TIE/COMMUNICATIONS, INC.
(LOGO)
1993
ANNUAL REPORT
TIE/COMMUNICATIONS, INC.
1993 REVIEW
Dear Shareholders, Employees and Friends:
The employees and management of the new TIE are proud to report a
profitable year.
COMPONENTS OF NET INCOME
I feel it is important that everyone understands the components of the
$1,682,000 net income from 1993 which is a 38% improvement over the 1992 net
income of $1,219,000. Operating income from continuing operations was $720,000
or $0.18 per share as compared to $881,000 or $0.22 per share for the prior
year. Interest income (net), royalties earned, gain on the disposal of the
former corporate office building and other favorable income elements involving
insurance settlements, Canadian lease buyout and statutory reversals were
reduced by expenses for the corporate office relocation, bank charges and the
Canadian privatization attempt combined with the operating income to yield a
pretax income of $3,002,000 or $0.75 per share compared to $2,249,000 or $0.31
per share for 1992.
The Company earns interest on its invested cash and cash equivalent
balances, which were substantially reduced during 1993 by acquisition of
additional customer base and relocation expenses associated with the corporate
office. Interest income (net) was also impacted by mortgage interest payments
on the former corporate office through August of 1993. However, your Company
has funded all of its operations since the reorganization of July 1, 1991, from
internally generated cash and has not required any outside financing expense.
Royalties are earned as a result of the agreement entered into with Nitsuko
America in 1991, which is described in the attached Form 10-K. The agreement
expires in 1996 and the Company will commence exploring options with interested
parties for new technology licensing agreements in 1994.
Pretax income of $3,002,000 or $0.75 per share is reduced by a provision
for state income taxes and deferred income taxes that totaled $1,238,000 or
$0.31 per share for 1993.
A further reduction to earnings has also been recorded to reflect the
portion of the TIE Canada earnings, which are due to minority shareholders.
During May of 1993 we increased our ownership of TIE Canada from 63% of the
equity through a private purchase of a block of TIE Canada stock representing
approximately 10% of the outstanding shares, increasing your Company's ownership
of TIE Canada to 73%. The remaining 27% of the outstanding shares of TIE Canada
are held by unaffiliated investors. The provision for minority interest in
Canadian earnings amounted to $82,000 or $0.02 per share.
1993 INCOME COMPONENTS
EARNINGS
AMOUNT PER SHARE
------ ---------
OPERATING INCOME FROM CONTINUING OPERATIONS $ 720,000 $ 0.18
INTEREST INCOME (NET) 322,000 0.08
ROYALTIES EARNED ON THE AGREEMENT WITH NTK
AMERICA EXPIRING IN 1996 1,378,000 0.34
GAIN ON DISPOSAL OF CONNECTICUT HEADQUARTERS
BUILDING 1,738,000 0.44
RELOCATION EXPENSES (1,300,000) (0.33)
OTHER INCOME (INSURANCE SETTLEMENT, CANADIAN
LEASE BUYOUT AND WORKERS' COMP REVERSAL) 627,000 0.16
OTHER EXPENSES (PRIMARILY BANK CHARGES AND
CANADIAN PRIVATIZATION) (483,000) (0.12)
----------- ------
PRETAX INCOME 3,002,000 0.75
PROVISION FOR INCOME TAXES (1,238,000) (0.31)
MINORITY INTEREST (82,000) (0.02)
----------- ------
NET INCOME $ 1,682,000 $ 0.42
----------- ------
----------- ------
During the year TIE made a conscious management decision to relocate its
corporate office from a 56,000 square foot facility in Seymour, Connecticut, to
a smaller leased facility which would provide lower operating costs and greater
access by air transportation to TIE's 68 offices in North America. The TIE
management team negotiated the disposal of the Connecticut property with the
mortgage holder and after considering new corporate office sites in Connecticut,
Georgia, Illinois, Virginia, Texas and the Kansas City area, selected an 18,000
square foot facility in Overland Park, Kansas, and relocated September 1, 1993.
The gain on the disposal of the Connecticut facility more than offset the
expense of moving as illustrated in the preceding table.
The TIE management team is dedicated to profitable growth and this is the
keystone of our strategic direction and the underlying fundamentals of our daily
tactics. We ended the year with a return on equity of 7.24%, a backlog
improvement of 182% over year-end 1992 and operating expenses as a percentage of
sales were lower than 1992. All of this was accomplished while adding new
products and services, integrating acquisitions and entering into alliances with
telephone operating companies.
Among the major events for the year was the addition of 14,000 customers to
our California operation as a result of acquiring the non-Northern Telecom
customer base from PacTel Meridian Systems and conjunctively becoming a
distributor of Northern Telecom's Norstar Key System throughout TIE's U.S.
Operations. This acquisition was consummated on September 17, 1993, and was
totally funded from internally available funds. We expect this large customer
base to firmly establish us in the California market and contribute favorably to
our earnings as we leverage sales of our other products and services. A second
event was the agreement among our 73% owned TIE Canada, the Alberta Government
Telephone Limited ("AGT") and the Mitel Corporation to supply telephone systems
to AGT's business customers throughout the Province. The last major event was
the attempted privatization of TIE Canada, wherein the purchase of all
outstanding shares held by individual investors of TIE Canada was proposed at
$1.25 (Canadian Dollars) at a meeting of the shareholders to be held January 14,
1994. The special meeting was canceled due to lack of favorable response from
shareholders.
The addition and/or creation of a broad range of new business
communications and information distribution products, services and software for
the largest segment of business customers is a distinguishing characteristic
that differentiates TIE from the customer premises equipment-only providers.
This is proving to be a competitive advantage as we attempt to increase the
higher margin service and software segments of our business for improved
long-term economic performance.
1994 OUTLOOK
During the 1993 year we targeted the acquisition, enhancement and
maintenance of our chosen customer base with training of our people in products,
service techniques and technology for information distribution. For 1994 we
will continue to prepare our people for implementation of the latest
technologies for communications and information distribution while aggressively
promoting our marketing plans of our diversified portfolio of products to
businesses. The challenge is to have the most favorable offering presented by
high quality support, service and professional TIE associates in terms of value
and technology.
We look to 1994 with guarded optimism. The rapid rate of technological
development in the communications and information distribution marketplace
produces risks as well as opportunities in sales, installation and service. The
competitive environment is impacted by the changing roles of the local exchange
operators, the inner-exchange carriers and local competitive access providers.
The entry of cable television companies into the voice, data and image
transmission market for TIE's traditional business customers will have the
effect of increasing competition while adding disruption to the marketplace.
TIE's management is concentrating on improving operating income while
implementing our long-term strategic objectives in 1994.
I would like to end my annual address with an expression of gratitude to
everyone who helped make 1993 the success it was and who have contributed
unselfishly to the TIE image of quality in people, products, services and
customer relations.
Respectfully submitted,
/s/ George N. Benjamin, III
George N. Benjamin, III
President and Chief Executive Officer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required).
For the fiscal year ended December 31, 1993
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the transition period from __________ to __________.
Commission File Number 1-7960
TIE/COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0872068
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8500 W. 110th Street, Overland Park, Kansas 66210
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (913) 344-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par American Stock Exchange, Inc.
value $.10 per share
___________________
Securities registered pursuant to Section 12(g) of the Act: None
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 ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant was $7,850,343 as of February 28, 1994. For purposes of
the foregoing statement only, directors and officers of the registrant
and holders of 5% or more of the registrant's common stock have been
assumed to be affiliates.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No -----
As of February 28, 1994, 3,981,338 shares of common stock of the
registrant were outstanding.
Documents incorporated by reference: Part III: registrant's proxy
statement prepared in connection with its 1994 annual meeting of
stockholders.
PART I
ITEM 1. BUSINESS
General
TIE/communications, Inc. ("TIE", and together with its subsidiaries,
the "Company") is engaged in the sale, installation and servicing of
telecommunications products, services and software. The Company's principal
products are multi-featured, fully electronic, digitally controlled key, private
automated branch exchange ("PABX") and hybrid telephone systems, voice response
and processing products with computer telephone integration hardware and
software, video conferencing systems and network services including long
distance products as well as preowned phone systems, which are primarily for
business use. The Company's products also include other peripheral data and
telecommunications products. The Company also offers telecommunications
equipment lease and rental programs to its customers.
The Company sells, installs and services its products through a North
American network of approximately 68 sales and service facilities located in
major metropolitan areas in Arizona, Arkansas, California, Colorado,
Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, Nebraska, New Mexico, New Jersey, New York, North Carolina,
Ohio, Oregon, Texas, Utah, Virginia and Washington. In addition, the Company
sells, installs and services its products in Canada through
TIE/telecommunications Canada Limited ("TIE Canada"), which is a 72.7% owned
subsidiary of TIE International, Inc., a wholly-owned subsidiary of TIE. For
certain financial information by geographic area, refer to Notes 17 to the
Successor Company Consolidated Financial Statements and 13 of the Predecessor
Company Consolidated Financial Statements included herein.
The Company's current business strategy emphasizes focusing on the
Company's North American installation and service operations. In connection
with implementing its business strategy, the Company is seeking to expand its
business by offering customers and potential customers a broader range of
products and through the acquisition of additional customer bases of information
distribution related businesses. Consistent with its business strategy, in 1991
the Company discontinued its distribution business in all territories other than
Canada, and in 1992 the Company discontinued its distribution business in
Canada, in connection with the NTK America Corporation ("NTK America")
transactions described below under "Sales and Marketing". See also Item 7.
This business strategy has resulted, and will likely continue to result, in a
substantial decline in the Company's research and development activities, as the
Company becomes primarily a seller and provider of service and software for the
telecommunications and information distribution market place.
On September 17, 1993 TIE acquired substantially all of the
non-Northern Telecom manufactured key/hybrid telephone equipment customer base
of PacTel Meridian Systems ("PTMS"). The acquisition, which was effected
pursuant to an Asset Purchase and Sale Agreement, included the acquisition and
assignment of contracts with customers and customer lists, together with
inventory, vehicles and other equipment of PTMS appropriate to service the
customer base. Certain liabilities of PTMS, directly related to the customer
base, were also assumed by TIE at closing. The liabilities consisted primarily
of prepaid maintenance contracts and warranty reserves. TIE and PTMS are not
related and have no other material relationship. It is TIE's understanding that
PTMS is a California general partnership which is 80% owned by Northern Telecom,
Inc.
Pursuant to the agreement, the Company purchased the customer base,
together with inventory and other equipment of PTMS for an aggregate purchase
price of $7,047,472. The liabilities assumed by the Company of $3,653,271
directly reduced the amount of consideration paid to PTMS for the acquired
assets. The net purchase price of $3,394,201, was effected by: (a) a cash
payment to PTMS of $2,428,843 at the closing; (b) issuance of a note payable by
the Company of $1,000,000 due to PTMS one year from closing with interest at
eight percent per annum; and (c) a subsequent payment of $34,642 by PTMS to the
Company to reflect final adjustments to the purchase price. Company sales
during 1993 relating to the PTMS acquisition totalled approximately $2,800,000.
The pro forma effects of the acquisition on the results of operations, as though
the acquisition had occurred on January 1, 1992, is not determinable.
As an inducement to complete the acquisition, Northern Telecom, Inc.
has guaranteed certain levels of revenue from the acquired customer base for a
period of three years after closing. If those revenue levels are not achieved
Northern Telecom will provide TIE with equipment purchase credits up to
$2,000,000, thus effectively reducing the purchase price of the acquisition. At
the acquisition date, TIE anticipated that, at the historical and expected rate
of deterioration of the customer base revenues, Northern Telecom would be
required to provide TIE with equipment credits at the end of the third year. In
connection with the agreement, TIE became a Northern "Norstar" distributor in
conjunction with certain customer service requirements for the acquired base and
in order to provide a distribution channel in connection with the equipment
credit agreement. This acquisition complemented the Company's existing
operations in California of 4,000 active customers by adding 14,000 new active
customers and 22,000 inactive customers whose primary telephone equipment was
TIE product and others compatible with the business.
During 1993 the Company also acquired certain other domestic and
foreign customer bases. The funds required to finance all acquisitions during
1993 were derived solely from working capital.
TIE is a Delaware corporation, organized in 1971. Its principal
executive offices are located at 8500 West 110th Street, Overland Park, Kansas
66210, and its telephone number is (913) 344-0400.
Reorganization of the Company
On April 8, 1991, TIE and 24 of its domestic subsidiaries (a 25th
subsidiary filed on April 19, 1992) filed petitions under Chapter 11 of the
United States Bankruptcy Code. By virtue thereof, the Company continued to
manage its affairs and operate its business as a debtor- in-possession under
supervision of the United States Bankruptcy Court for the District of Delaware
("Bankruptcy Court"). In connection with the bankruptcy filings, the Company
solicited and obtained from HCR Partners, an Illinois general partnership and
the Company's principal senior secured creditor ("HCR"), an agreement respecting
reorganization of the Company as subsequently reflected in the First Amended
Joint Plan of Reorganization (the "Plan"). The Plan, which was confirmed by the
Bankruptcy Court and became effective on July 1, 1991, provided, among other
things, for (i) the exchange by HCR Partners of a $31,593,750 principal amount
senior secured note issued by the Company and guaranteed by certain of TIE's
subsidiaries (the "HCR Note") for an approximate 75% fully diluted interest in
TIE's new common stock, par value $0.10 per share (the "New Common Stock"); and
(ii) the issuance to the holders of record of TIE's old common stock, par value
$0.05 per share (the "Old Common Stock"), of one share of New Common Stock in
exchange for every 35 shares of Old Common Stock held by such persons, with the
New Common Stock thereby issued aggregating approximately 25% of the outstanding
New Common Stock. The Plan further provided for the deferred payment of certain
of the Company's tax liabilities over six years at statutory interest rates.
Other than with respect to the deferred payment of state and federal tax
liabilities and arrangements with HCR in respect of the HCR Note, all other bona
fide prepetition liabilities of the Company were to be paid in full under the
Plan.
The Plan was implemented by the Company following a strategic
evaluation of alternatives, including the possible sale of the Company,
restructuring of its existing debt outside proceedings under the
Bankruptcy Code, or reorganization of the Company pursuant to filing
under Chapter 11. The conclusion to seek a prepackaged reorganization
under Chapter 11 was reached after a complete evaluation of these
alternatives and was further based upon the Company's ability to meet
its on-going operational costs, scheduled amortization of the HCR Note,
and the timing for the probable payment of scheduled income tax
liabilities.
Consummation of the Plan enabled the Company to reduce its
indebtedness and permitted it to fund its ongoing business needs from
operations through potential lines of credit secured by Company assets.
As a consequence, after the effective date of the Plan the operations of
the Company have been treated for financial statement reporting purposes
on a "Fresh Start Reporting" basis in accordance with the Statement of
Position 90-7 of the American Institute of Certified Public Accountants,
"Financial Reporting by Entities in Reorganization under the Bankruptcy
Code" (see Note 2 to the Successor Company Consolidated Financial
Statements). Accordingly, all references to the Company with respect to
operations and financial statements for any period prior to July 1, 1991
are referred to as the "Predecessor Company," while references to the
Company for operations and financial statement purposes for periods from
July 1, 1991, are referred to as the "Successor Company", except to the
extent general references are made to the Company.
On the effective date of the Plan, by agreement by and between
Marmon Holdings, Inc., a Delaware corporation ("Marmon") and The
Pritzker Family Philanthropic Fund (the "Fund"), the partners of HCR,
HCR was liquidated. In conjunction therewith, the Company has been
advised that the shares of New Common Stock which were to be distributed
pro rata to the partners of HCR were distributed 60% to Marmon and 40%
to the Fund. Accordingly, Marmon currently beneficially owns 45% of the
New Common Stock and the Fund currently beneficially owns 30% of the New
Common Stock.
The Company and HCR entered into a Voting Agreement dated as
of June 18, 1991 (the "Voting Agreement"), which provides, subject to
certain limitations, that until July 1, 1994 all voting securities of
the Company beneficially owned by HCR and its affiliates would, in
connection with the election of "minority designees" (as defined in the
Voting Agreement), be voted by such persons pro rata in the same manner
and proportion that votes of other stockholders of the Company have been
cast. In connection with the liquidation of HCR, Marmon and the Fund
assumed HCR's obligations under the Voting Agreement.
