UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended October 14, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-5486
THE DIANA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2448698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
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.
X Yes ___ No
At October 31, 1995, the registrant had issued and outstanding an
aggregate of 3,921,566 shares of its common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The Diana Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
October 14, April 1,
1995 1995
----------- ----------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,792 $ 2,440
Restricted short-term investment 81 300
Marketable securities 2,582 6,211
Receivables 13,242 14,785
Inventories 9,157 12,237
Other current assets 612 390
------ -------
Total current assets 31,466 36,363
Property and equipment, net 3,631 3,803
Intangible assets 3,882 4,137
Other assets 1,166 1,024
------ ------
$ 40,145 $ 45,327
====== ======
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities
Accounts payable $ 10,426 $ 12,355
Accrued liabilities 1,334 1,390
Current portion of long-term debt 753 3,129
------ ------
Total current liabilities 12,513 16,874
Long-term debt 6,860 6,981
Other liabilities 1,184 1,743
Commitments and contingencies
Shareholders' equity
Preferred stock - $.01 par value --- ---
Common stock - $1 par value 4,810 4,810
Additional paid-in capital 48,560 48,548
Accumulated deficit (28,433) (28,178)
Unrealized loss on marketable securities (646) (713)
Treasury stock (4,703) (4,738)
------ ------
Total shareholders' equity 19,588 19,729
------ ------
$ 40,145 $ 45,327
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
12 Weeks Ended 28 Weeks Ended
------------------------ ------------------------
October 14, October 15, October 14, October 15,
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 60,828 $ 56,255 $ 142,382 $ 131,004
Other income (loss) 198 (302) 333 (720)
------ ------ ------- -------
61,026 55,953 142,715 130,284
Cost of sales 58,497 53,059 137,429 124,706
Selling and administra-
tive expenses 2,181 2,485 4,932 5,411
------ ------ ------- -------
Operating earnings 348 409 354 167
Interest expense (207) (224) (542) (584)
Non-operating income --- 233 --- 68
Minority interest --- --- --- (44)
Equity in earnings (loss)
of unconsolidated
subsidiaries 5 6 (67) 30
------ ------ ------- -------
Net earnings (loss) $ 146 $ 424 $ (255) $ (363)
====== ====== ======= =======
Earnings (loss) per
common share:
Primary $ .04 $ .10 $ (.07) $ (.10)
====== ====== ======= =======
Fully diluted $ .03 $ .10 $ (.07) $ (.10)
====== ====== ======= =======
Weighted average number
of common shares
outstanding:
Primary 4,134 4,075 3,917 3,761
====== ====== ======= =======
Fully diluted 4,249 4,075 3,917 3,761
====== ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
28 Weeks Ended
--------------
October 14, October 15,
1995 1994
----------- ----------
<S> <C> <C>
Operating Activities:
Net loss $ (255) $ (363)
Reconciliation of net loss to net cash
provided by operating activities:
Loss on sales of marketable securities --- 1,170
Depreciation and amortization 669 591
Minority interest --- 44
Equity in (earnings) loss of
unconsolidated subsidiaries 67 (30)
Payment of net liabilities of
unconsolidated subsidiary (233) ---
Changes in operating assets and liabilities 2,343 3,531
------ ------
Net cash provided by operating activities 2,591 4,943
Investing activities:
Additions to property and equipment (281) (166)
Purchases of marketable securities (469) (1,499)
Sales of marketable securities 4,200 8,829
Investments in unconsolidated subsidiary (350) ---
Other 158 97
------ ------
Net cash provided by investing activities 3,258 7,261
Financing activities:
Changes in short-term borrowings --- (2,144)
Payments on long-term debt (2,497) (3,800)
Payment toward bond settlement --- (2,822)
------ ------
Net cash used by financing activities (2,497) (8,766)
------ ------
Increase in cash and cash equivalents 3,352 3,438
Cash and cash equivalents at the
beginning of the period 2,440 1,661
------ ------
Cash and cash equivalents at the end
of the period $ 5,792 $ 5,099
====== ======
Non-cash transactions:
Purchase of minority interest with
common stock $ --- $ 1,895
Payment of net liabilities of uncon-
solidated subsidiary with restricted
short-term investment 219 ---
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
The Diana Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
October 14, 1995
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the twenty-eight weeks ended October 14, 1995 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 30, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended April 1, 1995.
