<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8086
GENERAL DATACOMM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Middlebury, Connecticut 06762-1299
(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code: (203) 574-1118
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Title of Each Class at December 31, 1993
Common Stock, $.10 par value 14,539,373
Class B Stock, $.10 par value 2,462,114
Total Number of Pages
in This Document is 14.
<PAGE> 2
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets -
December 31, 1993 and September 30, 1993 3
Consolidated Statements of Income and
Earnings Reinvested - For the Three
Months ended December 31, 1993 and 1992 4
Consolidated Statements of Cash Flows -
For the Three Months Ended
December 31, 1993 and 1992 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1993 1993
------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $1,805 $2,594
Accounts receivable, less allowance
for doubtful receivables of $1,608 in December
and $1,575 in September 30,236 35,654
Inventories 37,681 34,522
Other current assets 6,303 6,711
------ ------
Total current assets 76,025 79,481
------ ------
Property, plant and equipment:
Land 1,747 1,745
Buildings and improvements 24,688 24,307
Test equipment, fixtures and field spares 43,506 43,183
Machinery and equipment 35,782 35,390
------ ------
105,723 104,625
Less: accumulated depreciation and amortization 67,152 67,384
------ ------
38,571 37,241
Capitalized software development costs, net
of accumulated amortization of $12,782 in
December and $10,582 in September 20,633 19,333
Other assets 12,959 5,621
-------- --------
$148,188 $141,676
LIABILITIES AND STOCKHOLDERS' EQUITY: ======== ========
Current liabilities:
Current portion of long-term debt $3,708 $3,489
Accounts payable, trade 10,531 10,563
Accrued payroll and payroll-related costs 6,105 6,962
Deferred income 5,569 5,672
Other current liabilities 14,769 14,550
------ ------
Total current liabilities 40,682 41,236
------ ------
Long-term debt, less current portion 36,028 28,402
Other liabilities 4,564 4,958
------ ------
Total liabilities 81,274 74,596
------ ------
Minority interest in consolidated subsidiary 51 52
Stockholders' equity: ------ ------
Capital stock, par value $.10 per share, issued:
17,001,487 shares in December and 16,980,581
shares in September 1,700 1,698
Capital in excess of par value 50,718 50,064
Earnings reinvested 21,812 23,805
Cumulative foreign currency translation adjustment (1,163) (1,077)
Common stock held in treasury, at cost:
898,911 shares in December and 1,082,058 shares
in September (6,204) (7,462)
------ ------
Total stockholders' equity 66,863 67,028
-------- --------
$148,188 $141,676
======== ========
-3-
</TABLE>
<PAGE> 4
[TEXT]
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND EARNINGS REINVESTED
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1993 1992
------- -------
<S> <C> <C>
Revenues
Net product sales $37,977 $44,387
Service revenue 8,254 8,212
Lease revenue 1,819 1,673
------ ------
48,050 54,272
Costs and expenses
Cost of product sales 17,327 21,004
Amortization of capitalized
software development costs 2,200 2,100
Cost of services 5,488 5,725
Cost of lease revenue 229 227
Selling, general and administrative 19,368 17,993
Research and product development 4,289 4,910
------ ------
48,901 51,959
------ ------
Operating income (loss) (851) 2,313
------ ------
Other income (expense)
Interest (895) (510)
Other, net 16 (138)
------ ------
(879) (648)
------ ------
Income (loss) before income taxes, minority
interest and cumulative effect of
accounting change (1,730) 1,665
Income tax provision 145 150
Minority interest in consolidated subsidiary 1 (36)
------ ------
Income (loss) before cumulative effect
of accounting change (1,876) 1,551
Cumulative effect of change in accounting
for post-retirement benefits (117) -
------ ------
Net income (loss) ($1,993) $1,551
Earnings reinvested at beginning of period 23,805 17,689
------ ------
Earnings reinvested at end of period $21,812 $19,240
====== ======
Earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change ($0.11) $0.10
Cumulative effect of change in accounting
for post-retirement benefits (0.01) -
------ ------
($0.12) $0.10
====== ======
Average number of common and common
equivalent shares outstanding 15,978 15,719
-4-
</TABLE>
<PAGE> 5
[TEXT]
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
and Cash Equivalents
-------------------------------
Three Fiscal Months Ended
December 31, December 31,
1993 1992
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) before cumulative effect
of accounting change ($1,876) $1,551
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,649 4,391
Deferred income amortization - (354)
Decrease in accounts receivable 5,796 1,856
(Increase) decrease in inventories (2,283) 1,637
