-----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, OiVNCv23o9bp9gDaWJ3j09vxz0IeeOXOC4II9Hn5kqGIfX39cQetN0eIA+oK0xwn j+FfXHEYQ6v4VPpw7txwew== 0000020232-99-000006.txt : 19990111 0000020232-99-000006.hdr.sgml : 19990111 ACCESSION NUMBER: 0000020232-99-000006 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990108 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/A SEC ACT: SEC FILE NUMBER: 000-05110 FILM NUMBER: 99502623 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/A 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 September 30, 1998 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 - 32,072,372 as of November 9, 1998 This document consists of 14 pages CHYRON CORPORATION INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Operations (unaudited) for the Three Months ended September 30, 1998 and 1997 4 Consolidated Statements of Operations (unaudited) for the Nine Months ended September 30, 1998 and 1997 5 Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 1998 and 1997 6 Notes to Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6(a)Exhibits 13 Item 6(b)Reports on Form 8-K 13 Signatures 14 CHYRON CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands except share amounts) ASSETS (Unaudited) September 30,December 31, 1998 1997 Current assets: Cash and cash equivalents $ 2,857 $ 2,968 Accounts receivable 16,980 21,125 Inventories 19,080 26,540 Deferred tax asset 6,423 4,301 Prepaid expenses and other current assets 1,991 2,180 Total current assets 47,331 57,114 Property and equipment 12,879 12,373 Excess of purchase price over net tangible assets acquired 5,237 6,779 Investments 2,328 2,161 Software development costs 4,113 5,224 Deferred tax asset 7,081 7,070 Other assets 4,106 3,359 TOTAL ASSETS $83,075 $94,080 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $12,224 $14,164 Current portion of long-term debt 2,503 2,318 Deferred revenue 251 1,327 Capital lease obligations 187 350 Total current liabilities 15,165 18,159 Long-term debt 12,561 17,774 Capital lease obligations 643 317 Other liabilities 3,928 3,868 Total liabilities 32,297 40,118 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 - 32,072,372 at September 30, 1998 and 32,605,705 at December 31, 1997 321 326 Additional paid-in capital 44,021 44,016 Retained earnings 5,760 9,237 Cumulative translation adjustment 676 383 Total shareholders' equity 50,778 53,962 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $83,075 $94,080 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (In thousands except per share amounts) (Unaudited) 1998 1997 Net sales $22,062 $23,523 Cost of products sold 11,612 12,586 Gross profit 10,450 10,937 Operating Expenses: Selling, general and administrative 7,268 6,901 Research and development 2,599 1,655 Total operating expenses 9,867 8,556 Operating income 583 2,381 Gain on sale of Trilogy Broadcast, Limited 1,194 Interest and other expense, net (569) ( 411) Income before provision for income taxes 1,208 1,970 (Benefit) provision for income taxes (113) 734 Net income $1,321 $ 1,236 Net income per common share - basic and diluted $ .04 $ .04 Weighted average shares used in computing net income per common share - basic and diluted 32,072 32,583 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (In thousands except per share amounts) (Unaudited) 1998 1997 Net sales $64,683 $63,621 Cost of products sold 33,831 34,617 Gross profit 30,852 29,004 Operating Expenses: Selling, general and administrative 23,953 21,606 Research and development 7,615 5,106 Restructuring and other non-recurring charges 3,979 3,082 Total operating expenses 35,547 29,794 Operating loss (4,695) (790) Gain on sale of Trilogy Broadcast, Limited 1,194 Interest and other expense, net (1,405) (1,175) Loss before provision for income taxes (4,906) (1,965) Benefit for income taxes (1,429) (573) Net loss (3,477) (1,392) Retained earnings - beginning of period 9,237 9,997 Retained earnings - end of period $ 5,760 $ 8,605 Net loss per common share - basic and diluted $ (.11) $ (.04) Weighted average shares used in computing net loss per common share - basic and diluted 32,072 32,516 See Notes to Consolidated Financial Statements CHYRON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (In thousands) (Unaudited) 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(3,477) $(1,392) Adjustments to reconcile net loss to net cash provided by operating activities: Gain of sales of Trilogy Broadcast, Limited (1,194) Restructuring and other non-recurring charges 3,370 1,801 Depreciation and amortization 3,897 2,925 Deferred income tax (benefit) (1,539) (1,778) Changes in operating assets and liabilities: Accounts receivable 3,608 2,933 Inventories 5,665 (2,897) Prepaid expenses and other assets (85) (1,502) Accounts payable and accrued expenses (2,503) 3,939 Deferred revenue (1,018) Other liabilities 60 (286) Net cash provided by operating activities 6,784 3,743 CASH FLOWS FROM INVESTING ACTIVITIES Gross proceeds from sale of Trilogy Broadcast, Limited 2,746 Acquisition of Axis Holdings Incorporated (413) Acquisitions of property and equipment (1,793) (1,588) Capitalized software