<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19862
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MEMOREX TELEX N.V.
(Exact name of registrant as specified in their respective charter)
THE NETHERLANDS NOT APPLICABLE
(Jurisdiction of (I.R.S. Employer
incorporation of Identification
Memorex Telex N.V.) Number of Memorex Telex N.V.)
545 EAST JOHN CARPENTER FREEWAY
IRVING, TEXAS 75062-3931
TELEPHONE NO.: (214) 444-3500
(Address, including Zip Code, and telephone number, including
area code, of authorized representative in the United States)
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
AMERICAN DEPOSITORY RECEIPTS EVIDENCING AMERICAN DEPOSITORY SHARES WHICH
REPRESENT COMMON STOCK, 0.10 DFL. NOMINAL VALUE
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
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by checkmark 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
--- ---
The number of shares of the registrant's Common Stock, 0.10 DFl. Nominal
Value, outstanding as of July 31, 1996, was 25,076,665.
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED BALANCE SHEETS
(In thousands)
JUNE 30, 1996 MAR. 31, 1996
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(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents including restricted
deposits and guarantees of $8,248 at June 30,
1996 and $14,669 at March 31, 1996. $ 20,427 $ 26,838
Accounts receivable, net 96,235 108,021
Inventories, primarily finished goods 36,947 34,891
Service parts 32,676 31,697
Other current assets 4,979 4,104
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Total current assets 191,264 205,551
Property, plant and equipment, net 27,613 28,622
Other assets 32,002 33,995
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$ 250,879 $ 268,168
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current debt obligations $ 113,084 $ 114,578
Accounts payable 124,388 119,197
Accrued liabilities 160,644 169,098
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Total current liabilities 398,116 402,873
Debt obligations 4,511 4,903
Other long-term liabilities 129,797 137,743
Stockholders' Deficit:
Common stock 1,338 1,338
Additional paid-in capital 73,726 73,726
Accumulated deficit (358,388) (354,749)
Foreign currency translation adjustment 1,779 2,334
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Total stockholders' deficit (281,545) (277,351)
--------- ---------
$ 250,879 $ 268,168
--------- ---------
--------- ---------
See the accompanying note.
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
FOR THREE MONTHS FOR THREE MONTHS
ENDED JUNE 30, 1996 ENDED JUNE 30, 1995
------------------- -------------------
(UNAUDITED)
Revenues $ 201,792 $ 220,551
Cost of revenues 156,357 161,228
----------- -----------
Gross margin 45,435 59,323
Selling, general, and administrative
expenses 43,288 51,822
Other (income) expenses, net 1,100 (703)
Amortization of intangibles 0 31,281
----------- -----------
Operating income (loss) 1,047 (23,077)
Interest income 189 284
Interest expense (4,876) (4,936)
----------- -----------
Loss before income taxes (3,640) (27,729)
Provision for income taxes 0 0
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Net loss $ (3,640) $ (27,729)
----------- -----------
----------- -----------
Net loss per common share of 0.10 DFL $ (0.15) $ (1.11)
----------- -----------
----------- -----------
Weighted average number of common shares
used in the computation of
net loss per common share 25,076,665 25,059,517
----------- -----------
----------- -----------
See the accompanying note.
