-----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, InSi/+mKTeq5Ls4KYmPFCEZOtibnJgX/X6lZqN4IP1ZjQUBllDm3wmE6EfEhB5SA 90yX4+ko0Spi7h2gLCLQ8Q== /in/edgar/work/20000825/0000916641-00-001244/0000916641-00-001244.txt : 20000922 0000916641-00-001244.hdr.sgml : 20000922 ACCESSION NUMBER: 0000916641-00-001244 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000702 FILED AS OF DATE: 20000825 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMDIAL CORP CENTRAL INDEX KEY: 0000230131 STANDARD INDUSTRIAL CLASSIFICATION: [3661 ] IRS NUMBER: 942443673 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09023 FILM NUMBER: 710030 BUSINESS ADDRESS: STREET 1: 1180 SEMINOLE TRAIL STREET 2: P O BOX 7266 CITY: CHARLOTTESVILLE STATE: VA ZIP: 22906-2200 BUSINESS PHONE: 8049782200 MAIL ADDRESS: STREET 1: 1180 SEMMINOLE TRAIL STREET 2: P O BOX 7266 CITY: CHARLOTTESVILLE STATE: VA ZIP: 22906 10-Q 1 0001.txt FORM 10-Q 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 quarterly period ended July 2, 2000 ------------ 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: 0-9023 COMDIAL CORPORATION ------------------- (Exact name of Registrant as specified in its charter) Delaware 94-2443673 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P. O. Box 7266 1180 Seminole Trail; Charlottesville, Virginia 22906-7266 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(804) 978-2200 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 --- ---- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of latest practicable date. 9,202,543 common shares as of July 2, 2000. COMDIAL CORPORATION AND SUBSIDIARIES ------------------------------------ INDEX ----- PAGE ---- PART I - FINANCIAL INFORMATION --------------------- ITEM 1: Financial Statements Consolidated Balance Sheets as of July 2, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the Three and Six Months ended July 2, 2000 and July 4, 1999 4 Consolidated Statements of Cash Flows for the Six Months ended July 2, 2000 and July 4, 1999 5 Notes to Consolidated Financial Statements 6-13 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 14-19 ITEM 3: Quantitative and Qualitative Disclosures About Market Risks 19 PART II - OTHER INFORMATION ----------------- ITEM 6: Exhibits and Reports on Form 8-K 20 2 COMDIAL CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1: Financial Statements Consolidated Balance Sheets - (Unaudited)
July 2, Dec. 31 In thousands except par value 2000 1999 - -------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 2,685 $ 1,917 Accounts receivable (less allowance 20,499 39,700 for doubtful accounts and reserve for returns: 2000 - $5,529 1999 - $2,300) Inventories 30,101 22,827 Prepaid expenses and other current assets 7,017 7,633 - ------------------------------------------------ ---------- ---------- Total current assets 60,302 72,077 Property - net 19,399 19,458 Goodwill 9,608 11,207 Deferred tax asset - net 17,942 11,980 Other assets 21,181 18,352 - ------------------------------------------------ ---------- ---------- Total assets $ 128,432 $ 133,074 - ------------------------------------------------ ========== ========== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 11,383 $ 15,135 Accrued payroll and related expenses 1,687 2,652 Other accrued liabilities 2,907 4,575 Current maturities of debt 1,349 471 - ------------------------------------------------ ---------- ---------- Total current liabilities 17,326 22,833 Long-term debt 33,932 31,795 Deferred tax liability 2,662 2,622 Other long-term liabilities 6,810 4,216 - ------------------------------------------------ ---------- ---------- Total liabilities 60,730 61,466 Commitments and contingent liabilities - - Stockholders' equity Common stock ($0.01 par value) and paid-in capital (Authorized 30,000 shares; issued shares: 2000 = 9,202; 1999 = 8,940) 119,036 116,626 Other (1,236) (1,237) Accumulated deficit (50,098) (43,781) - ------------------------------------------------ ---------- ---------- Total stockholders' equity 67,702 71,608 --------- ---------- Total liabilities and stockholders' equity $ 128,432 $ 133,074 - ------------------------------------------------ ========== ==========
* Condensed from audited financial statements. The accompanying notes are an integral part of these financial statements. 3 COMDIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations - (Unaudited)
In thousands except per share amounts - ------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended July 2, July 4, July 2, July 4, 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------- Net sales $ 21,372 $ 36,351 $ 53,565 $ 68,940 Cost of goods sold 16,960 20,902 35,383 40,995 - ------------------------------------------- -------- -------- -------- -------- Gross profit 4,412 15,449 18,182 27,945 Operating expenses Selling, general & administrative 12,120 9,820 22,404 18,226 Engineering, research & development 1,589 2,338 3,286 4,424 Goodwill amortization expense 798 799 1,597 1,583 - ------------------------------------------- -------- -------- -------- -------- Operating income (10,095) 2,492 (9,105) 3,712 Other expense Interest expense 616 377 1,223 759 Miscellaneous expenses (income)- net (2) (28) 29 101 - ------------------------------------------- -------- -------- -------- -------- Income (loss) before income taxes (10,709) 2,143 (10,357) 2,852 Income tax expense (benefit) (4,051) 852 (4,040) 1,173 - ------------------------------------------- -------- -------- -------- -------- Net income (loss) ($6,658) $ 1,291 ($6,317) $ 1,679 - ------------------------------------------- ======== ======== ======== ======== Earnings per share: Basic ($0.72) $0.14 ($0.69) $0.19 Diluted ($0.72) $0.14 ($0.69) $0.19 Weighted average shares outstanding: Basic 9,219 8,948 9,160 8,944 Diluted 9,286 8,986 9,374 8,985