The computation of earnings (loss) per common share is based on the
weighted average common shares outstanding and dilutive common stock
equivalents (stock options).
NOTE 2 - Commitments and Contingencies
C&L Communications, Inc. ("C&L") participates in an equipment leasing
arrangement. C&L is subject to a future subscription obligation relating to
the equipment lease for approximately $442,000 at October 14, 1995, if income
from the underlying lease is insufficient to fund future operations of the
arrangement. The lease for equipment expires in January 1999. The sellers
have indemnified the Company with respect to any future subscription
obligations.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following is a summary of sales for the second quarter and year-to-
date for fiscal 1996 and 1995, including sales by significant product line
for APC (in thousands):
Second Quarter Year-To-Date
-------------- ------------
1996 1995 1996 1995
---- ---- ---- ----
C&L $ 7,160 $ 10,966 $ 13,427 $ 19,778
Beef 26,218 22,699 62,273 56,899
Pork 10,469 9,174 26,969 22,660
Other 16,981 13,416 39,713 31,667
------ ------ ------- -------
APC Total 53,668 45,289 128,955 111,226
------ ------ ------- -------
$ 60,828 $ 56,255 $ 142,382 $ 131,004
====== ====== ======= =======
For the twelve weeks ended October 14, 1995, net sales increased
$4,573,000 or 8.1% over fiscal 1995 second quarter net sales. C&L's net
sales decreased $3,806,000 or 34.7% from fiscal 1995 second quarter net sales
primarily due to lower call controller sales and lower sales of digital
network communications products. The market for call controllers has been
negatively impacted by a continuing consolidation of long distance carriers
and continuing growth of equal access resulting in a reduction of demand for
the product. In addition, the digital network communications marketplace in
the United States is growing at a slower pace than in previous years due to
the proliferation of voice T-1 circuits. Network providers are seeking
faster access devices which can compress data more cost effectively.
Consequently, there has been downward pricing pressure in this market which
has impacted the digital products that are sold by C&L. C&L is addressing
the changing dynamics in the telecommunications marketplace through the
future distribution of new product lines including ISDN, ATM, frame relay and
digital switches. APC's overall volume (based on tonnage) during this period
increased by 7.5% and net sales increased $8,379,000 or 18.5% over fiscal
1995 second quarter net sales. The average sales price per pound increased
from $1.15 per pound in fiscal 1995 to $1.28 per pound in fiscal 1996 due to
a change in the product mix. The increase in net sales is attributable to
increased business resulting from the addition of a customer in December
1994. Sales to this customer during the second quarter and year-to-date
fiscal 1996 accounted for more than 25% of APC's net sales. APC anticipates
that sales to this customer will decrease from current levels due to the
discontinuance of certain higher cost routes.
For the twenty-eight weeks ended October 14, 1995, net sales increased
$11,378,000 or 8.7% over fiscal 1995 sales for the same period of time.
C&L's fiscal 1996 year-to-date sales decreased $6,351,000 or 32.1% from
fiscal 1995. C&L's year-to-date sales decrease is attributable to the same
factors discussed above. APC's overall volume (based on tonnage) during this
period increased by 6.8% and net sales increased by $17,729,000 or 15.9% from
fiscal 1995 sales. The average sales price per pound during the twenty-eight
weeks ended October 14, 1995 increased from $1.18 in fiscal 1995 to $1.29 in
5
<PAGE>
fiscal 1996. APC's year-to-date sales increase is attributable to the same
factors discussed above.
For the twelve weeks ended October 14, 1995, other income (loss)
improved from a loss of $302,000 to income of $198,000. For the twenty-eight
weeks ended October 14, 1995, other income (loss) improved from a loss of
$720,000 to income of $333,000. During the second quarter of fiscal 1996 and
year-to-date fiscal 1996, the Company did not incur any gains or losses on
sales of marketable securities as compared to losses of $430,000 and
$1,170,000, respectively, incurred during the same periods of time in fiscal
1995. In addition, during fiscal 1996, the Company had smaller amounts of
investments in corporate debt as compared to the same period of time in
fiscal 1995 resulting in lower interest income. During the second quarter of
fiscal 1995, the Company reduced its investments in corporate debt in amounts
sufficient enough to eliminate all margin borrowings incurred to acquire
these investments. Throughout fiscal 1995 the Company was decreasing its
investments in corporate debt due to the decrease in interest rates.