(Decrease) in accounts payable
and accrued expenses (1,727) (4,223)
Decrease in other net current assets 630 142
(Increase) in other net long-term assets (613) (449)
------- -------
Net cash provided by operating activities 4,576 4,551
------- -------
Cash flows from investing activities:
Acquisition of property, plant & equipment (2,361) (1,889)
Capitalized software development costs (3,500) (2,350)
Purchase of companies acquired-1) (5,847) (24)
------- -------
Net cash (used for) investing activities (11,708) (4,263)
------- -------
Cash flows from financing activities:
Revolver borrowings, net 6,800 1,085
Proceeds from notes payable 1,383 707
Principal payments on notes and mortgages (986) (771)
Proceeds from issuing common stock-1) 57 17
Payments of escrow deposits (889) (250)
------- -------
Net cash provided by financing activities 6,365 788
------- -------
Effect of exchange rates on cash (22) (242)
------- -------
Net increase (decrease) in cash and cash equivalents (789) 834
Cash and cash equivalents at beginning of period-2) 2,594 2,018
------- -------
Cash and cash equivalents at end of period-2) $1,805 $2,852
======= =======
<FN>
(1 - Excluded from the fiscal 1994 Consolidated Statement of Cash Flow is the
acquisition of a company financed in part by the issuance of common stock in the
amount of $1,846.
(2 - The Corporation considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
[TEXT]
-5-
<PAGE> 6
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary to
fairly present the financial position of General DataComm
Industries, Inc. and subsidiaries (the "Corporation") as of December
31, 1993, the results of operations for the three months ended
December 31, 1993 and 1992, and the cash flows for the three
months ended December 31, 1993 and 1992. Such adjustments are
generally of a normal recurring nature, but include adjustments
to reduce certain expense accruals and asset reserves to
appropriate levels.
The consolidated financial statements contained herein should be read
in conjunction with the consolidated financial statements and related
notes thereto filed with Form 10-K for the year ended September 30,
1993.
Certain reclassifications were made to the prior year's
financial statements to conform to the current year's presentation.
NOTE 2. BUSINESS ACQUISITION
Effective November 24, 1993, the Corporation acquired Netcomm
Limited, a leader in Asynchronous Transfer Mode (ATM) technology,
located in England. Under the terms of the acquisition, the
Corporation issued 184,647 shares of common stock valued at $1.8
million and committed to pay cash of $5.5 million in return for all
the outstanding common stock of Netcomm. The acquisition was
accounted for as a purchase and, accordingly, the results of
operations of the acquired business have been included in the
Corporation's consolidated financial statements commencing on
November 24, 1993. Approximately $6.5 million of the purchase
price was allocated to goodwill, which is being amortized on a
straight-line basis over fifteen years.
NOTE 3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
December 31, 1993 September 30, 1993
<S> <C> <C>
Raw materials $17,107 $13,024
Work-in-process 4,947 5,033
Finished goods 15,627 16,465
_______ _______
Total $37,681 $34,522
_______ _______
</TABLE>
[TEXT]
- 6 -
<PAGE> 7
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
December 31, 1993 September 30, 1993
<S> <C> <C>
Revolving credit loan $ 7,250 $ 450
Notes payable 19,116 18,283
Mortgages payable 12,110 11,825
Capital lease obligations 1,260 1,333
________ ________
39,736 31,891
Less: current portion 3,708 3,489
________ ________
$36,028 $28,402
________ ________
</TABLE>
[TEXT]
Revolving Credit Loan
On November 30, 1993, the Corporation entered into a new
agreement with The Bank of New York to provide a revolving credit
facility maturing on November 30, 1996 in the amount of
$25,000,000. The agreement provides for interest on outstanding
borrowings to be charged at 2.625% over selected LIBOR terms
ranging from one month to six months, or at the Corporation's
election, at .75% over the prime rate (on December 31,
1993, one-month LIBOR was 3.25% and the prime rate was 6.0%).
The increase in the revolving credit loan balance in the quarter is
principally due to the $5.0 million cash portion of the acquisition
cost of Netcomm Limited (see Note 2).
Notes Payable
Notes Payable includes $9,975,000, payable to an insurance
company, that matures on March 2, 1994 but may be extended at
the Corporation's option to January 2, 1995. Escrow deposits in the
total amount of $1,750,000 have been made to offset the balance due
at maturity. As it is the Corporation's intention to refinance
this net obligation on a long-term basis, the note was classified as
long-term debt at December 31, 1993.