The accompanying notes are an integral part of these financial statements. 4 COMDIAL CORPORATION AND SUBSIDIARIE Consolidated Statements of Cash Flows - (Unaudited)
Six Months Ended July 2, July 4, In thousands 2000 1999 - ------------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $ 73,238 $ 64,986 Other cash received 4,579 770 Interest received 68 4 Cash paid to suppliers and employees (77,989) (65,472) Interest paid on debt (1,111) (790) Income taxes paid (484) (215) - ------------------------------------------------------------------ -------- -------- Net cash used in operating activities (1,699) (717) - ------------------------------------------------------------------ -------- -------- Cash flows from investing activities: Acquisition costs for Array Telecom Corp. - (1) Proceeds received from ePHONE 648 - Proceeds from the sale of equipment 544 1 Capital expenditures (1,756) (1,682) - ------------------------------------------------------------------ -------- -------- Net cash used in investing activities (564) (1,682) - ------------------------------------------------------------------ -------- -------- Cash flows from financing activities: Net borrowings under Revolving Credit Facility 1,523 3,304 Proceeds from issuance of common stock 2,131 14 Principal payments on capital lease obligations (623) (5) - ------------------------------------------------------------------ -------- -------- Net cash provided by financing activities 3,031 3,313 - ------------------------------------------------------------------ -------- -------- Net increase in cash and cash equivalents 768 914 - ------------------------------------------------------------------ -------- -------- Cash and cash equivalents at beginning of year 1,917 1,599 - ------------------------------------------------------------------ -------- -------- Cash and cash equivalents at end of period $ 2,685 $ 2,513 ================================================================== ======== ========
Reconciliation of net income to net cash used in operating activities:
Net income (loss) ($ 6,317) $ 1,679 - ------------------------------------------------ -------- -------- Depreciation and amortization 5,464 4,557 Decrease (increase) in accounts receivable 19,201 (3,751) Inventory provision 1,705 918 Decrease (increase) in inventory (8,979) 2,077 Increase in other assets (6,686) (4,583) Decrease (increase) in deferred tax asset (4,691) 756 Decrease in accounts payable (3,752) (1,319) Increase (decrease) in other liabilities 159 (1,614) Increase in paid-in capital and other equity 280 563 - ------------------------------------------------ -------- -------- Total adjustments 4,618 (2,396) - ------------------------------------------------ -------- -------- Net cash used in operating activities ($1,699) ($717) ================================================ ======== ========
The accompanying notes are an integral part of these financial statements. 5 COMDIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JULY 2, 2000 - (Unaudited) Note A: CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial information reported as of July 2, 2000, and for the three and six months ended July 2, 2000 and July 4, 1999, is unaudited. The financial information reflects all normal recurring adjustments necessary for a fair statement of results for such periods. Accounting policies followed by Comdial Corporation ("Comdial") are described in Note 1 to the consolidated financial statements in its Annual Report to Stockholders for the year ended December 31, 1999. The consolidated financial statements for accounting periods in 2000 contained herein should be read in conjunction with the 1999 financial statements, including notes thereto, contained in Comdial's Annual Report to Stockholders for the year ended December 31, 1999. Certain amounts in the 1999 consolidated financial statements have been reclassified to conform to the 2000 presentation. The results of operations for the three and six months ended July 2, 2000, are not necessarily indicative of results for the full year. Restatement On July 27, 2000, Comdial announced it had discovered that a provision for sales returns of $2.7 million was not recorded for a special return agreement entered into in connection with a sale that occurred in the first quarter. Comdial will restate its financial statements as of and for the three months ended April 2, 2000. Comdial intends to file an amendment to its Form 10-Q for the first quarter of 2000 reflecting this restatement as soon as possible. In addition, the Company has reclassified certain amounts included in net sales, cost of goods sold, and selling general and administrative expenses included in the financial statements. These reclassifications had no effect on operating or net income. Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- The preparation of financial statements to conform with generally accepted accounting principles ("GAAP") requires management to make certain estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. GAAP also requires disclosure of contingent assets and liabilities as of July 2, 2000. Actual results may differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents are defined as short-term liquid investments with maturities, when purchased, of less than 90 days that are readily convertible into cash. Under Comdial's current cash management policy, borrowings from the 6 revolving credit facility are used for operating purposes. The revolving credit facility is reduced at management's option by cash receipts that are deposited daily. Bank overdrafts of $5.2 million and $2.2 million are included in accounts payable as of July 2, 2000 and December 31, 1999, respectively. Bank overdrafts consist of outstanding checks that have neither (1) cleared the bank nor (2) been funded by the revolving credit facility (see Note D). The revolving credit facility activity is reported on a net basis in the Consolidated Statements of Cash Flows. Revenue Recognition The majority of Comdial's revenue is recognized when the products are shipped and title has passed to the customer. Comdial's management records a provision for all anticipated returns that is constantly monitored and updated as required. This provision is recognized as a reduction of revenues. All actual returns are charged against the allowance for returns as received. National account customer revenues are not recognized until the customer takes title to the equipment which may be at shipment or at installation depending on the terms of the contract. Embedded software revenues are recognized when Comdial activates a code at the request of the customer enabling the software to be used. Other Long-lived Assets Long-lived assets are amortized based on the assets' useful lives. Long- lived assets are periodically reviewed for impairment as circumstances change that might impact the useful life of the asset. An impairment loss is not recognized unless a portion of the carrying amount of the asset is no longer recoverable (using a test of recoverability), which is based on expected future undiscounted cash flows. Note C: INVENTORIES - --------------------------------------------------------------------------------
Inventories consist of the following: - --------------------------------------------------- July 2, Dec. 31, In thousands 2000 1999 - ---------------------------- ------- -------- Finished goods $16,983 $ 8,763 Work-in-process 3,769 4,556 Materials and supplies 9,349 9,508 ------- ------- Total $30,101 $22,827 ======= =======
- -------------------------------------------------------------------------------- Comdial provides reserves to cover product obsolescence and those reserves impact gross margins. Such reserves are dependent on management's estimates of the recoverability of costs of all inventory, which is based on among other things expected obsolescence of the products. The estimated amount for returns not yet received as of July 2, 2000, which is included in inventory is $3.1 million. Raw material obsolescence is mitigated by the commonality of component parts, finished goods, and by the low level of inventory relative to sales. 7 Note D: BORROWINGS - -------------------------------------------------------------------------------- In the third quarter of 1998, Comdial and Bank of America, N.A. ("Bank of America"), entered into a credit agreement (the "Credit Agreement"). The Credit Agreement provides Comdial with a $50 million revolving credit facility ("the Revolver") of which $5 million is a letter of credit subfacility. Long-term debt consists of the following:
- -------------------------------------------------------- July 2, Dec. 31, In thousands 2000 1999 - ----------------------------------- ------- --------- Revolver (1) $31,119 $29,596 Capitalized leases (2) 4,162 2,670 ------- ------- Total debt 35,281 32,266 Less current maturities on debt 1,349 471 ------- ------- Total long-term debt $33,932 $31,795 ======= =======
- -------------------------------------------------------------------------------- (1) The Revolver made pursuant to the Credit Agreement with Bank of America carries an interest rate based on the LIBOR daily rate plus a specified margin. The interest rate can be adjusted quarterly based on Comdial's ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), which allows the rates to vary from 0.75% to 1.50% above the LIBOR daily rate. As of July 2, 2000 and December 31, 1999, Comdial's borrowing rates were 6.88% and 6.58%, respectively, which includes the additional applicable margin of 0.75% for both periods. Comdial can use the Revolver for working capital, equipment purchases, to finance permitted acquisitions, and for other general corporate purposes. Bank of America's Revolver (as defined in the Credit Agreement) does not require payment until August 31, 2003 with the option of possible credit extensions. (2) Capital leases are with various financing entities and are payable based on the terms of each individual lease. Debt Covenants Comdial's indebtedness to Bank of America is secured by liens on all of Comdial's properties and assets. The Credit Agreement with Bank of America contains certain financial covenants that relate to specified levels of consolidated net worth and other financial ratios. As of July 2, 2000, Comdial was in compliance with all of the covenants except for the ratio of funded debt to EBITDA. Bank of America has given Comdial a waiver relating to the covenant violation covering the current period and extending through August 30, 2000 (see Note H). 8 Note E: EARNINGS PER SHARE - -------------------------------------------------------------------------------- Basic EPS for the three and six months periods presented was computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS was computed by dividing net income by the weighted average number of common shares outstanding during the period plus (in periods in which they had a dilutive effect) the effect of common shares contingently issuable, primarily from stock options. The following table discloses the information for the three and six months ended July 2, 2000 and July 4, 1999.