The Company and HCR also entered into a Revolving Credit
Agreement, dated as of June 18, 1991, as thereafter amended (the "Credit
Agreement"). Pursuant to the Credit Agreement, HCR agreed to make
available to the Company up to $10,000,000 on a revolving basis through
December 31, 1993. Advances under the Credit Agreement bore interest at
the per annum rate of 1% plus the "reference rate" of Continental Bank
N.A., and the Company also agreed to pay a quarterly fee of 1/4% per
annum on any unused amounts available under the Credit Agreement. The
Company also paid HCR a facilities fee (as defined in the Credit
Agreement) of $100,000 in connection with the arrangement of the Credit
Agreement. Advances under the Credit Agreement were secured by a
priority lien on substantially all of the assets of the Company and such
indebtedness was guaranteed by the Company's subsidiaries. The rights
and obligations of HCR under the Credit Agreement were assigned to
Marmon pursuant to the liquidation of HCR, and Marmon assumed HCR's
obligations thereunder. Effective December 31, 1993, the term of the
Credit Agreement was extended for an additional three year period ending
December 31, 1996 upon substantially the same terms and conditions,
except that the maximum credit available was reduced to $7,000,000. The
Company will pay a facilities fee of $75,000 in connection with the
extension. The Company believes that the terms and conditions of the
Credit Agreement as extended are competitive with the terms and
conditions available from third parties.
In connection with the consummation of the Plan, the Company
and HCR entered into a Registration Rights Agreement dated as of June
18, 1991 (the "Registration Agreement"). The Registration Agreement
grants to HCR certain rights to have the Company register, on behalf of
HCR, the shares of New Common Stock received by HCR under the Plan. In
connection with the liquidation of HCR, rights in respect of the
Registration Agreement were assigned to Marmon and the Fund.
Products and Services
The Company markets a broad range of fully electronic and
digital, multi- featured key telephone systems, hybrid switching systems
and PABX systems, together with voice response and processing products
incorporating integrated hardware and software and related business
products and services for commercial distribution. A key telephone
system provides each telephone with direct access to multiple outside
trunk lines and internal communications through intercom lines. A PABX
system, through a central switching device, permits the connection of
internal and external lines. A hybrid switching system provides, in a
single system, both key telephone and PABX features. Key telephone
equipment may be used with PABX equipment. Voice response and
processing products include voice-mail and inter- active voice response
systems, which allow via a single line instrument, access to
computerized information and video conferencing, computer telephone
integration and network services.
All of the Company's fully electronic systems are
microprocessor based, digitally controlled systems. This enables the
Company to readily incorporate a variety of additional features as well
as expand a system's capacity through software enhancements. In
addition, a number of the Company's advanced systems provide integrated
voice and data communications in a single system. The Company's PABX
systems utilize digital switching technology which allows them to be an
integral part of data processing and communications networks. The
Company also markets various telephone instruments and attendant
consoles for use with such PABX systems.
The Company's products are intended principally for small to
medium-sized business use. In connection with the sale and service of
its products, the Company also markets peripheral data and
telecommunications products obtained from other suppliers.
Through its network of sales and services facilities, the
Company sells, installs, maintains and upgrades its communication and
information distribution products and services.
Sales and Marketing
Purchasers of telephone systems and telephone instruments in
the United States can be divided into five categories:
- Telephone operating companies (local exchange carriers), which provide
telephone line services to telephone units in the United States and
which also sell, install and service telephone equipment;
- Telephone and electrical supply companies, including subsidiaries of
telephone operating companies, which sell telephone equipment at
wholesale to telephone interconnect companies and affiliated and
nonaffiliated telephone operating companies, but which typically do
not provide any installation or service;
- Telephone interconnect companies which sell telephone equipment to
users in competition with telephone operating companies and also
install and service such equipment;
- Retail stores, including telephone specialty stores; and
- Telephone users.
The Company sells its products, services and software
throughout the United States to telephone users. The Company also sells
its products in Canada to telephone users through TIE Canada, one of the
largest telephone equipment service companies in Canada. One unit of
TIE Canada also assembles and sells some of its proprietary products to
telephone operating companies in Canada, as well as preowned equipment.
The Company also offers telecommunications equipment lease and rental
programs to its customers.
Pursuant to agreements the Company entered into with NTK
America on July 1, 1991, among other things, (i) the Company licensed on
a non-exclusive basis all of its telephone equipment technology to NTK
America for a period of five years for use in all territories not
covered by the agreements with Century Electronics and Systems Co., Ltd.
described below; (ii) NTK America granted to TIE an exclusive right to
distribute certain equipment and a non- exclusive right to distribute
certain other equipment manufactured by NTK America's parent, Nitsuko
Corporation ("NTK"), in Canada, in each case for a period of five years
(which right TIE is authorized to assign to its subsidiaries); (iii) NTK
granted to the Company a non- exclusive right to distribute certain
equipment manufactured by NTK in the United States; (iv) the Company
sold specified inventory to NTK America at a price equal to the
Company's carrying value for such inventory, which price equalled
approximately $9 million; and (v) the Company consigned approximately $5
million of additional telephone inventory to NTK America for resale. If
NTK America sells any of NTK's products in the United States, NTK
America will pay the Company a royalty ranging from 3% to 7.5% of the
purchase price of all equipment designed by the Company, depending on
the distribution channel. In addition, the Company is provided with the
most favorable purchase prices for NTK America products through July 1,
1996. NTK America's obligations have been guaranteed by NTK.
Subsequently, on August 31, 1992, the Company's Canadian
subsidiary, TIE Canada, entered into agreements with NTK America
pursuant to which, among other things, (i) TIE's distribution rights in
Canada were modified, such that NTK America directly granted to TIE
Canada an exclusive right to distribute certain equipment manufactured
by NTK in Canada and a non-exclusive right to distribute other NTK
products in Canada for a period of five years; and (ii) TIE Canada sold
specified inventory to NTK America at a price equal to the Company's
carrying value for such inventory, which price equalled approximately
$207,100. NTK America's obligations have been guaranteed by NTK.
Accordingly, as a result of the transactions with NTK America, the
Company has an exclusive right to distribute certain equipment
manufactured by NTK in Canada and a non-exclusive right to distribute
certain other equipment manufactured by NTK in the United States and
Canada.
Pursuant to the Company's agreements with Century Electronics
and Systems Co., Ltd., formerly known as Chinteik Electronic System Co.
Ltd. ("Century"), entered into on April 10, 1990, Century has the
exclusive right for a period of ten years to market the Company's
products in Southeast Asia, Australia, New Zealand, Hong Kong and China
as well as Europe. Pursuant to a Business Agreement, dated May 22,
1991, by and between the Company, NTK America and Century, Century was
relieved of its obligations to pay royalties to the Company from the
sale of its products by Century. The Company will continue to provide
Century with access to all of the products developed by the Company for
sale in those countries.
Major Customers and Backlog
During 1993, 1992 and 1991, no customer accounted for 10% or
more of the Company's net sales.
The Company had purchase orders and commitments from its
customers for delivery of products into the following year of
approximately $8.4 million and $4.6 million at December 31, 1993 and
1992, respectively. Because a high proportion of the Company's orders
call for prompt delivery, the Company does not believe that its backlog
position at any time is necessarily indicative of future sales. All
orders at December 31, 1993, are expected to be filled within a year of
such date or less.
Source of Supply and Manufacturing
A significant portion of the Company's products are currently
obtained from NTK America. A portion of the Company's key telephone
systems from NTK America have been manufactured by NTK in Thailand. The
products manufactured for the Company by NTK America have been based
primarily upon the Company's product specifications and have been
developed in cooperation with NTK.
The second largest supplier of equipment is Mitel Corporation
of Kanata, Canada which consists of PABX equipment and software. The
Company understands that it is currently the largest Mitel dealer in
North America.
During 1993, the Company entered into a distribution agreement
with Northern Telecom, Inc. for its digital key system product through
TIE's U.S. sales and service network. In connection with that agreement
the Company has committed to purchase at least $7.5 million of equipment
(net of product discounts) from Northern Telecom in 1994.
Research and Development and Patents
The Company is engaged in product development aimed at
expanding the Company's product lines to reflect advances in technology
and an expansion of its telephone markets. During 1993, 1992 and 1991,
the Company spent approximately $881 thousand, $917 thousand and $1.4
million, respectively, on Company-sponsored research and development.
The Company's focus on its installation and service business has
resulted, and will likely continue to result, in a substantial decline
in the Company's research and development activities.
The Company believes that patents are one of the most
significant competitive factors in the conduct of its business. The
Company owns a number of patents in its name and, with respect to
certain products manufactured for the Company by NTK, in its name
together with NTK.
The Company is continually exploring the development,
manufacture and distribution of business communications products in
addition to its present line of products, both by itself and with
others.
Warranty and Maintenance
The Company generally provides customers with a warranty on
equipment and installation for one year after the installation of a new
system. The Company generally receives warranties on equipment from its
suppliers similar to the warranties extended by the Company to its
customers. The Company charges its customers for all repairs done
subsequent to the warranty period.
The Company assists customers in the installation, maintenance
and repair of the Company's products and provides training to the
employees of such customers.
Competition and Government Regulation
The telecommunications equipment industry is characterized by
intense competition and rapid change. The Company's products and
services compete with similar products and services offered by a number
of telephone equipment distributors, certain telephone operating
companies and telephone interconnect companies. The principal telephone
equipment distributor selling its products in the United States is AT&T
Technologies Incorporated. Other major competitors include Northern
Telecom Limited, Toshiba America, Inc. and Executone Information
Systems, Inc.
Effective January 1, 1984, American Telephone and Telegraph
Company, (AT&T) was divested of the regional Bell Telephone operating
companies (the "RBOCs"). The RBOCs are permitted to market, sell,
install and service, pursuant to the antitrust consent decree in
connection with the divestitures, but not manufacture for sale in the
United States, telecommunications products of the type marketed by the
Company. Since the restriction upon manufacture was adopted, efforts
to lift the restriction have been taken periodically by administrations
of the President of the United States, by the Federal Communications
Commission (the "FCC") and in the United States Congress, and similar
efforts may be undertaken in the future.
These changes and changing regulations governing AT&T, the RBOCs and
cable television companies, as well as regulatory changes in
international markets, have substantially altered, and may continue to
affect, the competition for and the pricing, marketing and distributing
of certain telecommunications equipment, including the Company's
products.
The FCC and the Canadian Radio-Television and
Telecommunications Commission ("CRTC") have promulgated regulations
setting installation and equipment standards for telecommunications
products of the type marketed by the Company in the United States and
Canada, respectively, and requiring that all such products be registered
with, and meet standards adopted by, each of the FCC and the CRTC. The
Company's products are designed to comply with these requirements and
the Company has registered all of its current products. The FCC and the
CRTC also require that all telephone operating companies provide
nondiscriminatory interconnection for such products with local exchange
services in order to promote the competitive provision of such products.
In addition, the telephone operating companies must offer local exchange
services on an unbundled basis from such products again to promote the
competitive provision of these products.
Employee Relations
As of December 31, 1993, the Company had 1,164 full-time
employees. The Company believes its relations with its employees are
good.
ITEM 2. PROPERTIES
The Company's principal properties include a leased facility
in Overland Park, Kansas, which is utilized for its principal executive
offices, and a leased facility in West Haven, Connecticut, which is
utilized as a local sales office and a repair facility, including the
buying and selling of preowned communications equipment.
In addition to its principal properties, the Company utilizes
leased space for office, sales, service, repair or warehouse operations
at locations in 24 states and Canada. In addition, the Company owns a
facility in Moline, Illinois, which is utilized for office, sales,
service and warehouse operations.
As of December 31, 1993, the Company leased real property at
an aggregate annual rental of approximately $4.1 million and leased
equipment at an aggregate annual rental of approximately $0.3 million.
For a schedule of the Company's lease commitments, see Note 13 to the
Successor Company Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of lawsuits which arose in
the normal course of business. While any litigation has elements of
uncertainty, the Company believes that none of such lawsuits are
material to the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
Set forth below is information with respect to the executive
officers of TIE as of March 18, 1994:
Has Served as
Name Age Position an Officer Since
---- --- -------- ----------------
George N. Benjamin, III 56 President and CEO 1992
Neal L. Brees 46 Treasurer 1994
Eric V. Carter 58 Executive Vice President 1984
Robert H. Kalina 37 Vice President -- Engineering
& Operations 1993
Edward F. Muehlberger 47 Vice President -- Human Resources 1994
Randolph K. Piechocki 41 President -- TIE Systems, Inc. 1990
a subsidiary of TIE
Robert A. Pritzker 67 Chairman 1991
Robert W. Webb 54 Vice President, Secretary,
General Counsel 1993
George N. Benjamin, III has served as President and Chief Executive
Officer of TIE since April 1, 1992. From August 1988 through April 1, 1992, he
served as Group Vice President of The Marmon Group, Inc. From July 1987 to
August 1988, Mr. Benjamin was President of Trig Systems, a telecommunications
management consulting group founded by him. From December 1985 to July 1987 Mr.
Benjamin was President of Ericsson, Inc., a wholly-owned subsidiary of
Ericsson, N.A.
Neal L. Brees became Treasurer of TIE effective January 31, 1994.
From December 1988 to August 1993, he was assistant Treasurer of The Marley
Company. From March 1981 to December 1988, he served as Manager, Financial
Systems of The Marley Company.
Eric V. Carter has served as Executive Vice President of TIE since
April 1, 1992. From April 9, 1991 through March 30, 1992, he served as
President of the Company. Mr. Carter was Executive Vice President of TIE from
June 1990 through April 1991, and he served as Vice President - Operations of
TIE from December 1987 through June 1990.
Robert H. Kalina has served as Vice President of Engineering and
Operations of TIE since March 8, 1993. From June 6, 1991 through March 7,
1993, he served as Director of Engineering and Operations of TIE. Mr. Kalina
was Director of Corporate Quality Assurance of TIE from March 1987 through
May 1991.
Edward F. Muehlberger has served as Vice President -- Human Resources
of TIE since February 21, 1994. From March 1992 to December 1993, he served in
the senior Human Resources position including Assistant Vice President -- Human
Resources and Quality for Southwire Company. From February 1984 to December
1991, he served as Vice President, Human Resources for Blue Circle America,
Inc. From February 1974 to February 1984, he served in various senior level
Human Resource positions including Group Human Resources Director for The Marmon
Group.
Randolph K. Piechocki has served as President of TIE Systems, Inc.
since January 1990. From July 1988 through December 1989, he was Vice President
of TIE Systems, Inc. From July 1981 to July 1988, he served as Vice President
and Branch Manager of CTG/British Telecom, located in New York.
Robert A. Pritzker has served as Chairman of the Board of the Company
since April 9, 1991, Director and President of each of Union Tank Car Company,
The Marmon Group, Inc., Marmon Industrial Corporation, Marmon Holdings, Inc. and
The Marmon Corporation, since prior to 1988. Elected to the Board of Directors
in 1991; previously served on the Board of Directors of the Company from August
1987 through August 1989.
Robert W. Webb has served as Vice President and Secretary of each of
The Marmon Group, Inc., Marmon Industrial Corporation and Marmon Holdings, Inc.
since prior to 1988, and General Counsel and Secretary of Union Tank Car
Company since prior to 1988. He was first elected as Director of the Company in
April 1991 and as Vice President of the Company in June 1993.
All of the Company's executive officers are full-time employees of the
Company with the exception of Mr. Carter, Mr. Pritzker and Mr. Webb. Mr.
Carter, pursuant to an Employment Agreement dated July 1, 1992, devotes an
average of 80 hours per calendar quarter to his duties as an Executive Vice
President of the Company. Mr. Piechocki served in the capacity indicated during
the reorganization proceedings and Mr. Carter served as President during such
proceedings. See "Reorganization of the Company" under Item 1. None of the
Company's directors or executive officers are related.
Additional information respecting executive officers as well as
directors will be included in TIE's proxy statement prepared for use at its
annual meeting of stockholders scheduled to be held on June 22, 1994 (the "Proxy
Statement"). TIE intends to file a definitive copy of the Proxy Statement with
the Securities and Exchange Commission not later than 120 days after the close
of its fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
TIE's Common Stock is traded on the American Stock Exchange and its
symbol is TIE. The quarterly high and low trading prices for the Common Stock
on the American Stock Exchange as set forth below are as reported by the
American Stock Exchange.