development (2,474) (1,583) Net cash used in investing activities (1,521) (3,584) CASH FLOWS FROM FINANCING ACTIVITIES Payments of term loan (3,000) (1,500) (Payments of) borrowings from revolving credit agreement, net (2,116) 2,663 Payments of capital lease obligations (260) (80) Other (27) Net cash (used in)provided by financing activities (5,376) 1,056 Effect of foreign currency rate fluctuations on cash and cash equivalents 2 5 Change in cash and cash equivalents (111) 1,220 Cash and cash equivalents at beginning of period 2,968 4,555 Cash and cash equivalents at end of period $ 2,857 $ 5,775 Non-cash investing and financing activities: On March 31, 1997, the Company acquired all the issued and outstanding shares of Axis Holdings Incorporated. The consideration, in addition to cash paid, included the issuance of 173,913 shares of Chyron Corporation common stock valued at $750,000 and notes payable of $667,000. On August 19, 1998, the Company sold Trilogy Broadcast, Limited. The proceeds included cash and an interest bearing note for 300,000 British Pounds Sterling. The Company retained a 19% interest in the newly formed Company. See Note 6 to the Consolidated Financial Statements. 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 September 30, 1998 and the consolidated results of its operations and its cash flows for the periods ended September 30, 1998 and 1997. 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, 1998. 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, 1997. The December 31, 1997 figures included herein were derived from such audited consolidated financial statements. Certain reclassifications have been made to the 1997 financial statements to conform to the 1998 method of presentation. 2. NEW ACCOUNTING POLICIES In the first quarter of 1998, the Company adopted AICPA Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition." This SOP provides guidance on when revenue should be recognized for licensing, selling, leasing, or otherwise marketing computer software. The adoption of SOP 97- 2 did not have a material effect on the results of operations of the Company for the three and nine month periods ended September 30, 1998. During 1997 and 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 129, Disclosure of Information About Capital Structure, SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, and SFAS No. 132, Employers' Disclosures About Pensions and Other Post Retirement Benefits. These accounting standards are effective for financial statements issued for fiscal years beginning after December 15, 1997 and require restatement of disclosures for earlier periods. The Company will adopt the new requirements in its annual financial statements in 1998. The Company does not anticipate that the adoption of these new standards will have a material impact on information previously disclosed in the Company's consolidated financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for financial statements issued for all fiscal quarters of fiscal years beginning after June 15, 1999. Accordingly, the Company will adopt the provisions of the standard on January 1, 2000. The Company does not anticipate that the adoption of this standard will have a material impact on results of operations, financial position or liquidity. 3. PRODUCT LINE RESTRUCTURING During the second quarter of 1998, as a result of continued poor operating results and the inability of the Company's Concerto Division to meet revenue and operating targets, management determined that it would be in the Company's best interest to implement a restructuring plan and refocus on its core business of graphics, routing and automation products for the television broadcast, cable and post production industries. Such restructuring plan involved the disposal of the Concerto and Trilogy Divisions, the modification of its investment in RT-SET and the reorganization of the Company's core product sales force to be complimentary to its new sales and marketing strategy. As a result, the Company recorded a $3,979,000 charge to operations during the second quarter of 1998. Such charge resulted from a write-down of assets to estimated net realizable value and employee severance and selling costs as a result of such restructuring plans. Additional amounts were accrued for litigation and other costs. 4. ACCOUNTS RECEIVABLE Accounts receivable is stated net of an allowance for doubtful accounts of $3,423,000 and $3,124,000 at September 30, 1998 and December 31, 1997, respectively. 5. INVENTORIES Inventories, net of obsolescence reserves, consist of the following (in thousands): September 30, December 31, 1998 1997 Finished goods $ 7,735 $12,346 Work-in-process 3,027 9,303 Raw material 8,318 4,891 $19,080 $26,540 6. SALE OF TRILOGY BROADCAST, LIMITED On August 19, 1998, the Company completed the sale of Trilogy Broadcast, Limited (Trilogy), a wholly-owned subsidiary of Pro-Bel, Limited, to the management of Trilogy. The Company received gross proceeds of 2.0 million British Pounds Sterling, an interest bearing note for 300,000 British Pounds Sterling and a 19% interest in the new company that results from this transaction. This transaction resulted in an overall gain of approximately $1.2 million. As a result of this sale, the Company's assets and liabilities decreased by approximately $2.9 million and $800,000, respectively. For the nine months ended September 30, 1998, Trilogy contributed sales, gross profit and operating income of $2.9 million, $1.6 million and $20,000, respectively. 