- -------------------------------------------------------------------------------- Numerator Denominator EPS - -------------------------------------------------------------------------------- Three Months - ------------ 2000 Basic EPS ($6,658,000) 9,219,029 ($0.72) Diluted ($6,658,000) 9,285,643 ($0.72) 1999 Basic EPS $1,291,000 8,948,304 $ 0.14 Diluted $1,291,000 8,985,774 $ 0.14 Six Months - ---------- 2000 Basic EPS ($6,317,000) 9,160,205 ($0.69) Diluted ($6,317,000) 9,374,285 ($0.69) 1999 Basic EPS $1,679,000 8,943,912 $ 0.19 Diluted $1,679,000 8,985,223 $ 0.19
For further detail of EPS see Exhibit 11. - -------------------------------------------------------------------------------- Note F: INCOME TAXES - -------------------------------------------------------------------------------- The components of income tax expense based on the liability method for the first six months are as follows: - -------------------------------------------------------------------------------- July 2, July 4, In thousands 2000 1999 - -------------------------------------------------------------------------------- Current - Federal ($28) $ 247 State (3) 169 Deferred - Federal (3,644) 703 State (365) 54 ------------ ---------- Income tax provision (benefit) ($4,040) $1,173 ============ ========== - -------------------------------------------------------------------------------- The income tax provision, reconciled to the tax computed at statutory rates, for the six months is summarized as follows: 9
- ---------------------------------------------------------------- July 2, July 4, In thousands 2000 1999 - -------------------------------------- ------- ------- Federal tax at statutory rate (35% in 2000 and 1999) ($3,625) $ 998 State income taxes (net of federal tax benefit) (243) 145 Nondeductible charges 37 10 Recognition of benefits for subsidiary NOLs (174) - Other adjustments (35) 20 Adjustment of valuation allowance - - ------- ------- Income tax provision (benefit) ($4,040) $ 1,173 ======= =======
- -------------------------------------------------------------------------------- Net deferred tax assets of $19.5 million and $14.8 million have been recognized in the accompanying Consolidated Balance Sheets as of July 2, 2000 and December 31, 1999, respectively. The components of the net deferred tax assets are as follows:
- -------------------------------------------------------- July 2, Dec. 31, In thousands 2000 1999 - ------------------------------------ ------- ------- Total deferred tax assets $22,278 $17,545 Total valuation allowance (114) (114) ------- ------- Total deferred tax asset - net 22,164 17,431 Total deferred tax liabilities (2,662) (2,622) ------- ------- Total net deferred tax asset $19,502 $14,809 ======= =======
- -------------------------------------------------------------------------------- Comdial periodically reviews the requirements for a valuation allowance and makes adjustments when changes in circumstances result in changes in management's judgment about the future realization of deferred tax assets. Management believes that is more likely than not that the deferred tax assets will be realized. Comdial has net operating losses ("NOLs") and tax credit carryovers of approximately $14.3 million and $1.4 million, respectively. If not utilized, the NOLs and tax credit carryovers will expire in various years through 2010. NOTE G. SEGMENT INFORMATION - ------------------------------------------------------------------------------- During the first six months of 2000 and 1999, substantially all of Comdial's sales, net income, and identifiable net assets were attributable to the telecommunications industry with over 97% of sales occurring in the United States. Comdial is organized into several strategic business unit ("SBU") segments that comprise the majority of its sales to the telecommunications market. Comdial has three SBU's that contribute ten percent or more to net sales. The SBU's are Comdial Convergent Communications Corporation ("CCC"), Comdial 10 Enterprise Solutions, Inc. ("CES"), Key Voice Technologies, Inc. ("KVT") and others (such as Array Telecom Corporation ("Array") and Comdial Business Communications Corporation ("CBCC")). All of the SBU's are companies wholly- owned by Comdial. Each of these categories is considered a business segment, and with respect to their financial performance, the costs associated with these segments can only be quantified and identified down to the operating profit level. CCC is comprised of products such as Impact, Impression series telecommunication systems, Impact Digital Expandable Systems ("DXP"), DXP Plus and the open digital switching platforms known as the "FX Series." The products are sold through various supply house channels, which in turn sell to various dealers that sell and install Comdial products. This distribution channel comprises more than 65% of Comdial's net sales for any given period. CES is comprised of all Comdial's software solutions and application products that are sold through vertical markets to national account customers. The products included are all of Comdial's vertical market products such as Impact Concierge, QuickQ, Avalon, and voice processing systems. These products are sold to specific industries such as hospitality, real estate, financial and senior housing centers. KVT provides voice processing products to the other SBU's as well as selling directly to dealers and end users. Based in Sarasota, Florida, KVT develops, assembles, markets, and sells voice processing systems and related products for business applications. KVT products can provide up to 64 ports of voice processing capacity. Most Comdial generated sales are in the two to eight port range, which corresponds with the small to