1992 High Low
---- ---- ---
First Quarter 9 1/4 7 3/4
Second Quarter 8 1/8 5 1/4
Third Quarter 6 7/8 4 7/8
Fourth Quarter 12 1/4 5 3/8
1993 High Low
---- ---- ---
First Quarter 14 3/8 10 1/2
Second Quarter 11 3/4 9
Third Quarter 8 7/8 7 3/4
Fourth Quarter 10 3/8 7 1/8
The number of persons who were holders of record of the Company's
Common Stock on February 28, 1994, was 7,635.
The Company has not paid any cash dividends on its Common Stock since
its organization. For the foreseeable future, the Company expects that any
earnings will continue to be retained for use in its business. The terms of
certain agreements relating to the Company's financing restrict the amount of
dividends which may be paid by the Company. Refer to Note 10 to the Successor
Company Consolidated Financial Statements for further details.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION> SUCCESSOR COMPANY PREDECESSOR COMPANY
--------------------------------------- --------------------------------------
Years Ended December 31, Years Ended December 31,
----------------------- Six Months Six Months -----------------------
Ended Ended
1993 1992 Dec. 31, 1991 June 30, 1991 1990 1989
-------- ------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $102,531 $101,154 $52,269 $ 51,541 $100,587 $107,153
Income (loss) from continuing operations 1,682 1,232 (183) (40,788) (11,353) (45,568)
Income (loss) from discontinued operations -- (13) 7 (4,534) 3,949 (24,257)
Extraordinary income -- -- -- 18,896 -- --
Preferred stock dividends and accretion -- -- -- -- (1,335) (5,192)
Net income (loss) applicable to common stock 1,682 1,219 (176) (26,426) (8,739) (75,017)
Earnings (loss) per common share:
Continuing operations $ 0.42 $ 0.31 $ (0.05) $ (40.45) $ (12.82) $ (51.33)
Discontinued operations -- -- 0.01 (4.50) 3.99 (24.53)
Extraordinary income -- -- -- 18.74 -- --
Cash dividends declared per common share -- -- -- -- -- --
At period end:
Total assets $ 63,266 $ 65,797 $76,531 $ 94,938 $132,398 $181,614
Working capital 6,119 12,503 11,209 10,587 10,495 30,682
Long-term debt -- 398 777 4,998 33,795 6,778
Cumulative Redeemable
Convertible Preferred Stock -- -- -- -- -- 42,897
Common stockholders' equity 23,239 21,618 20,781 21,096 31,792 41,234
</TABLE>
All references to per share amounts have been restated to reflect the 1 for 35
reverse stock split which was treated as being effective on June 30, 1991.
See Notes 1, 2, 10 and 11 to the Consolidated Financial Statements--Predecessor
Company and Note 10 to the Consolidated Financial Statements--Successor
Company for details regarding factors that materially affect the comparability
of the information reflected in the table above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUCCESSOR COMPANY
The following discussion should be read in conjunction with the consolidated
financial statements for the Successor Company and notes thereto.
Results of Operations -- 1993 Compared to 1992:
For the year ended December 31, 1993, the Company generated income from
continuing operations of $1.7 million or $0.42 per share as compared to income
from continuing operations of approximately $1.2 million or $0.31 per share for
the year 1992. The increase in net income from 1992 is primarily due to a
non-operating increase of $1.1 million in other income, net as discussed in
more detail in the following paragraphs. The increased sales volume and a
decline in gross margin percentage resulted in a decline in gross margin
dollars. The operating results of the Company for 1993 were favorably affected
by the change in the amortization period for intangible assets that was
implemented on April 1, 1992.
Total net revenue for 1993 increased $1.4 million or 1.4% as compared to 1992.
An increase of $1.7 million occurred in new equipment sales with a slight
decline of $0.3 million in net revenue from services provided. Net revenue from
new equipment sales accounted for approximately 74.4% of the total revenue for
1993, up slightly from approximately 73.7% for 1992. The remaining revenue was
generated by service transactions. The components of total net revenue are
expected to continue this relationship in future periods.
The gross margin percentage for 1993 was 50.5% as compared to 51.4% for 1992.
The decline in the gross margin percentage is due to the change in sales mix
with a slightly higher proportion of revenue being generated from new equipment
sales and sales of proprietary products, which carry a lower margin versus
service transactions. Lower margins on new equipment sales are acceptable as
these sales generate possible future service business. Additionally, the gross
margin on service revenue has declined from 68.6% in 1992 to 60.9% in 1993 due
to increased competition in the industry. The Company expects that these
factors will continue to affect the gross margin percentages in the future but
not cause significant future deterioration.
Another factor that may affect the Company's gross margin percentage in the more
distant future relates to the Company's agreement with NTK America. Under that
agreement, the Company is provided with the most favorable purchase prices on
NTK America products for the duration of the agreement. Once the agreement
expires (July 1996) or the Company is no longer purchasing the related product
lines (whichever occurs earlier), it is anticipated that the cost to the Company
to purchase these products will increase thereby lowering the gross margin. The
Company cannot estimate the impact of the foregoing on future gross margin at
this time.
Operating expenses for 1993 remained relatively consistent with 1992. Operating
expenses were favorably affected by a decline in amortization expense due to the
change in the amortization period of intangible assets which was implemented on
April 1, 1992. This change accounted for a reduction in operating expenses of
approximately $268 thousand for 1993 as compared to 1992. The Company is
continuing to monitor operating expense levels and will seek to continue to
control costs in future periods. It is not expected that operating expenses
will increase significantly in the future without a corresponding significant
increase in revenue.
Other income, net of $2.0 million for 1993 increased $1.1 million as compared to
1992. Other income, net is substantially comprised of royalty income of $1.5
million and $1.3 million for the years 1993 and 1992, respectively, primarily
from NTK America for its sale of equipment designed by the Company. The NTK
royalty agreement is in effect through July, 1996. Other income, net for 1993
also includes certain nonrecurring items including the gain on the disposal of
the Company's Connecticut headquarters facility of approximately $1.7 million
which occurred in the third quarter of 1993, extinguishing all long-term debt
except for statutory tax settlements. This gain was partially offset by the net
cost of the relocation of the headquarters to Kansas of approximately $1.3
million. Refer to Note 6 to the Successor Company to the Consolidated Financial
Statements for further details regarding these transactions. Additionally, the
Company recorded approximately $0.4 million of income in December 1993 related
to settlement of a property insurance claim and $0.2 million of expenses
associated with the attempted privatization of its Canadian subsidiary. All
other items included in other income, net increased $0.3 million in the
aggregate in 1993 as compared to 1992.
In 1993, TIE focused its efforts on maintaining its existing customer base and
implementation of training and marketing programs related to its new strategic
businesses. The purchase of certain assets of PacTel Meridian Systems (PTMS)
was consummated during the month of September and the California region fourth
quarter results were below expectations due to the logistics and non-recurring
expenses related to the transition of that base into the domestic direct sales
and service business. Earlier in the year the Company's Canadian subsidiary
struck an alliance with Alberta Government Telephone (AGT). The AGT alliance is
expected to have a positive impact on the results of TIE Canada.
In February, 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes".
SFAS No. 109 requires a change from the deferred method of accounting for income
taxes to the asset and liability method of accounting for income taxes.
Effective January 1, 1993, the Company prospectively adopted SFAS No. 109.
Results of Operations - 1992 Compared to the Six Months Ended December 31, 1991:
Due to the Company's reorganization on July 1, 1991 (refer to "Reorganization of
the Company" under Item 1 and Note 2 to the Successor Company Consolidated
Financial Statements), the Successor Company operations cover both the year
ended December 31, 1992 and the six months ended December 31, 1991. The
comparative discussion to the prior year's results is presented for the last six
months of 1992 only as the Successor Company results of operations for the year
ended December 31, 1992 are not comparable to the results of operations of the
Predecessor Company.
Fiscal 1992 was a year of transition for the Company as the strategic direction
of the Company was expanded from a key system based business to a broader
platform of related products, services and software. The net income for the
year of $1.2 million or $0.31 per share is primarily the result of the Company's
cost reduction program coupled with the change in strategic direction.
For the six months ended December 31, 1992, the Company had net income of $1.5
million or $0.38 per share as compared to a loss of $176 thousand or $0.04 per
share for the comparable 1991 period. This improvement is primarily due to the
decline in operating expenses in 1992 which is the result of the Company's
efforts to reduce fixed and variable operating expenses. Additionally, the
operating results of the Company were favorably affected by the change in the
amortization period for intangible assets which increased the Company's net
income for the year ended December 31, 1992 by $723,000.
For the year ended December 31, 1992, net revenue from equipment sales accounted
for approximately 73.7% of total net revenue with the remaining 26.3% of net
revenue being derived from service transactions. Total net revenue for the
second half of 1992 declined slightly ($172 thousand) from the comparable 1991
period. Net revenue from equipment sales increased $952 thousand from the
second half of 1991 to the second half of 1992 while net revenue from service
transactions declined by $1.1 million for the comparable period.
The percentage of gross margin for the year ended December 31, 1992 was 51.4%.
The percentage of gross margin for the six months ended December 31, 1992 was
50.3% as compared to 52.7% for the same 1991 period. The decline in the gross
margin percentage is due to the shift in sales mix with a higher proportion of
revenue being generated from new equipment sales versus service transactions and
also due to a change in product mix sold. Additionally, the decline in the gross
margin percentage reflects the intense competition in the industry.
Operating expenses for the year ended December 31, 1992 totalled $51.1 million
or 50.5% of sales. Operating expenses for the six months ended December 31,
1992 and December 31, 1991 were $24.6 million and $28.5 million, respectively.
The significant decline of $3.9 million or 13.7% in operating expenses primarily
reflects the benefit of cost reduction programs implemented in the second
quarter of 1992 in order to reduce the break-even sales level of the Company.
To a lesser extent, the operating expenses were also favorably affected by a
decline in amortization expense due to the change in the amortization period of
intangible assets which was implemented in the second quarter of 1992.
Interest income and interest expense for the last six months of 1992 have not
varied significantly from the comparable 1991 period. Other income, net
includes royalty income of $1.3 million, $719 thousand and $514 thousand for the
year ended December 31, 1992 and the six months ended December 31, 1992 and
1991, respectively, from NTK America for its sale of equipment designed by the
Company. This royalty agreement is in effect through July 1996.
During the third quarter of 1992, the Company completed the divestiture of its
distribution business (which it had begun in 1991) with the sale of the Canadian
subsidiary's key telephone system distribution business to NTK America. The
results of this transaction have been reported as discontinued operations for
all periods presented.
Inflation
Inflation has had a relatively minor impact on the Company as the rate of
inflation has declined in recent reporting periods. If operating expenses
increase, then the Company, to the extent permitted by competition, may attempt
to recover these increased costs by increasing sales prices to customers.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1993 totalled $8.1 million, a decrease
of $5.9 million from December 31, 1992. For the year ended December 31, 1993,
the Company used approximately $1.1 million of cash for operating activities,
which included restructuring, bankruptcy and other non-operating related
expenditures of approximately $1.9 million. During 1993 approximately $1.9
million was provided from cash received on notes receivable and the Company used
approximately $1.9 million for payment of the long-term tax liability, $869
thousand for net capital expenditures and $796 thousand to purchase a portion
of the minority interest in the Company's Canadian subsidiary. During 1993 the
Company paid $3.3 million to expand its service network by acquiring domestic
customer base using its available cash balances rather than borrowing funds
under its revolving line of credit. The acquisition of non-Northern Telecom
manufactured key/hybrid telephone equipment customer base from PacTel Meridian
Systems was the largest acquisition and is described in Note 9 to the Successor
Company Consolidated Financial Statements.
Upon confirmation of the Company's Plan of Reorganization (refer to Note 1 to
the Successor Company Consolidated Financial Statements), HCR Partners made
available to the Company a $10.0 million revolving line of credit through
December 31, 1993. No funds were borrowed under this line of credit.
Substantially all of the Company's assets are secured under this agreement and
the indebtedness under this line of credit has been guaranteed by the Company's
subsidiaries. The Company agreed that in connection with the liquidation of HCR
Partners, the revolving line of credit agreement could be assigned to and
assumed by Marmon Holdings, Inc. Effective December 31, 1993, the term of the
Credit Agreement was extended for an additional three year period ending
December 31, 1996 upon substantially the same terms and conditions, except that
the maximum credit available was reduced to $7,000,000. The Company will pay a
facilities fee of $75 thousand in connection with the extension. The Company
believes that the terms and conditions of the Credit Agreement as extended are
competitive with the terms and conditions available from third parties.
The Company believes sufficient cash resources exist to support its short-term
needs through currently available cash, cash expected to be generated from
future operations, or from the line of credit previously mentioned. The Company
can borrow against this line of credit if needed, assuming no breach of any of
the covenants (which include restrictions on asset purchases and require
specified levels of working capital and net worth to be maintained) and that the
aggregate principal amount outstanding at any time under the credit agreement
does not exceed the "Borrowing Base" (which is based on inventory and
receivables) set forth in the credit agreement. The Company was in compliance
with or had received a waiver of the covenants as of December 31, 1993 and
therefore was qualified to borrow the entire $7,000,000 available under the
line. Provided that the Company continues to maintain or improve its operating
results and continues to generate positive cash flow, it does not expect to draw
down this line to fund operations. Although the Company's operating results
have improved significantly since the reorganization, the industry in which the
Company is engaged is characterized by intense competition and this factor,
coupled with the effect of an uncertain economic recovery, makes the future
results of the Company extremely difficult to predict.
The Company does not anticipate a need for long-term financing at this time. If
the need for additional long-term financing should arise, management believes it
could be available if the Company continues a trend of profitability. The
Company is not certain of the cost, terms and conditions upon which such
financing would be available.
At December 31, 1993 the Company did not have any material commitments for
capital expenditures.
Recent Accounting Pronouncements
The Company does not provide post-retirement or post-employment benefits and,
therefore, there is no impact on the Company under SFAS 106, "Employers
Accounting for Post-Retirement Benefits Other Than Pensions" and SFAS 112
"Employers Accounting for Post-Employment Benefits".
PREDECESSOR COMPANY
The following discussion should be read in conjunction with the consolidated
financial statements for the Predecessor Company and notes thereto.
Significant Events
On June 19, 1991 the Company's Plan was confirmed by the Bankruptcy Court. In
accordance with the Plan, TIE issued 75% of its New Common Stock to HCR in
exchange for $31,594,000 principal amount of the Company's debt held by HCR.
Accrued interest owed to HCR of $3,124,000 and warrants to purchase 1,000,000
shares of the Old Common Stock held by HCR were extinguished. See
"Reorganization of the Company" under Item 1.
In accordance with Statement of Position 90-7 of the American Institute of
Certified Public Accountants, the Company has applied Fresh-Start Reporting to
its closing balance sheet at June 30, 1991. Upon emergence from Chapter 11
protection, Fresh-Start Reporting requires the Company to allocate its
reorganization value to the entity's assets. Liabilities are stated at their
present values and the prior accumulated deficit is eliminated when restating
the equity section of the balance sheet. Any remaining, unallocated
reorganization value was included on the balance sheet as an intangible asset.
The June 30, 1991 financial statements include the adjustments related to the
implementation of Fresh-Start Reporting. These adjustments resulted in a net,
one-time charge to income of $29,002,000.
On May 14, 1991, the Company entered into an agreement with NTK America to sell
specified inventory that it owned to NTK America at a price equal to the
Company's carrying value of such inventory. This transaction, which closed on
July 1, 1991, resulted in the sale of $9,020,000 in inventory to NTK America.
Additionally, the Company licensed, on a nonexclusive basis, all of its
telephone equipment technology to NTK America for a period of five years.
During that period, the Company will have an exclusive right to distribute
certain equipment manufactured by NTK America's parent, NTK, in Canada, and a
nonexclusive right to distribute certain other NTK products in the United States
and in Canada. If NTK America sells any of NTK's products in the United States
during the five year period, NTK America will pay the Company a royalty ranging
from 3% to 7.5% of the purchase price of all equipment designed by the Company,
depending on the distribution channel. In addition, the Company is provided
with the most favorable purchase prices for NTK America products during the
period of the agreement.
