-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TDyANMfYxODpZs7z7jtDP8d1clyE/ku6W39f8SqAZfmVmsehVs805GHMPt3RlcmR cjAGzAq/EB8ss4z3+ZT2/A== 0000020232-99-000015.txt : 19990514 0000020232-99-000015.hdr.sgml : 19990514 ACCESSION NUMBER: 0000020232-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHYRON CORP CENTRAL INDEX KEY: 0000020232 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 112117385 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05110 FILM NUMBER: 99620405 BUSINESS ADDRESS: STREET 1: 5 HUB DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168452000 MAIL ADDRESS: STREET 1: 5 HUB DRIVE CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER EXCHANGE INC DATE OF NAME CHANGE: 19760114 10-Q 1 FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1999 Commission File Number 1-9014 Chyron Corporation (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of Incorporation or organization) 11-2117385 (IRS Employer Identification No.) 5 Hub Drive, Melville, New York (Address of principal executive offices) 11747 (Zip Code) (516) 845-2000 (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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock $.01 Par Value - 32,058,020 as of May 10, 1999 This document consists of 11 pages CHYRON CORPORATION INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 3 Consolidated Statements of Operations (unaudited) for the Three Months ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows (unaudited) for the Three Months ended March 31, 1999 and 1998 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6(a) Exhibits 11 Item 6(b) Reports on Form 8-K 11 Signatures 11 CHYRON CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands except share amounts) ASSETS (Unaudited) March 31,December 31, 1999 1998 Current assets: Cash and cash equivalents $ 1,130 $ 1,585 Accounts receivable, net 15,201 18,396 Inventories, net 19,610 19,378 Deferred tax assets 4,940 4,726 Prepaid expenses and other current assets 2,277 1,982 Total current assets 43,158 46,067 Property and equipment 11,839 12,545 Excess of purchase price over net tangible assets acquired 4,982 5,104 Investments 2,286 2,286 Software development costs 5,050 4,458 Deferred tax assets 8,856 8,343 Other assets 4,474 4,313 TOTAL ASSETS $80,645 $83,116 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $13,321 $14,136 Current portion of long-term debt 678 1,512 Capital lease obligations 393 383 Total current liabilities 14,392 16,031 Long-term debt 14,463 13,486 Capital lease obligations 493 515 Other liabilities 3,654 3,314 Total liabilities 33,002 33,346 Commitments and contingencies Shareholders' equity: Preferred stock, par value without designation Authorized - 1,000,000 shares, Issued - none Common stock, par value $.01 Authorized - 150,000,000 shares Issued and outstanding - 32,058,020 at March 31, 1999 and December 31, 1998 321 321 Additional paid-in capital 44,021 44,021 Retained earnings 2,940 4,790 Accumulated other comprehensive income 361 638 Total shareholders' equity 47,643 49,770 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $80,645 $83,116 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (In thousands except per share amounts) (Unaudited) 1999 1998 Net sales $14,998 $21,525 Cost of products sold 8,251 10,803 Gross profit 6,747 10,722 Operating expenses: Selling, general and administrative 7,277 7,718 Research and development 1,844 2,510 Total operating expenses 9,121 10,228 Operating (loss) income (2,374) 494 Interest and other expense, net 302 359 (Loss) income before provision for income taxes (2,676) 135 (Benefit) provision for income taxes (826) 101 Net (loss) income $(1,850) $ 34 Net (loss) income per common share basic and diluted $ (.06) $ .00 Weighted average shares used in computing net (loss) income per common share - basic and diluted 32,058 32,606 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (In thousands) (Unaudited) 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,850) $ 34 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,327 920 Deferred income tax (benefit) (715) (157) Changes in operating assets and liabilities: Accounts receivable 2,933 2,183 Inventories (467) 1,669 Prepaid expenses and other assets (484) (558) Accounts payable and accrued expenses (629) (2,765) Other liabilities 345 168 Net cash provided by operating activities 460 1,494 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment (551) Capitalized software development (1,078) (763) Net cash used in investing activities (1,078) (1,314) CASH FLOWS FROM FINANCING ACTIVITIES Paydown of expiring credit facility (8,493) Net proceeds from new credit facility 8,688 Payments of term loan (500) (500) Borrowings from revolving credit agreements, net 415 115 Proceeds from issuance of convertible debt 159 Payments of capital lease obligations (107) (136) Net cash provided by (used in) financing activities 162 (521) Effect of foreign currency rate fluctuations on cash and cash equivalents 1 (5) Change in cash and cash equivalents (455) (346) Cash and cash equivalents at beginning of period 1,585 2,968 Cash and cash equivalents at end of period $1,130 $ 2,622 See Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management of Chyron Corporation (the "Company"), the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 1999 and the consolidated results of its operations and its cash flows for the periods ended March 31, 1999 and 1998. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. 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 year ended December 31, 1998. The December 31, 1998 figures included herein were derived from such audited consolidated financial statements. Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 method of presentation. 2. ACCOUNTS RECEIVABLE Accounts receivable is stated net of an allowance for doubtful accounts of $3,948,000 and $3,881,000 at March 31, 1999 and December 31, 1998, respectively. 