mid-size businesses which are Comdial's primary markets. Industry shipments are measured both in terms of systems and ports. Among PC-based systems, Comdial believes that KVT is an industry leader, ranking second in terms of systems shipped. The other segments are CBCC, which manufactures Comdial products, repairs out- of-warranty products and engages in contract manufacturing, and Array, which produced Internet Protocol ("IP") software products (product licensed to ePHONE Telecom Inc. ("ePHONE")). The information in the following tables is derived directly from the segments' internal financial reporting used for corporate management purposes. The expenses, assets and liabilities attributable to corporate activities are not allocated to the operating segments. Corporate allocation costs that have been transferred to KVT and other business segments have not been included in operating income. Management does not include these costs when analyzing the various business segments performance. There are no operating assets located outside the United States. Unallocated costs include corporate expenses, interest expense, other miscellaneous expenses, and income tax expenses or benefits. Comdial does not 11 maintain information that would allow these costs to be broken down into the various business segments, and most of the costs are universal in nature. Unallocated assets include such items as cash, deferred tax assets and miscellaneous assets. Unallocated capital expenditures and depreciation relate primarily to shared assets. Unallocated liabilities include such items as accounts payable, debt, leases, deferred tax liabilities, and most other liabilities that do not relate to sales. The following tables show segment information for the six months ended July 2, 2000 and July 4, 1999:
- ---------------------------------------------------------------------------------------------------------------------- July 2, July 4, (Dollars in thousands) 2000 1999 - -------------------------------------------------------------------------------------------- --------- -------- Business Segment Net Revenues Comdial Convergent Communications $ 35,706 $ 51,142 Comdial Enterprise Solutions 6,246 6,127 Key Voice Technologies 11,522 15,867 CBCC/Array 3,485 2,306 Inter-company elimination (3,394) (6,502) --------- -------- Net sales $ 53,565 $ 68,940 ========= ======== - ---------------------------------------------------------------------------------------------------------------------- Gross Profit Comdial Convergent Communications $ 13,224 $ 19,061 Comdial Enterprise Solutions 1,763 2,477 Key Voice Technologies 5,367 8,633 CBCC/Array (2,172) (2,226) --------- -------- Gross profit $ 18,182 $ 27,945 ========= ======== - ---------------------------------------------------------------------------------------------------------------------- Operating Profit (Loss) Comdial Convergent Com. $ 1,380 $ 7,834 Comdial Enterprise Solutions (1,514) 298 Key Voice Technologies 877 5,700 CBCC/Array (2,880) (1,771) --------- -------- Operating profit (loss) (2,137) 12,061 Unallocated expenses Cost of goods sold 78 312 Operating expenses 6,890 8,037 Interest expense 1,223 759 Miscellaneous expense - net _29 101 --------- -------- Income (loss) before income taxes ($10,357) $ 2,852 ========= ======== - ----------------------------------------------------------------------------------------------------------------------
July 2, December 31, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------- --------- -------- Business Segment Assets Comdial Convergent Com. $ 9,272 $ 28,662 Comdial Enterprise Solutions 7,455 7,039 Key Voice Technologies 10,355 10,155 CBCC/Array 56,798 43,693 Unallocated 44,552 43,525 --------- -------- Total $ 128,432 $133,074 ========= ========
12
July 2, December 31, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------- --------- -------- Business Segment Liabilities Comdial Convergent Com. $ 53 $ 2,322 Comdial Enterprise Solutions 316 66 Key Voice Technologies 1,679 2,340 CBCC/Array 14,119 15,878 Unallocated 44,563 40,860 --------- -------- Total $ 60,730 $ 61,466 ========= ========
- ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- July 2, July 4, (Dollars in thousands) 2000 1999 - ----------------------------------------------------------- --------- -------- Business Segment Property, Plant and Equipment Depreciation Comdial Convergent Com. $ 102 $ 116 Comdial Enterprise Solutions 3 1 Key Voice Technologies 134 61 CBCC/Array 1,161 1,284 Unallocated 239 268 --------- -------- Total $ 1,639 $ 1,730 ========= ======== Additions Comdial Convergent Com. $ 10 $ 49 Comdial Enterprise Solutions 38 28 Key Voice Technologies 430 25 CBCC/Array 1,199 822 Unallocated 447 887 --------- -------- Total $ 2,124 $ 1,811 ========= ======== - -------------------------------------------------------------------------------------
NOTE H. SUBSEQUENT EVENT - -------------------------------------------------------------------------------- As of July 2, 2000, Comdial was not in compliance with the covenant in its Credit Agreement dated October 22, 1998 relating to the ratio of funded debt to EBITDA. Comdial has received a waiver from Bank of America with respect to that covenant that expires August 30, 2000. In return, Comdial has agreed, in principle, to restructure the Credit Agreement into a Term loan and a Revolver, which are to include committed facilities and an uncommitted portion. The committed facilities are expected to reduce the funds currently available from $50 million to $40 million, with a further reduction to $35 million on December 31, 2000. The anticipated expiration date for the Term loan is March 31, 2002, and for the Revolver is December 31, 2001. Comdial's interest rate is expected to increase from 0.75% above LIBOR to 3.0% above LIBOR. 