The Company commenced discontinuation of its distribution operations.
Accordingly, the operating results for this segment have been classified as
discontinued operations. In connection with the Company's decision to exit this
segment of the business, a provision of $3,100,000 was set up in the second
quarter of 1991 to reflect the writedown of assets related to this segment to
net realizable value and to provide for certain phaseout costs. During the
third quarter of 1992, the Company completed the divestiture of its distribution
business with the sale of the Canadian subsidiary's key system distribution
business to NTK America. The Company has also reported the results of this
transaction in discontinued operations.
Results of Operations
Net revenue from continuing operations for the six months ended June 30, 1991
increased 1.8% from the comparable six month 1990 period. Revenue from
equipment sales for this period dropped 6.6% from that period as a result of the
poor economic climate and somewhat negative customer reaction to the Company's
Chapter 11 filing. Service revenue for the six months ended June 30, 1991
increased 36.0% from the comparable 1990 six month period primarily due to the
CTG, Inc. acquisition by the Company's Canadian subsidiary and continued
expansion in the Company's domestic direct sales and service organization.
The percentage of gross margin to sales in the first six months of 1991 of 51.5%
was significantly above the margin of 45.1% for the first six months of 1990.
The increase in the gross margin percentages is largely due to a higher
proportion of revenue being generated by the Company's direct sales and service
organization which revenue carries a higher gross margin. Additionally the
Company's Canadian subsidiary experienced higher gross margin percentages in
1991 due to the expansion of its service and repair organizations.
Operating expenses for the six months ended June 30, 1991 increased by $201
thousand from the comparable 1990 period. The slight increase is due to
operating expenses associated with the expansion of the direct sales and service
organization.
During the second quarter of 1991, the Company established a $469,000,
restructuring reserve representing the estimated cost of upgrading the present
computer systems to accommodate the structure of the reorganized Company.
Interest income, interest expense and other income, net for the six months ended
June 30, 1991 approximated the prior year levels.
Various items related to the reorganization of the Company and the
implementation of Fresh-Start Reporting have been recorded. These represent
non-recurring adjustments recorded to properly reflect the total anticipated
costs attributable to the Chapter 11 filing as well as the final adjustments
required to restate the Company's balance sheet and implement Fresh-Start
Reporting.
Tax expense for the six months ended June 30, 1991 resulted from state and local
taxes and from taxes on the profitable operations of the Company's foreign
subsidiaries. Domestic tax benefits from losses reported for the six months
ended June 30, 1991 were not recognized due to the Company's inability to
carryback such losses.
As previously discussed, Discontinued Operations for the six months ended June
30, 1991 represents the operating results for the distribution operations as
well as the estimated loss on disposal. The Company commenced discontinuation
of these operations effective in the second quarter of 1991 and completed the
discontinuation in the third quarter of 1992.
In connection with the confirmation of the Plan, the Company recorded
extraordinary income of $18,896,000 from the reorganization transactions
involving HCR as more fully explained in Note 11 to the Predecessor Company
Consolidated Financial Statements.
Liquidity and Capital Resources
Cash and cash equivalents of $14.6 million at June 30, 1991 decreased $5.2
million from December 31, 1990. During the six months ended June 30, 1991, the
Company used approximately $3.0 million for operating activities, $919 thousand
for investment activities and $1.3 million for financing activities, including
$1.7 million for repayment of long-term and short-term debt and $681 thousand
for net capital expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
SUCCESSOR COMPANY
Page
----
Independent Auditors' Report 23
Financial Statements:
Consolidated Balance Sheets -- December 31, 1993 and 1992 24-25
Consolidated Statements of Operations -- Years Ended
December 31, 1993 and 1992 and Six Months Ended December 31, 1991 26
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1993 and 1992 and Six Months Ended December 31, 1991 27-28
Consolidated Statements of Stockholders' Equity -- Years Ended
December 31, 1993 and 1992 and Six Months Ended December 31, 1991 29
Notes to Consolidated Financial Statements 30-43
Financial Statement Schedules:
Schedule VIII: Valuation and qualifying accounts 44
Schedule X: Supplementary income statement information 45
All other schedules are either not required or the information is
provided in the footnotes to the financial statements.
PREDECESSOR COMPANY
Independent Auditors' Report 46
Financial Statements:
Consolidated Statement of Operations -- Six Months Ended June 30, 1991 47-48
Consolidated Statement of Cash Flows -- Six Months Ended June 30, 1991 49-50
Consolidated Statement of Stockholders' Equity -- Six
Months Ended June 30, 1991 51
Notes to Consolidated Financial Statements 52-59
Financial Statement Schedules:
Schedule VIII: Valuation and qualifying accounts 60
Schedule IX: Short-term borrowings 61
Schedule X: Supplementary income statement information 62
All other schedules are either not required or the information is
provided in the footnotes to the financial statements.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TIE/communications, Inc. (SUCCESSOR COMPANY)
We have audited the consolidated financial statements of TIE/communications,
Inc. and subsidiaries (Successor Company) ("the Company") as listed in the
accompanying index. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedules as listed in
the accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial st
atements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TIE/communications,
Inc. and subsidiaries (Successor Company) at December 31, 1993 and 1992, and the
results of their operations and their cash flows for the years ended December
31, 1993 and 1992 and the six month period ended December 31, 1991, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 11, the Company adopted the provisions of the Statement of
Financial Accounting Standards No. 109 - "Accounting for income taxes",
effective January 1, 1993.
/s/ KPMG Peat Marwick
KPMG Peat Marwick
February 18, 1994
Kansas City, Missouri
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
SUCCESSOR COMPANY
December 31,
1993 1992
---- ----
Current assets:
Cash and cash equivalents $ 8,133,000 $14,052,000
Notes and accounts receivable, net
of allowance for doubtful accounts:
December 31, 1993 $1,528,000 12,941,000 10,614,000
December 31, 1992 $1,913,000
Inventories 14,223,000 12,443,000
Assets held for sale -- 2,699,000
Restricted cash equivalents 290,000 1,629,000
Current portion of long-term notes receivable 79,000 2,353,000
Current deferred tax assets, net 232,000 --
Prepaid expenses 1,059,000 926,000
Miscellaneous 2,345,000 1,061,000
----------- -----------
Total current assets 39,302,000 45,777,000
----------- -----------
Property, net 1,874,000 1,893,000
Intangible assets, net 19,655,000 16,597,000
Long-term deferred tax assets, net 1,805,000 --
Long-term notes receivable 473,000 1,132,000
Other assets 157,000 398,000
----------- -----------
Total assets $63,266,000 $65,797,000
----------- -----------
----------- -----------
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
SUCCESSOR COMPANY
December 31,
----------------------------
1993 1992
---- ----
Current liabilities:
Notes payable and current
maturities of long term debt $ 1,424,000 $ 4,581,000
Accounts payable 8,590,000 6,913,000
Accrued expenses 9,832,000 9,676,000
Restructuring reserves 777,000 1,636,000
Deferred service revenue 10,207,000 8,099,000
Income taxes payable 2,353,000 2,369,000
----------- -----------
Total current liabilities 33,183,000 33,274,000
----------- -----------
Other non-current liabilities 739,000 1,801,000
Long-term debt -- 398,000
Long-term tax liability 4,370,000 6,229,000
Minority interest 1,735,000 2,477,000
----------- -----------
Total liabilities 40,027,000 44,179,000
----------- -----------
Stockholders' equity:
Common Stock, par value $0.10 399,000 399,000
Authorized -- 10,000,000 shares
Issued -- 3,988,392 shares
Outstanding -- 3,981,338 shares
Additional paid-in capital 19,217,000 19,217,000
Retained Earnings 2,725,000 1,043,000
Common Stock in treasury, at cost (60,000) (60,000)
----------- -----------
22,281,000 20,599,000
Cumulative currency translation adjustment 958,000 1,019,000
----------- -----------
Total stockholders' equity 23,239,000 21,618,000
----------- -----------
Total liabilities and stockholders' equity $63,266,000 $65,797,000
----------- -----------
----------- -----------
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
SUCCESSOR COMPANY
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------- Six Months
Ended
1993 1992 December 31, 1991
----------- ------------ ------------------
<S> <C> <C> <C>
Net revenue:
Equipment sales $ 76,263,000 $ 74,540,000 $ 37,815,000
Services provided 26,268,000 26,614,000 14,454,000
------------ ------------- ------------
102,531,000 101,154,000 52,269,000
------------ ------------- ------------
Cost of sales:
Equipment sales 40,453,000 40,806,000 20,522,000
Services provided 10,264,000 8,370,000 4,197,000
------------ ------------- ------------
50,717,000 49,176,000 24,719,000
------------ ------------- ------------
Gross margin:
Equipment sales 35,810,000 33,734,000 17,293,000
Services provided 16,004,000 18,244,000 10,257,000
------------ ------------- ------------
51,814,000 51,978,000 27,550,000
------------ ------------- ------------
Operating expenses 51,094,000 51,097,000 28,461,000
------------ ------------- ------------
Operating income (loss) from
consolidated operations 720,000 881,000 (911,000)
Interest income 860,000 1,032,000 691,000
Interest expense (538,000) (541,000) (249,000)
Other income, net 1,960,000 877,000 766,000
------------ ------------- ------------
Pretax income 3,002,000 2,249,000 297,000
Provision for income taxes 1,238,000 895,000 392,000
------------ ------------- ------------
1,764,000 1,354,000 (95,000)
Equity in loss of affiliate -- -- (60,000)
------------ ------------- ------------
Income (loss) before minority interest 1,764,000 1,354,000 (155,000)
Minority interest 82,000 122,000 28,000
------------ ------------- ------------
Income (loss) from continuing operations 1,682,000 1,232,000 (183,000)
Discontinued operations --
Estimated income (loss) on disposal -- (13,000) 7,000
------------ ------------- ------------
Net income (loss) $ 1,682,000 $ 1,219,000 $ (176,000)
------------ ------------- ------------
------------ ------------- ------------
Primary and fully diluted income per share:
Continuing operations $ 0.42 $ 0.31 $ (0.05)
Discontinued operations -- -- 0.01
------------ ------------- ------------
$ 0.42 $ 0.31 $ (0.04)
------------ ------------- ------------
------------ ------------- ------------
Average shares outstanding 3,981,338 3,981,338 3,981,493
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUCCESSOR COMPANY
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------- Six Months
Ended
1993 1992 December 31, 1991
---------- ---------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,682,000 $1,219,000 $ (176,000)
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 2,235,000 2,544,000 2,630,000
Deferred income and income taxes (52,000) (57,000) (28,000)
Equity in loss of affiliates, net -- -- (60,000)
Minority interest 82,000 122,000 28,000
Deferred income taxes 1,204,000 755,000 317,000
Gain on disposition of building (1,738,000) -- --
Relocation expense 1,300,000 -- --
Gain on sale of Canadian distribution business -- (160,000) --
Changes in working capital, net of
acquisitions and divestitures:
Accounts receivable (2,350,000) 2,296,000 3,487,000
Inventories (932,000) 3,350,000 (3,842,000)
Receivable from NTK America -- -- 8,526,000
Restricted cash equivalents 1,329,000 -- 265,000
Other receivables (801,000) 865,000 176,000
Miscellaneous current assets (392,000) 565,000 620,000
Accounts payable 1,725,000 2,329,000 (4,848,000)
Accrued expenses (991,000) (2,407,000) (2,421,000)
Restructuring reserves (1,904,000) (5,978,000) (2,847,000)
Deferred service revenue (1,500,000) (661,000) 80,000
Taxes payable (6,000) (89,000) 418,000
---------- ---------- -----------
Cash flows from (used for)
operating activities (1,109,000) 4,693,000 2,325,000
Cash flows from investment activities:
Capital expenditures, net of disposals (869,000) (446,000) (934,000)
Cash received from notes receivable 1,918,000 -- --
Increase (decrease) in investment in and
advances to affiliates -- (73,000) 201,000
Cash proceeds from sale of investment in
affiliate -- 202,000 --
Assets of businesses acquired (1) (3,258,000) (1,265,000) (989,000)
Purchase of minority interest of subsidiary (796,000) (500,000) --
Proceeds from sale of Canadian distribution
business -- 762,000 --
Other -- (74,000) (320,000)
---------- ---------- -----------
Cash flows used for
investment activities (3,005,000) (1,394,000) (2,042,000)
</TABLE>
(Continued)
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SUCCESSOR COMPANY
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------- Six Months
Ended
1993 1992 December 31, 1991
---------- ----------- -----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Payment of long-term tax liability $(1,859,000) $(1,766,000) $ (540,000)
Long-term and short-term debt repayments (455,000) (473,000) (304,000)
Other 629,000 324,000 (199,000)
----------- ----------- -----------
Cash flows used for financing activities (1,685,000) (1,915,000) (1,043,000)
Impact of changes in foreign currency
translation (120,000) (227,000) (30,000)
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents (5,919,000) 1,157,000 (790,000)
Cash and cash equivalents at the
beginning of period 14,052,000 12,895,000 13,685,000
----------- ----------- -----------
Cash and cash equivalents at the
end of period $ 8,133,000 $14,052,000 $12,895,000
----------- ----------- -----------
---------------------------------
Cash flow information:
Interest paid $ 513,000 $ 618,000 $ 443,000
----------- ----------- -----------
----------- ----------- -----------
Income taxes paid (excluding
payment of long term tax liability) $ 176,000 $ 269,000 $ 568,000
----------- ----------- -----------
----------- ----------- -----------
(1) Acquisitions:
Inventory $(1,004,000) $ (416,000) $ (332,000)
Other current assets -- (22,000) --
Intangible assets (7,426,000) (947,000) (1,019,000)
Other assets (3,000) -- (92,000)
Accrued expenses 491,000 55,000 83,000
Deferred service revenue 3,684,000 65,000 371,000
Note payable 1,000,000 -- --
----------- ----------- -----------
$(3,258,000) $(1,265,000) $ (989,000)
----------- ----------- -----------
----------- ----------- -----------
(2) Non-cash activity:
Reduction of intangible assets
to establish deferred tax asset $ 3,241,000 $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
Note received in exchange for
Canadian distribution business $ -- $ 686,000 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SUCCESSOR COMPANY
SIX MONTHS ENDED DECEMBER 31, 1991 AND
YEARS ENDED DECEMBER 31, 1992 AND 1993
<TABLE>
<CAPTION>
Additional Retained Cumulative
Common Stock Paid-in Earnings Treasury Stock Translation
Shares Issued Amount Capital (Deficit) Shares Amount Adjustment Total
------------- ------ -------- -------- ------ ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- July 1, 1991 3,988,392 $399,000 $19,217,000 $ -- -- $ -- $1,480,000 $21,096,000
Purchase of Treasury Stock (7,054) (60,000) (60,000)
Cumulative Translation
Adjustment (79,000) (79,000)
Net loss for the six months
ended December 31, 1991 (176,000) (176,000)
--------- -------- ----------- --------- ------ -------- ---------- -----------
Balance-December 31, 1991 3,988,392 399,000 19,217,000 (176,000) (7,054) (60,000) 1,401,000 20,781,000
Cumulative Translation
Adjustment (382,000) (382,000)
Net income for the year 1992 1,219,000 1,219,000
--------- -------- ----------- --------- ------ -------- ---------- -----------
Balance-December 31, 1992 3,988,392 399,000 19,217,000 1,043,000 (7,054) (60,000) 1,019,000 21,618,000
Cumulative Translation
Adjustment (61,000) (61,000)
Net income for the year 1993 1,682,000 1,682,000
--------- -------- ----------- ---------- ------ -------- ---------- -----------
Balance -- December 31, 1993 3,988,392 $399,000 $19,217,000 $2,725,000 (7,054) $(60,000) $ 958,000 $23,239,000
--------- -------- ----------- ---------- ------ -------- ---------- -----------
--------- -------- ----------- ---------- ------ -------- ---------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
SUCCESSOR COMPANY
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: On June 19, 1991, the Company's First Amended Joint Plan
of Reorganization (the "Plan") was confirmed by the United States Bankruptcy
Court for the District of Delaware. The confirmed Plan provided for the Company
to issue Common Stock to HCR Partners in exchange for the principal portion of
its secured debt to HCR Partners ($31,594,000). Accrued interest on HCR
Partners secured debt ($3,124,000) and warrants to purchase 1,000,000 shares of
the Company's Common Stock held by HCR Partners were extinguished. As a result
of this transaction, HCR Partners became the owner of 75% of the Common Stock of
the Company. The effective date of the Plan was July 2, 1991. However, for
purposes of financial statement reporting the Plan was treated as being
effective on June 30, 1991. Further, in accordance with the Statement of
Position 90-7 of the American Institute of Certified Public Accountants,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code",
the Company was required to account for the reorganization using Fresh-Start
Reporting. Accordingly, all financial information for any period prior to July
1, 1991 is referred to as that of the "Predecessor Company". The accompanying
financial statements for the period(s) from July 1, 1991 forward are referred to
as those of the "Successor Company". Additionally, the Company's sale of
inventory in connection with its discontinued operations, which closed on July
1, 1991, was also included in the Predecessor Company financial statements so as
to make the resulting Successor Company balance sheet more clearly reflect the
new entity.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its majority-owned domestic and foreign
subsidiaries. All intercompany accounts and transactions are eliminated.