3. INVENTORIES Inventories, net of obsolescence reserves, consist of the following (in thousands): March 31,December 31, 1999 1998 Finished goods $ 8,299 $ 7,266 Work-in-process 3,444 3,048 Raw material 7,867 9,064 $19,610 $19,378 4. LONG-TERM DEBT On March 29, 1999, the Company entered into a new $12 million credit facility which extends through March 31, 2002. Under this facility, the Company borrowed $2 million in the form of a term loan and can obtain revolving credit loans based on its eligible accounts receivable and inventory for the balance of the facility. Total borrowings at closing were $8.7 million.These borrowings were used primarily to paydown the outstanding balance under the expiring credit facility of $8.5 million, including $500,000 outstanding on a term loan. The term loan requires no principal payments through September 30, 1999, $25,000 per month for the period October 1, 1999 through September 30, 2000, $75,000 per month for the period October 1, 2000 through September 30, 2001 and $133,333 per month from October 1, 2001 through March 31, 2002. Interest is payable monthly at LIBOR plus 1.875% (6.85% at March 31, 1999), or at a rate based on Prime. The Company must pay a monthly commitment fee equal to one half of 1% per annum on the daily unused portion of the facility. The entire facility is secured by Chyron's accounts receivable and inventory and the Common Stock of Pro-Bel. The agreement contains requirements for levels of operating income and prohibits the Company from paying dividends in excess of 25% of net income in any fiscal year. 5. SEGMENT INFORMATION Chyron's businesses are organized, managed and internally reported as two segments. The segments, which are based on differences in products and technologies, are Graphics Products and Media Management Systems. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" included in the Company's Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 1998. The Company is an integrated organization characterized by interdivisional cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these segments, if operated independently, would report the financial information shown below. Business Segment Information (In thousands) Media Graphics Management Three months ended March 31, 1999 Net sales $ 6,232 $ 8,766 Operating (loss) (1,310) (1,064) Depreciation and amortization 539 788 Three months ended March 31, 1998 Net sales 9,722 11,803 Operating (loss) income (36) 530 Depreciation and amortization 309 611 Geographic Areas United States Europe Other Three months ended March 31, 1999 Net sales $ 6,887 $ 7,415 $ 696 Operating (loss) (1,616) (693) (65) Three months ended March 31, 1998 Net sales 11,198 7,579 2,748 Operating income 224 198 72 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS From time to time, including in this Quarterly Report on Form 10-Q, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, changes in the industry, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward- looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results to differ from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, the following: product concentration in a mature market, dependence on the emerging digital market and the industry's transition to DTV and HDTV, consumer acceptance of DTV and HDTV, resistance within the broadcast or cable industry to implement DTV and HDTV technology, rapid technological changes, new technologies that could render certain Chyron products to be obsolete, a highly competitive environment, competitors with significantly greater financial resources, new product introductions by competitors, seasonality, fluctuations in quarterly operating results, ability to maintain adequate levels of working capital, expansion into new markets and the Company's ability to successfully implement its acquisition and strategic alliance strategy. Results of Operations Overview This discussion should be read in conjunction with the Consolidated Financial Statements, including the Notes thereto: Comparison of the Three Months Ended March 31, 1999 and 1998 Sales for the quarter ended March 31, 1999 were $15 million. This represents a decrease of $6.5 million, or 30%, compared to the $21.5 million reported for the first quarter of 1998. This decrease was primarily due to lower levels of volume associated with the U.S. graphics and Pro-Bel products and the loss of $1.3 million in revenues associated with the Trilogy division which was sold in August, 1998. The industry transition to DTV and HDTV continues to evolve slowly as broadcasters cautiously upgrade and replace equipment. In addition, the first quarter has historically been weak since broadcasters typically postpone capital expenditures awaiting new product introductions at the annual National Association of Broadcasters Convention (NAB) held in April. Gross profit declined to $6.7 million for the quarter ended March 31, 1999. The decrease of $4.0 million from the $10.7 million reported for the first quarter of 1998 was primarily attributable to the loss in sales volume for the first quarter of 1999. Gross margins as a percentage of sales decreased to 44.9% in 1999 as compared to 49.8% in 1998. The decrease in gross profit as a percentage of sales is attributable to a lower level of absorption of overhead costs due to lower sales volumes. Selling, general and administrative (SG&A) expenses decreased by $.4 million, or 6%, to $7.3 million in the quarter ended March 31, 1999 compared to $7.7 million for the first quarter of 1998. Research and development (R&D) costs, net of amounts capitalized, decreased by $.7 million during the first quarter of 1999 as compared to the same period in 1998. These reductions were primarily due to the elimination of operating costs associated with the Trilogy and Concerto divisions. Interest and other expense, net, decreased