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 March 31, 2000
Commission File No. 0-26912
Vodavi Technology, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 86-0789350
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8300 E. Raintree Drive, Scottsdale, Arizona 85260
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(480) 443-6000
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(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of registrant's Common Stock, $.001 par value
per share, as of May 10, 2000 was 4,326,688.
<PAGE>
VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000
and December 31, 1999. 3
Condensed Consolidated Statements of Operations - Three Months 4
Ended March 31, 2000 and 1999.
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II. OTHER INFORMATION 10
SIGNATURES 11
2
<PAGE>
VODAVI TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
March 31, December 31,
2000 1999
-------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 982 $ 1,528
Accounts receivable, net 8,929 10,530
Inventory 7,341 6,550
Prepaids and other current assets 931 1,037
-------- --------
Total current assets 18,183 19,645
PROPERTY AND EQUIPMENT, net 2,297 2,356
GOODWILL, net 1,872 1,906
OTHER LONG-TERM ASSETS, net 1,220 1,307
-------- --------
$ 23,572 $ 25,214
======== ========
CURRENT LIABILITIES:
Accounts payable $ 3,424 $ 2,990
Accrued liabilities 1,543 1,546
Revolving credit facility 6,655 8,672
-------- --------
Total current liabilities 11,622 13,208
-------- --------
OTHER LONG-TERM OBLIGATIONS 180 186
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock 5 4
Additional Paid-In Capital 13,170 12,334
Accumulated Deficit (853) (473)
Treasury stock (552) (45)
-------- --------
11,770 11,820
-------- --------
$ 23,572 $ 25,214
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
VODAVI TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
(Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
------- -------
REVENUE, net $ 9,464 $11,307
COST OF GOODS SOLD 5,871 7,456
------- -------
GROSS MARGIN 3,593 3,851
OPERATING EXPENSES:
Engineering and product development 412 318
Selling, general and administrative 3,596 3,008
------- -------
OPERATING INCOME (LOSS) (415) 525
INTEREST EXPENSE 188 138
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (603) 387
PROVISION FOR (BENEFIT FROM) INCOME TAXES (223) 148
------- -------
NET INCOME (LOSS) $ (380) $ 239
======= =======
BASIC EARNINGS (LOSS) PER SHARE $ (0.09) $ 0.06
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 4,221 4,342
======= =======
DILUTED EARNINGS (LOSS) PER SHARE $ (0.09) $ 0.06
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 4,221 4,342
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
VODAVI TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(Unaudited)
Three months ended
March 31,
------------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (380) $ 239
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 192 199
Rent levelization (6) (3)
Changes in working capital:
Accounts receivable, net 1,601 262
Inventory (791) 742
Prepaids and other current assets 106 (323)
Other long-term assets, net 80 261
Accounts payable 434 1,407
Accrued liabilities (3) 59
------- -------
Net cash flows provided by operating activities 1,233 2,843
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (92) (70)
------- -------
Net cash flows used in investing activities (92) (70)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolving credit facility (2,017) (2,783)
Purchase of common stock (507) --
Stock options exercised 837 --
Payments on capital leases -- (89)
------- -------
Net cash flows used in financing activities (1,687) (2,872)
------- -------
DECREASE IN CASH (546) (99)
CASH, beginning of period 1,528 796
------- -------
CASH, end of period $ 982 $ 697
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
VODAVI TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
MARCH 31, 2000
(a) Vodavi Technology, Inc. and subsidiaries (the Company), a Delaware
corporation, designs, develops, markets, and supports a broad range of business
telecommunication solutions, including telephony products, voice processing
products, and computer-telephony products, for a wide variety of business
applications. The Company markets its products primarily in the United States as
well as in foreign countries through a distribution model consisting of
wholesale distributors, direct dealers, and its own direct sales personnel.
(b) The accompanying unaudited consolidated financial statements have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These financial statements reflect all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly state the financial position
as of March 31, 2000 and the operating results and cash flows for the periods
presented. Operating results for the interim periods presented are not
necessarily indicative of the operating results that may be expected for the
entire year. These financial statements should be read in conjunction with the
Company's December 31, 1999 financial statements and accompanying notes thereto.
(c) Diluted earnings per share for the periods ended March 31, 2000 and 1999
were determined by dividing net income by the weighted average number of common
shares and dilutive securities outstanding, as outlined in Statement of
Financial Accounting Standard (SFAS) No. 128, EARNINGS PER SHARE. For the
periods ended March 31, 2000 and 1999, no dilutive securities were included in
the diluted EPS calculation as their effects were antidilutive or all the
dilutive securities were out of the money.