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
FOR THREE MONTHS FOR THREE MONTHS
ENDED JUNE 30, 1996 ENDED JUNE 30, 1995
------------------- -------------------
(UNAUDITED)
Cash flows from operating activities:
Net loss $(3,640) $(27,729)
Adjustments to reconcile loss to net cash
provided (used) by operating activities:
Depreciation and amortization 2,435 33,766
Changes in components of working
capital excluding short-term debt 3,425 (26,415)
Other long-term liabilities (6,757) 410
Other assets 1,993 1,680
Other (1,290) (3,248)
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Net cash used by operating activities (3,834) (21,536)
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Cash flows from investing activities:
Proceeds from asset sales 0 3,462
Capital expenditures (783) (1,234)
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Net cash provided (used) by investment
activities (783) 2,228
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Cash flows from financing activities:
Issuance of common stock 0 11
Issuance of debt 763 4,486
Redemption of debt (2,557) (3,678)
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Net cash provided by financing activities (1,794) 819
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Net decrease in cash and cash equivalents (6,411) (18,489)
Cash and cash equivalents at beginning
of period 26,838 36,886
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Cash and cash equivalents at end of period $20,427 $ 18,397
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See the accompanying note.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. BASIS OF PRESENTATION
Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair presentation of interim results
have been included. All such adjustments are of a normal recurring nature. The
results for the three months ended June 30, 1996 are not necessarily indicative
of results to be expected for the entire year. These financial statements and
notes should be read in conjunction with the Company's consolidated financial
statements contained in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
RESULTS OF OPERATIONS:
The Company is a worldwide distributor of data network and storage
solutions and a provider of a full range of information technology services.
The following table sets forth the Company's revenues and gross margins
excluding the Asia/Pacific operations for its product groups for the three
months ended June 30, 1996 and the three months ended June 30, 1995 ("the
comparable period"). The revenues and gross margins associated with the
Asia/Pacific operations have been included in the table for presentation
purposes.
($ in millions) Revenues Gross Margin Gross Margin %
---------------- --------------- ---------------
1996 1995 1996 1995 1996 1995
------ ------ ----- ----- ----- -----
Networks $ 82.0 $ 96.3 $15.7 $26.5 19.1% 27.5%
Storage 22.3 19.7 7.5 5.8 33.6% 29.4%
Service 73.5 79.2 15.6 20.0 21.2% 25.3%
Other 5.3 6.3 2.4 2.3 45.3% 36.5%
------ ------ ----- -----
Subtotal $183.1 $201.5 $41.2 $54.6 22.5% 27.1%
Asia/Pacific 18.6 19.1 4.2 4.7 22.6% 24.6%
------ ------ ----- -----
Total $201.7 $220.6 $45.4 $59.3 22.5% 26.9%
------ ------ ----- ----- ----- -----
------ ------ ----- ----- ----- -----
Networks revenue and gross margin continued to decline against the
comparable period as sales of network connectivity products increased 25.3%,
although not enough to offset the 36.7% decline in sales of traditional fixed
function display and mainframe network products. Networks gross margin as a
percentage of sales declined from the prior year due to the continued shift in
sales mix away from the higher margin fixed function display and mainframe
network products and to a higher volume of sales of lower margin business
partner products in the current year.
Storage revenue in the current year, increased 13.2% from the level in the
comparable period. The rise is mainly attributed to increased sales of tape
products offsetting the lower than expected revenues from the Company's
other midrange storage products. Storage margins as a percentage of revenues
increased in the current year primarily due to the stronger margins achieved on
the sale of tape products.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
Service revenue has declined in comparison to the prior year. In the
current year, growth in revenues from advanced services was offset by the
decline in revenues from traditional maintenance. Service gross margin as a
percentage of revenues declined against the levels achieved in the prior year as
a result of the decline in revenues from higher margin traditional maintenance
contracts which have largely been replaced with lower margin subcontracted
services for cabling and third party maintenance contracts. Additionally, price
competition and product mix changes have adversely impacted service margins.
Other revenues declined against the prior year primarily as a result of
declines in lease and brokerage revenues.
The Company estimates that the strengthening of the U.S. dollar when
compared with the comparable period unfavorably affected revenues by
approximately $4.7 million, with slight effect to the margins, for the three
months ended June 30, 1996.
Selling, general and administrative expenses for the three months ended
June 30, 1996, decreased $ 8.5 million over the comparable period. The
reductions reflect the continued effect of the Company's cost reductions
programs. The strengthening of the U.S. dollar, when compared against the
comparable period, favorably affected selling, general and administrative
expenses for the three months ended June 30, 1996 by approximately $.7 million.