Net Revenue: Revenue from equipment sales and service work to end users is
recognized at the time of its completion. Deferred service revenue is recorded
in equal increments over the term of the contract. Other equipment sales are
recognized when title passes to the customer.
Statements of Cash Flows: For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments purchased with original maturities
of three months or less to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market, using the
first-in, first-out method.
Property: Property, plant and equipment are stated at cost. Depreciation and
amortization are provided on the straight-line method over the estimated useful
lives of the assets. At the time fixed assets are sold or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts
and the resulting gain or loss, if any, is included in the determination of
income. Maintenance and repair costs are expensed as incurred.
Intangible assets: Intangible assets are being amortized on a straight-line
basis over periods ranging from 7 to 20 years.
Translation of foreign currencies: The financial statements of the Company's
foreign subsidiary are translated into U.S. dollars at current exchange rates
with any resulting adjustment being charged or credited to stockholders'
equity. Foreign currency transaction gains and losses, which are not material,
are reflected in income.
Research and development costs: New product development, product improvement
and research costs are expensed as incurred. Such costs amounted to $881,000
and $917,000 for the years ended December 31, 1993 and 1992, respectively, and
$241,000 for the six months ended December 31, 1991.
Earnings (loss) per common share: Earnings per common share are based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. For the years ended December 31, 1993 and 1992
and six months ended December 31, 1991 the Company did not have any common stock
equivalents.
2. FRESH-START REPORTING
In accordance with SOP 90-7, since the Company's stockholders of existing Common
Stock prior to the confirmation of the Plan received less than 50% of Common
Stock after confirmation of the Plan, the Company accounted for the
reorganization using Fresh-Start Reporting. Accordingly, all assets and
liabilities were restated to reflect their reorganization value at June 30,
1991, which approximated fair value at that date of reorganization.
Based upon an independent analysis of the Company performed in conjunction with
the confirmation hearing on the Plan, a business value of $46,000,000 was
established. The factors considered in determining the business value included
cash flow projections, historical and current operations, future prospects and
comparisons of the financial performance of the Company to other comparable
companies. Based on that analysis, management calculated the portion of the
reorganization value of the Company representing the estimated value of the net
assets of the Company immediately after the reorganization at $21,096,000, after
the adjustments to write down fixed assets, receivables and inventory to the
best estimate of their respective fair market values at June 30, 1991 and to
adjust liabilities to reflect their present value. Intangible assets were
written down to reflect the reorganization value in excess of amounts allocable
to identifiable assets.
3. CHANGE IN ACCOUNTING ESTIMATE
During the quarter ended June 30, 1992, the Company reevaluated the period of
amortization for intangible assets and concluded that the estimated useful life
of certain intangible assets should be extended from 10 years to 20 years. The
conclusion was reached based upon extensive evaluation of several factors
including the future outlook of the Company and to make the financial results of
the Company more comparable to its main competitors. The effect of this change
in accounting estimate was to increase the Company's net income for the year
ended December 31, 1992 by $723,000 (or $0.18 per share).
4. CASH AND CASH EQUIVALENTS
Cash equivalents consist of overnight investments, commercial paper and time
deposits which are carried at cost, which approximates market value. The
revolving cash account is an interest-bearing account held on deposit with The
Marmon Corporation (refer to Note 19 for further details). The following is a
schedule of cash and cash equivalents:
December 31,
---------------------------
1993 1992
---------- -----------
Cash $3,635,000 $ 2,063,000
Overnight investments 2,498,000 3,989,000
Revolving cash account 2,000,000 8,000,000
---------- -----------
$8,133,000 $14,052,000
---------- -----------
---------- -----------
Cash and cash equivalents do not include $290,000 and $1,629,000 of
restricted cash equivalents at December 31, 1993 and 1992, respectively
which are classified separately on the balance sheet. The amount at
December 31, 1993 represents collateral for a letter of credit
supporting the lease of corporate office facilities. Of the amount at
December 31, 1992, approximately $1,250,000 is the collateral for
letters of credit supporting U.S. and Canadian bonding facilities. The
remaining amount is a compensating balance required to be maintained by
the Company's Canadian subsidiary.
5. INVENTORIES
December 31,
-----------------------------
1993 1992
----------- -----------
Raw materials $ 193,000 $ 138,000
Work in process 890,000 543,000
Finished goods 13,140,000 11,762,000
----------- -----------
$14,223,000 $12,443,000
----------- -----------
----------- -----------
6. RELOCATION OF CORPORATE HEADQUARTERS/GAIN FROM DISPOSITION
OF BUILDING
In August 1993, the Company completed the relocation of its corporate
headquarters from Seymour, Connecticut to Overland Park, Kansas. The
Company has moved out of the Seymour facility and has transferred the
deed on that building to its mortgage holder resulting in a gain of
$1,738,000. The costs associated with the relocation, principally
transition and relocation expenses, are estimated to aggregate
approximately $1,300,000.
7. PROPERTY
The following is a schedule of property, plant and equipment (excluding
assets held for sale which are included in current assets in 1992):
December 31,
------------------------- Estimated
1993 1992 Life
----------- ----------- ---------
Land $ 10,000 $ 10,000 --
Buildings 224,000 224,000 30 years
Equipment and tooling 15,591,000 15,152,000 1-9 years
Leasehold improvements 668,000 676,000 Life of lease
Furniture and fixtures 3,692,000 3,910,000 3-10 years
----------- -----------
20,185,000 19,972,000
Less accumulated depreciation
and amortization 18,311,000 18,079,000
----------- -----------
$ 1,874,000 $ 1,893,000
----------- -----------
----------- -----------
8. INTANGIBLE ASSETS
Intangible assets includes the Reorganization Value In Excess Of Amounts
Allocable To Identifiable Assets which resulted from the application of
Fresh-Start Reporting. This intangible asset is being amortized on a
straight-line basis over a 20-year period (refer to Note 3). In
connection with the implementation of SFAS No. 109, intangible assets
relating to the reorganization have been reduced and will continue to be
reduced as Predecessor Company deferred tax assets are recognized.
Intangible assets also include the excess of consideration paid over the
fair value of net tangible assets of domestic businesses acquired since
July 1, 1991, and of all businesses acquired by the Company's Canadian
subsidiary at the time of acquisition. These intangible assets are
being amortized on a straight-line basis over their estimated useful
lives ranging from 7 to 20 years. The excess of consideration paid over
fair value of net tangible assets of businesses acquired in the years
ended December 31, 1993 and 1992 totalled $7,426,000 and $947,000,
respectively.
December 31,
--------------------------
1993 1992
----------- -----------
Reorganization Value In Excess Of Amounts
Allocated To Identifiable Assets $11,361,000 $14,403,000
Excess of consideration paid over
fair value of net assets acquired 12,742,000 5,469,000
Less accumulated amortization (4,448,000) (3,275,000)
----------- -----------
$19,655,000 $16,597,000
----------- -----------
----------- -----------
9. ACQUISITIONS
On September 17, 1993 the Company acquired substantially all of the non-Northern
Telecom manufactured key-hybrid telephone equipment customer base of PacTel
Meridian Systems ("PTMS"), a California general partnership which the Company
understands is 80% owned by Northern Telecom, Inc and 20% owned by Pacific
Bell. The acquisition, which was effected pursuant to an Asset Purchase and Sale
Agreement, included the acquisition and assignment of contracts with customers
and customer lists, together with inventory, vehicles and other equipment of
PTMS appropriate to service the customer base. Certain liabilities of PTMS,
directly related to the customer base, were also assumed by the Company at
closing. The liabilities consisted primarily of prepaid service contracts and
warranty reserves. The Company and PTMS are not related and have no other
material relationship.
Pursuant to the agreement, the Company purchased the customer base, together
with inventory and other equipment of PTMS for an aggregate purchase price of
$7,047,472. The liabilities assumed by the Company of $3,653,271 directly
reduced the amount of consideration paid to PTMS for the acquired assets. The
net purchase price of $3,394,201, was effected by: (a) a cash payment to PTMS
of $2,428,843 at the closing; (b) issuance of a note payable by the Company of
$1,000,000 due to PTMS one year from closing with interest at eight percent per
annum; and (c) a subsequent payment of $34,642 by PTMS to the Company to reflect
final adjustments to the purchase price. Company sales during 1993 relating to
the PTMS acquisition totalled approximately $2,800,000. The pro forma effects
of the acquisition on the results of operations, as though the acquisition had
occurred on January 1, 1992, is not determinable.
In the fourth quarter of 1990, the Company's Canadian subsidiary acquired the
business of CTG, Inc. a Toronto based telephone interconnect company which
operates in various locations throughout Canada. The Company's Canadian
subsidiary received cash of $3,361,000 in exchange for liabilities assumed in
connection with this acquisition. The consideration to be paid for this
acquisition is a royalty based on sales with a minimum consideration of
approximately $3,000,000. The minimum amount is to be paid in equal quarterly
installments over five years. The minimum royalty was recorded as a liability.
Future adjustments to the minimum royalty are recorded as an adjustment to
intangibles which amounted to approximately $385,000 for the year ended December
31, 1993 (none in 1992 or 1991).
10. LONG TERM DEBT, NOTES PAYABLE AND AVAILABLE CREDIT FACILITIES
December 31,
--------------------------
1993 1992
---------- ----------
Variable rate term loans $ 424,000 $ 879,000
Mortgage loan -- 4,100,000
Notes payable 1,000,000 --
---------- ----------
Total debt 1,424,000 4,979,000
Less current maturities of long-term debt (1,424,000) (4,581,000)
---------- ----------
Total Long-Term Debt and Notes Payable $ -- $ 398,000
---------- ----------
---------- ----------
At December 31, 1993 and 1992, variable rate term loans primarily represent
secured debt of the Company's direct sales operations which was assumed at
acquisition or incurred to finance the acquisitions made prior to July 1, 1991.
These loans bear interest at rates of 9% per annum at December 31, 1993 and
rates ranging from 7.0% to 11% per annum at December 31, 1992. The entire
amount of variable rate term loans will mature in the year ending December 31,
1994.
The mortgage loan was secured by land and building, with interest at 9.875%, and
was due in its entirety in September 1993. In August 1993, the Company
transferred the deed on the building to the mortgage holder without recourse.
In connection with the acquisition of the customer base from PTMS, the Company
issued a note payable in the amount of $1,000,000 due on or before September 17,
1994 at an interest rate of 8% per annum.
Upon confirmation of the Company's Plan of Reorganization, HCR Partners made
available a $10.0 million revolving line of credit. No funds have been borrowed
under this line of credit. Substantially all of the Company's assets are
mortgaged as security for borrowing under this agreement. The Company agreed
that in connection with the liquidation of HCR Partners, the revolving line of
credit agreement could be assigned to and assumed by Marmon Holdings, Inc.
The Company is required to pay a commitment fee of 1/4% per annum on any unused
amounts available under this line of credit. The Company may draw down on this
line at any time assuming no breach of any of the covenants (which include
restrictions on asset purchases and require specified levels of working capital
and net worth to be maintained) and provided that the aggregate principal amount
outstanding at any time under this line does not exceed the "Borrowing Base"
(which is based on inventory and receivables). The Company was in compliance
with or had received a waiver of the covenants as of December 31, 1993 and
therefore was qualified to borrow the entire $7,000,000 available under the
line. The Company is also restricted from declaring or paying dividends under
the provisions of the Revolving Credit Agreement without the written consent of
the lender. Effective December 31, 1993, the term of the Credit Agreement was
extended for an additional three year period ending December 31, 1996 upon
substantially the same terms and conditions, except that the maximum credit
available was reduced to $7,000,000. The Company will pay a facilities fee of
$75,000 in connection with the extension. The Company believes that the terms
and conditions of the Credit Agreement as extended are competitive with the
terms and conditions available from third parties.
11. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109 - "Accounting for Income Taxes".
SFAS 109 requires a change from the deferred method of accounting for income
taxes to the asset and liability method of accounting for income taxes. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax benefits or consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
benefits are recognized to the extent it is more likely than not that such
benefits will be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
In accordance with SOP 90-7, the reversal of temporary differences and
utilization of tax benefits attributed to the Predecessor Company will be
recognized as a deferred tax asset through the reduction of intangible assets.
Alternatively, temporary differences and tax benefits relating to the Successor
Company will be recognized through the Statement of Operations as such items are
expected to be recovered or settled.
Effective January 1, 1993, the Company prospectively adopted SFAS No. 109
recognizing a deferred tax asset of approximately $38,100,000 with a
corresponding valuation allowance of $35,400,000 million. The net amount of
$2,700,000 million was allocated as a reduction of goodwill, therefore, there
was no cumulative effect on income related to the change in accounting for
income taxes.
The components of pretax income (loss) of consolidated companies are as follows:
Years Ended December 31,
------------------------- Six Months Ended
1993 1992 December 31, 1991
---------- ---------- -----------------
U.S. $2,213,000 $1,464,000 $(64,000)
Foreign 789,000 785,000 361,000
---------- ---------- --------
Pretax income $3,002,000 $2,249,000 $297,000
---------- ---------- --------
---------- ---------- --------
The components of the income tax provision are as follows:
Years Ended December 31,
------------------------- Six Months Ended
1993 1992 December 31, 1991
---------- ---------- -----------------
Current:
State $ 34,000 $140,000 $ 75,000
Deferred:
Federal 727,000 625,000 --
State 50,000 285,000 --
Foreign 427,000 395,000 317,000
Tax settlements -- (550,000) --
---------- -------- --------
$1,238,000 $895,000 $392,000
---------- -------- --------
---------- -------- --------
The following table is a reconciliation of the provision for income taxes
reported in the Consolidated Statements of Operations to the provision as
calculated at the statutory U.S. Federal income tax rate:
Years Ended December 31,
----------------------- Six Months Ended
1993 1992 December 31, 1991
---------- -------- -----------------
Tax computed on a consolidated
basis by applying the statutory
U.S. Federal income tax rate (34%) $1,021,000 $765,000 $101,000
Increase (decrease) resulting from:
Change in the valuation allowance
for deferred tax assets allocated
to income tax expense (335,000) -- --
State and local income taxes,
net of federal income tax 55,000 280,000 75,000
Nondeductible goodwill amortization 325,000 465,000 160,000
Tax settlements -- (550,000) --
Taxes on foreign income at higher
rates 104,000 86,000 56,000
Other items, net 68,000 (151,000) --
---------- -------- --------
$1,238,000 $895,000 $392,000
---------- -------- --------
---------- -------- --------
The significant components of deferred income tax expense for the year ended
December 31, 1993 are as follows:
Deferred income tax expense (exclusive of the effects of other
components listed below) $1,539,000
Net adjustment due to change in gross deferred tax asset 14,000
Decrease in valuation allowance for deferred tax assets (349,000)
----------
$1,204,000
----------
----------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1993 are presented below. The
Company did not have any deferred tax liabilities at December 31, 1993.