(d) The Company has determined that it operates one reportable segment, the
distribution of telecommunications equipment. The Company has three product
categories - telephony, voice processing, and computer-telephony; however, each
of these does not meet the segment criteria for SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. As a result of the foregoing,
the Company has determined that it is appropriate to present one reportable
segment consistent with the guidance in SFAS No. 131. Accordingly, the Company
has not presented separate financial information for each product category, as
the Company's consolidated financial statements present its one reportable
segment.
(e) The Company is a defendant in various lawsuits. See Item 3, "Legal
Proceedings" included in the Company's Form 10-K for the year ended December 31,
1999. There have been no significant developments in these lawsuits since the
filing of the Company's Form 10-K. The Company has not made any provisions in
its financial statements for these lawsuits. The imposition of damages in any of
these matters could have a material adverse effect on the Company's results of
operations and financial position. From time to time, the Company also is
subject to certain asserted and unasserted claims encountered in the normal
course of business. The Company believes that the resolution of these matters
will not have a material adverse effect on the Company's financial position or
results of operations. The Company cannot provide assurance, however, that
damages that result in a material adverse effect on the Company's financial
position or results of operations will not be imposed in these matters.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999:
The following table summarizes our operating results as a percentage of revenue
for the periods indicated.
Three Months Ended
March 31,
-------------------
2000 1999
----- -----
Revenue 100.0% 100.0%
Cost of goods sold 62.0% 65.9%
----- -----
Gross margin 38.0% 34.1%
Operating expenses:
Engineering and product development 4.4% 2.8%
Selling, general and administrative 38.0% 26.7%
----- -----
Operating income (loss) (4.4%) 4.6%
Interest expense 2.0% 1.2%
----- -----
Income (loss) before income taxes (6.4%) 3.4%
Provision for (benefit from) income taxes (2.4%) 1.3%
----- -----
Net income (loss) (4.0%) 2.1%
===== =====
REVENUE
Revenue was $9.5 million in the first quarter of 2000, a decrease of $1.8
million, or 16.3%, from the first quarter of 1999. Revenue for our wholesale
distribution channel decreased by $3.2 million, or 36%, from the first quarter
of 1999. This decrease is primarily due to a decision by one of our major
wholesale distribution customers to reduce its inventory levels. This
distribution channel was also impacted by the planned migration from our older
digital key telephone systems and commercial grade telephones into newer product
lines. Revenue for this distribution channel for the first quarter 2000 was $2.0
million lower than the same period in 1999 due to these migrations and the
wholesale distribution customer's inventory reduction.
The decrease in sales through the wholesale distribution channel was partially
offset by an increase in revenue from sales through the INFINITE dealer-direct
and Vodavi CT voice processing divisions. INFINITE revenue increased
approximately $1.0 million, or 51%, primarily due to the addition of 35
large-volume, well-qualified new dealers. Additionally, Vodavi CT revenue
increased $348,000, or 99%. Total voice processing revenue for all channels
increased by 33% to $2.2 million.
GROSS MARGIN
Gross margin increased to 38.0% of revenue in 2000 as compared with 34.1% in
1999. The improvement in gross margin in 2000 was attributable to a number of
factors, including changes in product mix as sales of higher-margin voice
processing products increased from 14.9% of total revenue in 1999 to 23.7% of
total revenue in 2000. Other factors include the elimination of expenses related
to our repair center division, which we sold during the second quarter of 1999,
and a decrease in import duties.
7
<PAGE>
ENGINEERING AND PRODUCT DEVELOPMENT
Expenditures related to engineering and product development increased by $94,000
to $412,000 in the first quarter of 2000. The increase was primarily due to
salaries and related personnel costs due to additional headcount in the first
quarter of 2000 as compared with the same period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $3.6 million in the
first quarter of 2000 as compared with $3.0 million in 1999. This increase is
attributable to a number of factors, including: (a) an increase in personnel-
related costs, including salaries and travel expenses, due to the addition of
the Vice President of Sales and Marketing and several new sales personnel
beginning in the second quarter of 1999 and a Chief Financial Officer in the
third quarter of 1999; (b) increased efforts in our marketing and sales
programs; and (c) increases in the reserve for doubtful accounts receivable.
INTEREST EXPENSE
Interest expense increased to $188,000 in the first quarter of 2000, as compared
with $138,000 in 1999. The $50,000 increase is due to higher average outstanding
borrowings on our line of credit during the first quarter of 2000 as compared
with the same period in 1999. Although accounts receivable collections for the
first quarter of 2000 were higher than the first quarter of 1999, we experienced
higher cash outlays as a direct result of funding additional operating costs
discussed above and the approximately $790,000 increase in inventory since
December 31, 1999.