13 COMDIAL CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- The following discussion is intended to assist the reader in understanding and evaluating the financial condition and results of operations of Comdial Corporation and its subsidiaries (the "Company"). This review should be read in conjunction with the consolidated financial statements and accompanying notes. This analysis attempts to identify trends and material changes that occurred during the periods presented. Prior years have been reclassified to conform to the 2000 reporting basis (see Note A to the Consolidated Financial Statements). Comdial is a Delaware corporation based in Charlottesville, Virginia. Comdial's Common Stock is traded on the National Association of Security Dealers Automated Quotation System ("Nasdaq") under the symbol, "CMDL". Restatement On July 27, 2000, Comdial announced it had discovered that a provision for sales returns of $2.7 million was not recorded for a special return agreement entered into in connection with a sale that occurred in the first quarter. Comdial will restate its financial statements as of and for the three months ended April 2, 2000. Comdial intends to file an ammendment to its Form 10-Q for the first quarter of 2000 reflecting this restatement as soon as possible. In addition, the Company has reclassified certain amounts included in net sales, cost of goods sold, and selling general and administrative expenses included in the financial statements. These reclassifications had no effect on operating or net income. Segment Reporting During the first quarter of 2000, Comdial initiated organization into Strategic Business Units ("SBUs") which are currently used by management to analyze its business (see Note G to the Consolidated Financial Statements). Results of Operations Selected consolidated statements of operations for the first six months of 2000 and 1999 are as follows: 14
- -------------------------------------------------------------------------------- July 2, July 4, In thousands 2000 1999 - ------------------------------------------ -------- ------- Net sales $ 53,565 $68,940 Cost of sales 35,383 40,995 -------- ------- Gross profit 18,182 27,945 Selling, general & administrative 22,404 18,226 Engineering, research & development 3,286 4,424 Goodwill amortization 1,597 1,583 Interest expense 1,223 759 Miscellaneous expense - net 29 101 -------- --------- Income (loss) before income taxes (10,357) 2,852 Income tax expense (benefit) (4,040) 1,173 -------- --------- Net income (loss) ($6,317) $ 1,679 ======== ========= Earnings per share: basic ($0.69) $0.19 ======== ========= diluted ($0.69) $0.19
- -------------------------------------------------------------------------------- Revenue and Earnings Second Quarter 2000 vs. 1999 ---------------------------- Comdial's sales, gross profit, and earnings declined for the second quarter of 2000 when compared to the same period of 1999. Comdial's net sales decreased by 41% for the second quarter of 2000 to $21.4 million, compared with $36.4 million in the second quarter of 1999. This decrease was primarily attributable to a decrease in inventory levels at Comdial's four largest distributors. Gross profit decreased by 71% for the second quarter of 2000 to $4.4 million, compared with $15.4 million in the second quarter of 1999. Gross profit margin, as a percentage of sales, decreased from 43% for the second quarter of 1999 to 21% for the same period of 2000. This decrease was due to lower sales and special charges Comdial booked relating to discontinued products. Selling, general and administrative expenses increased for the second quarter of 2000 by 23% to $12.1 million, compared with $9.8 million in the second quarter of 1999. This increase was due to the addition of sales and marketing personnel to support Comdial's expected future growth and some additional costs associated with restructuring the Company into Strategic Business Units during the first quarter of 2000. Engineering, research and development expenses for the second quarter of 2000 decreased by 32% to $1.6 million, compared with $2.3 million for the second quarter of 1999. This decrease was primarily due to reducing engineering personnel in the first quarter of 2000. Interest expense increased by 63% for the second quarter of 2000 to $0.6 million, compared with $0.4 million in the second quarter of 1999. This increase was due to higher interest rates and an increase in capital leases 15 which is primarily associated with the installation of new financial and manufacturing software. Income tax expense decreased for the second quarter of 2000 to a tax benefit of $4.1 million, compared with a tax expense of $0.9 million for the same period of 1999. This tax benefit recognition was due to the reported tax loss recognized by Comdial which management believes that more likely than not will be recognized in future periods. Net income decreased for the second quarter of 2000 to a loss of $6.7 million, compared with net income of $1.3 million for the same period in 1999. The decrease was primarily attributable to decreased sales and gross margins. First Six Months of 2000 vs. 1999 - --------------------------------- Comdial's net sales decreased by 22% for the first six months of 2000 to $53.6 million, compared with $68.9 million for the same period of 1999. This decrease was attributable to the decrease in sales for the second quarter of 2000. Gross profit decreased by 35% for the first six months of 2000 to $18.2 million, compared with $27.9 million for the same period of 1999. Gross profit margin, as a percentage of sales, decreased from 41% for the first six months of 1999 to 34% for the same period of 2000. This