- 7 -
<PAGE> 8
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
<TABLE>
<CAPTION>
Three months ended December 31,
1993 1992
<S> <C> <C>
(in thousands)
Cash paid (received) during
the period for:
Interest $626 $370
Income taxes, net (269) 100
</TABLE>
[TEXT]
NOTE 6. ADOPTION OF FINANCIAL ACCOUNTING STANDARDS
NO. 106
Effective October 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Post-Retirement Benefits Other Than Pensions,"
requiring the use of an accrual method of accounting for
post-retirement health care benefits. The cumulative effect of
adoption was a charge to income of $117,000, or $(.01) per share.
The increase in annual expense for retiree health care is immaterial.
NOTE 7. ADOPTION OF FINANCIAL ACCOUNTING STANDARDS
NO. 109
Effective October 1, 1994, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 109 (FAS 109),
"Accounting for Income Taxes." FAS 109 is an asset and liability
approach that requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Corporation's financial statements or
tax returns. In estimating future tax consequences, FAS 109
generally considers all expected future events other than
enactments of changes in the tax law or rates.
Previously, the Corporation used the FAS 96 asset and liability
approach that gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying
amounts. The cumulative effect of adoption was not material.
- 8 -
<PAGE> 9
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
The Corporation reported a net loss of ($1,993,000), or ($.12) per
share, in the three-month period ended December 31, 1993, as
compared to net income of $1,551,000, or $.10 per share, in the
prior fiscal year. The Corporation's first quarter financial results
were negatively impacted by a significant decline in product
revenue combined with higher investments in international selling
organizations and in engineering costs for new products.
Despite this disappointing performance, the Corporation
generated positive cash flow of $4,576,000 from operations.
The Corporation believes it is strategically positioned to benefit
from emerging telecommunications technologies and from a growing
domestic economy. The acquisition of Netcomm Limited, a leader in
Asynchronous Transfer Mode (ATM) technology, in November 1993
has placed the Corporation in a key market position as networks on a
worldwide basis are poised to migrate to faster
and more sophisticated technologies.
RESULTS OF OPERATIONS
Total revenues for the quarter ended December 31, 1993 decreased
by $6,222,000 to $48,050,000, an 11.5% decline from the same
period one year ago, primarily due to lower product shipments. A
combination of lower product sales to end-user customers and to
telephone companies, principally located in North America, accounted
for the decline. An anticipated fall off in traditional analog modem
shipments were not offset by shipments of new products and digital
products. In some cases, new products are under evaluation in
customer sites and may result in future sales.
Total gross margins for the quarter ended December 31, 1993 rose to
47.5% from 46.5% in the corresponding period in fiscal 1993.
Without amortization of capitalized software, gross margins for the
quarter ended December 31, 1993 improved to 52.0% from 50.3%
Increases in the period were a result of productivity improvements in
the manufacturing and service operations.
Selling, general and administrative expenses in the first quarter of
fiscal 1994 rose $1,375,000, or 7.6%, primarily due to strategic
investments in international operations. The growth in selling,
general and administrative expenses, combined with the decline in
revenues, resulted in such expenses rising to 40.3% of fiscal 1994
revenue from 33.2% of fiscal 1993 revenue.
Gross engineering, research and product development expenditures
for the quarter ended December 31, 1993 rose to $7,789,000 from
$7,260,000, an increase of 7.3% from the same period one year ago.
As a percentage of total revenue, gross research and development
spending rose to 16.2% of fiscal 1994 revenue from 13.4% of fiscal
1993 revenue. The increase in research and development spending,
including the effect of additions to engineering headcount, was
related to the development of new products scheduled for future
release.
- 9 -
<PAGE> 10
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest expense in the quarter ended December 31, 1993 rose
$385,000, or 75.5%, from the comparable period one year ago,
reflecting an increase in the Corporation's level of borrowings which
was largely attributable to the acquisition of Netcomm Limited.
The Corporation adopted Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than
Pensions," as of October 1, 1993. The cumulative effect of the
accounting change was $117,000, or $.01 per share. The
Corporation also adopted Financial Accounting Standard No. 109,
"Accounting for Income Taxes," as of October 1, 1993, the effect of
which was not material.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances, excluding escrow security deposits, decreased
$789,000 in the three-month period ended December 31, 1993.
During this same period, escrow security deposits increased by
$889,000 to a total of $2,389,000. Total debt increased by
$7,845,000 to $39,736,000. Of this increase, $5,000,000 is related
directly to acquisition of Netcomm Limited.