For the twelve weeks ended October 14, 1995, gross profit decreased
$865,000 or 27.1% from the same period in fiscal 1995. The decrease in gross
profit is primarily attributable to the reduction in C&L's sales. On a
consolidated basis, gross profit as a percentage of net sales was 3.8% in the
second quarter of fiscal 1996 as compared to 5.7% in the second quarter of
fiscal 1995. C&L's gross profit as a percentage of net sales was 17.7% in
the second quarter of fiscal 1996 as compared to 18.7% in fiscal 1995. The
decrease in C&L's gross profit percentage in fiscal 1996 is attributable to
lower margins on both call controllers and digital products due to the
factors discussed in the sales analyses. APC's gross profit as a percentage
of net sales was 2.0% in the second quarter of fiscal 1996 as compared to
2.5% in fiscal 1995. The decrease in APC's gross profit percentage in fiscal
1996 is primarily due to the customer added in December 1994.
For the twenty-eight weeks ended October 14, 1995, gross profit
decreased $1,345,000 or 21.4% from the same period in fiscal 1995. The
decrease in gross profit is primarily attributable to the reduction in C&L's
sales. On a consolidated basis, year-to-date gross profit as a percentage of
net sales was 3.5% in fiscal 1996 as compared to 4.8% in fiscal 1995. C&L's
gross profit as a percentage of net sales was 18.8% for the twenty-eight
weeks ended October 14, 1995 as compared to 19.2% for the same period of time
in fiscal 1995. The decrease in C&L's gross profit percentage is
attributable to lower margins on call controllers due to the factors
discussed in the sales analyses. APC's gross profit as a percentage of net
sales for the twenty-eight weeks ended October 14, 1995 was 1.9% as compared
to 2.2% for the same period of time in fiscal 1995. The decrease in APC's
gross profit percentage for the twenty-eight weeks ended October 14, 1995 is
primarily due to the customer added in December 1994.
6
<PAGE>
For the twelve weeks ended October 14, 1995, selling and administrative
expenses decreased $304,000 or 12.2% from the same period in fiscal 1995.
Selling and administrative expenses as a percentage of net sales were 3.6%
for the twelve weeks ended October 14, 1995 as compared to 4.4% for the same
period in fiscal 1995. Selling and administrative expenses have decreased
primarily because of lower selling and marketing expenses incurred by C&L
resulting from its lower sales level.
For the twenty-eight weeks ended October 14, 1995, selling and
administrative expenses decreased $479,000 or 8.9% over the same period in
fiscal 1995. Selling and administrative expenses as a percentage of net
sales were 3.5% for the twenty-eight weeks ended October 14, 1995 as compared
to 4.1% for the same period in fiscal 1995. The decrease in selling and
administrative expenses is attributable to the same factors discussed above.
For the twelve and twenty-eight weeks ended October 14, 1995, interest
expense decreased $17,000 or 7.6% and $42,000 or 7.2%, respectively, over the
same periods in fiscal 1995. The decrease in interest expense for the twelve
weeks ended October 14, 1995 is due to the elimination of borrowings by C&L
under its line of credit for the majority of the second quarter of fiscal
1996. The decrease in interest expense for the twenty-eight weeks ended
October 14, 1995 is due to the above factor and because short term borrowings
by Diana's corporate office were eliminated during the second quarter of
fiscal 1995 due to the termination of margin borrowings on marketable
security investments.
For the twelve weeks ended October 15, 1994, non-operating income of
$233,000 was attributable to the receipt of a settlement payment pursuant to
a court order. During the first quarter of fiscal 1995, a non-operating
expense of $165,000 was incurred representing a charge related to the
settlement of a discrimination suit brought by a former employee of one of
the Company's subsidiaries.