decrease was primarily due to lower sales and special charges (such as additional inventory reserves) relating to discontinued products. Selling, general and administrative expenses increased for the first six months of 2000 by 23% to $22.4 million, compared with $18.2 million for the same period of 1999. This increase was due to the addition of sales and marketing personnel to support Comdial's expected growth and some additional costs associated with the organization of the Company. Engineering, research and development expenses for the first six months of 2000 decreased by 26% to $3.3 million, compared with $4.4 million for the same period of 1999. This decrease was due to reducing engineering personnel in the first quarter of 2000. Interest expense increased by 61% for the first six months of 2000 to $1.2 million, compared with $0.8 million in the same period of 1999. This increase was due to higher interest rates in 2000 and an increase in capital leases. Income tax expense decreased for the first six months of 2000 to a tax benefit of $4.0 million, compared with a tax expense of $1.2 million for the same period of 1999. This tax benefit recognition was du to the reported tax loss recognized by Comdial which management believes that more likely than not will be recognized in future periods. Net income decreased for the first six months of 2000 to a loss of $6.3 million, compared with net income of $1.7 million for the same period in 1999. This decrease was attributable to the decrease in sales and gross margins. Liquidity In 1998, Comdial entered into a financing arrangement with Bank of America, N.A. ("Bank of America"), that provides a line of credit up to $50 million. 16 Comdial's current financial position along with the additional line of credit allows Comdial to finance working capital to accommodate the expected growth in the business. The following table sets forth Comdial's cash and cash equivalents, current maturities on debt, and working capital as of the dates indicated:
- -------------------------------------------------------- July 2, December 31, In thousands 2000 1999 - ------------------------------ ------- ---------- Cash and cash equivalents $ 2,685 $ 1,917 Current maturities on debt 1,349 471 Working capital 42,976 49,244 - --------------------------------------------------------
As of October 1998, Comdial and Bank of America signed a Credit Agreement (the "Credit Agreement"), which funds operational requirements as needed. All operating cash requirements were funded through a $50 million revolving credit facility (the "Revolver") provided by Bank of America. Comdial reports the Revolver activity on a net basis in the Consolidated Statements of Cash Flows. Comdial considers outstanding checks to be a bank overdraft. Current maturities on debt as of July 2, 2000, increased by $0.9 million due to increases in new capital leases of approximately $1.4 million when compared to December 31, 1999. Working capital as of July 2, 2000, decreased by $6.3 million when compared to December 31, 1999. This decrease was primarily due to the reduction in accounts receivable. Capital additions, per generally accepted accounting principles ("GAAP"), for the first six months of 2000 and 1999 were approximately $2.1 million and $1.8 million, respectively. Capital additions were used to help Comdial introduce new products as well as improve quality and reduce costs associated with existing products. Capital additions were funded by cash generated from operations and borrowings from the Revolver. Actual cash expenditures for capital additions for the first six months of 2000 and 1999, were $1.8 million and $1.7 million, respectively. Management anticipates that a total of approximately $5 million will be spent on capital additions during 2000. These additions will help Comdial meet its commitments to customers by developing new products as well as increasing its capacity to produce high-tech products for the future. Comdial expects to fund all additions primarily through cash generated by operations. Comdial has a commitment from Bank of America for the issuance of letters of credit in an aggregate amount not to exceed $5 million at any one time. On July 2, 2000, the amount of commitments under the letter of credit facility with Bank of America was $0.1 million. 17 Accounts receivable as of July 2, 2000, decreased by $19.2 million when compared to December 1999. This decrease was due to lower sales in the second quarter. Inventory as of July 2, 2000, increased by $7.3 million, which resulted from a sales level that was lower than anticipated. Deferred tax assets as of July 2, 2000, increased by $4.7 million when compared to December 31, 1999. This increase was due to Comdial reporting a loss for the first six months of 2000 (see Note F to the Consolidated Financial Statements). Accounts payable as of July 2, 2000, decreased by $3.8 million when compared to December 31, 1999. This decrease was due to lower incoming material receipts for production. Accrued payroll and related expenses as of July 2, 2000, decreased by $1.0 million primarily due to decreases in payroll and vacation provisions. Other accrued liabilities as of July 2, 2000, decreased by $1.7 million partially due to Comdial paying promotional costs in 2000 that were incurred in 1999. Other long-term liabilities as of July 2, 2000, increased by $2.6 million when compared to December 31, 1999. This increase was primarily due to the recognition of deferred revenue that was received from ePHONE Telecom Inc. ("ePHONE") related to the five-year license agreement to use the software developed by Array Telecom Corporation ("Array"). Long-term Debt, Including Current Maturities As of July 2, 2000, long-term debt increased