Deferred tax assets:
Accounts receivable and notes receivable $ 1,522,000
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 1,123,000
Plant and equipment, principally due to differences in
depreciation 567,000
Net operating loss carryforward 29,095,000
Warranty reserves 281,000
Other accrued expenses 567,000
Foreign investment tax credit carryforwards 1,209,000
Foreign research and development tax credit carryforwards 725,000
Deferred service revenue 773,000
Other temporary differences 1,285,000
-----------
Total gross deferred tax assets 37,147,000
Less valuation allowance (35,110,000)
-----------
Net deferred tax assets $ 2,037,000
-----------
-----------
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The Company, in determining the net deferred tax
asset to be recognized at January 1, 1993 and December 31, 1993, analyzed the
past earnings history and the future projected pretax book income and taxable
income. In order to fully realize the deferred tax asset reflected at December
31, 1993, the Company will need to generate future taxable income of
approximately $5,000,000. Management believes it is more likely than not the
Company will realize the benefits of deductible differences and other tax
attributes, net of existing valuation allowances at December 31, 1993. The
portion of the valuation allowance which would be available to reduce goodwill
for subsequently recognized tax benefits amounted to approximately $11,361,000
at December 31, 1993.
At December 31, 1993, the Company has total net operating loss carryforwards for
federal income tax purposes of approximately $169,000,000; however, the
Company's ability to utilize the net operating losses has been materially
limited under Internal Revenue Code Section 382 and Section 383. Due to these
limitations, the amount of future taxable income which can be offset by federal
net operating losses incurred prior to July 1, 1991 is approximately $2,700,000
annually ($41,800,000 in the aggregate). Federal net operating losses incurred
after June 30, 1991 approximate $23,000,000 and are available to offset future
income without limitation. Federal and state net operating loss carryforwards
will expire between 1994 and 2007. The Company will first utilize Predecessor
Company NOL's to the extent available and will thereafter utilize the Successor
Company NOL's.
The Company also has foreign net operating loss carryforwards of approximately
$14,490,000 at December 31, 1993, which expire between 1996 and 1999.
Additionally, there are foreign investment income tax credits of approximately
$1,209,000 which expire in 1998 through 2000 and foreign research and
development tax credits of approximately $725,000 which do not expire.
For the year ended December 31, 1992 and the six months ended December 31, 1991,
the deferred tax expense of $1,305,000 and $317,000, respectively, represent
taxes that would have been paid to the respective tax authorities in the absence
of operating loss carryforwards from prior periods. Since these loss
carryforwards are Predecessor Company losses, the Successor Company is unable to
realize the benefit for accounting purposes, and, accordingly, intangible assets
have been reduced by the amount of taxes not paid.
The Internal Revenue Service ("IRS") completed its examination of the Company's
consolidated Federal income tax returns through the taxable year ended December
31, 1986. As a result of such examination, the IRS proposed certain adjustments
that would increase the Company's tax liability and consolidated taxable income
for certain years. The Company negotiated a settlement of these proposed
adjustments which was approved by the Joint Committee of Taxation on January 17,
1991. In addition to the Federal income tax liability arising from the
negotiated adjustments to the Company's consolidated taxable income for those
years, the adjustments arising from the settlement will result in additional
state income tax liabilities. On April 26, 1991, the Company received a formal
demand for payment of the Federal income tax liability resulting from the
settlement. As a consequence of the Chapter 11 proceedings and applicable law,
the Company is entitled to defer payment of the Federal and state tax
liabilities over a period of six years, with payment thereof to be made
quarterly from October 1, 1991 for the Federal liability and annually for the
state liability from July 1, 1992. The outstanding balance accrues interest at
the six month U.S. Treasury Bill rate.
12. OTHER NON-CURRENT LIABILITIES
Included in other non-current liabilities are long-term obligations assumed by
the Company's Canadian subsidiary in connection with an acquisition made in 1990
including a minimum royalty payable for that acquisition which totalled $440,000
at December 31, 1993 and $1,009,000 at December 31, 1992 and a reserve for
long-term restructuring costs of $441,000 at December 31, 1992 (refer to Note 12
to the Predecessor Company Consolidated Financial Statements).
13. LEASE AND PURCHASE COMMITMENTS
The Company leases office and warehouse space under noncancellable operating
leases expiring at various dates through the year 1999, and leases certain
equipment under lease agreements expiring at various dates through 1997. Minimum
annual rentals on these lease commitments are as follows:
Minimum
Year Ended Annual
December 31, Rentals
------------ -------
1994 $3,632,000
1995 2,573,000
1996 1,752,000
1997 875,000
1998 382,000
1999 15,000
----------
Total minimum annual rentals $9,229,000
----------
----------
Rent expense charged to operations for the years ended December 31, 1993 and
1992 was $4,442,000 and $4,505,000, respectively, and for the six months ended
December 31, 1991, was $2,352,000. In the ordinary course of business, leases
expire and are replaced or renewed, therefore, the rent expense in future
periods is not expected to be less than the amount shown for 1993.
In connection with the PTMS acquisition, the Company has committed to purchase
at least $7,500,000 of equipment (net of product discounts) from Northern
Telecom in 1994.
14. EMPLOYEE BENEFIT PLANS
The Company's Profit Sharing and Savings Plan was amended on January 1, 1985 to
allow participating employees to authorize payroll deferrals of up to 10 percent
of their total compensation and to contribute such amounts to the plan. From
June 1, 1992 to December 31, 1993, the Company matched a participant's
contribution by making contributions equal to 50% of that portion of a
participant's deferred compensation which did not exceed 6% of the compensation
payable to such participant. For the six months ended December 31, 1991 and
from January 1, 1992 until May 31, 1992, the Company matched a participant's
contribution by making contributions equal to 100% of that portion of a
participant's deferred compensation which did not exceed 3% of the compensation
payable to such participant. Employee and Company contributions are considered
tax deferred to the employee under Section 401(k) of the Internal Revenue Code.
During the years ended December 31, 1993 and 1992 and the six months ended
December 31, 1991, the Company's contributions amounted to $307,000, $370,000
and $207,000, respectively. At December 31, 1993, there were 529 participants
in the plan.
15. OTHER INCOME, NET
Years Ended December 31,
------------------------ Six Months Ended
1993 1992 December 31, 1991
---------- ---------- -----------------
Gain on disposition of building $1,738,000 $ -- $ --
Gain (loss) on sale of property (5,000) 6,000 46,000
Royalty income 1,495,000 1,317,000 58,000
Relocation expenses, net (1,300,000) -- --
Insurance settlement 350,000 -- --
Other (318,000) (446,000) 162,000
---------- ---------- --------
Other income, net $1,960,000 $ 877,000 $766,000
---------- ---------- --------
---------- ---------- --------
Net royalty income is substantially comprised of royalty income from NTK
America for its sale of equipment designed by the Company in the amounts of
$1,378,000 and $1,298,000 for the years 1993 and 1992, respectively, and
$514,000 for the six months ended December 31, 1991. The NTK royalty agreement
is in effect through July 1996. In December 1993, the Company recorded income
of $350,000 related to settlement of a property insurance claim for the loss of
inventory.
16. DISCONTINUED OPERATIONS
On May 14, 1991, the Company entered into an agreement with Nitsuko America
Corporation ("NTK America") to sell specified inventory that it owns to NTK
America at a price equal to the Company's carrying value of such inventory.
This transaction, which closed on July 1, 1991, resulted in the sale of
$9,020,000 of inventory to NTK America. The Company received $500,000 of this
amount in June 1991. The remaining amount of $8,520,000 was recorded as a
current receivable and was paid to the Company in monthly installments over the
last six months of 1991.
Additionally, the Company will license on a nonexclusive basis all of its
telephone equipment technology to NTK America for a period of five years, during
which, the Company will have an exclusive right to distribute certain equipment
manufactured by NTK America's parent, Nitsuko Corporation ("NTK") in Canada, and
a nonexclusive right to distribute certain other NTK products in the United
States and in Canada. If NTK America sells any of NTK's products in the United
States, NTK America will pay the Company a royalty ranging from 3% to 7.5% of
the purchase price of all equipment designed by the Company (depending on the
distribution channel). In addition, the Company will be provided with the most
favorable purchase prices available for NTK America's products during the period
of the agreement.
As a result of the foregoing, the Company commenced discontinuation of its
distribution operations. Accordingly, the operating results for this segment
have been classified as discontinued operations for all the periods presented in
the consolidated financial statements.
During the third quarter of 1992, the Company's Canadian subsidiary sold its key
telephone system distribution business to Nitsuko America Corporation ("NTK
America") for approximately $857,000. The Canadian subsidiary received $762,000
of this amount in cash during 1992. The remaining amount was paid in January
1993. This transaction completes the Company's discontinuation (which was begun
in 1991) of its distribution operations. As part of the sales agreement with
NTK America, the Canadian subsidiary will be provided with the most favorable
purchase prices available for NTK America's products during the period of the
agreement which is similar to the U.S. agreement in place with NTK America.
17. BUSINESS SEGMENT AND GEOGRAPHIC AREAS
The Company operates primarily in the telecommunications equipment industry.
The Company primarily sells, installs and services its products through a
domestic and Canadian network of sales and service facilities primarily to small
to medium sized customers. An analysis of the Company's operations by
geographic location is as follows:
<TABLE>
<CAPTION>
Year Ended United
December 31, 1993 States Canada Eliminations Consolidated
- - ------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated companies $77,894,000 $24,734,000 $ (97,000) $102,531,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Pretax income $ 2,213,000 $ 789,000 $ -- $ 3,002,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Assets identifiable to geographic areas $51,236,000 $14,274,000 $(2,244,000) $ 63,266,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Year Ended United
December 31, 1992 States Canada Eliminations Consolidated
- - ------------------- ----------- ----------- ----------- ------------
Sales to unaffiliated companies $75,152,000 $26,130,000 $ (128,000) $101,154,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Pretax income $ 1,458,000 $ 785,000 $ 6,000 $ 2,249,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Assets identifiable to geographic areas $53,266,000 $14,786,000 $(2,215,000) $ 65,797,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Six Months Ended United
December 31, 1991 States Canada Eliminations Consolidated
- - ------------------- ----------- ----------- ----------- ------------
Sales to unaffiliated companies $37,354,000 $14,915,000 $ -- $52,269,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Pretax income (loss) $ (64,000) $ 361,000 $ -- $ 297,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Assets identifiable to geographic areas $59,697,000 $18,521,000 $(1,687,000) $76,531,000
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
Identifiable assets for each geographic area are those assets associated with
the operations in each area. Eliminations include amounts for internal sales
between geographic areas, profit in inventory and investments in foreign
operations.
18. SELECTED QUARTERLY DATA (UNAUDITED)
Set forth below is selected quarterly information for the years ended December
31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 Quarters
----------------------------------------------------------------
1st 2nd 3rd 4th
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $23,749,000 $24,011,000 $24,933,000 $29,838,000
Gross margin 12,323,000 12,386,000 12,409,000 14,696,000
Income from continuing
operations 239,000 259,000 235,000 949,000
Income from discontinued
operations -- -- -- --
Net income 239,000 259,000 235,000(a) 949,000(b)
Income per share:
Continuing operations $0.06 $0.07 $ 0.06 $ 0.24
Discontinued operations -- -- -- --
Total $0.06 $0.07 $0.06 $ 0.24
</TABLE>
<TABLE>
<CAPTION>
1992 Quarters
----------------------------------------------------------------
1st 2nd 3rd 4th
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $24,286,000 $24,771,000 $26,673,000 $25,424,000
Gross margin 12,906,000 12,862,000 13,797,000 12,413,000
Income (loss) from continuing
operations (513,000) 288,000 1,037,000 420,000
Income (loss) from discontinued
operations (19,000) (39,000) 45,000 --
Net income (loss) (532,000) 249,000 1,082,000 420,000
Income (loss) per share:
Continuing operations $ (0.13) $ 0.07 $ 0.26 $ 0.11
Discontinued operations -- (0.01) 0.01 --
Total $ (0.13) $ 0.06 $ 0.27 $ 0.11
</TABLE>
(a) Includes approximately $438,000 net gain from the disposition of the
building and associated relocation costs in the move of the
corporate headquarters to Overland Park, Kansas and approximately
$442,000 of unfavorable inventory adjustments and nonrecurring
retroactive adjustment made to correct the costing related to certain
domestic service contracts.
(b) Includes $350,000 gain on insurance settlement and $240,000 of expenses
associated with the attempted privatization of the Company's Canadian
subsidiary.
19. RELATED PARTY TRANSACTIONS
The Company entered into an Administrative and Consulting Agreement dated as of
August 1, 1991 with The Marmon Group, Inc., ("Marmon"), an affiliate of one of
its principal stockholders, pursuant to which Marmon, will provide certain
centralized administrative and consulting services to the Company. In
consideration of such services, the Company has agreed to pay to Marmon a
monthly amount of $30,000 for the first six months until (January 31, 1992) and
$36,000 a month thereafter. Under the agreement, the Company has also agreed to
reimburse Marmon for all reasonable expenses it incurs in connection with the
provision of services to the Company. Reimbursements are not considered
material.
Additionally, in 1992 the Company began depositing its excess cash in a
revolving cash account with The Marmon Corporation (refer to Note 4). The
Company earns interest on the amounts deposited in this account at rates that
are at least comparable to third party rates available for equivalent overnight
investments.
TIE/communications, Inc. and Subsidiaries
SUCCESSOR COMPANY
SCHEDULE VIII: VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to
Beginning Cost and Balance at
Description of Period Expenses Deductions End of Period
- - ----------- --------- -------- ---------- -------------
Year Ended
December 31, 1993
- - -----------------
Allowance for
doubtful accounts $1,913,000 $936,000 $(1,321,000)* $1,528,000
Year Ended
December 31, 1992
- - -----------------
Allowance for
doubtful accounts $2,090,000 $690,000 $ (867,000)* $1,913,000
Six Months Ended
December 31, 1991
- - -----------------
Allowance for
doubtful accounts $3,231,000 $802,000 $(1,943,000)* $2,090,000
- - -----------------
* Bad debts written off.
TIE/communications, Inc. and Subsidiaries
SUCCESSOR COMPANY
SCHEDULE X: SUPPLEMENTARY INCOME STATEMENT INFORMATION
Charged to Costs and Expenses
---------------------------------------------
Years Ended December 31
------------------------- Six Months Ended
1993 1992 December 31, 1991
---- ---- -----------------
Maintenance and repair $ 507,000 $ 503,000 $ 728,000
Depreciation and amortization 2,235,000 2,544,000 2,630,000
Taxes, other than payroll and
income tax * * *
Royalties * * *
Advertising costs * * *
- - -------------------
* Less than 1% of net sales.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TIE/communications, Inc. (PREDECESSOR COMPANY)
We have audited the consolidated financial statements of
TIE/communications, Inc. and subsidiaries (Predecessor Company) ("the
Company") as listed in the accompanying index. In connection with our
audit of the consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index.
These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of TIE/communications, Inc. and subsidiaries (Predecessor
Company) for the six month period ending June 30, 1991, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 1, the Company's First Amended Joint Plan of
Reorganization (the "Plan") was confirmed by the United States
Bankruptcy Court for the District of Delaware on June 19, 1991,
effective July 2, 1991 (June 30, 1991 for accounting purposes).
Further, in accordance with the Statement of Position 90-7 of the
American Institute of Certified Public Accountants, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code", the Company
was required to account for the reorganization using Fresh-Start
Reporting. Accordingly, the accompanying financial statements are
referred to as those of the "Predecessor Company".