Equity in earnings (loss) of unconsolidated subsidiaries changed from
earnings of $30,000 during the twenty-eight weeks ended October 15, 1994 to
a loss of $67,000 for the same period of time in fiscal 1996. Diana's
unconsolidated subsidiary, Sattel Communications Company ("Satcom") incurred
a loss during fiscal 1996 primarily due to expenses incurred related to the
development of its business. Satcom was formed in December 1994. In
addition, APC's unconsolidated subsidiary incurred a loss during fiscal 1996
due to lower gross profit margins.
In October 1995, C&L appointed a new chief executive officer who has
excellent senior management experience in telecommunications switching and
data communications. C&L's former chief executive officer will remain on
C&L's Board of Directors and will provide consulting services to C&L.
Subsequently, several employees resigned from C&L including, among others,
the chief financial officer, the vice president of sales and marketing, the
sales manager and six out of fourteen sales people. Several if not all of
these former employees went to work for a newly formed competitor. C&L is in
the process of replacing the departed personnel. At this time the magnitude
of the impact of this on C&L's business cannot be determined.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash flow from operating activities of $2,591,000
during the twenty-eight weeks ended October 14, 1995 as compared to
$4,943,000 for the same period of time in fiscal 1995. The cash flow from
operating activities during the twenty-eight weeks ended October 14, 1995 is
primarily attributable to the following changes in operating assets and
liabilities: a) inventories decreased by $3,080,000 or 25.2% from April 1,
1995; b) receivables decreased $1,543,000 or 10.4% from April 1, 1995; and c)
accounts payable decreased $1,929,000 or 15.6% from April 1, 1995.
For the twenty-eight weeks ended October 14, 1995, the Company had
$281,000 of capital expenditures. C&L's and APC's Loan and Security
Agreements include covenants that restrict capital expenditures. In fiscal
1996, C&L's and APC's capital expenditures will be limited to $900,000
because of covenants in their Loan and Security Agreements that restrict
capital expenditures.
C&L's credit facility provides for a revolving line of credit of up to
$6,000,000 with interest at the prime rate plus .25% through December 1995.
At October 14, 1995, C&L had no borrowings outstanding and available unused
borrowing capacity of $4,785,000.
APC's credit facility provides a revolving line of credit of up to
$9,500,000 with interest at the prime rate plus 2.0% through November 1997.
A $2 million letter of credit facility is included within the total credit
facility. At October 14, 1995, APC borrowed $4,439,000 and had letters of
credit of $2,000,000 issued on its behalf. At October 14, 1995, APC had
available unused borrowing capacity of $2,311,000. APC management estimates
that the minimum level of borrowings that will be outstanding for the
remainder of the fiscal year will be approximately $4,000,000 and has
classified $439,000 of the amount outstanding as a current liability. In
August and November 1995, APC and its lender entered into waiver and
amendment agreements relating to the Loan and Security Agreement in order to
avoid violating certain financial covenants in fiscal 1996. The Company is
exploring options with respect to its investment in APC.
8
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
4.1 - Waiver and Sixth Amendment to Loan and Security
Agreement between Atlanta Provision Company, Inc.
and Shawmut Capital Corporation dated November 28,
1995.
27 - Financial Data Schedule
b) A Form 8-K dated October 17, 1995 was filed by the Company
which covered:
Item 5. Other Events
Press release dated October 17, 1995 announcing the
termination of a previously announced agreement to
acquire a majority interest in ATI Communications.
9
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE DIANA CORPORATION
By:/s/ Richard Y. Fisher
Richard Y. Fisher
Chairman of the Board
(Principal Executive
Officer)
By:/s/ R. Scott Miswald
R. Scott Miswald
Vice President, Treasurer
and Controller (Principal
Financial and Accounting
Officer)
DATE: November 28, 1995
10
WAIVER AND SIXTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
November 28, 1995
Atlanta Provision Company, Inc.
1400 West Marietta Street, N.W.
Atlanta, GA 30318
Attention: G. Michael Coggins
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement
dated as of November 24, 1992, between Atlanta Provision Company,
Inc. ("Borrower") and Shawmut Capital Corporation (successor in
interest to Barclays Business Credit, Inc. ("Lender")), as amended
to date (the "Loan Agreement"). Unless otherwise defined herein,
all capitalized terms used herein shall have the same meanings
provided for such terms in the Loan Agreement.