The Corporation believes that the amount of cash to be generated
from operations and available financing under its revolving credit loan
will be sufficient to meet its cash requirements. A note payable
of $9,975,000, due no later than January 2, 1995 and against which
there are cumulative cash escrow deposits of $1,750,000, is
expected to be refinanced prior to its maturity.
OPERATIONS
During the three months ended December 31, 1993, the Corporation
satisfied its financing requirements by generating cash of $4,576,000
from operating activities, including the favorable
impact of accelerated collection of accounts receivable. This
compares to cash provided by operating activities of $4,551,000
in the prior year's three-month period.
Offsetting these favorable operating cash flows was an increase in
inventories of $2,283,000 and a decrease in accounts payable and
accrued expenses of $1,727,000 due to the timing of payrolls and to
the cost of carrying a vacant facility.
- 10 -
<PAGE> 10
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INVESTING
Investments in capitalized software development rose 48.9% to
$3,500,000 from $2,350,000 in the prior year. Spending on
property, plant and equipment for the fiscal 1994 period increased
$472,000 to $2,361,000 from $1,889,000 in the prior year's period,
principally for equipment to improve manufacturing and engineering
processes.
On November 24, 1993, the Corporation acquired all of the
outstanding stock of Netcomm Limited for a cash commitment of
$5.5 million and the issuance of 184,647 shares of common stock
valued at $1.8 million. The cash payment was financed through the
Corporation's revolving credit agreement.
Working capital decreased to $35,343,000 as compared to
$38,245,000 at September 30, 1993, largely due to the accelerated
collection of accounts receivable used to repay the long-term
revolving credit loan. The Corporation's current ratio is 1.9:1 at
both December 31, 1993 and September 30, 1993.
- 11 -
<PAGE> 12
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits
11. Calculation of Earnings Per Share for the three-month
periods ended December 31, 1993 and 1992.
28.1 Amendment to Letter Agreement with Aetna Life
Insurance Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
GENERAL DATACOMM INDUSTRIES, INC.
(Registrant)
______________________________________
William S. Lawrence
Vice President and Chief Financial Officer
Dated: February 14, 1994
-12-
General DataComm Industries, Inc. and Subsidiaries
Calculation of Earnings per Share
(In thousands except per share data) Exhibit 11
Three months ended
December 31,
------------------
1993 1992
------ ------
Primary earnings per share:
--------------------------
Weighted average number of
common shares outstanding 15,978 15,423
Assumed exercise of certain stock
options - 296
------ ------
15,978 15,719
====== ======
Income (loss) before cumulative effect
of accounting change ($1,876) $1,551
Cumulative effect of change in accounting
for post-retirement benefits (117) -
------ ------
Net income (loss) ($1,993) $1,551
====== ======
Earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change ($0.11) $0.10
Cumulative effect of change in accounting
for post-retirement benefits ($0.01) -
------ ------
Earnings (loss) per share ($0.12) $0.10
====== ======
Fully diluted earnings per share:
--------------------------------
Weighted average number of
common shares outstanding 15,978 15,423
Assumed exercise of certain stock
options - 747
------ ------
15,978 16,170
====== ======
Income (loss) before cumulative effect
of accounting change ($1,876) $1,551
Cumulative effect of change in accounting
for post-retirement benefits (117) -
------ ------
Net income (loss) ($1,993) $1,551
====== ======
Earnings (loss) per share:
Income (loss) before cumulative effect
of accounting change ($0.11) $0.10
Cumulative effect of change in accounting
for post-retirement benefits (0.01) -
------ ------
Earnings (loss) per share ($0.12) $0.10
====== ======
EXHIBIT 28.1
January 5, 1994
Mr. Rod Morgan
Investment Officer
Aetna Investment Group
242 Trumbull Street, IG6P
Hartford, CT 06103
Dear Mr. Morgan:
General DataComm Industries, Inc. ("GDC") would like the option of
extending the maturity of the B Note presently held by Aetna in the
amount of $9,975,000 from March 2, 1994 to a date not later than
January 2, 1995. To exercise this option, GDC will be required
to issue thirty days' prior written notice to Aetna. If extended,
the interest rate will remain at its present 10 3/4% for the
duration of the loan. There is no other fee or charge associated
with the creation or exercise of this option.
Please indicate your approval of this request by signing a copy
of this letter and returning it to my attention.
Best regards,
Dennis J. Nesler
Vice President & Treasurer
Aetna Life Insurance Co.
AGREED:________________________
Rod Morgan
Managing Director