Other income (expense) in the current year decreased approximately $1.8
million against the prior year. The decrease was primarily the result of gains
on sale of assets included in the comparable period.
No tax provision was recorded in the current quarter due to tax credits and
current year losses which are expected to result in no taxable income.
The Company does not believe that inflation has had a material impact on
its results of operations.
LIQUIDITY:
During the three months ended June 30, 1996, the Company's net loss,
excluding the non-cash charges for depreciation, used cash of $1.2 million.
Cash was provided from a decrease in accounts receivable ($11.8 million), and an
increase in accounts payable ($5.2 million). The existing cash and cash sources
were primarily used for workforce reductions, closure costs and unfavorable
contractual obligations ($3.5 million), reductions in royalty obligations ($2.8
million), reduced deferred revenues on contract maintenance and warranty
obligations ($12.9 million), and an increase in inventory ($3.0 million). As a
result of the above, cash and cash equivalents, including restricted cash
deposits, decreased $6.4 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
The Company continues its transformation from a developer and manufacturer
of computer hardware to a provider of networking and storage solutions. As part
of this transformation, the Company continues to reengineer its selling,
service, product development, fulfillment, and finance and administrative
processes. This effort has resulted in workforce reductions, the consolidation
of functions, disposition of certain facilities, and closure or sale of
unprofitable operations. The cost of these initiatives, together with the
cumulative decline in revenues and gross margins has continued to reduce the
operating cash flow available to fulfill customer orders on a timely basis.
During the quarter, the Company signed an agreement to sell its
Asia/Pacific operations for $25 million. The Company also reached an agreement
with the lenders to its $100 million Restructured Credit Facility (the "Credit
Facility") for $9 million of the proceeds to be used to reduce debt and the
remaining $16 million to be used to meet working capital requirements including
accrued interest payments. Subsequent to the quarter end, the Company completed
the sale of the Asia/Pacific operations and met all the conditions for
effectiveness of the agreement with the lenders to the Credit Facility.
The agreement with the lenders to the Credit Facility cures events of
default that existed under this agreement at March 31, 1996, and includes a
deferral through October 31, 1996, of interest payments otherwise due prior to
such date. In connection with the amendments and waiver of the Credit Facility,
the Company agreed to a modification of the Credit Facility to include a change
in maturity date from December 31, 1998 to March 31, 1997, a change in the
amortization schedule and certain other conditions. The Company also obtained
waivers of existing events of default under the $12,000 Term Loan Credit and
Guaranty Agreement.
The proceeds from the sale of the Asia/Pacific operations and the deferral
of interest payments will improve short-term liquidity, assisting the Company in
its efforts to expedite new solution introductions, fulfill customer orders and
enhance worldwide customer satisfaction.
The Company continues discussions with financial and strategic investors
and financial institutions concerning a new credit facility or other financing
to repay the amounts owing under the Credit Facility and for working capital.
In addition, the Company will continue to emphasize working capital management,
particularly accounts receivable and inventory as potential sources of cash. The
Company expects to also pursue other non-operating sources of funds such as
increased factoring of accounts receivable, increased subsidiary lines of credit
or, if necessary, undertake an asset disposition program.
The Company believes that operating cash flow, non-operating sources of
funds, and other new financing will enable the Company to continue to meet its
obligations, however, there is no assurance that management's plans will be
successful or what other actions might be necessary.
<PAGE>
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 6: EXHIBITS AND REPORTS
Exhibit 27 Financial Data Schedule
<PAGE>
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.
MEMOREX TELEX N.V.
By: /s/Peter H. Dailey
--------------------------------
(Peter H. Dailey)
August 13, 1996 Chief Executive Officer
By: /s/David J. Faulkner
--------------------------------
(David J. Faulkner)
Managing Director
August 13, 1996 and Chief Financial Officer
By: /s/ Greg Wood
--------------------------------
(Greg Wood)
Senior Vice President
August 13, 1996 and Chief Accounting Officer
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