Borrower has informed Lender that an Event of Default has
occurred under the Loan Agreement because of Borrower's failure to
achieve Net Cash Flow in excess of negative One Hundred Ninety-Five
Thousand Dollars (-$195,000) for the period ending October 14, 1995
as required under subsection 9.3(c) of the Loan Agreement (the
"Existing Default").
Borrower has requested that Lender (i) waive the Existing
Default and (ii) amend certain provisions of the Loan Agreement,
and Lender has agreed to such requests on the terms and conditions
set forth herein.
1. Waiver. Lender hereby waives the Existing Default.
The foregoing waiver is limited to the Existing Default
specified and shall not constitute a waiver of any other existing
or future Default or Event of Default or of any rights that Lender
may have under the Loan Agreement or applicable law with respect
thereto, all of which rights Lender hereby expressly reserves.
2. Amendments. The Loan Agreement is hereby amended as
follows:
a. Section 9.3(a) of the Loan Agreement (Minimum Adjusted
Tangible Net Worth) is amended and restated in its entirety, as
follows:
"(a) Minimum Adjusted Tangible Net Worth. Maintain at all
times Consolidated Adjusted Tangible Net Worth of not less than the
amount shown below for the period corresponding thereto:"
1
<PAGE>
Atlanta Provision Company, Inc.
November 28, 1995
Page 2
Period Amount
April 1, 1995 through $3,900,000
March 29, 1996
March 30, 1996 through $3,900,000
March 28, 1997
March 29, 1997 and thereafter $4,400,000
b. Section 9.3(b) of the Loan Agreement (Profitability) is
amended and restated in its entirety, as follows:
"(b) Profitability. Achieve Consolidated Adjusted Net
Earnings From Operations not to exceed a Four Hundred Thousand
Dollar ($400,000) loss for fiscal year 1996 and not less than a Five Hundred
Thousand Dollar ($500,000) profit for each fiscal year thereafter."
c. Section 9.3(c) Net Cash Flow is amended as follows:
Period Amount
November 11, 1995 ($355,000)
December 9, 1995 ($395,000)
January 6, 1996 ($465,000)
February 3, 1996 ($200,000)
March 2, 1996 $130,000
March 30, 1996 $230,000
April 27, 1996 $340,000
May 25, 1996 $350,000
June 22, 1996 $425,000
July 20, 1996 $450,000
August 17, 1996 $475,000
September 14, 1996 and thereafter $500,000
2
<PAGE>
Atlanta Provision Company, Inc.
November 28, 1995
Page 3
3. Effectiveness. This Waiver and Sixth Amendment to Loan
and Security Agreement shall be effective as of the date hereof
when duly executed by both parties and delivered to Lender. Except
as expressly amended hereby, the Loan Agreement shall remain in
full force and effect as executed.
4. Counterparts. This Waiver and Sixth Amendment to Loan
and Security Agreement may be executed in counterparts all of
which, taken together, shall constitute but one instrument.
Very truly yours,
SHAWMUT CAPITAL CORPORATION
By:/s/ Robert J. Lund
Robert J. Lund
Vice President
Acknowledged and agreed to
this 28th day of November, 1995
ATLANTA PROVISION COMPANY, INC.
By:/s/ R. Scott Miswald
Its: Secretary
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE DIANA CORPORATION AS OF AND FOR THE 28
WEEKS ENDED OCTOBER 14, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> OCT-14-1995
<CASH> 5873
<SECURITIES> 2582
<RECEIVABLES> 13654
<ALLOWANCES> (412)
<INVENTORY> 9157
<CURRENT-ASSETS> 31466
<PP&E> 8201
<DEPRECIATION> (4570)
<TOTAL-ASSETS> 40145
<CURRENT-LIABILITIES> 12513
<BONDS> 6860
<COMMON> 4810
0
0
<OTHER-SE> 20127
<TOTAL-LIABILITY-AND-EQUITY> 40145
<SALES> 142382
<TOTAL-REVENUES> 142715
<CGS> 137429
<TOTAL-COSTS> 137429
<OTHER-EXPENSES> 4932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 542
<INCOME-PRETAX> (255)
<INCOME-TAX> 0
<INCOME-CONTINUING> (255)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (255)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