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, without limitation, 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, 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 September 30, 1998 and 1997 Sales for the quarter ended September 30, 1998 were $22.1 million, a decrease of $1.4 million, or 6%, over the $23.5 million reported for the third quarter of 1997. This decrease was primarily due to a loss in volume from the sale of Trilogy Broadcast, Limited (Trilogy) and a decline in international graphic and international Pro-Bel sales. An increase in Pro- Bel America revenues of 62% offset a portion of this decline. Gross profit decreased to $10.5 million for the quarter ended September 30, 1998. The decrease of $487,000, or 4.5%, from the $10.9 million reported for the third quarter of 1997 was primarily attributable to the decrease in sales for the third quarter of 1998. Gross margins as a percentage of sales increased to 47.4% in 1998 versus 46.5% in 1997 mainly as a result of the change in the product mix. Selling, general and administrative (SG&A) expenses increased by $367,000, or 5%, to $7.3 million in the quarter ended September 30, 1998 compared to $6.9 million for the third quarter of 1997. This growth in overall SG&A expenses is directly related to the continued efforts to improve customer service and to focus on sales and marketing initiatives, specifically directed at supporting and growing the Pro-Bel product lines in America and the establishment of the Chyron/Pro-Bel sales office in France. Gross research and development (R&D) costs increased by $944,000 during the third quarter of 1998 as compared to the same period in 1997. Increases were incurred at both Chyron and Pro-Bel as the Company continues to focus its attention on new product development to address the FCC ruling requiring broadcasters to utilize digital advanced television transmission beginning in 1998. In connection with the restructuring plan implemented in the second quarter of 1998, the Company completed the sale of Trilogy to its management on August 19, 1998. This transaction resulted in an overall gain of approximately $1.2 million. Interest and other expense, net increased primarily as a result of foreign currency transaction losses of approximately $150,000 for the quarter ended September 30, 1998, offset by a decrease in interest expense related to a lower average outstanding debt balance. The Company recorded a tax benefit of $113,000 for the quarter ended September 30, 1998. This is primarily due to a foreign tax loss resulting from an overall reduced gain on the sale of Trilogy and the timing of other taxable transactions. The Company's effective tax rate in the quarter ended September 30, 1997 was 37%. Comparison of the Nine Months Ended September 30, 1998 and 1997 Sales for the nine months ended September 30, 1998 were $64.7 million, an increase of $1.1 million, or 2%, over the $63.6 million reported for the first nine months of 1997. This increase was a result of substantial increases in the domestic sales of the Pro-Bel line, which showed a growth of nearly 150%, offset by decreases in international graphics and Pro-Bel sales. Gross profit increased to $30.9 million for the nine months ended September 30, 1998. The increase of $1.8 million, or 6%, over the $29 million reported for the nine months of 1997 was primarily attributable to the growth in sales. Gross margins as a percentage of sales increased to 47.7% in 1998 versus 45.6% in 1997 mainly as a result of the change in the product mix. SG&A expenses increased by $2.3 million, or 10.9%, to $23.9 million in the first nine months of 1998 compared to $21.6 million for the first nine months of 1997. As outlined in the three month comparison, increases were seen at both Chyron and Pro-Bel as a result of the new sales and marketing initiatives implemented by the Company. In addition, approximately $590,000 of this increase was related to the support of the Concerto product line, which will be non-recurring as a result of the product line restructuring described below. Gross R&D costs increased during the first nine months of 1998 compared to the same period in 1997 by $2.5 million. Increases were incurred at both Chyron and Pro-Bel as the Company focuses its attention on new product development to address an FCC ruling requiring broadcasters to utilize digital advanced television transmission beginning in 1998. Approximately $314,000 of this increase was related to the support of the Concerto product line, which will be non-recurring as a result of the product line restructuring described below. During the second quarter of 1998, management determined that it would be in the Company's best interest to implement a restructuring plan and refocus