INCOME TAXES
We recorded a tax benefit of $223,000, or 37.0% effective rate, for the first
quarter of 2000, as compared with a tax provision utilizing an effective rate of
38.2%, or $148,000, for the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
We had $982,000 of cash at March 31, 2000. Our cash accounts are swept regularly
and applied against our line of credit, as described below. We had borrowings of
approximately $6.7 million against our available operating line of credit at
March 31, 2000, which represents a decrease of $2.0 million from borrowings of
$8.7 million at December 31, 1999. This decrease is primarily due to the timing
of payments received on accounts receivable balances from customers and payments
on accounts payable balances to vendors. At March 31, 2000, amounts available
for additional borrowing totaled $2.6 million.
We maintain a $15.0 million credit facility with General Electric Capital
Corporation which expires in April 2003. The line of credit bears interest at
2.5% over the 30-day commercial paper rate, or 8.3% at March 31, 2000. Advances
under the line of credit are based upon eligible accounts receivable and
inventory of our wholly owned subsidiary Vodavi Communications Systems, Inc.,
and are secured by substantially all of our assets. The revolving line of credit
contains covenants that are customary for similar credit facilities and also
prohibit our operating subsidiaries from paying dividends to our company without
the consent of GE Capital. At March 31, 2000, we were in compliance with all of
the covenants.
Working capital increased to approximately $6.6 million at March 31, 2000 from
approximately $6.4 million at December 31, 1999.
In October 1999, our Board of Directors approved a buy-back of up to 400,000
shares of our outstanding common stock over a six-month period. In April 2000,
the program was extended through October 2000. Financing for the buy-back will
be provided through our line of credit and proceeds from option exercises. As of
March 31, 2000, we had repurchased 226,800 shares with a cumulative cost of
$552,000 under this program.
8
<PAGE>
During the first quarter of 2000, net receipts from the exercise of 211,250
common stock options amounted to $837,000.
We are a defendant in various lawsuits. We have not made any provisions in our
financial statements for these lawsuits. The imposition of damages in any of
these matters could have a material adverse effect on our results of operations
and financial position.
From time to time we also are subject to certain asserted and unasserted claims
encountered in the normal course of business. We believe that the resolution of
these matters will not have a material adverse effect on our financial position
or results of operations. We cannot provide assurance, however, that damages
that result in a material adverse effect on our financial position or results of
operations will not be imposed in these matters.
We believe that our working capital and credit facilities are sufficient to
finance our internal growth in the near term. Although we currently have no
acquisition targets, we intend to continue to explore acquisition opportunities
as they arise and may be required to seek additional financing in the future to
meet such opportunities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2000, we did not participate in any derivative financial
instruments or other financial and commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standards
No. 107. We do not hold investment securities that would require disclosure of
market risk.
Our market risk exposure is limited to interest rate risk associated with our
credit instruments. We incur interest on loans made under a revolving line of
credit at variable interest rates of 2.5% over the 30-day commercial paper rate,
a total of 8.3% at March 31, 2000. The principal of loans under this line of
credit is due in April 2003. At March 31, 2000 we had outstanding borrowings on
the line of credit of approximately $6.7 million.
- --------------------------------------------------------------------------------
This Report contains forward-looking statements, including statements regarding
our business, strategies, and the industry in which we operate. These
forward-looking statements are based primarily on our expectations and are
subject to a number of risks and uncertainties, some of which are beyond our
control. Actual results could differ materially from the forward-looking
statements as a result of numerous factors, including those set forth in our
Form 10-K for the year ended December 31, 1999, as filed with the Securities and
Exchange Commission.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
Not applicable
10
<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.
Vodavi Technology, Inc.
Dated: May 10, 1999 /s/ Gregory K. Roeper
----------------------------------------
Gregory K. Roeper
President, Chief Executive Officer, and
Secretary (Principal Executive Officer)
Dated: May 10, 1999 /s/ Tammy M. Powers
----------------------------------------
Tammy M. Powers
Chief Financial Officer, Vice
President-Finance, and Treasurer
(Principal Financial and Accounting
Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS EXHIBIT SHALL NOT BE DEEMED FILED FOR PURPOSES OF SECTION 11 OF
THE SECURITIES ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF
1934, OR OTHERWISE SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE
DEEMED A PART OF ANY OTHER FILING WHICH INCORPORATES THIS REPORT BY REFERENCE,
UNLESS SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY REFERENCE.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
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