by $2.1 million when compared to December 31, 1999. This increase in debt can be directly linked to the increase in inventory. See Note D to Comdial's Consolidated Financial Statements for additional information with respect to Comdial's loan agreements, long-term debt and available short-term credit lines. As of July 2, 2000, Comdial was not in compliance with one of the required covenants of the Credit Agreement with Bank of America. Bank of America has given Comdial a waiver for the convenant non-compliance that extends through August 30, 2000 (see Notes D and H of the Consolidated Financial Statements). Comdial believes that income from operations combined with amounts available from Comdial's current credit facilities will be sufficient to meet Comdial's needs for the foreseeable future. Other Financial Information During the first six months of 2000 and 1999, primarily all of Comdial's sales, net income, and identifiable net assets were attributable to the telecommunications industry. 18 Year 2000 Comdial continues to monitor and review any new issues that may arise concerning Year 2000. As of July 2, 2000, cumulative costs incurred by Comdial specifically for the Year 2000 totaled an aggregate of $0.8 million. Risks: While management believes that it has taken appropriate actions, there can be no assurance that a Year 2000 issue will not affect Comdial. Current Pronouncements In the fourth quarter of 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101. Comdial adopted the Bulletin, and believes that this adoption will not have a material impact on Comdial's financial statements. "SAFE HABOR" STATEMENT UNDER THE PRIVATE SECURITIES LIGITATION REFORM ACT OF 1995 This report contains some forward-looking statements that are subject to risks and uncertainties, including, but not limited to, the impact of competitive products, product demand and market acceptance risks, reliance on key strategic alliances, fluctuations in operating results, delays in development of highly complex products, and other risks detailed from time to time in Comdial's filings with the Securities and Exchange Commission. These risks could cause Comdial's actual results for 2000 and beyond to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Comdial. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ----------------------------------------------------------- Comdial believes that it does not have any material exposure to market risk associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments. 19 COMDIAL CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION ----------------- ITEM 6. Exhibits and Reports on Form 8-K. (a) 3. Exhibits Included herein: (11) Statement re Computation of Per Share Earnings. (27) Financial Data Schedule. (b) Reports on Form 8-K. The Registrant has not filed any reports on Form 8-K during the quarterly period. __________________ Items not listed if not applicable. 20 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. Comdial Corporation ------------------- (Registrant) Date: August 25, 2000 By: /s/ William G. Mustain ---------------- ----------------------- William G. Mustain President and Chief Executive Officer By: /s/ Paul K. Suijk ------------------ Paul K. Suijk Senior Vice President and Chief Financial Officer 21 EX-11 2 0002.txt COMPUTATION OF PER SHARE EARNINGS COMDIAL CORPORATION AND SUBSIDIARIES EXHIBIT 11 SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
- ----------------------------------------------------------------------------------------------------- (Dollars in thousands except share amounts) Three Months Ended Six Months Ended ------------------- --------------------- July 2, July 4, July 2, July 4, 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------- BASIC Net income (loss): ($6,658) $1,291 ($6,317) $1,679 ===================================================================================================== Weighted average number of common shares outstanding during the period 9,202,410 8,933,304 9,142,395 8,896,595 Add - Deferred and contingency shares 16,619 15,000 17,810 47,317 ------------------------------------------------ Weighted average number of shares used in calculation of basic earnings per common share 9,219,029 8,948,304 9,160,205 8,943,912 ===================================================================================================== Basic earnings per share ($0.72) $0.14 ($0.69) $0.19 ===================================================================================================== DILUTED Net income (loss) - basic: ($6,658) $1,291 ($6,317) $1,679 ===================================================================================================== Weighted average number of shares used in calculation of basic earnings per common share 9,219,029 8,948,304 9,160,205 8,943,912 Add incremental shares representing: Shares issuable based on weighted average price: Stock options 66,614 37,470 214,080 41,311 - ----------------------------------------------------------------------------------------------------- Weighted average number of shares used in calculation of diluted earnings per common share 9,285,643 8,985,774 9,374,285 8,985,223 ===================================================================================================== Diluted earnings per share ($0.72) $0.14 ($0.67) $0.19 =====================================================================================================
EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JAN-01-2000 JUL-02-2000 2,685 0 21,322 823 30,101 60,302 54,373 34,974 128,432 17,326 35,281 0 0 98 67,604 128,432 46,510 53,565 31,853 35,383 26,812 504 1,223 (10,357) (4,040) (6,317) 0 0 0 (6,317) (0.69) (0.69)
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