/s/ KPMG Peat Marwick
February 17, 1992,
(except for Note 10
which is as of February 15, 1993)
Stamford, Connecticut
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
PREDECESSOR COMPANY
Six Months
Ended
June 30, 1991
-------------
Net revenue:
Equipment sales $ 37,943,000
Services provided 13,598,000
------------
51,541,000
------------
Cost of sales:
Equipment sales 20,871,000
Services provided 4,117,000
------------
24,988,000
------------
Gross margin:
Equipment sales 17,072,000
Services provided 9,481,000
------------
26,553,000
Operating expenses 27,815,000
Provision for restructuring of operations 469,000
------------
Operating loss (1,731,000)
Interest income 492,000
Interest expense (1,214,000)
Other income, net 180,000
Reorganization items:
Professional fees 5,700,000
Provision for rejected executory contracts 892,000
Provision for settlement of disputed claims 750,000
Provision for settlement of lawsuits 1,500,000
Effect of Fresh-Start Reporting 29,002,000
------------
Total reorganization items 37,844,000
------------
Pretax loss (40,117,000)
Provision for income taxes - current 416,000
------------
(40,533,000)
Equity in loss of affiliates (60,000)
------------
Loss before minority interest (40,593,000)
Minority interest 195,000
------------
(continued)
See accompanying Notes to Consolidated Financial Statements
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(continued)
PREDECESSOR COMPANY
Six Months
Ended
June 30, 1991
-------------
Loss from continuing operations (40,788,000)
------------
Discontinued operations:
Loss from operations (1,434,000)
Estimated loss on disposal (3,100,000)
------------
Loss from discontinued operations (4,534,000)
------------
Loss before extraordinary income (45,322,000)
Extraordinary item - gain on debt
extinguishment 18,896,000
------------
Net loss $(26,426,000)
------------
------------
Income (loss) per common share:
Continuing operations:
Loss from continuing operations before
reorganization items $ (2.92)
Reorganization items (37.53)
------------
Total from continuing operations (40.45)
Discontinued operations (4.50)
Extraordinary item 18.74
------------
Total $ (26.21)
------------
------------
Average shares outstanding 1,008,390
All references in the accompanying financial statements to the number of common
shares, per share amounts, and allocation between par value and paid-in capital
have been restated to reflect the 1 for 35 reverse stock split, the change in
par value and the adoption of Fresh-Start Reporting, which were treated as being
effective on June 30, 1991.
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
PREDECESSOR COMPANY
Six Months
Ended
June 30, 1991
-------------
Cash flows from operating activities:
Net loss $(26,426,000)
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 3,048,000
Effect of Fresh-Start Reporting 29,002,000
Forgiveness of debt, net of stock issued (18,896,000)
Provision for reorganization costs 5,936,000
Estimated loss on disposal of discontinued operations 3,100,000
Provision for restructuring of operations 469,000
Deferred service revenue and income taxes (150,000)
Equity in unremitted losses of affiliates (60,000)
Minority interest in net income
of consolidated subsidiaries 157,000
Provision for Restricted Stock Plan 15,000
Changes in working capital, net of
acquisitions and divestitures:
Accounts receivable 1,732,000
Inventories 1,413,000
Miscellaneous current assets (574,000)
Accounts payable 3,205,000
Other current liabilities (3,961,000)
Taxes payable (978,000)
------------
Cash flows used for operating activities (2,968,000)
------------
Cash flows from investment activities:(1)
Capital expenditures, net of disposals (681,000)
Cash proceeds from sale of assets 500,000
Increase in investment in and advances to affiliates (20,000)
Other (718,000)
------------
Cash flows used for investment activities (919,000)
------------
(Continued)
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
PREDECESSOR COMPANY
Six Months
Ended
June 30, 1991
-------------
Cash flows from financing activities:(1)
Long-term and short-term repayments $(1,679,000)
Increase in long-term notes receivable (79,000)
Exercise of stock options 61,000
Other 348,000
-----------
Cash flows used for financing activities (1,349,000)
-----------
Impact of changes in foreign currency translation 44,000
-----------
Decrease in cash and cash equivalents (5,192,000)
Cash and cash equivalents at beginning of period 19,842,000
-----------
Cash and cash equivalents at end of period $14,650,000
-----------
- - ----------------------------------
Cash flow information:
Interest paid $ 298,000
-----------
-----------
Income taxes paid (excluding payment
of long-term tax liability) $ 955,000
-----------
-----------
(1) Non-cash financing and investment
activities:
Issuance of Common Stock in exchange for debt $18,498,000
-----------
-----------
Inventory sold in exchange for note receivable $ 8,520,000
-----------
-----------
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PREDECESSOR COMPANY
Six months ended June 30, 1991
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional
Paid-in
Shares Issued Amount Capital Deficit
------------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance January 1, 1991 992,363 $ 99,000 $173,585,000 $(143,188,000)
Shares of Common Stock
issued pursuant to
Restricted Stock Awards 1,885 -- 29,000 --
Exercise of Common
Stock Options 6,942 1,000 61,000 --
Shares of Common Stock
forfeited pursuant to
Restricted Stock Awards (1,771) -- (162,000) --
Shares of Common Stock
cancelled pursuant to
Restricted Stock Awards (1,314) -- (120,000) --
Shares of Common Stock
issued to purchase minority
interest of subsidiary 147 -- -- --
Other items affecting
Common Stockholders' Equity (1,154) -- (86,000) --
Net loss for the six months
ended June 30, 1991 -- -- -- (26,426,000)
Issuance of Common Stock
to HCR Partners in
exchange for debt 2,991,294 299,000 15,524,000 --
Effect of adoption of
Fresh-Start Reporting -- -- (169,614,000) 169,614,000
--------- -------- ----------- ------------
Balance June 30, 1991 3,988,392 $399,000 $ 19,217,000 $ --
--------- -------- ----------- ------------
--------- -------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Unused
Treasury Stock Portion of Cumulative
------------------ Restricted Translation
Shares Amount Stock Awards Adjustment Total
------ -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1991 (1,154) $(86,000) $(35,000) $1,417,000 $31,792,000
Shares of Common Stock
issued pursuant to
Restricted Stock Awards -- -- (29,000) -- --
Exercise of Common
Stock Options -- -- 62,000
Shares of Common Stock
forfeited pursuant to
Restricted Stock Awards -- -- (72,000) -- (234,000)
Shares of Common Stock
cancelled pursuant to
Restricted Stock Awards -- -- 120,000 -- --
Shares of Common Stock
issued to purchase minority
interest of subsidiary -- -- -- -- --
Other items affecting
Common Stockholders' Equity 1,154 86,000 16,000 63,000 79,000
Net loss for the six months
ended June 30, 1991 -- -- -- -- (26,426,000)
Issuance of Common Stock
to HCR Partners in
exchange for debt -- -- -- -- 15,823,000
Effect of adoption of
Fresh-Start Reporting -- -- -- -- --
------ -------- -------- ---------- -----------
Balance June 30, 1991 -- $ -- $ -- $1,480,000 $21,096,000
------ -------- -------- ----------- -----------
------ -------- -------- ----------- -----------
</TABLE>
All references in the accompanying financial statements to the number of common
shares, per share amounts, and allocation between par value and paid-in capital
have been restated to reflect the 1 for 35 reverse stock split, the change in
par value, and the adoption of Fresh-Start Reporting which were treated as
being effective on June 30, 1991.
See accompanying Notes to Consolidated Financial Statements.
TIE/communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
PREDECESSOR COMPANY
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
On June 19, 1991, the Company's First Amended Joint Plan of Reorganization (the
"Plan") was confirmed by the United States Bankruptcy Court for the District of
Delaware. The confirmed Plan provided for the Company to issue Common Stock to
HCR Partners in exchange for the principal portion of its secured debt to HCR
Partners ($31,594,000). Accrued interest on HCR Partners secured debt
($3,124,000) and warrants to purchase 1,000,000 shares of the Company's Common
Stock held by HCR Partners were extinguished. As a result of this transaction,
HCR Partners became the owner of 75% of the Common Stock of the Company (refer
to Note 2 for further details). The effective date of the Plan was July 2,
1991. However, for purposes of financial statement reporting, the Plan was
treated as being effective on June 30, 1991. Further, in accordance with the
Statement of Position 90-7 of the American Institute of Certified Public
Accountants, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", the Company was required to account for the reorganization
using Fresh-Start Reporting (refer to Note 3 for further details). Accordingly,
the accompanying financial statements are referred to as those of the
"Predecessor Company".
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its majority-owned domestic and foreign
subsidiaries. All intercompany accounts and transactions with consolidated
subsidiaries are eliminated. Investments in affiliated companies that are 20%
to 50% owned are accounted for under the equity method.
Net Revenue: Revenue from equipment sales and service work to end users is
recognized at the time of its completion. Deferred service revenue is recorded
in equal increments over the term of the contract. Other equipment sales are
recognized when title passes to the customer.
Statement of Cash Flows: For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments purchased with original maturities
of three months or less to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market, using the
first-in, first-out method.
Property: Property, plant and equipment are stated at cost. Depreciation and
amortization are provided on the straight-line method over the estimated useful
lives of the assets. At the time fixed assets are sold or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts
and the resulting gain or loss, if any, is included in the determination of
income. Maintenance and repair costs are expensed as incurred.
Intangible assets: Consideration paid in excess of the fair value of net assets
acquired is being amortized on a straight-line basis over periods ranging from 7
to 40 years.
Research and development costs: New product development, product improvement
and research costs are expensed as incurred. Such costs amounted to $1,146,000
for the six months ended June 30, 1991.
Income taxes: Deferred income taxes are provided for timing differences in the
recognition of certain revenues and expenses for financial statement and tax
reporting purposes. Timing differences principally relate to depreciation,
warranty costs, and restructuring provisions.
Translation of foreign currencies: Balance sheets and income statements of all
foreign subsidiaries are translated into U.S. dollars at current exchange rates
on a monthly basis with any resulting adjustment being charged or credited to
the stockholders' equity section of the balance sheet. Foreign currency
transaction gains and losses are reflected in income as incurred.
Loss per common share: Loss per common share is based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
the year. For the period presented, the Company's common stock equivalents were
antidilutive and, therefore, were not included in the computation of loss per
share.
All references in the accompanying financial statements to the number of common
shares, per share amounts, and allocation between par value and paid-in-capital
have been restated to reflect the 1 for 35 reverse stock split and the change in
the par value and the effect of Fresh-Start Reporting (refer to Notes 2 and 3)
which were treated as being effective on June 30, 1991.
2. PLAN OF REORGANIZATION
On June 19, 1991, the Company and 25 of its domestic subsidiaries emerged from
Chapter 11 protection of the United States Bankruptcy Code ("Chapter 11") as the
United States Bankruptcy Court for the District of Delaware confirmed the Plan.
The confirmed Plan provided for the following:
The principal amount of the Company's secured debt due HCR Partners,
$31,594,000, was exchanged for 75% of the Company's Common Stock. Accrued
interest on HCR Partners debt, $3,124,000, and warrants to purchase 1,000,000
shares of the Company's Common Stock held by HCR Partners were extinguished.
The Company recorded a gain on this transaction as more fully explained in Note
11. All bona fide prepetition liabilities, other than to HCR Partners, were
paid in full.
The Company's obligation at June 30, 1991 to certain taxing authorities has been
deferred for payment over a period not to exceed six years.
Pursuant to a reverse stock split effected in connection with the Plan, the
stockholders of the Company received one share of Common Stock (the "New Common
Stock") in exchange for every 35 shares of Common Stock (the "Old Common
Stock") they owned prior to confirmation of the Plan. The New Common Stock has
a par value of $.10 per share as compared to $.05 per share for the Old Common
Stock. As a consequence of the foregoing, the holders of Old Common Stock hold
in total approximately 25% of the outstanding shares of New Common Stock. All
unexercised options to purchase Old Common Stock and Restricted Stock Awards for
Old Common Stock were cancelled.
The estimated reorganization related costs total $8,842,000 and were provided
for in the second quarter of 1991. This amount includes professional fees
related to the bankruptcy and provisions for amounts expected to be paid to
settle various reorganization related claims.
3. FRESH-START REPORTING
In accordance with Statement of Position 90-7 of the American Institute of
Certified Public Accountants, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", since the Company's stockholders of existing Common
Stock prior to the confirmation of the Plan received less than 50% of Common
Stock after confirmation of the Plan, the Company accounted for the
reorganization using Fresh-Start Reporting. Accordingly, all assets and
liabilities were restated to reflect their reorganization value which
approximated fair value at the date of reorganization.
Based upon an independent analysis of the Company performed in conjunction with
the confirmation hearing on the Plan, a business value of $46,000,000 was
established. The factors considered in determining the business value included
cash flow projections, historical and current operations, future prospects and
comparisons of the financial performance of the Company to other comparable
companies. Based on that analysis, management calculated the portion of the
reorganization value of the Company representing the estimated value of the net
assets of the Company immediately after the reorganization at $21,096,000, after
the adjustments to write down fixed assets, receivables and inventory to the
best estimate of their respective fair market values at June 30, 1991 and to
adjust liabilities to reflect their present value. Intangible assets were
written down to reflect the reorganization value in excess of amounts allocable
to identifiable assets. The total effect on the Statement of Operations from
applying Fresh-Start Reporting was $29,002,000.
The following summarizes the effect of Fresh-Start Reporting on the June 30,
1991 balance sheet of Predecessor Company:
June 30, 1991
-------------------------------------------
Effects of
Predecessor Fresh-Start Successor
Company Reporting Company
------------ ------------ -----------
Current assets $ 58,942,000 $ (418,000) $58,524,000
Property, net 7,570,000 (1,750,000) 5,820,000
Investments in affiliates 1,404,000 (300,000) 1,104,000
Intangible assets, net 47,936,000 (25,379,000) 22,557,000
Long-term notes 3,364,000 -- 3,364,000
------------ ------------ -----------
Total assets $119,216,000 $(27,847,000) $91,369,000
------------ ------------ -----------
------------ ------------ -----------
June 30, 1991
-------------------------------------------
Effects of
Predecessor Fresh-Start Successor
Company Reporting Company
------------ ------------ -----------
Current liabilities $ 46,782,000 $ 1,155,000 $47,937,000
Deferred income 412,000 -- 412,000
Deferred income tax 24,000 -- 24,000
Long-term debt 4,998,000 -- 4,998,000
Long-term tax liability 10,321,000 -- 10,321,000
Minority interest 2,488,000 -- 2,488,000
Other non-current liabilities 4,093,000 -- 4,093,000
------------ ------------ -----------
Total liabilities 69,118,000 1,155,000 70,273,000
Stockholders' equity 50,098,000 (29,002,000) 21,096,000
------------ ------------ -----------
Total liabilities and
Stockholders' equity $119,216,000 $(27,847,000) $91,369,000
------------ ------------ -----------
------------ ------------ -----------
4. INCOME TAXES
The components of pretax loss of consolidated companies are as follows:
Six Months Ended
June 30, 1991
----------------
U.S. $(40,733,000)
Foreign 616,000
$(40,117,000)
The components of the income tax provision are as follows:
Six Months Ended
June 30, 1991
----------------
Current:
Federal $ 273,000
State 143,000
416,000
Deferred Federal --
-------------
Total taxes on income $ 416,000
-------------
-------------
The following table is a reconciliation of the provision for income taxes
reported in the Consolidated Statement of Operations to the provision as
calculated at the statutory U.S. Federal income tax rate:
Six Months Ended
June 30, 1991
---------------
Tax benefit computed on a consolidated basis by applying
the statutory U.S. Federal income tax rate (34%) $(13,675,000)
Increase resulting from:
State and local taxes 143,000
Non-deductible items: 10,939,000
Net operating losses for which no carryback benefit
can be recognized 3,009,000
------------
$ 416,000
------------
------------
5. RENTS
The Company leases office, manufacturing and warehouse space under
noncancellable operating leases. Rent expense charged to operations for the six
months ended June 30, 1991 was $2,663,000.
6. STOCK OPTIONS AND STOCK PURCHASE PLANS
The Company had several incentive stock plans for key employees which provided
that options may be granted at amounts not less than the fair market value at
the date of grant. The stock option plans, which were approved by the
stockholders, included the 1981, 1982, 1983 and 1986 plans which provided in the
aggregate for the issuance of a maximum of 112,142 shares. The provisions of
all of the plans were essentially the same, with the exception that the 1986
plan provided for the grant of stock appreciation rights with the grant of
options, the grant of restricted stock awards and the grant of options to
eligible non-management directors. These plans were cancelled in connection
with the Plan of Reorganization.
Set forth below is a summary of information concerning options under the
Company's plans prior to cancellation:
Number of
Shares Exercise Price Per Share
---------- ------------------------
Options outstanding at January 1, 1991 60,523 $8.75 - $1,448.30
Options exercised (6,942) $8.75
Options granted -- --
Options cancelled (53,581) $8.75 - $1,448.30
-------
Options outstanding at June 30, 1991 --
-------
Refer to Note 7 for grants of restricted stock awards.