slightly in the first quarter of 1999 as compared to the first quarter of 1998. Included in this amount is an increase in foreign exchange gains due to favorable rates between the U.S. dollar and British pounds sterling, offset by an increase in interest expense due to the write-off of debt issuance costs related to the credit agreement that was replaced during the quarter. Interest rates and average borrowings were fairly consistent quarter to quarter. The Company recorded a tax benefit of $826,000 for the quarter ended March 31, 1999 as compared to a tax provision of $101,000 in the comparable quarter in 1998. The effective rate in 1999 of 31% results from the proportion of losses derived in the U.K. and U.S. which are taxed at statutory rates between 30-34%. Liquidity and Capital Resources At March 31, 1999, the Company had cash on hand of $1.1 million and working capital of $28,766. As set forth in the Consolidated Statements of Cash Flows, the Company generated $.5 million in cash from operations during the three months ended March 31, 1999 as compared to $1.5 million for the comparable period in 1998. The reduction in cash flows from operations is principally due to the realization of the net loss and reductions in accounts payable, offset by lower accounts receivable balances. Increased levels of spending related to software development were incurred as the Company devoted efforts to new product introductions to be shown in April at NAB. On March 29, 1999, the Company entered into a new $12 million credit facility which extends through March 31, 2002. Under this facility, the Company borrowed $2 million in the form of a term loan and can obtain revolving credit loans based on its eligible accounts receivable and inventory for the balance of the facility. Total borrowings at closing were $8.7 million.These borrowings were used primarily to paydown the outstanding balance under the expiring credit facility of $8.5 million, including $500,000 outstanding on a term loan. The term loan requires no principal payments through September 30, 1999, $25,000 per month for the period October 1, 1999 through September 30, 2000, $75,000 per month for the period October 1, 2000 through September 30, 2001 and $133,333 per month from October 1, 2001 through March 31, 2002. Interest is payable monthly at LIBOR plus 1.875% (6.85% at March 31, 1999), or at a rate based on Prime. The Company must pay a monthly commitment fee equal to one half of 1% per annum on the daily unused portion of the facility. The entire facility is secured by Chyron's accounts receivable and inventory and the Common Stock of Pro-Bel. The agreement contains requirements for levels of operating income and prohibits the Company from paying dividends in excess of 25% of net income in any fiscal year. The Year 2000 The Company has taken actions to ensure that its products, internal systems and procedures are Year 2000 Compliant. To this end, the Company has established a plan to assess the Year 2000 impact in order to minimize any interruption of its operations or its ability to serve its customers. The Company has also established a Year 2000 Committee whose members include senior management and functional area leaders. The Company has structured its plan to address internal systems, infrastructure, facilities, suppliers and vendors as well as products and services. In this regard, the Company has completed the assessment of its critical internal information technology (IT) and non-IT systems and has not found any significant readiness problems with respect to such internal systems and procedures. The Company has also completed its product review and is engaged in remediation efforts, where appropriate, including upgrading and retiring of systems and components. The Company believes the remediation efforts required are not significant and are expected to be completed by June 1, 1999. All products being shipped currently have been extensively tested and found to be compliant. The Company is in the process of assessing Year 2000 readiness of its critical suppliers by means of surveys and visits. These assessments are expected to be completed during the first half of 1999 and contingency plans will be prepared, as needed, during the second half of the year. The Company is taking what it considers to be reasonable steps to prevent major interruptions in its business due to Year 2000 issues. The inability of the Company or significant third parties to adequately address Year 2000 issues could cause inefficiencies in the Company's business operations. At this time, the Company has not encountered any Year 2000 issues which it believes could have a material adverse effect on its business or current products. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The Company from time to time is involved in routine legal matters incidental to its business. In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 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(a). Exhibits (27) Financial Data Schedule ITEM 6(b). Reports on Form 8-K On February 4, 1999, the Company filed a report on Form 8-K pertaining to the fourth quarter and year end operating results and the issuance of $1.1 million aggregate principal amount of 8% five year convertible notes. 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. CHYRON CORPORATION (Registrant) May 13, 1999 /s/ Edward Grebow (Date) Edward Grebow President and Chief Executive Officer May 13, 1999 /s/ Dawn Johnston (Date) Dawn Johnston Senior Vice President and Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from the Company's March 31, 1999 consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 MAR-31-1999 1,130 0 19,149 3,948 19,610 43,158 25,387 13,548 80,645 14,392 0 0 0 321 47,322 80,645 14,998 14,998 8,251 8,251 9,121 0 302 (2,676) (826) (1,850) 0 0 0 (1,850) (.06) (.06)
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