecting receipts that related to the high level of
fourth quarter sales. See Note E to Comdial's Consolidated Financial Statements
for additional information with respect to Comdial's loan agreements, long-term
debt and available short-term credit lines.
Comdial believes that income from operations combined with amounts
available from Comdial's current credit facilities will be sufficient to meet
Comdial's needs for the foreseeable future.
Other Financial Information
During the first three months of 2000 and 1999, primarily all of
Comdial's sales, net income, and identifiable net assets were attributable to
the telecommunications industry.
On March 17, 2000, Comdial and Lucent Technologies GRL Corporation
("Lucent-GRL") entered into a Patent License Agreement pursuant to which
Lucent-GRL granted to Comdial licenses under Lucent-GRL's patents for Licensed
Products (as defined in the agreement), and Comdial granted Lucent-GRL licenses
under Comdial's patents for Licensed Products (as defined in the agreement).
Pursuant to the agreement, Comdial paid Lucent-GRL an initial payment and agreed
to pay Lucent-GRL a royalty based on Comdial's consolidated sales. The agreement
extends for a period of five years. The costs associated with this agreement are
future period costs.
Year 2000
In early 1997, Comdial established a team (the "Year 2000 Team"), to
evaluate whether, and to what extent, Comdial's products, information technology
systems, facilities and production and distribution infrastructure may be
affected by the Year 2000 and potential problems caused by the inability of
certain computers and microprocessors to distinguish between the year 2000 and
the year 1900.
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Comdial continues to monitor and review any new issues that may arise
concerning Year 2000. As of April 2, 2000, cumulative costs incurred by Comdial
specifically for the Year 2000 totaled an aggregate of $0.7 million.
Risks: While management believes that it has taken appropriate actions to
respond to and resolve potential Year 2000 issues, there can be no assurance
that Year 2000 issues will not have a material adverse affect on Comdial.
Current Pronouncements
In the third quarter of 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Comdial does not
participate in any financial instruments that meet the definition of a
derivative or hedging activity, and therefore, it is not expected that this
statement will have any affect on Comdial's financial statements. In second
quarter of 2000, FASB issued SFAS No. 137 which delayed the effective date of
SFAS No. 133 until December 2000.
"SAFE HABOR" STATEMENT UNDER THE PRIVATE SECURITIES LIGITATION REFORM ACT OF
1995
This report contains 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 Comdial's filings with the Securities and Exchange Commission. These
risks could cause Comdial's actual results for 2000 and beyond to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, Comdial.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Comdial believes that it does not have any material exposure to market
risk associated with activities in derivative financial instruments, other
financial instruments and derivative commodity instruments.
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COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by Security Holders
(a) On May 4, 2000, Comdial 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 director was elected to serve a three-year term:
Robert P. Collins.
Directors whose terms of office continued after the meeting:
Barbara J. Dreyer, William G. Mustain, John W. Rosenblum,
Robert E. Spekman, and Dianne C. Walker.
Director whose term of office expired after the meeting and who
retired from the board: A. M. Gleason.
2. An amendment to the Company's 1992 Stock Incentive Plan to
increase the number of shares authorized for issuance to
2,050,000 was approved.
3. The selection of Deloitte & Touche LLP as the Company's
certified public accountants and independent auditors was
ratified.
Shares of Common Stock were voted as follows:
Item 1: (Election of Board of Director)
For - 7,346,997
Withheld authority - 1,155,012
Total Vote For Total Vote Withheld
-------------- -------------------
Robert P. Collins 7,346,997 1,155,012
Item 2: (Increase authorized Common Shares for 1992 Stock
Incentive Plan)
For - 3,701,512
Against - 1,998,201
Abstain - 51,224
Broker non-votes - 2,751,072
Item 3: (Selection of Independent Auditors)
For - 8,445,398
Against - 36,342
Abstain - 20,269
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ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(3) By-laws.
3.1 Bylaws of Comdial Corporation
(10) Material Contracts.
10.1 Strategic Alliance Agreement dated March 31, 2000 among
the Registrant and ePHONE Telecom, Inc.
10.2 Patent License Agreement dated March 17, 2000 among the
Registrant and Lucent Technologies GRL 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Comdial Corporation
-------------------
(Registrant)
Date: August 31, 2000 By: William G. Mustain
---------------- ------------------
William G. Mustain
Chairman of the Board,
President and Chief
Executive Officer
By: Paul K. Suijk
-----------------
Paul K. Suijk
Senior Vice President
and Chief Financial Officer
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