7. INCENTIVE COMPENSATION PROGRAM
Under the 1986 stock plan restricted stock awards totaling 3,314 shares of the
Company's Common Stock were outstanding as of December 31, 1990 as part of
long-term performance unit awards granted under the Incentive Compensation
Program. Restricted stock award shares were granted to key employees without
payment to the Company. Recipients had all the rights of shareholders except
that the shares were held in the Company's custody and could not be disposed of
until the restrictions and conditions established upon issuance were satisfied.
If such restrictions and conditions were not satisfied, the respective shares
were forfeited.
On the date of grant, the market value of the restricted stock award shares was
added to Common Stock and paid-in-capital and an equal amount was deducted from
common stockholders' equity in the unearned portion of restricted stock awards.
This unearned portion was being amortized to compensation expense over the
vesting period for the awards. The charges to compensation expense for the
earned portion of both the cash and restricted stock awards for the six months
ended June 30, 1991 were $16,000.
All restricted stock awards were cancelled in connection with the Plan of
Reorganization and, accordingly, no payments were made in connection with the
Restricted Stock Awards in 1992.
8. BENEFIT PLANS
The Company's Profit Sharing and Savings Plan was amended on January 1, 1985 to
allow participating employees to authorize payroll deferrals of up to 10 percent
of their total compensation and to contribute such amounts to the plan. For the
first six months of 1991, the Company matched a participant's contribution by
making contributions equal to 100% of that portion of a participant's deferred
compensation which did not exceed 3% of the compensation payable to such
participant. Employee and Company contributions are considered tax deferred to
the employee under Section 401(k) of the Internal Revenue Code. During the six
months ended June 30, 1991, the Company's contributions amounted to $259,000.
At June 30, 1991, there were 590 participants in the plan.
9. RESTRUCTURING OF OPERATIONS
In the second quarter of 1991, the Company provided $469,000 for restructuring
charges as part of a Company-wide cost reduction program. The restructuring
charges were made to provide for employee terminations, facility consolidation
costs and the write-down of assets to net realizable value.
10. DISCONTINUED OPERATIONS
On May 14, 1991, the Company entered into an agreement with Nitsuko America
Corporation ("NTK America") to sell specified inventory that it owns to NTK
America at a price equal to the Company's carrying value of such inventory.
This transaction, which closed on July 1, 1991, resulted in the sale of
$9,020,000 of inventory to NTK America. The Company received $500,000 of this
amount in June 1991. The remaining amount of $8,520,000 was recorded as a
current receivable as of June 30, 1991 and was being paid to the Company monthly
over the last six months of the year beginning with July 1991.
Additionally, the Company will license on a nonexclusive basis all of its
telephone equipment technology to NTK America for a period of five years, during
which, the Company will have an exclusive right to distribute certain equipment
manufactured by NTK America's parent, Nitsuko Corporation ("NTK") in Canada, and
a nonexclusive right to distribute certain other NTK products in the United
States and in Canada, as more fully described in Note 16 to the Successor
Company Consolidated Financial Statements.
As a result of the foregoing, the Company commenced discontinuation of its
distribution operations. Accordingly, the operating results for this segment
have been classified as discontinued operations for the six months ended June
30, 1991. Additionally, in connection with the Company's decision to exit this
segment of the business, a provision of $3,100,000 was set up on the second
quarter of 1991 to reflect the writedown of assets related to this segment to
net realizable value and to provide for certain phaseout costs.
During the third quarter of 1992, the Company's Canadian subsidiary sold its key
system distribution business to Nitsuko America Corporation ("NTK America")
which completed the Company's discontinuation of its distribution operations.
The Company has reported the results of this transaction in discontinued
operations and all prior year financial statements have been restated
accordingly.
11. EXTRAORDINARY ITEM
As a result of the Plan of Reorganization, the principal amount of the Company's
secured debt due HCR Partners ($31,594,000) was exchanged for 75% ownership in
the Company. Accrued interest on HCR Partners secured debt ($3,124,000) and
warrants to purchase 1,000,000 shares of the Company's Common Stock held by HCR
Partners were extinguished. Since Management estimated the net assets of the
Company at $21,096,000 (refer to Note 3), the exchange and cancellation
transactions relative to HCR Partners resulted in an extraordinary gain to the
Company of $18,896,000. The gain was determined to be nontaxable for Federal
tax purposes and therefore no tax expense has been provided.
12. ACQUISITIONS AND DIVESTITURES
In the fourth quarter of 1990, the Company's Canadian subsidiary acquired the
business of CTG, Inc. a Toronto based telephone interconnect company which
operates in various locations throughout Canada. The Company's Canadian
subsidiary received cash of $3,361,000 in exchange for liabilities assumed in
connection with this acquisition. The consideration to be paid for this
acquisition is a royalty based on sales with a minimum consideration of
approximately $3,000,000. The minimum amount is to be paid in equal quarterly
installments over five years. The minimum royalty has been recorded as a
liability. Any future adjustments to this amount will be recorded and paid as
incurred. The acquisition was accounted for as a purchase and, accordingly, the
results of operations of the business have been included in the consolidated
financial statements from the acquisition date. The cost of this acquisition
exceeded the fair market value of net tangible assets by $4,512,000 and is being
amortized over a ten-year period.
13. BUSINESS SEGMENT AND GEOGRAPHIC AREAS
The Company primarily sells, installs and services its products through a
domestic and Canadian network of sales and service facilities to primarily small
to medium sized customers. An analysis of the Company's operations by
geographic location is as follows:
United
States Canada Eliminations Consolidated
------------- ---------- ------------ ------------
Six Months Ended
June 30, 1991
- - -------------
Sales to unaffiliated
companies $ 36,351,000 $15,190,000 $ -- $ 51,541,000
------------- ----------- ------ ------------
Pretax-tax income (loss) $( 40,738,000) $ 616,000 $5,000 $(40,117,000)
------------- ----------- ------ ------------
------------- ----------- ------ ------------
TIE/communications, Inc. and Subsidiaries
PREDECESSOR COMPANY
SCHEDULE VIII: VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance at
Beginning Cost and End of
Description of Period Expenses Deductions Period
- - ----------- --------- -------- ---------- ------
Six Months Ended
June 30, 1991
- - -------------
Allowance for
doubtful accounts $3,287,000 $867,000 $923,000* $3,231,000
* Bad debts written off.
TIE/communications, Inc. and Subsidiaries
(Amounts in $000's)
PREDECESSOR COMPANY
SCHEDULE IX: SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Weighted Maximum Average Weighted
Balance Average Amount Amount Average
Category of at End of Interest Outstanding Outstanding Interest Rate
Borrowing (1) Period Rate During Period During Period(2) During Period(3)
- - ---------------- ------ -------- ------------- --------------- ---------------
Six Months Ended
June 30, 1991
-------------
<S> <C> <C> <C> <C> <C>
Banks $12 8.3% $20 $16 12.5%
Other financial institutions 10 0% 10 10 0%
--- --- ---
All categories $22 4.5% $30 $26 7.7%
--- --- ---
--- --- ---
</TABLE>
(1) At June 30, 1991, all the short-term borrowings outstanding were incurred
by domestic subsidiaries.
(2) The average borrowings were determined based on the amounts outstanding at
the end of each month.
(3) The weighted average interest rate during the period was calculated by
dividing the actual interest expense in each period by the average amount
outstanding during the period.
TIE/communications, Inc. and Subsidiaries
PREDECESSOR COMPANY
SCHEDULE X: SUPPLEMENTARY INCOME STATEMENT INFORMATION
Charged to Costs and Expenses
-----------------------------
Six Months Ended
June 30, 1991
----------------
Maintenance and repair $ 704,000
Depreciation and amortization 3,048,000
Taxes, other than payroll and income tax *
Royalties *
Advertising costs *
------------------
* Less than 1% of net sales.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to directors required by this item is incorporated by
reference to information under the caption "Election of Directors" in the Proxy
Statement. The information as to executive officers is included in Part 1 of
this report, "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the caption "Security Ownership of Certain Beneficial Owners"
in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Schedules: See Item 8.
2. Exhibits: See Exhibit Index on Page 65.
(b) Reports on Form 8-K: On or about November 29, 1993, the Registrant filed a
report on Form 8-K/A amending its Form 8-K for September 17, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TIE/communications, Inc.
By: /s/ George N. Benjamin, III
----------------------------------
March 18, 1994 George N. Benjamin, III, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Position or Office Date
------------------ ----
/s/ George N. Benjamin, III President, CEO and Director March 18, 1994
- - ---------------------------
George N. Benjamin, III
/s/ Eric V. Carter Director March 18, 1994
- - ---------------------------
Eric V. Carter
/s/ Robert C. Gluth Director March 18 1994
- - ---------------------------
Robert C. Gluth
/s/ Thomas L. Kelly, Jr. Director March 18, 1994
- - ---------------------------
Thomas L. Kelly, Jr.
/s/ Robert E. LaBlanc Director March 18, 1994
- - ---------------------------
Robert E. LaBlanc
/s/ Robert A. Pritzker Director March 18, 1994
- - ---------------------------
Robert A. Pritzker
/s/ Lewis Collens Director March 18, 1994
- - ---------------------------
Lewis Collens
/s/ Robert W. Webb Director March 18, 1994
- - ---------------------------
Robert W. Webb
/s/ Jane E. Closterman Corporate Controller March 18, 1994
- - ---------------------------
Jane E. Closterman
EXHIBIT INDEX
2 -- Joint Plan of Reorganization of the Debtors, filed with the
United States Bankruptcy Court for the District of Delaware on
April 8, 1992. (8)
3 -- Restated Certificate of Incorporation(1) and By-Laws. (2)
3.1 -- Amendment to the Restated Certificate of Incorporation. (4)
3.2 -- Amendment, dated June 10, 1987, to the Restated Certificate of
Incorporation. (5)
3.3 -- Certificate of Correction, dated September 1, 1987, to the Restated
Certificate of Incorporation. (5)
10.4 -- Stock Purchase Agreement dated as of March 24, 1990, by and between
TIE and Chinteik ("Chinteik Agreement"). (6)
10.5 -- License Agreement, exhibit to Chinteik Agreement. (6)
10.6 -- Form of Separation Agreement executed between TIE and Randolph K.
Piechocki. (6)
10.7 -- "Standstill" Letter Agreement, dated April 10, 1990, by and between
HCR Partners and TIE. (6)
10.9 -- Exchange Agreement, dated April 7, 1991, by and between HCR
Partners and TIE. (7)
10.10 -- Amendment, dated April 8, 1991, to Separation Agreement, dated
December 11, 1985, between TIE and Eric V. Carter. (8)
10.11 -- Severance Agreement, dated April 9, 1991, between TIE and Thomas L.
Kelly, Jr. (8)
10.12 -- Separation Agreement and General Release, dated February 13, 1992,
between TIE and Barry D. Schumaker. (11)
10.13 -- Separation Agreement and General Release, dated March 6, 1992,
between TIE and Roger L. Crossland. (11)
10.14 -- Administrative and Consulting Service Agreements, dated August 1,
1991, between The Marmon Group, Inc. and TIE. (11)
10.15 -- Business Agreement, dated May 22, 1991, by and between TIE,
Nitsuko America Corporation and Century Electronics and Systems
Co., Ltd. (11)
10.16 -- Inventory and Equipment Transfer Agreement between TIE and Nitsuko
America Corporation, dated May 14, 1991. (11)
10.17 -- License and Royalty Agreement between TIE and Nitsuko America
Corporation, dated July 1991. (11)
10.18 -- Consignment Agreement between TIE and Nitsuko America Corporation,
dated July 1991. (11)
10.19 -- Distribution Agreement between TIE and Nitsuko America Corporation
dated July 1991. (11)
10.20 -- Revolving Credit Agreement, dated June 18, 1991, by and among TIE
and certain of its subsidiaries and HCR Partners. (9)
10.21 -- Registration Rights Agreement, dated June 18, 1991, by and between
HCR Partners and TIE. (9)
10.22 -- Voting Agreement, dated June 18, 1991, between TIE and HCR
Partners. (9)
10.23 -- Amendment to and Assignment of Revolving Credit Agreement,
entered into as of July 1, 1991, by and among TIE and certain of
its subsidiaries, HCR Partners and Marmon Holdings, Inc. (10)
10.24 -- Distribution Agreement between TIE/communications Canada, Inc. and
Nitsuko America Corporation dated August 31, 1992. (12)
10.25 -- Inventory and Equipment Transfer Agreement, dated July 24, 1992,
by and between Nitsuko America Corporation and TIE/communications
Canada, Inc. (12)
10.26 -- Employment Agreement between Eric V. Carter and TIE, dated January
14, 1992. (12)
10.27 -- Letter Agreement between George N. Benjamin, III and TIE, dated
April 29, 1992. (12)
10.28 -- Revolving Funds Agreement between TIE and The Marmon Corporation,
dated January 1, 1992. (12)
10.29 -- Asset Purchase and Sale Agreement by and between PacTel Meridian
Systems and TIE/communications, Inc., dated September 17,
1993. (13)
10.30 -- Agreement between Mark Amatrudo and TIE, dated November 1, 1993. *
10.31 -- Agreement and Release between Mark Amatrudo and TIE, dated
November 19, 1993. *
10.32 -- Agreement between Anthony T. Guiterman and TIE, dated December 8,
1993. *
10.33 -- Agreement and Release between Anthony T. Guiterman and TIE dated
December 9, 1993. *
10.34 -- Agreement between Anthony T. Guiterman and TIE, dated November 9,
1993. *
10.35 -- Agreement and Release between Brian J. Kelley and TIE, dated
February 10, 1994. *
10.36 -- Agreement and Release between Russell J. Melita and TIE, dated
December 28, 1993. *
10.37 -- Second Amendment dated March 1, 1992, to the Revolving Credit
Agreement, dated June 18, 1991 among TIE and certain of its
subsidiaries and Marmon Holdings, Inc. *
10.38 -- Amendment dated March 31, 1993 to the Revolving Credit Agreement,
dated June 18, 1991, by and between TIE and various of its
subsidiaries and Marmon Holdings, Inc. *
10.39 -- Fourth Amendment dated December 31, 1993 to the Revolving Credit
Agreement, dated June 18, 1991, by and between TIE and various of
its subsidiaries and Marmon Holdings, Inc. *
11 -- Schedule Re: Computation of Per Share Earnings. *
21 -- List of Subsidiaries. *
- - ----------------------------
* Filed herewith
COPIES OF EXHIBITS WILL BE
PROVIDED TO SHAREHOLDERS UPON REQUEST
(1) Filed as an exhibit to TIE's Registration Statement on Form S-1, No.
2-72010, which was declared effective by the Commission on May 14,
1981, and incorporated herein by reference.
(2) Filed as an exhibit to TIE's Registration Statement on Form S-1, No.
2-69860, which was declared effective by the Commission on December 4,
1980, and incorporated herein by reference.
(3) Filed as an exhibit to TIE's Registration Statement on Form S-1, No.
2-75271, which was declared effective by the Commission on December
18, 1981, and incorporated herein by reference.
(4) Filed as an exhibit to TIE's Annual Report on Form 10-K, dated March
29, 1984, and incorporated herein by reference.
(5) Filed as an exhibit to TIE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, and incorporated herein by
reference.
(6) Filed as an exhibit to TIE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, and incorporated herein by
reference.
(7) Filed as an exhibit to TIE's Report on Form 8-K, dated April 8, 1991,
reporting the filing by the Debtors for reorganization relief under
Chapter 11 of the United States Bankruptcy Code, and incorporated
herein by reference.
(8) Filed as an exhibit to TIE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by
reference.
(9) Filed as an exhibit to TIE's Report on Form 8-K, dated July 1, 1991,
and incorporated herein by reference.
(10) Filed as an exhibit to TIE's Current Report on Form 8-K, dated August
26, 1991, and incorporated herein by reference.
(11) Filed as an exhibit to TIE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, and incorporated herein by
reference.
(12) Filed as an exhibit to TIE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by
reference.
(13) Filed as an exhibit to TIE's report on Form 8-K, dated September 30,
1993, and incorporated herein by reference.