its efforts on its core products of graphics, routing and automation for television broadcast, cable and post production industries. This product line restructuring included the sale of Trilogy; the modification of the Company's investment in RT-SET; the reorganization of Chyron's sales and marketing organization; and the disposition of the Concerto Division. As a result, the Company recorded restructuring and other non-recurring charges of $3,979,000 during the second quarter of 1998. The restructuring charge included the write-down of Concerto assets, accrued severance, legal costs and costs of disposition of such division totaling $2.9 million. Other non-recurring charges totaled $1.1 million and related to management's initiative to refocus on the Company's core products. Included in other non-recurring charges are costs related to the sales reorganization, accrued severance and other miscellaneous costs, all of which will require cash outlays. Additional accruals have been made for litigation and other legal costs. As of September 30, 1998 approximately 35% of total cash expenditures have been settled. During the nine months ended September 30, 1998, the Company completed the sale of Trilogy to its management. This transaction resulted in an overall gain of approximately $1.2 million. In the nine months ended September 30, 1997, the Company recorded non- recurring charges of approximately $3.1 million comprising a $2.4 million charge related to the repositioning by the Company to address the effects of an FCC ruling requiring digital advanced television transmission beginning in 1998 and $675,000 attributable to the Company's planned secondary offering of common stock which was terminated due to the market valuation of the stock. Interest and other expenses, net increased mainly as a result of foreign currency transaction losses for the period as compared to a gain in the prior year, offset by a slight decrease in interest expense resulting from lower average borrowings. The Company's effective tax (benefit) rate was 29% for each of the nine month periods ended September 30, 1998 and 1997. This rate, which is lower than the U.S. statutory rate, reflects the benefit recorded in the third quarter of 1998 discussed above and the effects of foreign income (losses) taxed at lower rates. Liquidity and Capital Resources At September 30, 1998, the Company had cash on hand of $2.9 million and working capital of $32.2 million. As set forth in the Consolidated Statements of Cash Flows, the Company generated $6.8 million in cash from operations during the nine months ended September 30, 1998 as compared to $3.7 million for the comparable 1997 period. The improvement in cash flows from operations is principally due to lower accounts receivable balances from improved collections and the timing of certain customer down payments, reductions in inventory levels primarily as a result of subcontracting inventory assemblies in lieu of manufacturing and applying 'just in time' methodologies, offset by declines in the level of accounts payable. The Company also received $2.7 million in gross proceeds from the sale of Trilogy. These funds were used to paydown a portion of the Company's term loan. At September 30, 1998, the Company had available lines of credit of $1.5 million under its revolving credit facility. Such facility is scheduled to expire on March 28, 1999 and management intends to seek renewal of such facility prior to the expiration date. In addition, Pro-Bel has an overdraft facility with a bank of up to 4.0 million British Pounds Sterling through December 31, 1998. Total borrowings are limited to amounts computed under multiple formulas of eligible accounts receivable and inventory. All monies under the facility are repayable upon written demand. Management intends to seek renewal of this facility prior to the expiration date. 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 proactive 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 assess internal systems, infrastructure, facilities, suppliers and vendors as well as products and services. Our assessment phase is in progress, with a target completion date of December 31, 1998. A target date of June 1, 1999 has been set for completion of remediation efforts based upon the results of our assessment. At this time, Chyron has not encountered any Year 2000 issues which would 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 The Company did not file any current reports on Form 8-K during its fiscal quarter ended September 30, 1998. 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) November 13, 1998 /s/ Edward Grebow (Date) Edward Grebow President and Chief Executive Officer November 13, 1998 /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 September 30, 1998 company's consolidated financial statements and is qualfied in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1998 SEP-30-1998 2,857 0 20,403 (3,423) 19,080 47,331 19,967 (7,088) 83,075 15,165 0 0 0 321 50,457 83,075 64,683 64,683 (33,831) (33,831) (35,547) 0 (1,405) (4,906) 1,429 (3,477) 0 0 0 (3,477) (.11) (.11)
-----END PRIVACY-ENHANCED MESSAGE-----